Background
When considering filing a lawsuit for patent infringement, a plaintiff must carefully choose the methods he wishes the court to use in determining the allocation of damages. A Civil Third Division First Instance Judgment provides a good example of why statutory damages should not be claimed by the plaintiff in a patent infringement lawsuit. Statutory damages are those damages that are stipulated in the Patent Law. Generally statutory damages are between RMB5000 and RMB300,000. In certain circumstances statutory damages may be awarded up to RMB500,000. The Case was a patent infringement case heard by a local Intermediate People's Court in Shandong Province.

Action Taken
In this case the plaintiff had accused the defendant of manufacturing and selling products that infringed three of their patents:

• the first patent was a utility model patent
• the second patent was also a utility model patent
• the third patent was an external design patent.

This case is of significance as the plaintiff requested the maximum amount of statutory damages available for patent infringement, a sum of RMB 500,000. The Local Court, in their judgment, identified this as one of the three key issues in this case.

The Local Court noted that as the plaintiff had not provided any evidence of the losses caused to the plaintiff by the infringement of the defendant, the profits gained by the defendant from the infringement, or license fees as a reference, statutory damages were to be used to assess damage.

In order to make this calculation, the Local Court used a combination of the specific facts in the case, mainly the evidence filed by the plaintiff and defendant, to assess damages for the plaintiff. The Local Court focused on the nature, the scale, and the duration of the defendant's infringements, as well as the reasonable expenses paid by the plaintiff in protecting their rights. The plaintiff filed comprehensive evidence including all the patent certificates for the three patents, the annuity fee receipts for all three patents from the State Intellectual Property Office, the defendant's publicity material, as well as evidence sealed by the Local Court on the application of the defendant.

Outcome
Although it was a very 'promising' case for the plaintiff, the damages awarded to the plaintiff in the litigation were significantly lower than those actually claimed. The Local Court accepted the majority of the plaintiff's evidence, and rejected many of the defendant's grounds for defence, including the defendant claiming that they were only conducting research of the products and had therefore not committed patent infringement. The majority of the plaintiff's claims were accepted by the Local Court yet only RMB 50,000 was awarded. They stated that this sum had been calculated according to the economic loss and reasonable expenses the plaintiff had paid to prevent the infringement

IP Lessons
In patent infringement actions, plaintiffs have high burdens of proof when claiming the maximum amount of statutory damages. Even with ample evidence and a case that can be won, a plaintiff should preferably claim damages according to the other three methods available:

• According to the losses caused by the infringement
• According to the gains made by the infringer due to the infringement
• Providing a reasonable royalty fee to the court to allow a potential greater sum of damages to be awarded

Background
A recent example of a court assisted mediation agreement was a case in Wuxi Intermediate People's Court Third Civil Division. In this case the plaintiffs sued the defendant for infringing their external design patent. The plaintiff's external design patent was a lighting device that had been granted patent rights in October 2000 by the State Intellectual Property Office. Without the plaintiffs permission the defendant had manufactured such a lighting device infringing the plaintiff's patent and then installed these on vehicles they manufactured. The Wuxi Intermediate People's Court formed a collegiate panel to hear the case.

Action Taken
The plaintiff in their statement of claim file requested the court to order the defendant to:

• Cease their infringement and destroy the infringing product
• Pay damages of RMB 100,000 for loss of earnings
• Payment of notarization costs of RMB 2000
• Assume the litigation costs for the lawsuit.

The judgement did not state whether the defendant had filed any evidence with the court or made any statements of defence during the hearing.

Outcome
During the court hearing both parties voluntarily reached a mediation agreement. In general the courts take a proactive role in encouraging mediation in litigation. In the mediation agreement the defendant agreed to pay a total sum of RMB 28,000 to both plaintiffs and undertake the legal fees of RMB 1170 for the litigation.

IP Lessons
Mediation agreements can play a crucial role in resolving patent infringement disputes at an early stage. This can save time and money required for patent litigation in the courts. Court‐assisted mediation agreements should be considered by parties who do not have resources, either financial or personal, or the time to undertake litigation in patent infringement cases.

Mediation agreements are considered as legally binding documents by the courts once signed and sealed by both parties. In China, mediation is encouraged by the courts, and offers an efficient and effective alternative to resolving patent infringement disputes. The contents of a mediation agreement contain the claims of the party, the facts of the case, and the mediation result. This will be drafted by the court with a judge and court clerk signing and sealing it with the official. Once this is signed by both parties and exchanged it becomes legally binding.

