China: Beijing IP Court Moves Bold On Damages And Legal Fees Award

Last Updated: 26 January 2017
Article by David Huang

The Beijing Intellectual Property Court issued its judgment on December 8, 2016 on a patent infringement case between Watchdata (北京握奇数据系统有限公司) and Hengbao (恒宝股份有限公司), two Chinese domestic companies. The judgment is noteworthy for the court's bold moves on damages calculation and award of legal fees in favor of the plaintiff. It provides useful guidance on how plaintiffs in future cases may prepare their case so as to get meaningful damages, and certainly enhances the risks for potential defendants.

The judgment also states that the collegial panel sought the court's Adjudication Committee's approval on damages and legal fees. Each Chinese court has such a committee consisting of its senior judges to decide significant issues (mostly those related to the application of law). This provides a useful insight into the court's internal working.

The patent (200510105502.1) relates to USBkeys banks distribute to their customers for security. The court found infringement of both its product claims on a USBkey itself and its method claims for authentication when users perform online money transfer.

Damages of RMB 49 million

The 50-million damages awarded in this case are the third largest in patent infringement cases in China.

The court adopted the "hybrid" formulation "defendant's sales × plaintiff's profit for patented products", as allowed by a judicial interpretation issued by the PRC Supreme People's Court.

The court, likely based on an application and prima facie evidence submitted by the plaintiff, issued orders to 15 bankers who are the defendant's customers asking for quantities of USBKeys they have purchased from the defendant. Twelve (12) of the banks complied with the order and provided the data, and the court calculated damages of RMB 48.142 million from the data.

The other 3 banks did not provide the requested data, and the defendant refused to do so as well. Here, the court applied an evidentiary rule provided by a judicial interpretation and awarded damages essentially based on presumptive calculation proposed by the plaintiff, which is around RMB 858K. In proposing the presumptive calculation, the plaintiff cited "normal practice in the trade".

The court thus eventually reached the total damages of RMB 49 million.

Legal fees of RMB 1 million based on time charge

The plaintiff asked for recovery of its legal fees of RMB 1 million, and the court awarded the full amount. The court specifically commented that law firms charging their clients on a time basis has been a common practice in China and the plaintiff's claim appeared reasonable given the necessity for the plaintiff to engage a law firm, the complexity of the case and the law firm's actual workload. This has been the first time for a Chinese court to specifically award legal fees based on the law firm's time charges, and the three factors given by this court likely will be referenced by other courts in future cases.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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