China: Qingdao DEX Fined 1Million RMB For Not Fulfilling Effective Court Ruling

Last Updated: 27 March 2017
Article by CHOFN Intellectual Property

Summary

The plaintiff Qingdao Co-NeLe Co., Ltd. (hereafter Co-Nele) is the current patentee of a valid Chinese Utility Model Patent ZL200720022658.8. In 2013 Co-Nele filed a lawsuit with Qingdao Intermediate Court, alleging Qingdao DEX Machinery Co., Ltd. (hereafter DEX) of infringing the '588 patent. Qingdao Intermediate Court established infringement in April 2015 and decided that DEX should stop infringement immediately and pay damages of 0.5million to Co-Nele. The decision was asserted by Shandong High Court in November 2015. In September 2015, Co-Nele found DEX offering for sale infringing products at a trade fair in Beijing and filed a lawsuit with the Beijing IP Court and later asked the Beijing IP Court for evidence preservation with regards to account books and infringing products in stock by DEX. The Court granted preservation. However, DEX on three occasions refused to surrender the requested evidence. Based on evidence provided by Co-Nele and those obtained from the local tax department by order of the Court, the Beijing IP Court established infringement, issued an injunction and awarded damages of RMB 358million to Co-Nele. Moreover, the Beijing IP Court imposed a fined of RMB 1million on DEX for refusing to fulfill effective court ruling and impeding court proceedings.

Importance of the Case

Evidence for determining illegal profits is generally withheld by the infringer and difficult to obtain in China, as the infringer would normally refuse to provide such evidence so that it can avoid bearing damages and infringing liabilities. In this circumstance a viable way is for the court to obtain tax records of the infringer from tax departments. Such records together with the profit margin of the relevant industry may be used by the court to calculate the illegal profits by the infringer.

Moreover, by refusing to surrender its account books and other evidence without valid justification, the infringer not only challenged the authority of the court ruling, but also made it more difficult for the court to determine the relevant facts. Such behavior constitutes obstruction of litigation as provided by the Civil Procedure Law of China. The Court therefore imposed the maximum fine of RMB 1million, as punishment for this behavior.

This case is named as one of the representative cases which help "strengthen IP protection".

Detailed Discussion of the Case

Mr. Wei Shouhong was the general manager of Co-NeLe between March 2005 and January 2011. In May 2007 he filed Chinese Utility Model application 200720022658.8 titled "High Efficiency Transmission Device for Planetary Mixer" in his own name, which was granted on July 16, 2008. After leaving Co-Nele in February 2011, Mr. Wei had a dispute with Co-Nele over the ownership of the '588 patent. The case was heard first by Qingdao Intermediate Court and then by Shandong High Court, both courts ruled that Co-Nele was the legitimate right holder of the patent. The Supreme Court reopened the case by the request of Mr. Wei and affirmed the lower courts' decisions. The '588 patent was assigned to Co-Nele in November 2013.

Co-Nele and DEX had an infringement dispute over the '588 patent in 2013. DEX challenged the validity of the '588 patent twice and Qingdao Intermediate Court stayed the court proceedings based on DEX's request. The Patent Reexamination Board (PRB) upheld the validity of the '588 patent. In May 2015, Qingdao Intermediate Court established infringement, issued an injunction and awarded damages of RMB 0.5million to Co-Nele. The decision was later affirmed by Shandong High Court in November 2015.

In September 2015, Co-Nele found at the China International Expo of Housing Industry in Beijing DEX offering for sale the infringing products again and filed a suit with Beijing IP Court. During the court proceedings, Co-Nele requested the Court for evidence preservation; the Court granted the request and a ruling of evidence preservation was made on April 13, 2016 and delivered to DEX on April 15, 2016. The ruling requested that account books and infringing products in stock by DEX detained. A staff member at DEX, after receiving the ruling, refused to provide the account books and infringing products. When the Court requested that the evidence to be preserved be submitted in three days, the staff member indicated that he understood but refused to sign on the transcript.

