iv. the process of seeking judicial relief for patent enforcement in china

a. preliminary injunction and preservation of evidence

an important aspect of infringement litigation is to stop the infringer from continuing the infringing activities while the lawsuit proceeds and to preserve the evidence before the infringer has time and opportunity for evidence spoiling or doctoring. in this respect, china has a procedure somewhat similar to the american procedure of ex parte application for temporary restraining order (tro) or preliminary injunction.[1] it is called “pre-litigation injunction and preservation of evidence. it was added to china’s patent law when the latter was revised in 2000 in accordance with article 50 of trips. [2]

1. pre-litigation preliminary injunction

in order to obtain a preliminary injunction, the applicant must prove by sufficient evidence that, unless the infringing act is stopped in good time, it is likely to cause irreparable harm. such harm is primarily reflected in non-economic damages such as damage to reputation, erosion of market share, etc. the applicant must also post a bond by providing guaranty or putting down collaterals at a value sufficient to cover the possible damages suffered by the defendant, including lost sale revenues, warehouse charges incurred, consequential damages for breaching sales contracts, compensation to the defendant’s employees, etc. where the defendant is facing greater damages than that originally contemplated by the court in granting the preliminary injunction, the defendant may apply to the court to increase the bond amount. where the plaintiff fails to post sufficient amount of bond as ordered by the court, the injunction should be dissolved. any party not satisfied with any order in relation to the grant or denial of an injunction or attachment order may move for reconsideration within ten days of the order.

to comply with the procedural requirement in the trips treaty, the provisions in the chinese supreme court’s judicial interpretations regarding pre-litigation injunction require timely notice to the enjoined party once the injunction is issued and provides for detailed post-injunction procedures.

for instance, one provision requires a court accepting an application for pre-litigation injunction to “make a ruling in writing within 48 hours” and that once an orders is entered, it must be “executed without delay.”[3] there is no requirement for the courts to hold a hearing before entering such an order, but they may summon and inquire one or both interested parties, “where it is necessary” to “verify the relevant facts.”[4] the court must also promptly notify the party against whom the application is filed within 5 days after the order is entered.[5]

several points deserve attention here: 1) there is no hearing in the chinese post-injunction procedure; while courts may call the parties for an inquest before issuing the injunction, such inquiry is very different from the typical hearing procedure which would include testimonies from the parties, exchange of evidence, cross-examination and authenticating of the evidence, etc.; 2) the post-injunction procedure has to be initiated by the enjoined party;[6] 3) this procedure is not limited to pre-litigation injunction applications. it can also be used for injunctions applications filed after the litigation commences or during the litigation, [7] and 4) once the injunction is issued, the applicant must commence the litigation within 15 days; or the injunction shall be dissolved.[8]

one well-known example of pre-litigation injunction is the injunction granted in 2002 by the first intermediate people’s court of tian jin city based on the application of tian jin (da hu) fresh food and juice, inc. against tian jin da heng group, ltd. the injunction restrained the defendant from producing and selling soft drink products that resemble the appearance of two of the plaintiff’s products covered by design patents. the injunction was posted in local media and all sellers of the defendant’s products were warned not to continue the sale of related products.

2. preservation of evidence

article 61 of the patent law not only provides for pre-litigation injunction, it also gives the owner of a valid patent the right to “request the people’s court to adopt measures for “preservation of evidence.” for a prospective plaintiff who is concerned about the destruction of the evidence of infringement by the defendants, this procedure can also be utilized to preserve such evidence. once the application is approved, the court can resort to measures such as seizure, detention, photographing, taping, recording, copying, testing, authentication, inventory taking, etc. to preserve the evidence.

 in the first case in which the pre-litigation remedies under article 61 were granted, the first intermediate people’s court of chongqing, in april 2003, entered against three local companies, in addition to an injunction, an order for preservation of evidence, including business records, and attachment of property, including bank accounts. [9] since then other courts have entered similar orders. in a recent case, the intermediate people’s court of ningbo city granted a motion from a japanese plaintiff for preliminary injunction against two local defendants and ordered preservation and seizure of evidence such as infringing product parts, product catalogues, and copies of financial records.[10] 

b. pre-trial discovery of evidence and panels of experts

1. discovery of evidence

exchange of evidence is conducted between the parties before trial and authentication of evidence is usually done through in-court cross-examination before panel of judges but sometimes complicated technical matters may also be dealt with during pre-trial hearings, with participation of technical experts as “people’s assessors.”[11]

2. expert panels

because judicial determination of patent infringement requires application of various kinds of technical knowledge but chinese judges in general lack such knowledge, usually such tasks are completed with the help of expert panels. chinese courts regularly appoint expert panels to submit reports on technical matters. the members of such panels may be nominated by the parties or directly appointed by the courts. both sides have the right to conduct cross-examination on the experts and raise issues with the content of their reports. but ultimately it is up to the courts to decide whether they would adopt a panel’s report or not, or whether they would appoint a new panel.[12]

c. judicial determination of patent infringement

1. invention and utility model patents

in determining whether there is infringement of an invention patent or a utility model patent, chinese judges in general follow a three-step process:

