China: New Developments In Patent Infringement Compensation In China

Last Updated: 30 November 2017
Article by Chuanliang Lu

In recent years, China's intellectual property legislation has been continuously improved, and protection of intellectual property rights has been constantly strengthened, which is particularly evident in a patenting system that is most closely related to China's national policy for the promotion of innovation. At the legislative level, the State Intellectual Property Office of China (SIPO) is promoting the fourth revision of the Patent Law of the People's Republic of China. At the judicial level, the Supreme People's Court issued two judicial interpretations of patent infringement disputes in 2015 and 2016, respectively, and related judicial guidance documents in response to the long-standing issue of "low compensation" in patent litigation.

Changes in Legal Norms for Patent Infringement Compensation

Provisions for patent infringement compensation are set forth in Article 65 in the latest amendments to the patent law (draft). On the basis of the initial provisions, a punitive compensation system for intentional patent infringement will be introduced. It is provided in Article 65 of the draft amendments that, "for the intentional Patent Infringement, the people's court may, according to such factors as the circumstances, scale and consequence of the infringement, the amount of compensation determined according to the previous two paragraphs shall be increased to two to three times." Punitive compensation to intentional infringement will serve as a further deterrent to such acts of intentional infringement as repeated infringement or the like.

In the Regulations on the Application of Law in the Trial of Patent Dispute Cases, promulgated by the Supreme People's Court of the People's Republic of China in 2015, limitations over the amount of statutory compensation for patent infringement have been deleted, and "generally from Rmb5,000 to Rmb300,000, with a maximum not exceeding Rmb500,000" in the initial provisions of determining the amount of compensation was amended to "determining the amount of compensation in accordance with the provisions of Paragraph 2 of Article 65 of the Patent Law on the basis of such factors as the type of patent right, the nature and circumstances of the infringement." (Regarding the compensation amounts listed above, Rmb5,000 is US$753, Rmb300,000 is US$45, 170 and Rmb500,000 is US$72,285.)

The Interpretation (II) on a Number of Issues Regarding the Application of Law in the Trial of Patent Infringement Cases, promulgated by the Supreme People's Court in 2016, provides a solution for the difficultly of providing proof in patent infringement litigation as well as for low compensation. Article 27 of this judicial interpretation makes some improvements to the rules of proof for the amount of compensation in patent infringement litigation. According to the preliminary proof of the patentee and the relevant evidence possessed by the infringer, the burden of proof on profits obtained by the infringer is assigned to the infringer, and this shall be in line with the order of calculation of the amount of compensation provided in Art. 65 of the Patent Law.

It is particularly indicated in the Outline of China's Intellectual Property Protection (2016-2020), issued by the Supreme People's Court in 2017, that a scientific and rational intellectual property infringement compensation system shall be established, and a compensation system compatible with the value of the intellectual property shall be established, taking into consideration of the loss of the patentee, the profit obtained by the infringer, the license fee, the statutory compensation and costs in safeguarding the rights and interests.

Continuously Increased Amounts of Patent Infringement Compensation in Judicial Practice

By making a statistical analysis of the winning cases in patent infringement litigation in the past three years, it is found that the amount of compensation obtained by the patentees has shown a significant rising trend. The average amounts of compensation ruled in 2015, 2016 and the first half of 2017 are Rmb350,000 (US$52,660), Rmb1.024 million (US$154,075) and Rmb1.103 million (US$165,911), respectively.

Figure 1. Compensation amounts received by patentees in China in 2015, 2016 and the first half of 2017.

The percentage of the amount of compensation imposed by the court to the amount of compensation claimed by the patentee is also increased year-on-year. The average percentages in 2015, 2016 and the first half of 2017 are 44.6%, 57.6% and 87.7%, respectively. In terms of the amount of compensation, the average amount of compensation obtained by patentees from abroad or from Hong Kong, Macau and Taiwan is Rmb1.022 million (US$153,896), significantly more than the average amount of compensation of Rmb757,000 (US$113,992) obtained by patentees from mainland China over the same period (Data Source: Beijing Intellectual Property Court official WeChat, Intellectual Property Beijing).

