Following the New Judicial Interpretation on Patent Infringement by the Supreme Court of last year, we see change in court's way of allocating burden of production. Please refer to the following for detailed information.
Article 65 of the Chinese Patent Law is about compensation to right holders for patent right infringement. According to its provision, damages are normally calculated based on: A. losses suffered by the patentee; B. profit made by the infringer; C. reasonable multiple of royalties; and D. statutory damages. Statistics show that statutory damages were applied in about 97% patent infringement cases, which is mainly due to difficulty in producing evidence for proving the patentee's losses or the infringer's profits. As a result, patentees in China had long faced with the problems of undue burden of producing evidence and insufficient damages.
The Judicial Interpretation on Patent infringement (II) effective since April 1, 2016 aimed at solving the above problems. Article 27 reads: when it is difficult to determine losses suffered by the patentee, the patentee shall provide evidence to prove profits made by the infringer. When the patentee supplied preliminary evidence about the profits made by the infringer, while account books and other documents related to the infringement activities are under the control of the infringer, the court can order the infringer to provide such account books and documents. If the infringer refuses to comply with the request by the court without good reasons, the court can determine the profits made by the infringer based on the patentee's claims and evidence.
Article 27 is designed based on judicial practice as stipulated in "Several Provisions on Evidence in Civil Proceedings" by the Supreme People Court. Article 2 of the "Provisions" reads: The parties concerned shall be responsible for producing evidence to prove the facts on which their own allegations are based or the facts on which the allegations of the other party are refuted. In the meantime, Article 75 of the "Provisions" provides: Where there is evidence to prove that a party possesses the evidence but refuses to provide it without good reasons, and if the other party's claim is unfavorable to the possessor of the evidence, it may be deduced that the other party's claims stand.
Like in most civil cases, the burden of production in patent infringement litigation is usually allocated according to the principle of "the necessity of proof always lies with the person who lays charges" (Article 2 of the "Provisions"). When it comes to the determination of compensation, however, the patentees have to in fact bear undue burden of production to prove their claims to compensation. The circumstance is partly due to the lack of strict discovery processes in China. As a result, the infringer would generally refuse to produce evidence that may be used to determine its illegal profits or the losses caused to the patentee.
In consideration of the above, Article 27 allows courts to consider that the patentee has met the burden of production, when the patentee supplies preliminary evidence about the profits made by the infringer. The burden of production then switches to the infringer, and the infringer shall produce evidence to prove its profits. If the infringer refuses to provide the required evidence, as such evidence is most likely to be unfavorable to the infringer, the court will then presume that the patentee's claim to damages is reasonable (Article 75 of the "Provisions").
Article 27 of the Judicial Interpretation on Patent infringement (II) therefore shifts part of the burden of production to be borne by the patentee to infringer, balancing the burden between the parties, and solving the problems of undue burden to the patentee and low compensation.
Since the implementation of the Judicial Interpretation on Patent infringement (II) in April 2016, courts have in cases used its Article 27 to award proper damages to the right holders. For example, in both Co-Nele v. DEX and Watchdata v. Hengbao, the Beijing IP Court supported the patentee's claim to compensation based on the above principle.
