China: Litigation–Procedural Issues For Evidence; What Evidence Is Needed To Obtain High Damages

Last Updated: 19 January 2018
Article by Deqiang Zhu

For a patent right holder, when infringement is found, it is always considered how to stop it and how to get damages. While stop the infringement should be the primary object, damages play a very important role in deciding the acts of enforcing the patent right against counterfeiting.

Infringement upon a patent right causes economic losses to the patent right holder. In China the determination of amount of damages is stipulated in Article 65 of the Chinese Patent Law. According to this Article, four ways may be taken to determine the amount of damages to be awarded to the claimant in a patent lawsuit: 1) determine the amount of damages on the basis of the actual losses incurred to the patentee as a result of the infringement; 2) determine the amount of damages on the basis of the gains which the infringer has obtained from the infringement; 3) determine the amount of damages by reference to the multiple of the royalties for the patent involved in the patent lawsuit; 4) determine the amount of damages, by taking into account such factors as the type of patent, nature and particulars of the infringement, etc., within a range of not less than 10, 000 RMB but not more than 1 million RMB. Two points should be noted regarding the determination of damages. One is that the four ways mentioned above should be considered in sequence in priority. In other words, if the way first mentioned can be effective to determine the damages, the way or ways following it need not to be considered. Only when it is difficult to determine the damages based on the first mentioned way, the following mentioned way(s) may be taken in the determination of the damages. Another point is that the damages should include the reasonable expenses that the patent right holder has paid for stopping the infringement.

In a patent lawsuit, the claimant bears the burden of proof. This also applies to the determination of damages. To be more exact, the claimant should provide evidence to prove what is claimed is based on evidence. For any of the four ways to determine damages evidence is necessary. For example, if the claimant claims an amount of damages that is determined in accordance with the first way, evidence for proving the amount of the actual losses incurred to the patentee as a result of the infringement should be submitted. Suppose a patent right holder encounters a drop of sales of their product incorporating the patent due to the launching into market of the infringing products, the patent right holder may submit the amount of the drop of patented products and the profit per patented product as evidence to prove the actual losses due to the infringing acts. Sometimes a claimant is not willing to provide the evidence to prove their actual losses even if it can be collected. This may be because such evidence may include some confidential business secret information and the claimant is not willing disclose it.

An alternative may be to determine the patent right holder's losses by multiplying the amount of sales of infringing products by the profit per patented product if it is difficult to determine the amount of reduction of sales of the patented product of the patent right holder. This method is effective in proving damages. It has been used successfully in the invention patent infringement case between Beijing Watch Data Co., Ltd. and Hengbao Co., Ltd. In the case, Beijing Watch sued Hengbao for their USBKEY product's infringement upon the patent for invention of Watch. On December 8, 2016, Beijing Intellectual Property Court issued the first instance judgement (2015) Jing Zhi Min Chu No. 441 and awarded the plaintiff damages of 49 million RMB. From the judgement, it can be known how this method has been used. In this case, the Court issued a Ruling for evidence preservation, according to which the defendant Hengbao is ordered to provide financial documents recording financial data concerning the accused infringing products USBKEY. Hengbao refused to provide effective financial documents recording data. The Court also issued Investigation Letters to entities such as Bank of China and China Financial Certification Center Co., Ltd., who uses the accused infringing products, to collect evidence. On the basis of the written testimony provided by these entities, the Court determined that the amount of the accused infringing products as sold by the defendant is 4.8142 million. The plaintiff also provided financial documents showing the figures of prices and the profit rates of their patented product USBKEY, on the basis of which the plaintiff claims that the profit of their patented product is 10 RMB, which is lower than the average profit of the product according to the plaintiff's calculation. On the basis of the amount of the accused infringing product and the profit of the patented product, the profit amounts to 48.142 million RMB. The plaintiff also alleges that the defendant also sold the accused infringing products to other entities in addition to those who received the Investigation letters from the Court, and that this brought the defendant at least 2 million RMB as profit. The defendant Hengbao objected to the calculation of profits by the plaintiff. The Judgement says considering the defendant did not follow the Court's Ruling for Evidence Preservation to provide relative financial documents recording the relative data which are held by them, it is presumed that the relative data as alleged by the plaintiff is unfavorable to the defendant and the plaintiff's allegation is supported. Adding this 2 million to 48.142 million, the total amount is about 49 million RMB, which is claimed by the plaintiff. Then Beijing IP Court determined 49 million RMB as the total amount of damages as claimed by the plaintiff.