Figure 2. Amount of compensation, expressed as a percentage of the whole, for patentees from mainland China (Rmb757,000,US$113,835 ) as compared to patentees from abroad, including Hong Kong, Macau and Taiwan (Rmb1.022 million, US$), from 2015 through the first half of 2017.

Statutory Compensation is Still the Mainstream in Judicial Practice, but the Number of Cases Exceeding the Amount of Statutory Compensation is Gradually Increasing

According to the provisions of the Chinese Patent Law, the amount of patent infringement compensation shall be calculated by using the following methods, and these methods are in an applicable consecutive sequence as the following: (1) the losses suffered by patentee due to infringement; (2) the profits obtained by the infringer from the infringement; (3) a reasonable multiple of the patent license fee shall be referred to; (4) statutory compensation (Rmb10,000-Rmb1 million [US$1,506-US$150,567]).

In judicial practice, the losses suffered by the patentee in the first consecutive place are often difficult to prove and are rarely used. Submission of evidence of the profits of the infringer obtained from the infringement in the second consecutive place is usually necessary for obtaining a large amount of compensation. A reasonable multiple of the patent license fee in the third consecutive place is not commonly seen in judicial practice. Where the specific amounts in the preceding three consecutive places cannot be proved according to the evidence of the case, the court may apply the statutory compensation according to the circumstances of the case. If the evidence provided by the parties concerned or the evidence collected in investigation can prove that the applicable statutory compensation is obviously unfair, an amount may be imposed above the upper limit of the statutory compensation.

Evidence is obtained by preservation of evidence of the profits obtained by the alleged infringer. In the patent infringement case of Zhengtai Company v. Schneider Electric Low Voltage (Tianjin) Co., Ltd., the Wenzhou City Intermediate People's Court of Zhejiang Province determined a profit of Rmb355 million (US$50.4 million) obtained from the infringement by calculating an average operating profit of Schneider according to the financial material from the industrial and commercial administration and tax department by preserving as evidence sales documents of the allegedly infringing products.

Sales data for publicity on websites or other media and sales data from e-business platforms can be used as the preliminary basis for the amount of infringing sales. The industry's average profit margins can be used as the profit margins of the accused product. The alleged infringer's turnover for publicity can also be used as the preliminary evidence of the profits obtained from the infringement. Submission of this evidence is conducive to the judge to determine an amount of compensation within or beyond the amount of statutory compensation. In patent infringement cases such as Stricker v. Fada, the court ruled that the defendant's financial accounts and so on shall be preserved as evidence, but the defendant refused to perform the ruling. However, the patentee submitted evidence to prove that the defendant's website proclaims an annual turnover of the infringing product of Rmb50 million to Rmb100 million (US$7.5 million to US$15 million), and a monthly output of the infringing product of 600,000 sets. Thus, the court ruled on this basis that the defendant shall pay an amount of compensation of Rmb2 million (US$301,170).

Conclusion

China's patent infringement compensation system is gradually becoming established. Patent infringement costs are increasing year-by-year, and costs for safeguarding patent rights are decreasing. In judicial practice, patentees attach importance to providing evidence of infringement, but ignore the provision of evidence for infringement compensation, which leads to the application of statutory compensation where the judge makes a judgment and chooses an amount of compensation by considering factors such as the type of patent right infringed upon, circumstances surrounding the infringement and the duration of the infringement.

However, regarding such cases for which the exact amount of losses or profits from the infringement is difficult to prove, so in order to exceed the limits on statutory compensation, the patentee may submit evidence to prove that the applied statutory compensation is obviously unfair, in which case, the court may use the evidence in the case to determine an appropriate amount of compensation over the statutory limit. Where it is impossible to obtain evidence of the infringement of the defendant, on the basis of the submission of preliminary evidence to prove that the infringer obtained far more profit than the statuary compensation, the patentee may request the court to collect evidence for the profits obtained by the defendant from the infringement by making investigation. If the infringer refuses to provide the evidence, it shall bear unfavorable legal consequences. The system of punitive compensation for intentional infringement is currently only embodied in the draft legislation of the patent law; it remains to be observed whether or not it will become a formal legal provision.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions