3 Sep
2020

The keys to success in patent litigation

Liu, Shen & Associates - China

China is becoming a preferred battlefield for patent infringement litigation worldwide. Strong IP protection policy brings pro-patentee characteristics, such as shortened legal proceedings, automatic injunction and increase of damages. Based on legal practice in China, this chapter looks at the recommended keys to success in patent infringement litigation.

Patent infringement litigation – the statistics

According to the Supreme Court IP Protection Report 2020, in 2019 the total number of IP cases – including first instance, second instance and retrial – was 481,793, of which 22,272 were patent cases. The top five busiest regions or cities were Guangdong (157,363 new cases), Beijing (80,165 new cases), Zhejiang (27,706 cases), Shanghai (23,580 new cases) and Jiangsu (20,249 new cases), accounting for 64.15% of the total number of IP cases.

The main high-level characteristics of patent cases include:

  • broad technical coverage – including the ongoing growth of big data, artificial intelligence, telecoms standard-essential patents (SEPs), biomedicine and other frontier technology;
  • significant social influences – high damages, attracting significant public attention, were claimed in three cases over Rmb100 million and in more than 30 cases over Rmb10 million;
  • more group cases among main players – cases between the same entities initiated among several courts and administrative authorities, with the results relevant to each other;
  • equal protection on domestic and foreign entities – around 10% of cases are related to foreign companies and the courts apply the same criteria for both domestic and foreign entities; and
  • pro-patentee – actively applying the good-faith principle to force accused infringers to produce evidence; the general winning rate of the patentee is over 60%.

At a more detailed level, specific to patent infringement cases, most disputes concern claim construction and the doctrine of equivalents, which are important in evaluating patent infringement. The Supreme Court has issued guiding opinions in specific case judgments on how to identify the protection scope of functional features and evaluate multiple-party infringement in method claims. On the defendant side, the legal-source defence is frequently used to seek exemption from compensation liability. While prior art and prior use defences are also presented, very few cases succeed. Challenges against jurisdiction tend to be raised with varieties of complexities being involved. However, the courts generally respect the choice of patentees for the jurisdiction, with only a 5% reversal rate. Regarding patent invalidity administrative cases, evaluation on inventiveness is believed to be the core issue on which the judicial review can be strengthened.

Forum shopping strategy

In China, patent litigation is handled at intermediate and high-court level. There are 76 intermediate and high courts competent to try patent cases, of which three are specialised independent IP courts (Beijing, Shanghai and Guangzhou) and 21 are IP tribunals inside corresponding intermediate courts with cross-regional jurisdiction on IP disputes in its province or certain regions including several neighbouring cities. The 21 IP tribunals are distributed across China, with some on the eastern coastline (Tianjin, Qingdao and Hangzhou), some in developed southern cities (Shenzhen, Fuzhou, Xiamen and Haikou), some in important western inland cities (Xi’an, Lanzhou, Urumqi and Chengdu) and some in cities with a sound economy (Nanjing, Suzhou, Ningbo and Jinan). The Beijing IP Court is the court specially designated to handle patent invalidity administrative cases. Most of the patent appeal cases are handled by the Supreme Court IP Tribunal, although design patent infringement appeal cases are handled by provincial high courts. Regulated by the Supreme Court on 1 May 2019, patent infringement cases with claimed damages over Rmb5 billion or significant influence should be handled at high-court level.

The court competent to have jurisdiction should have certain points in connection with this case – for example, either accused infringers are domiciled or the infringement takes place in the city where the court is located. One strategy to succeed in the litigation is to establish the case in courts away from the accused infringer’s home to avoid potential local favouritism, especially when the accused infringer is a great contributor to local economic growth. Generally, when the target is a manufacturer, it is permitted to involve infringing sellers together with manufacturers, so that the case may be launched in the seller’s location.

There are other considerations for forum shopping. One is the speed of processing the cases. Since patent cases are technical and complicated, in general it takes one to two years for the legal proceedings involving both sides as domestic entities at first instance. If the case is established in a busy court (eg, the Beijing IP Court or the Guangzhou IP Court), it takes longer, especially when foreign entities are involved.

Whether the court has extensive experience in hearing patent infringement cases is another factor worth considering. Since there are some special judicial approaches for patent infringement cases, IP courts or tribunals generally assign specific judge teams to handle patent cases. For those IP tribunals recently established within the year or located in an underdeveloped city, there are not enough judges available in the patent field and there are therefore not good candidates for patent infringement cases.

