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Analysing the different elements of patent litigation




Johnson Li of Wanhuida Peksung examines the patent infringement litigation process in China, as well as remedies

Understanding patent litigation is essential to any company's IP strategy. More and more multinational companies are starting to think about litigating their patents or at least formulating plans for patent litigation in China in case they ever need to sue.

One important reason for knowing the intricacies of patent litigation in China is that products made in China flood every corner of the world and the best strategy is always to stop infringement from the source.

Another reason is that the risk of being sued for patent infringement in China cannot be underestimated. China has been the top patent filer since 2011 and the ever-growing number of registered patents, in particular utility models, increases the likelihood of litigation. It is, therefore, always better to be prepared.

Moreover, Chinese IP legislation and judicial practice have significantly improved in recent years, which makes litigation in China more and more predictable.

Statistics show that China has become active in patent litigation. According to the annual report of the Supreme People's Court, Chinese courts received 12,357 civil patent cases for first instance in 2016, and between November 2014 and June 2017, the Beijing, Shanghai and Guangzhou Intellectual Property Courts examined 7041 civil patent cases.

Protected rights

Chinese patent law grants the patentee the right to prevent any entity or person from exploiting its patent without permission. Exploiting refers to manufacturing, using, offering to sell, selling, or importing the patented product, using the patented process, and using, offering to sell, selling, or importing products obtained directly from the process.

Jurisdiction

The Chinese judicial system has four levels of courts: the District People's Court (county or district level), the Intermediate People's Court (city level), the Higher People's Court (province level) and the Supreme People's Court (state level). A lawsuit can go through, at most, two instances. Once the first instance court (the trial court) makes a judgment, either party can appeal to the appellate court. The decision of this court will be final.

Traditionally, most patent disputes are heard at first instance by the Intermediate People's Courts and can be further appealed to the Higher People's Courts. However, the Higher People's Court acts as the trial court for patent cases which have a significant impact on society and involve a large amount of damages. The Supreme People's Court will be the appellate court, if these cases are appealed.

Since 2014, three IP courts have been newly founded in Beijing, Shanghai and Guangzhou, and some IP tribunals of intermediate courts were made into special IP tribunals to consolidate the jurisdictions exercised by several adjacent intermediate courts before. The possibility of establishing IP appellate courts is being actively explored. If sanctioned by the legislature, this will make the patent disputes jurisdiction more centralised.

A patent owner may start proceedings at a court either where the infringer is based or where the infringement activities take place. Infringement activity refers to manufacturing, using, offering to sell, selling and importing. As a strategy, in many cases the plaintiff prefers to bring the case before the court where the seller is based to avoid the home advantages of the infringing manufacturer if the alleged infringing products are being distributed in different places.

Limitation period

The limitation period for filing patent infringement proceedings in China is three years from the date when the plaintiff obtains knowledge of the infringement, or the date when the plaintiff should have known.

Burden of proof

Generally it is the plaintiff's burden to prove infringement unless the patent is a process for the manufacture of a new product. Evidence that the plaintiff needs to provide may include the following:

  • Evidence of patent right and identity of the parties

Evidence of patent right includes the patent right certificate, the patent specification, and the proof of paying the annual fee and/or the official record of the Patent Register. The plaintiff is required to provide its company registration certificate, an identity certificate of a legal representative and if attorneys are entrusted, the power of attorney signed by the representative.

  • Evidence of infringement

A purchased sample of the infringing product together with formal invoice and product manuals are often used to assist in proving that the infringing product falls within the scope of the patent.

  • Evidence of damages

Theoretically, damages could be awarded based on the plaintiff's loss, the infringer's profit, reasonable royalty or statutory damage up to RMB 1 million ($158,000). As it is often difficult to prove the plaintiff's actual losses, it is more practical to prove the infringer's profit obtained by selling the infringing products, using an account book or other documents. In many cases, such evidence is controlled by the infringer, so it is an arduous task for the plaintiff to obtain it. Nonetheless, based on the plaintiff's request, the court may order the infringer to submit counterevidence and if it is refused, may decide the profits based on the amount claimed by the plaintiff.

When collecting evidence of infringement in China, it is preferable to have the process of purchasing the infringing product notarised, as notarised evidence usually carries more weight.

Trial proceedings

Actions are initiated by filing a complaint with the court. The complaint should specify the claims, supporting facts, the evidence that will be referred to and the identity of the parties. If the case is accepted, a notice of acceptance will be issued. A notification of the appointment of the panel of judges will usually be sent together with the notice of acceptance, or separately in some cases depending on the court. The court will serve a copy of the complaint and the two notifications to the defendant who then has 15 days (30 days in a foreign-related case) to file a defence. After receiving the defence and serving it to the plaintiff, the court will review the complaint, defence and related evidence and may conduct further investigation on its own if necessary.

The court will set a timetable, which usually gives at least 30 days for each party to submit evidence. The parties may agree a different timetable for the submission and exchange of evidence, which needs to be approved by the court. The exchange of evidence provides an opportunity for the parties to review and assess their cases and supporting evidence. A member of the judges' panel will supervise the process of exchanging evidence and may hear the parties' arguments on the main issues shown by evidence.

