Introduction

When seeking financial compensation, all efforts made by a plaintiff to prove the scope of patent infringement – even if its findings are not based on official accounting records – may be appreciated and rewarded by the courts.

Article 65.2 of the Patent Law provides that:

"Where it is difficult to determine the losses suffered by the right holder, the profits the infringer has earned and the royalty of that patent under a license contract, the people's court may award the damages of not less than RMB10,000 and not more than RMB1,000,000 in light of some factors, such as the type of the patent right, the nature and the circumstances of the infringing act."

In China, it is difficult for a patent owner to:

  • calculate the specific losses directly caused by an infringing act;
  • prove the amount of illegal gains obtained by a defendant (which rarely divulges its financial data or documents relating to the infringing product) unless the earning is low; and
  • identify a patent royalty reference to calculate how much the defendant would have had to pay if a licence had been granted.

Further, no US-style discovery system exists in China to help plaintiffs obtain and review such evidence from a defendant. Therefore, the Chinese courts frequently resort to the above provision and determine damages within the statutory limit of Rmb1 million.

However, the Shenzhen Intermediate Court recently demonstrated that this limit is becoming less fixed.

Facts

Leatherman Tool Group, Inc is a US company that designs, produces and sells multi-tools, wearables and knives used in outdoor activities. Designed a few years ago, the Leatherman Tread bracelet is a multi-tool, travel-friendly and customisable wearable. Corresponding patent applications were filed by Leatherman before the product was released.

In early 2017 Leatherman discovered that a Chinese company, Coteetci, was selling the bracelet under its own brand and had clearly copied the Tread design. Leatherman obtained preliminary evidence through investigation and sued Coteetci for patent infringement before the Shenzhen Intermediate Court, seeking cessation of infringement and indemnification.

While patent infringement could be easily established, the difficulty lay in justifying a large compensation award, given that:

  • Coteetci is a small business with no more than 10 registered employees;
  • the Coteetci bracelet was sold at a relatively low price of approximately $60; and
  • Coteetci would not disclose how many bracelets had been sold.

Leatherman made an audio recording of the entire conversation during the notarised purchase, in which a Coteetci salesperson admitted that nearly 10,000 bracelets had been sold in the last two months. Further, it filed a complaint with local administrative authorities, which prompted a raid of Coteetci's office and factory to collect information regarding the inventory and revenue of the Coteetci bracelet.

During the court hearing, Coteetci denied manufacturing and selling the alleged infringing products; it also tried to submit a prior art defence based on a series of prior patents. The judge rejected the prior art defence in light of the significant differences between these prior patents and the product.

In addition to the audio recording and raid action report, Leatherman provided supplementary evidence which demonstrated that Coteetci had maintained these infringing acts throughout the court procedure.

Decision

On November 22 2017 the Shenzhen Intermediate Court found Coteetci guilty of infringement and ruled that it should pay Rmb1.2 million in damages. The court justified this amount – which was higher than the statutory limit of Rmb1 million – not only on the plaintiff's evidence, which permitted an estimate of the amounts involved (even inaccurately), but also on the bad faith demonstrated by the defendant.

Comment

This case demonstrates that, when penalising infringement activities, courts are interpreting the statutory boundaries for calculating damages with more confidence. Factors such as a defendant's behaviour or, in this case, an oral admission (even if not exactly corroborated by accounting books) may be considered. Technically, these were not punitive damages in the US sense of the term; however, they prove that the statutory ceiling is becoming less rigid.

For further information on this topic please contact Arco Wang at Wanhuida Peksung by telephone (+86 10 6892 1000) or email (arcowang@wanhuida.com). The Wanhuida Peksung website can be accessed at www.wanhuida.com and www.peksung.com.

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