China: How To Increase The Amount Of Damage Compensation In Chinese Patent Infringement Litigation For A Patent Right Holder

Last Updated: 11 January 2019
Article by Guoxu Yang

In China's patent infringement lawsuits, according to the relevant provisions of the Chinese Patent Law, the losses caused by patent infringement may be determined through several ways: 1) the loss of profits of the patent right holder; or 2) the illegal profit of the infringer; or 3) the patent license fee. In the case where the above 1-3 options could not be clearly calculated, statutory compensation, currently 100,000 to 1000,000 RMB Yuan. may be applied upon the request of the plaintiff. Over the years, the amounts of damage compensation that patent holders have been awarded by the Chinese courts through infringement litigation are generally very low. One of the main reasons is that the burden of proof in China is mainly based on the principle, i.e., "who advocates and who gives the proof. China does not have the "Discovery" procedure as that well established in the United States. It is usually very difficult for the plaintiff to obtain evidence of damage compensation in China. Even though, according to the previous cases and our experience, the patentee may take the following measures to increase the damage compensation as much as possible:

1. Collect as much evidence as possible for the damage claim

In the patent infringement lawsuit, to prove the plaintiff's profit loss is usually difficult as the plaintiff's profit change may be usually not directly related to the defendant's infringement or the relationship is not so obvious to prove. Therefore, it is generally not easy to prove the plaintiff's profit loss. In comparison, it may be more feasible to prove the defendant's illegal profits. For example, information such as commercial advertisements in relation to the production, sales volume, and scope of the defendant's own products can be collected as evidence for damage compensation. The average profit rate may be obtained through the third party competitors, etc. In order to lower the difficulty of collecting ing evidence, the Chines Supreme People's Court introduced a rule called as "obstruction of proof". That is, for the evidence such as those in relation to the amount, sales and profits, etc. of the alleged infringing products are in the hands of the defendant, if the court requested the defendant to provide the evidence and the defendant refused to provide, the court may adopt the evidence provided by the plaintiff, including the preliminary evidence provided by the plaintiff. Therefore, it is very important for the plaintiff to actively collect evidence for the damage claim.

2. Apply for court investigation or evidence preservation

In cases where the right holder exhausts all the means, or if the evidence is difficult to obtain due to objective reasons, the plaintiff may be request the court to investigate and obtain the evidence. For example, in the patent infringement dispute case between WATCHDATA vs. HENGBAO, the evidence of the amount of products sold by the defendant HENGBAO to a number of banks was obtained and confirmed by the court through court investigation upon the request of HENGBAO. In this case, the court also applied the rule of "obstruction of proof" because the defendant refused to provide the sales evidence of its products. The court ultimately found the defendant illegally profiting 49 million RMB Yuan. In addition, in the earlier utility model patent infringement dispute case between CHINT v. SCHNEIDER, the plaintiff CHINT requested the court for evidence preservation, sealed up the defendant's sales invoice and list, and the court commissioned the auditor to audit the financial document and concluded that the defendant from the 2nd of August 2004 to the 31st of July, 2006, had been get the sales of the products up to 883,670,662.03 RMB Yuan. According to the audit conclusion, the court of first instance fully supported the plaintiff's damage claim of 334,869,872 RMB Yuan.

3. Claim damage compensation based on license fee

In China's patent infringement litigation, if the loss suffered by the patent right holder due to the infringement or the profit of the infringer due to the infringement is difficult to be calculated, the court may reasonably determine the amount of compensation by reference to 1-3 times the license fee of the patent in question. Therefore, the patent right holder should pay special attention to the signing of the license agreement, specify the rate and calculation method of the license fee, and preferably complete the recordation procedure for the license agreement. In addition, pay attention to reserve the transaction record of the license fees. In the case between IWNCOMM v. SONY Mobile (China) relation to WAPI standard patent dispute, the plaintiff IWNCOMM used the patent license in question as the basis for the damage claim, and won a total of 9,103,367 RMB Yuan for the damage compensation in Beijing IP Court and which was confirmed by the Beijing High Court.

According to latest news, the newly draft revision of the Chinese Patent Law has been submitted to the Standing Committee of the National People's Congress for deliberation and hopefully be passed in the year of 2019. According to the draft, the statutory compensation for patent infringement will be increased from a maximum of 1 million to 5 million RMB Yuan, and 1-3 times punitive damages for willful infringement will be introduced. The amount of compensation for patent infringement lawsuits in China is expected to increase significantly and may enhance the protection of the interests of patent owners and stimulate innovation. By properly taking above evidence collection measures for damage compensation, the damages awarded by the courts may be higher or much higher than the statutory damage compensation.

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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