If no evidence can be submitted to prove the actual losses of the patent right holder it would be difficult to determine the damages in accordance with the first way and the second way would be considered. When the claimant requests to take the second way to determine the damages, the amount of the gains which the infringer has obtained from the infringement upon the patent involved in the patent lawsuit should be proven. The evidence for this may include the illegal profit that has been brought to the infringer by the infringing acts. The plaintiff may try to collect information of the infringer's amount of sales of infringing products and the profit rate of the infringing product.

If it is difficult to determine the gains which the infringer has obtained from the infringement, the claimant may try to prove the amount of the royalties for the patent involved in the patent lawsuit. If the claimant once licensed the patent to a third party, the license fee may be referred to.

In many patent infringement cases, it is difficult for the claimant to provide evidence that is necessary for proving the relative damages to be determined in the three ways first mentioned and damages have to be determined in the fourth way, i.e. to be determined by the collegiate bench between 10 thousand and 1 million RMB. Even if for this way, it is not that no evidence is necessary. To provide sufficient evidence is always critical to have the court awarded as high amount as possible of damages. The evidence may be those to prove for example the nature and particulars of the act of infringement, the willfulness of the infringer, the long period of the infringement, the repeating of infringement, the infringement by group of numerous entities, the amount of distributors or sellers and the areas in which the infringing products are sold, etc. below is an example of the application of statutory damages. This is a case about infringement upon a design patent claiming a design of a can for milk powder, in which Abbott (Shanghai) Trading Company sued several entities who manufactured and sold cans of rice powder. This case is one of the top ten typical intellectual property cases in Beijing court system. In this case the Court awarded the amount of 1 million RMB which is the upper limit of the statutory damages. According to the judgement of this case (2014) Chao Min (Zhi) Chu No. 28014, which was issued by the Court of Chaoyang District of Beijing, the Court considers the numerous channels of selling the infringing products, the infringer's subjective fault among other factors, in deciding the damages. According to the judgement, the plaintiff can still purchase the infringing products from the market two months after the service of the preliminary injunction ruling, which shows that the amount of sales of the infringing products is huge on the one hand, and shows that the defendants have series subjective fault on the other hand. The defendant was not satisfied with this case and appealed. Beijing Intellectual Property adjudicated the case in the second instance and maintained the judgement in the first instance.

It is not rare that a patent right holder will have difficulty for collecting evidence for proving infringement and damages in particular. Two main special legal measures may be considered for trying to seek support from the court in collecting evidence. The Civil Procedural Law provides the court's responsibility and authority to collect evidence for some particular circumstances. One of the circumstances is that the evidence cannot be collected by a party and its litigation representative for some objective reasons and the evidence is deemed by the court as necessary for trying a case. In such case, in which the court investigates and collects evidence, the relevant entities and individuals should not refuse to provide the evidence. If the relevant parties refuse to provide evidence they hold, it will be deemed that the evidence is unfavorable to them and the plaintiff's allegation will be supported, like what happened in the case between Watch and Hengbao as mentioned above.

There is also a court's procedure of evidence preservation, which may be utilized by a patent right holder if it is difficult for them to collect evidence by themselves. If any evidence may be extinguished or may be hard to obtain at a later time, a party may, in the course of an action, apply to the court for evidence preservation, and the court may also take preservation measures on its own initiative.

If any evidence may be extinguished or may be hard to obtain at a later time, if the circumstances are urgent, an interested party may, before instituting an action or applying for arbitration, apply for evidence preservation to a court at the place where the evidence is located or at the place of domicile of the respondent or a court having jurisdiction over the case. It can be imagined that if such particular measures can be utilized effectively it will be hopeful to not only stop infringing acts but also get high damages to have the IP right protected effectively.

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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