Further, patent infringement litigation involves knowledge of related technology and an understanding of patent solutions. This is not easy for judges without a science background. To solve this problem, in 2019 the Supreme Court issued a Guideline on Technical Advisers to introduce technical advisers into IP courts and tribunals. Some IP courts or tribunals have successful experience in hiring special technical advisers with science degrees or patent examiners supporting fact-finding of technical details, such as Nanjing and Suzhou. It was reported in the Nanjing IP Protection White Paper 2020 that from November 2017 to December 2019, 333 patent cases involved technical advisers and more than 200 onsite inspections and investigations. Currently, the Nanjing IP Tribunal has a pool of 64 technical advisers covering mechanics, telecoms and chemicals. Telecoms SEP infringement cases and FRAND rules are also no strangers to Chinese courts. The Shenzhen, Beijing, Nanjing, Shandong and Shanghai courts have issued judgments adjudicating SEP infringement, FRAND rules and royalty rates for telecoms patent portfolios.

Another consideration is whether the court has the resolution or confidence to award high damages. Basically, this relates to the development and economic status of the location of the court. Courts in well-developed southern cities such as Shenzhen, Guangzhou and Fuzhou have decided damages of over Rmb20 million, creating a pro-patentee reputation. The Guangdong Courts IP Protection Report 2020 states that the damages for patent infringement cases in 2019 were on average around Rmb500,000 – top in almost all courts – with 19 cases which awarded damages of over Rmb10 million. The Shanghai IP Court actively evaluates punitive elements such as malicious intention of infringement to increase the damages.

Evidence collection: how to form a perfect evidence chain

The burden of proof is mostly on the patentee, especially for the evidence to prove accused infringing acts and products. The underlying principle is that it is not difficult to prove positive facts rather than negative facts, or the cost of proving that something exists is much lower than to prove that something does not exist. The defendant may just need to deny the assertions of the patentee, and the patentee must take whatever measures necessary to prove the existence of infringement. Successful evidence collection is the basis of winning the litigation.

Providing proof of infringing sales, for example, is not as easy as simply submitting some products to the court. Most business documents such as invoices and payment receipts, especially those carrying official stamps, are necessary to prove the source of products. Moreover, the purchasing process of the accused infringing products should be witnessed under public notary to guarantee the credibility and authentication of the products. It is not difficult to purchase the alleged infringing products under a business-customer scenario, which is simply a normal purchase. However, it is difficult to collect the infringing products under a business-business scenario, since there is always some specific channel necessary to circulate the products inside the industry, which may be inaccessible from outside. In this situation, a third-party investigation company is needed to assist in the purchase.

Another tricky scenario could be that the infringing products are packaged in a white box without any information regarding manufacturer and seller. This is, of course, inconsistent with product law, but it still occurs. The strategy should be carefully designed so as to record the whole purchase process from the signing of sales contracts to payment and receipt of the products, all of which should be performed under notarisation to ensure that the documents are linked to each other so that the source can be authenticated and associated with the infringing products.

One particularly tough issue which lingers around patentees is whether all models of an infringing product should be purchased and, in consideration of cost, whether it would be acceptable to pick only some of models as an example. There is no ‘one size fits all’ approach and everything should be analysed on a case-by-case basis.

In Huawei v Samsung, 23 models of mobile phone were involved, all of which were purchased under notarisation as the basis for technical comparison. In Gree v Aux, eight models of air conditioner were asserted but only six were purchased and submitted as evidence. Gree asserted that the difference between the other two models and the six that were purchased lay in one digit ‘9’ found in the model number. According to Aux’s online customer service, the ‘9’ is only an identifier for business platforms, and the digit is therefore irrelevant to the structure and all eight models share the same structure. Since Aux, as the designer of the alleged infringing products, failed to provide reasonable explanations for the above difference and did not submit sufficient evidence to prove the related structure, the court accepted Gree’s assertion based on the ‘preponderance of evidence’ principle.

The key to this issue is that purchasing all the models is ideal. If it is not possible to obtain all models, it should at least be proved that all models share the same technical solution based on clear and convincing evidence, preferably from multiple perspectives corroborating each other.

Special development regarding infringement of multi-party patents

There is one kind of patent claim involving multiple parties performing an operation together. As the ‘all element’ rule, the action of each party should be proved to establish the infringement is actually causing significant difficulties.

In Shenzhen Dunjun v Shenzhen Tenda, a computer, router and server were involved and the router was accused of patent infringement. The Supreme Court decided that the claimed method was implemented in the router, which plays an irreplaceable and substantial role in the operation of the method; while the computer and server are common devices performing only their own general functions and should not therefore be liable. The Supreme Court also held that based on the method already installed in the router, operation by end users is only reproducing the method without modifications, meaning that it is actually the router that is infringing the method patent. This decision is favourable to the enforcement of multi-party patents since the patentee may focus generally on the infringing party instead of involving all parties in a lawsuit, reducing the complexity and difficulty of such case.