Background
Guangzhou Higher People's Court recently heard an appeal case following a ruling by the Foshan Intermediate People's Court Judgement. The issue involved an external design patent, which had been granted patent rights. One of the appeal grounds was that the Foshan Intermediate People's Court had made an incorrect determination that Company X's products infringed the patent.

Action Taken
In their judgment the Guangzhou Higher People's Court clearly stated that a two‐stage test is used to determine whether a product infringes an external design patent.

The first stage is whether the accused product and the patent belong to the same class of product. If this assessment is very technical court registered technical experts are used. Company X's request to have experts conduct the appraisal as to whether the product was identical or similar was specifically denied by the court.

The second stage is to use the aesthetic judgement of the average consumer as a standard to conduct an overall examination of the accused product to determine whether it is identical or similar. The court generally invites consumers that would purchase the product.

In their analysis, the court made reference to the claims made in the figures of the external design patent applications and compared these with the appearance of the accused product. Reference was also made to the claims of Company X that their product was more similar to the original art, rather than the patent (and therefore not infringing).

Outcome
The court upheld the Foshan Intermediate People's Courts determination that the product infringed the external design patent, and the damages awarded to the plaintiff of RMB 120,000. In addition, the court also required the defendant bear the case acceptance fees for the second instance of RMB 15,010.

IP Lessons
Foreign Invested Enterprises (FIEs) must be aware of how the Chinese courts determine whether an external design patent has been infringed. The determination of whether an accused product infringes an external design product is a two stage test.

• is the alleged infringing product in the same patent class as the external design product? The courts will look at the Locarno International Classification. There are 8 main classes, and a total of 231 sub‐classes in the Locarno International Classification.
• would the fictional average consumer confuse the accused product with the patented product?

FIEs involved in external design patent infringement should use this two stage test as a basis when conducting litigation assessments.

Background
In 2007, the Shanghai No. 1 Intermediate People's Court determined whether patent infringement had occurred regarding a utility model patent. This case is particularly useful to understand how the court will actually make the comparison between the patent claims and the technical features of the product. In many cases, this comparison will be narrowed down to one specific claim in the patent and one specific technical feature of the product. In this case the utility model involved was for a pump. After the plaintiff had been granted patent rights they discovered that two of the pumps on the defendant's website infringed their utility model patents. Consequently they filed a lawsuit which was publically heard by the court.

Action Taken
The determination of infringement for invention patents and utility models is conducted by using a three stage test.

• The Court will first look at the scope of protection for the invention patent and utility model by examining and interpreting the patent claims. Generally the Court will look at the essential claims in the patent that can be found in the independent claims. The essential claims are those claims that are the sections that are essential to the scope of the protection claims. The independent claims are those claims which are not dependent on any other claims. If the patent claims are unclear then the description and figures in the patent documents can be used to interpret the claims.
• The second stage consists of the court identifying the technical features of the infringing product. The court will determine the technical solution to the problem solved by the product and whether it has a technical effect.
• Finally, the court will make a comparison between the claims of the patent and the technical features of the infringing product to determine whether an infringement exists. The comparison will look at whether the product is identical, as well as whether it is equivalent to the patent. Patent rights holders must be aware of how invention patent and utility model infringement is determined by the court in order to protect their patent rights.

Outcome
The main issue identified by the court was if the corresponding technical features of the accused infringing products fell into the scope of protection of the plaintiff's patent rights. In their determination, the court considered whether the accused product was identical, or was equivalent to the plaintiff's utility model. The Court decided that the product was not identical. It relied on the defendant's assertion that a difference existed in large part due to the product not possessing certain technical attributes. This was regarded by the court as the reason for which the product was not identical. Therefore, the court moved to determining whether equivalent infringement existed. For this, the Court analyzed the essential technical characteristics described in the patent claims. A brief analysis determined that the technical features of the product, in this case the way the air entered and exited, and the technical solution and effect had clear differences. As a result the technical characteristics of the product and the plaintiff's patent were not considered to be equivalent.

IP Lessons

• Holders of patents should be aware of the 3 stage test for determining infringement and understand how it will be applied in a dispute.

Background

‘SagA’ is a UK-based company specialised in the design and manufacturing of toys, arts and crafts. It was founded more than 60 years ago and became a leading designer and producer of toys in the UK. China is the manufacturing base for most of the company´s products, which is unsurprising as China supplies at least 80% of the world’s toys. Although the company´s main market is the UK, it has sales success in the US, Australia, Japan and Russia.

SagA suffered a loss of turnover, which had negative impact of the level of employment. For SagA, China is considered as the main source of counterfeiting.

Strategy and Actions

‘SagA’ strategy in tacking the problems of IP infringements is to secure licences and develop iconic products. The company is producing for the US market, which helps as Chinese manufacturers take more time to discover and copy the products. In an effort to stop counterfeiting operations, the company takes legal actions as well as using personal confrontation.

