China: Supreme Court Clarifies Conditions To Bear Joint Liability In Patent Infringement Cases

Last Updated: 3 July 2019
Article by Xiaojun Guo

Sometimes, the patent owner or a person in privity may want to sue not only the company infringing on his patent right, but also the actual controlling person of the company, in order to stifle repeated infringement initiated by the same person and to get effective compensation from the infringers. So, it becomes critical in this case to bring the actual controlling person behind the scene into the suit. A very recent retrial case made by the Supreme Court ([2018] Zui Gao Fa Min Zai No. 199) shows the very typical scenarios in relation to this.

In this case, the retrial petitioner is SMC corporation, and the respondents are Yueqing Zhongqi Pneumatic Technology Co., Ltd. ("Zhongqi") and Ni Tiancai who is the general manager of Zhongqi with a share of 60%. One point at issue is whether Ni Tiancai should bear joint and several liability for damages with Zhongqi. SMC claimed damages based on three grounds: (1) Ni Tiancai and Zhongqi jointly exploited the patent, which constitutes joint infringement; (2) Ni Tiancai assisted Zhongqi in the infringement, which constitutes contributory infringement; (3) Ni Tiancai abused the independent corporate status and the limited liability of a shareholder.

Joint infringement

SMC alleged that Ni Tiancai and Zhongqi took the common intention of joint infringement subjectively, and worked together to carry out the infringement objectively, and therefore should bear joint and several liability under Article 8 of the Tort Liability Law, i.e. "If two or more persons jointly commit a tort and cause damages to others, they shall bear joint and several liability."

The Supreme Court articulated that, according to the above provision, to constitute joint infringement, the following conditions shall be met: there are two or more tortfeasors; each tortfeasor has a common subjective meaning; the tortfeasors objectively use, work with or support each other; and the damages caused by the tortfeasor's behavior are within the scope of their common meaning.

The Court found,

Firstly, Ni Tiancai and Zhongqi are with the common will. Ni Tiancai is the legal representative, controlling shareholder, executive director and manager of Zhongqi and the remaining sole shareholder has affinity with him. He has strong control over Zhongqi. His will and the will of Zhongqi are of obvious commonality.

Secondly, Ni Tiancai and Zhongqi ought to have been aware that their accused infringing products might have infringed on SMC's patent right. Zhongqi definitely mentioned, in its network propaganda, that it wholesaled SMC solenoid valves and introduced in detail the working principle, usage, structure, principle and method of selection in relation to SMC solenoid valves, and the accused infringing products were marked with "SMC and device" trademark. As the legal representative of Zhongqi, Ni Tiancai obviously knew the products and technology of SMC, and was aware that the accused infringing products might fall into the protection scope of SMC's patent. In this case, Ni Tiancai and Zhongqi still carried out the behavior of manufacturing, selling and offering to sell the accused infringing products, whom can be assumed having obvious intention of joint infringement.

Finally, Ni Tiancai and Zhongqi used, worked with or supported each other objectively. Ni Tiancai collected for Zhongqi payment for products through his personal bank account, which was recognized by Zhongqi. They worked together to complete the sale of the accused infringing products and receive the payment. It can be seen that Ni Tiancai took advantage of his control over Zhongqi and jointly implemented the behavior of manufacturing, selling and offering to sell the accused infringing products with Zhongqi.

The Supreme Court therefore supported SMC's claim that Ni Tiancai and Zhongqi worked together to carry out the infringement and therefore should bear joint and several liability.

Contributory infringement

SMC alleged that Ni Tiancai provided personal bank account for Zhongqi to collect payment for the alleged infringing products, which constitutes contributory infringement under Article 9 (1) of the Tort Liability Law, i.e. "One who abets or assists another person in committing a tort shall be liable jointly and severally with the tortfeasor."

With regard to the application of the contributory infringement to patent infringement, Article 21 (1) of the Interpretation on Several Issues Concerning the Application of Law in the Trial of Patent infringement Cases (II) reads, "Where a party, knowing that certain products are the materials, equipments, parts and components or intermediate items, etc. specially for the exploitation of a patent, without consent of the patent owner and for business purposes, provides such products to another party committing patent infringement, the people's court shall side with the right owner claiming that the party's provision of such products is contributory infringement under Article 9 of the Tort Liability Law."

The Supreme Court articulated that, according to the above Judicial Interpretation, so called "contributory infringement" in the context of the Patent Law does not generally refer to any form of contributory behavior, but especially refers to the behavior of, without consent of the patent owner and for business purposes, providing to another person products that are specially for exploitation of the patent to commit patent infringement. In this case, Ni Tiancai offered a personal bank account to collect for Zhongqi the payment for products. This behavior is different from providing products specially for patent infringement, and does not constitute contributory infringement in the context of the Patent Law.

Abuse of the independent corporate status and the limited liability of a shareholder

SMC also alleged that Ni Tiancai abused the independent corporate status of Zhongqi and the limited liability of a shareholder, seriously harmed the interests of creditors of the company, and should bear joint and several liability with Zhongqi under Article 20 of the Corporate Law.

Article 20 of the Corporate Law provides that a shareholder of a company shall not abuse his rights to harm the interests of the company or other shareholders, nor shall he abuse the independent corporate status of the company and the limited liability of a shareholder to harm the interests of creditors of the company; if a shareholder of a company abuses the independent corporate status and the limited liability of a shareholder to escape debts or seriously harm the interests of the creditors of the company, he shall bear joint and several liabilities for the debts of the company.

The Supreme Court articulated that, according to the above provisions, to constitute abuse of the independent corporate status and the limited liability of a shareholder, the following conditions shall be met: the tortfeasor abuses the independent corporate status and the limited liability of a shareholder, including excessive control of the company, confusing corporate property and personal property and skeletonizing the compony; abuse of the tortfeasor harms seriously the interests of creditors of the company.

In this case, the Court found, although Ni Tiancai collected for Zhongqi the payment for products through his personal bank account and there was no evidence that he had returned the payment to Zhongqi and therefore harmed the company's interests directly, SMC did not submit evidence to show that all these facts resulted in Zhongqi's failure to perform any obligation, thus leading to failure to realize SMC's rights. Thus, the Court held that Ni Tiancai didn't abuse the independent corporate status of Zhongqi and the limited liability of a shareholder and didn't seriously harm the interests of creditors of the company, and shall not bear joint and several liability with Zhongqi.

In this case, although the Court rejected the the retrial petitioner SMC's claims over contributory infringement as well as abuse of the independent corporate status and the limited liability of a shareholder, it supported the claim over the general provisions in relation to joint infringement under the Tort Liability Law in a quite flexible approach. This is advantageous for excise of a patent right to stop repeated infringement by the same individual hidden under the veil of a company.

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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