Introduction
Parameters in determination of damages
High damages
Comment


Introduction

It has long been acknowledged that obtaining evidence is an arduous task for patentees seeking to take legal actions in China. The fact that the plaintiff bears a greater burden of proof in judicial proceedings in China has drawn criticism from the legal community. The matter is further complicated by the lack of discovery procedure and the high bar set for the admissibility of evidence. This article offers patentees some guidance for obtaining evidence regarding the calculation of damages.(1)

Parameters in determination of damages

In China, damages may be calculated by establishing:

  • the actual losses incurred by the rights holder;
  • the illegal proceeds acquired by the infringer; or
  • a reasonable multiple of patent royalties.

Where it is difficult to ascertain damages under these three approaches, the court may resort to statutory damages and determine, at its discretion, an amount of damages ranging from 30,000 yuan to 5 million yuan.

In practice, rights holders often opt to calculate the illegal proceeds acquired by the infringer, or the statutory damages substantiated by proof of the infringer's illegal proceeds, which is calculated by multiplying together:

  • the turnover of the infringing product;
  • the operational profit margin of the infringing product; and
  • the patent contribution rate to the profit.

The question remains, however, without a discovery procedure, how can rights holders find evidence of the infringer's profit? In practice, right holders may find the sales price of the infringing products, details of sales figures through public channels and maybe the average profits of the infringer, if they get lucky. However, they will have no chance of determining the infringer's profit margin of the specific infringing product, nor the patent contribution rate to the profit. The most direct evidence – the infringer's transaction record of the infringing product – is usually under the infringer's control and out of the reach of the patentee.

Figure 1 shows the outcome and number of cases with damages over 1 million yuan (inclusive) of all the published patent civil decisions(2) made by the Intellectual Property Court of the Supreme People's Court (the SPC IP Court), the sole appellate court for patent infringement litigation, since 2019. Of all the cases where infringement could be established, those with over 1 million yuan in damages account for 4.4% in 2019. The percentage rises slightly to 4.7% in 2020 and 4.8% in 2021, which suggests that securing high damages has become less onerous in China.

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Figure 1: published civil patent decisions by the SPC IP Court

High damages

The fourth amendment to China's Patent Law, which came into effect on 1 June 2021, incorporated into law (in its article 71.4) the possibility of shifting the burden of proof to the defendant. It mandates that the defendant is to produce the account books relating to the accused product if the patentee has made its best efforts to adduce evidence while the financial books or materials relating to the infringement are controlled by the infringer. Non-compliance may result in the court awarding damages by reference to the claims and the evidence provided by the patentee. The following case is an example of the application of article 71.4.

In Synthes GmbH v Double Medical(3) the SPC IP Court awarded the plaintiff 20 million yuan (approximately $3.2 million) by admitting the plaintiff's evidence and shifting the burden of proof to the defendant.

The plaintiff, Synthes, owns a patent concerning a medical device for the treatment of femoral fractures. The defendant, Double Medical, which is a listed medical device company, was sued by Synthes for patent infringement. Synthes sought damages of 20 million yuan. The court of first instance only awarded damages of 1 million yuan. Both parties appealed to the SPC IP Court.

To prove the defendant's illegal profit, Synthes collected preliminary evidence about the defendant's turnover of the accused product, including the defendant's online sales figure of the accused product for about 42 days and the defendant's revenue as disclosed by its financial report. Based on this evidence, Synthes deduced that the turnover of the accused product reached 39.74 million yuan. Though the defendant also published its overall operational profit margin (53%) in the financial report, this rate did not specifically correspond to the accused product. Given that Synthes had fulfilled its burden of proof, the Court ordered the defendant to produce the account books of the accused products. The defendant, in defiance of the court order, merely produced photocopies of partial sales data and several invoices, alleging that the original documentary proof was no longer available. The defendant also argued that the calculation method adopted by Synthes was flawed: the turnover and operational profit of the accused product was not accurate and the patent contribution rate had not been considered, among other things.

The Court opined that there was no just cause warranting the defendant's refusal to disclose its account books. As a listed medical device manufacturer, the defendant was obliged to keep an elaborate dossier on the production and sales record of the accused products and should have been capable of accurately calculating the sales and profit margin based on its account books. The Court acknowledged that the plaintiff's evidence might not be accurate, but also concluded that based on the prospectus, annual reports and the narratives published on the defendant's website, which were available to the public, it would be safe to deduce that the defendant's illegal profit had exceeded 20 million yuan. The Court therefore found the preliminary evidence produced by the plaintiff admissible and awarded damages of 20 million yuan.

Comment

Due to the lack of discovery, obtaining evidence will remain a challenge in China. As the nation's judiciary is increasingly favouring rights holders, patentees are encouraged to fulfil their burden of proof by leaving no stone unturned in their search for physical and electronic evidence surrounding the business operation and financial performance of the infringer. With the implementation of China's new Patent Law, a trickle-down effect in the alleviation of the plaintiff's burden of proof and the award of significant damages is expected in the long run.

For further information on this topic please contact Feng (Janet) Zheng at Wanhuida Intellectual Property by telephone (+86 10 6892 1000) or email ([email protected]). The Wanhuida Intellectual Property website can be accessed at www.wanhuida.com.

First published by MIP

Endnotes

(1) This article is part of a series on obtaining evidence for patent litigation in China. For the first article in the series, see "Obtaining evidence for patent litigation in China: infringing products and processes").

(2) Statistics calculated based on decisions available here.

(3) (2021) Zui Gao Fa Zhi Min Zhong No. 148.