On Dec 8, 2016, Beijing IP Court issued a judgment, ordering Hengbao Co., Ltd. (“Hengbao”) as defendant to pay damages of CNY 50 million (USD 7.2 million) to Watchdata System Co. Ltd. (“Watchdata”) as plaintiff for patent infringement. Hengbao is the manufacturer of USB Token for bank industry. In the judgment, it is determined that Hengbao’s product infringed Watchdata’s patent entitled “A method of physical authentication and an electronic devices thereof”. This is the highest damages awarded by Beijing IP Court since its establishment in 2014.
How were the damages determined in this case?
1. Damages of patent infringement
According to Patent Law of P. R. China, Article 65 The amount of compensation for patent right infringement shall be determined according to the patentee's actual losses caused by the infringement. If it is hard to determine the actual losses, the amount of compensation may be determined according to the benefits acquired by the infringer through the infringement. If it is hard to determine the losses of the patentee or the benefits acquired by the infringer, the amount of compensation may be determined according to the reasonably multiplied amount of the royalties of that patent. The amount of compensation shall include the reasonable expenses paid by the patentee for putting an end to the infringement. If the losses of the patentee, benefits of the infringer, or royalties of the patent are all hard to determine, the people's court may, on the basis of the factors such as the type of patent right, nature of the infringement, and seriousness of the case, determine the amount of compensation within the range from 10,000 yuan to 1,000,000 yuan.
Damages may be determined according to actual losses of the patentee, the profit of the infringer or reasonably multiplied amount of royalties. If the losses of the patentee, benefits of the infringer, or royalties of the patent are all hard to determine, the damages will be determined by the judge at his discretion from CNY 10,000 (USD 1,450) to 1,000,000 (USD 145,000).
Usually, it is not easy for the plaintiff to prove his losses because of the infringement. The losses of plaintiff may be due to different stage of product life cycle, market environment, competitor’s impact etc. apart from infringement of defendant. What’s more, in many cases, the revenue keeps rising in spite of the occurrence of infringement. In this case, Watchdata alleged that the infringement had led to decrease of its sales but failed to prove the number of sales decrease due to the infringement.
However, Watchdata succeeded in proving the profit of the infringer as the basis of damages. Damages awarded in this case fell into two categories, namely damages based on retrievable evidence and damages based on plaintiff's claim. Retrievable evidence denotes evidence that is retrievable from the clients of the defendant. Hengbao’s clients of the disputed products are 15 banks in China.
a. Damages based on retrievable evidence A petition was filed by the plaintiff before Beijing IP Court to retrieve the number of sold USB token in dispute from the banks who are the clients of the defendant in according to Civil Procedure Law of P. R. China below,
Article 64 It is the duty of a party to an action to provide evidence in support of his allegations. If, for objective reasons, a party and his agent ad litem are unable to collect the evidence by themselves or if the people's court considers the evidence necessary for the trial of the case, the people's court shall investigate and collect it.
Beijing IP Court succeeded in retrieving the number of USB token sold from 12 banks. Based on the reasonably unit profit which has been proved by the plaintiff, the total damages for the infringement involving product sold to 12 banks reached CNY 48,142,000 (USD 6.98 million).
For evidence inaccessible to the plaintiff, he may file a petition before the court for investigation and obtaining of evidence. This is especially useful in cases where evidence is available in another authority's control.
b. Damages based on plaintiff's claim Beijing IP Court failed to retrieve the number of infringing product sold from 3 banks. Watchdata held that damages should be CNY 858,000 (USD 124,000) based on preliminary evidence, claiming that Hengbao refused to produce the document indicating the number of sold products. Beijing IP Court granted Watchdata’s petition of damages in accordance with the Judicial Interpretation of Supreme Court with regards to the Applicability of Relevant Laws when Patent Infringement Cases are Handled (took effect from April 1, 2016) Article 27 In case the actual loss suffered by the patentee is difficult to determine, the patentee shall provide evidence to prove the profit made by the infringer. When the patentee supplied preliminary evidences and account books and information related to the infringement activities are under the control of the infringer, the court can order the infringer to provide such account books and information. If the infringer refuses to comply with the request by the court, the court can determine the profit made by the infringer based on the patentee’s claim and evidences. The court believed that Hengbao refused to provide the evidence and determined the profit made by the Hengbao was CNY 858,000 (USD 124,000) based on the Watchdata’s claim and evidences.
Although China does not have discovery procedure in which one party is obliged to produce document as requested by the other side as in the United States, the newly released judicial interpretation does place the patentee in better position in litigation when the defendant refuses to provide crucial evidence proving infringement and damages such as accounting book etc.
The damages as determined in the above means reached CNY 49 million (USD 7.1 million).
2. Litigation cost
Apart from the damages awarded, Beijing IP Court also granted reasonable cost of litigation to bore by the defendant as CNY 1 million (USD 145,000) , which is extremely rare in China.
According to Patent Law of P. R. China Article 65 … The amount of compensation shall include the reasonable expenses paid by the patentee for putting an end to the infringement.
The reasonable cost of enforcement usually includes attorney fee, cost of evidence collect etc. For most patent infringement litigation cases in the past, the court granted enforcement cost ranging from CNY 50,000 (USD 7,200) to CNY 200,00 (USD 29,000). In this case, the court held that charging by hours is a usual way of charging in litigation service industry and therefore the actual total attorney fee of CNY 1 million (USD 145,000) based on hourly charge in this case should be deemed as reasonable cost of litigation. This is Beijing IP Court's first case of awarding litigation cost based on attorney fee charge by hour.
In these two years, Chinese administration and court system reiterated their intention of strengthening IP enforcement through multiple circumstances. In the context of difficult evidence collection and relatively low damages for patent infringement cases in China, Watchdata v. Hengbao's case is significant in its implementation of judicial interpretation for streamlining evidence collection and high damages awarded including attorney fee of the plaintiff.