On June 13, 2016, during a meeting organized by the Court between the two parties, DEX was again requested to produce the account books and infringing products. If in case DEX was not producing the infringing evidence any longer, written evidence was to be submitted. DEX again refused. On June 15, 2016, DEX submitted a statement to the Court, claiming that since June 2015 their products were based on a new technology developed by DEX, and the technical solution covered by the '588 patent was no longer used in their products. However, DEX didn't provide any evidence to corroborate the above statement.

During the court hearing held on July 28, 2016, DEX claimed that the products exhibited in 2015 were different from those manufactured in 2014, and provided a picture of its current products. However, the picture did not illustrate the transmission device of the products. DEX also indicated that the infringing products had not been in production since June 2015 and no more of the products in question were available.

Article 93(5) of the Judicial Interpretation of the Civil Procedure Law provides that parties of a ligation need not adduce further evidence for facts affirmed by an effective court ruling, unless contrary evidence proves the opposite. In this case, infringement was already established by the Qingdao Court and the Shandong High Court.

Moreover, Article 90 of the Judicial Interpretation of the Civil Procedure Law provides that a party shall provide evidence to support its claims. If no (sufficient) evidence is provided before the court ruling, the party has to bear adverse consequences. In this case, though DEX claimed that it was no longer using the '588 patent, it didn't provide proper evidence to support this. Considering that evidence supporting DEX's claims was directly under its control, DEX should have had no difficulty in producing such evidence. DEX lacked a valid reason for not submitting the required evidence; it also refused to satisfy the court's ruling of evidence preservation. In consideration of the above, the Court decided that DEX's products were still infringing the '588 patent.

Furthermore, as DEX refused to provide its account books. Damages were therefore calculated based on a profit margin of 40%, as claimed by Co-Nele. Together with tax records obtained from Qingdao Chengyang State Tax Bureau, the Court awarded Co-Nele damages of RMB 358million. Co-Nele's claim of double compensation was not supported by the Court.

On the other hand, the Court held that during litigation proceedings a party shall satisfy an effective ruling or decision within a specified time limit. If the party refuses to satisfy the ruling or decision, the court may impose a fine or detain the party. In this case, DEX refused to satisfy the effective court ruling. DEX had willfully obstructed the court proceedings. According to Paragraph 1(6), Article 111, Paragraph 5(1) Article 116, and Paragraphs 1 and 3 Article 116 of the Civil Procedure Law of China, the court imposed a maximum statutory fine of RMB one million on DEX.

Remarks

  1. In China it has always been difficult to obtain the necessary evidence for determining accurate damages. This is partly why statutory damages have been applied in about 97% of patent infringement cases so far. Article 27 of The Judicial Interpretation on Patent Infringement Disputes (II) therefore provides: when it is difficult to determine losses suffered by the patentee, and the patentee has provided preliminary evidence on profits made by the infringer, while evidence relating to infringing activities are mainly held by the infringer, the court may order the infringer to provide such evidence. In the case that the infringer refuses to provide such evidence or provides false evidence, the profit made by the infringer may be determined based on the claims and evidence provided by the patentee. Such a provision aims to balance the burden of proof between the parties and helps to shift a part of the patentee's burden of proof to the infringer. This is a practical way of solving the existing problem, which on one hand helps to mitigate the difficulty faced by the patentee, on the other hand is deterrent to the infringer.
  2. The court imposed a fine on the infringer for not fulfilling the court's ruling for evidence preservation. This is another way to regulate an infringer's behavior, which will help to improve the strength and effectiveness of patent protection.
  3. Punitive damages are currently not available under the Chinese Patent Law. However, the fourth amendment to the law is expected to come into effective soon, according to which triple damages will also become available. It is likely that repeated infringement as discussed here may very well be more severely punished in the future.
  4. This decision is the first instance decision, which is still appealable to Beijing High Court.

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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