Forms IP infringement

The main form of intellectual property rights abuse for SagA are: patent and design infringements, although the company has been confronted with the problem of look-a-like products/parasitic copies, which is recognised as the biggest threat by most of toys manufacturers.

The company has been confronted with many difficulties in protecting and enforcing their IP rights. The major difficulty in protecting the intellectual property rights is the fact that patent costs are about £12,000 for the UK, Germany, US and Hong Kong. It is quite clear that to be able to cover such costs the company needs to have solid and secure finances. The SagA representative said that copyrights made very little difference, because they were not respected and UK laws made it very easy to slightly change the design. It was also pointed out those different types of copies, especially not identical ones (i.e. knock-offs and look-a-likes) made enforcement of IP rights more difficult.

Generic product development happens less and less, mainly because those products can be copied quite easily in a short period of time. For that reason, the company had to look for licensed products, new designs and concepts. The major problem with licensing is that the best licenses go to the bigger companies, who then get master toy licenses, making growth difficult for smaller companies.

Although one of the disadvantages of licences is that they put prices up, licences can also help in improving company sales. Putting brand names on a company´s products leverage its brand powers, precisely because customers perceive brands as a guarantee of high quality products.

Lessons Learnt

• Select your most important assets and protect them.
• Because you can easily reverse engineer plastic products, the prospect of using wooden toys appears to be interesting.
• Licenses are useful as the companies you are paying the license to will help to finance court action.
• Be cautious when investing in product development/R&D where IPR abuse originates.
• Retain critical design in home country.
• It would be very useful if importers were obliged to place the name and address of the manufacturer on their own label packaging.

Background

‘DeEco’ is a world leader in equipment for foundation technology. The products in which the company specialises include drilling and grab machines. It has been active in China since 1991 and owns two Chinese production facilities. Despite the fact that the company owns legally binding patents, it is confronted with the problems of counterfeiting.

In the past, DeEco formed a joint venture with a Chinese company, which was subsequently changed to a wholly owned subsidiary of DeEco. This business model gave the Chinese counterpart access to the drawings and know-how of DeEco. The actual problem appeared after the break up of the joint venture. The Chinese partner modernised its equipment by copying at least partially the equipment of DeEco. The infringer not only managed to take over a substantial part of the market in China but also started the sales of products infringing the IP rights of DeEco in Germany.

Strategy and Actions

DeEco responded by filing a lawsuit against the infringer and one of its customers for infringing the patents by producing, offering and selling equipment which made use of patented ideas of DeEco. The investing judges sequestered by seal infringing components of machines found in the plant of the infringer. Despite the attempts of the infringer to appeal against the jurisdiction, the courts have overruled them.

Forms of Infringement

The IP rights involved were patents. Since the Chinese partner knew about one patent of DeEco, it designed a different implementation function of a machine, which did not infringe the patent. However, it did not know about the additional patents. The Chinese partner also copied the patented components and so infringed the DeEco patent. DeEco encountered problems resulting from:

• various attempts by the infringer to appeal against the jurisdiction in the courts of first and second instance with the view to delay the final decision.
• lack of executive power to ban an exhibitor or a machine from the exhibition by the Shanghai Intellectual Property Administration (if a patent lawsuit is ongoing patent infringers cannot be removed from the exhibition).

Currently, the process is at the stage of the evidence exchange period and a technical authentication is supposed to be made. For that both parties are discussing the selection of an authentication institute. Until the case is not settled, the infringer is most likely to continue its illegal activities. Although the general manager of the company infringing the IP rights of DeEco had declared that the company would replace the device by a completely new designed device, the representatives of DeEco claim that the new design still infringes their patent.

Lessons Learnt

• intellectual property is applied in China much less than in European Countries.
• the costs of the lawsuit are likely to be higher than the potential compensation. The main purpose of the lawsuit is to prohibit the competition to use the patent.
• it is believed that application periods (two days) and the necessity to deposit a bond make it even more difficult to react to patent infringements on a short-term event like an exhibition.
• a court decision in a patent case can take (until the final decision is reached in the second instance) up to four years. Concerns are mainly because intellectual property is a perishable good (the half-life period of knowledge is often less than these four years).

The other principle lessons learnt by DeEco include:

• protect your IP rights. In the event of counterfeiting you will have solid ground to commence legal proceedings
• file a lawsuit against the infringer as soon as possible, in order to deter the use of your IP rights, even if the costs of doing might be higher than the actual compensation.
• establish good working relations with administrative people handing your case.