How to successfully obtain substantial damages

With the background of developments of an innovation-driven economy, the damages awarded in patent infringement cases have been soaring in recent years. Such strong IP protection is necessary to the needs of innovators and for technical progress. From 2018 to 2020, an increasing number of substantial damages awards were issued, for sums never before seen – including Gree v Aux (Rmb40 million); Wuxi Guowei v Changshu Linzhi (Rmb9.4 million); Shenzhen Dunjun v Shenzhen Tenda (Rmb5 million); Siemens v Shenzhen LVMI (Rmb6 million); and Keihin v Valeo (Rmb5.6 million). More cases claiming high damages are pending in the courts, such as Delta and APPOTRONICS group cases claiming Rmb100 million in damages, and CATL suing Tafel for damages of Rmb120 million. Following this trend, the pending fourth amendment to the Patent Law is considering increasing statutory damages from Rmb1 million to Rmb5 million.

There are four priorities necessary to calculate damages in patent infringement litigation:

  • economic loss of the patentee as a result of the infringement;
  • the infringer’s profits;
  • reasonable times taken for the licensing fee; and
  • statutory damage.

Based on experience, successful cases with high damages awarded generally apply the approach of calculating the infringer’s profits, which can be based on actual sales volume. The most important point is to obtain the sales records and profit rates from financial reports or accounting books. Such documents are controlled by infringers and are difficult for the patentee to collect. Although there is no discovery procedure in China, a new ‘evidence sanction system’ is in place to force the infringers to submit such confidential evidence as the basis for damages. To trigger such ‘sanction’, the patentee must submit some preliminary evidence that is mostly accessible from public channels to prove the profits of the infringer, and then the court may decide to shift the burden of proof to the infringer. The alleged infringer’s failure to cooperate in the submission of damages evidence will be considered by the court as a ‘weight’, so that the court may completely rely on the evidence submitted by the patentee to decide the damages.

In Shenzhen Dunjun v Shenzhen Tenda, Dunjun collected infringing sales volumes and prices, as well as the number of consumer comments regarding infringing products from JD and TMall, the official flagship online shops of Tenda. The court decided that such evidence qualified as preliminary evidence, and it therefore ordered Tenda to submit its accounting books and materials relating to the infringing products. However, Tenda did not submit the documents in either the first and second instance without reasonable grounds. The court believed that it was reasonable that the actual sales volume should have been much higher than Dunjun’s assertion, since the infringing products were online for sale on online platforms, except JD and TMall, and there were also offline shops selling those products. The court therefore supported the Rmb 5 million damages claimed by the patentee. This is a successful case of the evidence sanction system.

Another practice to increase damages is to initiate rounds of patent infringement cases in certain cities to aggregate the damages case by case. Shenzhen Yuandesheng Plastics, the owner of a selfie-stick patent, is a successful player in this regard, which sued thousands of infringers all over China to obtain damages of more than Rmb20 million.

Further, there are other factors to be considered by courts when deciding damages, such as:

  • the publicity of the patented products, which may enhance the confidence of judges when determining an intentional copycat case;
  • the degree of innovation of the patent, which can prove the high value of the patent; and
  • the behaviour of the infringers in the market, which may to some extent prove whether the intent of the infringers was innocent or malicious.

Although there are no punitive damages for patent infringement cases at present, such a concept has been brewing for some time. As stated by the vice president of the Supreme Court Luo Dongchuan on 29 May 2020, the detailed guidelines for a punitive damages system are being drafted so punitive damages will be actively and practically applied and, especially for those harmful and repetitive infringements, damages should be decided at their upper limit based on market value.

Comment

Multidimensional efforts to select effective jurisdiction and solid evidence on infringement and damages are fundamental to obtaining a favourable outcome for patent infringement litigation.

Liu, Shen & Associates

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Guanyang Yao

Partner

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Guanyang Yao focuses on providing patent-related legal services. He has extensive experience in complicated patent invalidation, infringement and administrative disputes. Mr Yao also provides legal opinions on litigation strategy making, freedomto- operate analysis, patent licensing, anti-unfair competition and trade secret protection.

As the leading attorney at Liu, Shen & Associates, Mr Yao has represented multiple domestic and international enterprises, covering technical fields including engineering, automobiles, software, telecoms standard essential patents, home appliances and medical devices. A number of of cases handled by Mr Yao have been selected as annual IP representative cases by local high courts and the Supreme Court, providing guidance and clarifications on legal issues. Mr Yao keeps a close eye on developments in the China IP legal system and is an active speaker at domestic and international IP conferences.

Xi Chen

Patent attorney

[email protected]

Xi Chen obtained his master’s in mechanical engineering from Tsinghua University. He joined Liu, Shen & Associates in 2014, mainly engaging in patent-related IP fields, including patent application and prosecution, patent invalidation proceedings and disputes for global clients. Mr Chen is experienced in infringement litigations and invalidations in the field of mechatronic engineering (eg, micro-electromechanical systems). His services also include providing opinions and strategy consultations for corporations, as well as providing legal advice. Mr Chen attended the 2018 International Association for the Protection of Intellectual Property China IP Youth Seminar and delivered a speech entitled ‘Claim Drafting in Light of Litigation’.