Supreme Court: How Should Compensation Be Determined For Continuing Infringement During Prior Litigation?

Company A, the patentee of the patent in question, filed an infringement lawsuit against Company B (including three affiliated entities) in 2007 (the "Prior Action"). In May 2013, the court of first instance found infringement, ordered Company B to cease the infringing acts, and awarded damages. Company B appealed, and the appellate court affirmed the decision in January 2015.

Between July 2013 and July 2015, after the first-instance judgment in the Prior Action was issued, Company A obtained notarized evidence on multiple occasions, showing that Company B and Company C were manufacturing, offering for sale, or selling the accused infringing products. Company A filed another lawsuit (the present case), requesting that all defendants be ordered to cease infringement and pay damages.

In December 2019, the court of first instance of the present case issued a judgment ordering Company B and Company C to immediately cease infringement, and holding Company B liable for CNY 14 million in damages and CNY 300,000 in reasonable enforcement costs. Both Company A and Company B appealed.

Company A argued that the Prior Action judgment did not cover the continuing infringement losses that occurred during the entire course of the Prior Action proceedings, and claimed that the damages period for the accused infringement should run from September 30, 2007 (the day after the Prior Action was filed) to December 31, 2019 (the date of the first-instance judgment in the present case).

The Supreme People's Court issued its judgment in January 2024, ruling as follows: (1) the first-instance judgment was revoked; (2) Company B was held liable for CNY 19 million in damages and CNY 500,000 in reasonable enforcement costs; (3) Company A's remaining claims were dismissed; and (4) Company B's appeal was dismissed.

The core dispute in this case was whether the period before the first-instance judgment in the Prior Action (i.e., from September 2007 to May 2013) should be included in the damages calculation period for the accused infringement in the present case.

The Supreme Court's clarified:

In patent infringement disputes, the damages calculation period is generally determined by the patentee's claim. If the patentee files a lawsuit based on infringing acts discovered before the lawsuit and specifies a particular amount of damages, and if, before the close of oral argument at first instance, the patentee does not explicitly request damages for infringing acts that have continued or may continue during the litigation, the court generally will not address damages for that litigation period.

As a general rule, the court's decision is based on the facts that exist as of the close of oral argument (typically at the first-instance stage), because the court can only hear facts that occurred before that time. However, for ongoing infringing acts, the court may, in order to reduce the burden of litigation, address the continuing conduct as a whole at the request of the parties.

Applying these principles to the present case:

1. Company A filed the Prior Action based on infringing acts discovered before that lawsuit, requesting cessation of infringement and damages. It did not raise new infringing facts or amend its damages claim during the Prior Action. Therefore, it cannot be assumed that Company A sought damages for infringing acts that may have occurred during the Prior Action proceedings, and those potential infringing acts should not automatically be included in the scope of the Prior Action.
2. In neither the Prior Action nor the present case did Company A provide evidence that Company B had engaged in continuing infringement during the Prior Action proceedings, and the court did not find such facts. The infringing acts established in the Prior Action occurred only in 2007.

Accordingly, the first-instance court's conclusion in the present case that the Prior Action judgment covered all infringement losses during the Prior Action proceedings (up to May 2013) lacked factual basis and was legally unsound. However, since Company A did not prove that Company B had continued to infringe during the Prior Action, this erroneous finding did not affect the overall outcome of the damages award.

The infringing acts established in the present case included four instances of infringement discovered through notarized purchases between July 2013 and July 2015, as well as sales of the accused products by Company B between May 2013 and June 2018, as revealed by a court-commissioned audit.

The Supreme Court took into account two instances of bad faith conduct by Company B: (1) it continued to infringe after the Prior Action judgment found infringement; and (2) it obstructed the litigation by refusing to produce complete financial records and by withholding passwords to electronic accounting systems. In light of these factors, the Court increased the damages award to reflect strong protection of intellectual property rights. Considering the sales revenue during part of the relevant period, Company B's long-term continuing infringement, its obstructive conduct, and the fact that Company B was not primarily engaged in infringement, the Supreme Court adjusted the damages from CNY 14 million to CNY 19 million, and increased the reasonable enforcement costs to CNY 500,000 in view of Company A's prolonged efforts to enforce its rights.

 (2022) Zui Zhong Fa Zhi Min Zhong No. 111 

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