There will usually be a series of pre-hearings and at least one formal hearing. The pre-hearing may cover a variety of subjects including the admissibility of evidence, procedural grounds, claim construction, infringement analysis, non-infringement defence, investigation of technology and the parties' arguments. If technical questions remain unclear or disputed, the court may appoint one or more experts for technical advice or technical appraisal.

Once the court has completed its investigations, it will set a date for the formal hearing, which all judges of the panel should attend. A formal hearing will usually include the following stages:

  • checking the identity of the participants;
  • opening remarks;
  • the plaintiff's brief;
  • the defendant's brief;
  • the plaintiff's rebuttal;
  • the defendant's rebuttal;
  • the optional introduction of a witness who has made an affidavit;
  • the court's investigation;
  • the parties' statements; and
  • the closing remarks.

Judgment and appeal

The court usually delivers its judgment within a few months after the last hearing, depending on the complexity of the case. After the first instance court renders its decision, the plaintiff or defendant has 15 days to appeal to the higher court. Foreigners that do not have an address in China have 30 days to appeal after receiving the decision. The second instance proceeding is similar, but because the investigation and fact finding in the first instance should have clarified many issues, the second instance procedure is much faster.

Time

A straightforward patent infringement case before most intermediate courts will generally take six to 12 months. For domestic cases, judges are under pressure to conclude them within the prescribed time, but for foreign-related cases, there is no fixed time frame. Because the newly established IP courts or special IP tribunals have broader jurisdiction and generally have larger caseloads, it takes more time for the courts to proceed. For instance, the first instance before Beijing IP Court could take two to three years because it also has the exclusive jurisdiction over appeal cases on the validity of patents and trade marks.

Some alleged infringers also seek the invalidation of a patent when they are accused of infringing the patent. Infringement litigation may be suspended depending on the practice of different courts and the judges' estimation of the chances of invalidation.

Costs

The cost of a patent infringement case involves an official fee, disbursement and the lawyer's fee.

To initiate infringement litigation, the plaintiff should pay the court fee first, which is between 0.5% and 2.5% of the claimed damages and calculated cumulatively. Generally, the losing party is liable for a large part or all of the court fee.

Besides the court fee for initiating litigation, the plaintiff may also claim disbursement for preparing for and proceeding with the litigation, for example, the cost of producing evidence, travel, or the fee paid to experts for technical appraisal. If the judges deem the disbursement or part of it as reasonable, such a claim could also be supported in the judgment.

Usually each party bears its own lawyer's fees in China. Lawyers' fees may vary greatly and it is difficult to determine whether they are reasonable. Therefore, although the plaintiff may claim the lawyer's fees as disbursement, the courts usually tend to award only a limited portion.

Injunction

If the plaintiff requests injunction relief, the courts usually support permanent injunctions where they find infringement, unless the injunction would harm public interest. An interim injunction is also available in China but rarely granted by the courts. To get an interim injunction, the plaintiff should prove at least the following aspects: it is likely that the plaintiff will win the case; there is irreparable harm to the plaintiff if an interim injunction is not granted. The plaintiff also needs to pay a deposit for the interim injunction. This will be a guarantee to cover the possible damages to the defendant if the injunction is wrongful.

Damages

The court will assess damages on the basis of the plaintiff's losses or the defendant's profits. If there are appropriate documents for such an assessment, the plaintiff may apply for the court to audit the documents and assess the damages.

If it is difficult to determine damages based on either losses or profits and there is a relevant and reasonable patent licensing fee that can be referred to, the court could impose damages of one to three times such royalties.

If no reasonable patent licensing fee can be referred to, the court may instead impose statutory damages of up to RMB 1 million (about $158,000), considering comprehensive factors such as the patented subject, the period of trading and the price at which the infringing product was sold. Research has shown that statutory damages are awarded in 95% of court cases and the average amount of damages is not high due to lack of sufficient damages evidence.

It is, however, at the discretion of the court to render damages beyond the statutory cap where clear evidence indicates that this should be the case. Many Chinese courts are trying to have the patent owner compensated sufficiently. In a recently awarded decision, for example, the Hangzhou Intermediate People's Court effectively allocated this burden and imposed damages of RMB 2 million (approximately $316,000) on the defendants. It is expected that the average damages awarded by Chinese courts will gradually increase to a reasonable level.

Johnson Li
  Johnson Li joined Wanhuida Peksung IP Group as a senior partner on January 1 2018. Johnson is qualified both as a lawyer and patent attorney in China. His practice focuses on litigating intellectual property disputes, advising on patent invalidation and licensing matters, managing IP portfolios as well as planning and executing IP-related protection, defence and enforcement strategy. Johnson has abundant experience in representing clients before various levels of Chinese courts and administrative authorities. Several of his cases were selected to be included in the annual exemplary cases of the Supreme Court and the local courts.


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