1) determining the scope of patent coverage. usually the patent claims would be broken down into a number of “technical features.” this in turn needs claims construction based on the patent description and the appended drawings.[13]

2) determining the relevant “technical features” of the allegedly infringing product and comparing the technical features derived from the patent claims to the technical features of the allegedly infringing product, and,

3) based on the comparison, finding out whether infringement exists, including both literal infringement and infringement based on the “doctrine of equivalents.”[14]

2. design patents

in determining whether there is infringement of a design patent, chinese judges also follow a three-step process:

1) determining the scope of protection for the design patent. this will be determined according to the product incorporating the patented design as shown in the drawings or photographs.[15]

2) determining whether the product incorporating the patented design and the allegedly infringing product belong to the same or similar category of products (this determination is usually based on the function or use of the product in reference to the locarno classification;[16] if the conclusion is negative, the court’s inquest would end here and no infringement would be found; but if the conclusion is affirmative, the court would proceed to the next step).

3) comparing the allegedly infringing product with the patented design and observing the major components of the designs to determine whether, in the eyes of an ordinary consumer, the two designs appear the same. if so, the product literally infringes the patent. if they are not same but similar to each other, then the product infringes the patent under the doctrine of equivalent. if they are neither the same nor similar, then there is no infringement.[17] 

d. affirmative defenses recognized by chinese patent law

a number of affirmative defenses are recognized by chinese patent law. the following discusses a few of the more commonly used. in general, there are two groups of affirmative defenses in patent infringement litigation: the first has to do with the validity of the patent, and the second consists of the “true” affirmative defenses, the “yes-but” type.

1. affirmative defenses based on invalidity challenge    
under article 22 of the chinese patent law, in order for an invention or utility model to be granted a patent, it must possess novelty, inventiveness and practical app1icability. here the concepts of novelty, inventiveness and practical applicability are respectively equivalent to the concepts of novelty, non-obviousness, and utility under u.s. patent law. [18] under article 23, in order for a design patent to be granted, the design “must not be identical with and simi1ar to any design which, before the date of filing, has been publicly disclosed in publications in the country or abroad or has been publicly used in the country, and must not be in conflict with any prior right of any other person.”[19]

under article 26 of the chinese patent law, the description accompanying the patent application must set forth the invention or utility model “in a manner sufficiently clear and complete so as to enable a person skilled in the re1evant field of technology to carry it out.” the claims accompanying the patent application must be “supported by the description and shall state the scope of the patent protection” sought by the applicant. any failure to comply with the requirements of article 26 would be regarded as inadequate disclosure justifying a finding of invalidity.[20]

2. the yes-but type affirmative defenses

the “yes-but” affirmative defenses are listed in article 63 of china’s patent law, including two most commonly used ones, i.e. the “first sale (exhaustion of rights) doctrine,” [21] and the “prior use doctrine,”[22] of these two, “prior use” is used more often and therefore deserves a few comments here.

a. prior use

clause 2 in article 63[23] is often relied upon by defendants in patent infringement litigations in china. a key issue here is what constitutes the “use” before the date of patent application within the meaning of article 63(2). in a recent case involving a german plaintiff, the second intermediate people’s court of beijing gave its interpretation.[24]

 the case involved a chinese design patent for a shower device (shower screen). the patent was issued to plaintiff hansgrohe. after being sued for infringement of the patent, defendants raised the defense that their shower device was designed by one defendant, apolo bath, and was sold on the market before the plaintiff filed its patent application on july 4, 2001. therefore, they argued, they enjoyed the right of “prior use” as provided in article 63(2).

the court first found that the application date for plaintiff’s chinese patent was january 4, 2001, instead of july 4, 2001 as alleged by the defendants. this is because plaintiff filed such application within six months of its application for a german patent. pursuant to the relevant chinese patent law provision, january 4, 2001, the priority date based on the german patent application thus became the application date for the chinese patent. then the court found that there was insufficient evidence before the court to support defendants’ argument that apolo bath had already completed the “making” or sold the “apollo a-0814 shower screen” prior to january 4, 2001. having disposed defendant’s affirmative defense based on “prior use,” the court found defendant liable for infringing plaintiff’s patent.[25]

e. calculation of damages, costs, and attorney’s fees in patent infringement actions

1. damages.

pursuant to the relevant provisions of the chinese patent law, damages for patent infringement are measured according to the plaintiff’s injury suffered caused by infringement, or the infringer’s profit obtained as a result of the infringement. where such injury or profit is difficult to ascertain, the damages should be reasonably calculated based on the multiples of royalty.[26]

this provision was adopted as part of china’s effort to give some teeth in enforcing patent rights in accordance with the requirement of trips. no maximum amount was fixed statutorily in the patent law, as opposed to 500,000 yuan maximum statutory damages provided in the trademark law, because the drafters of the statute were concerned that such an amount might not be adequate to compensate victims of patent infringement.[27] however, that blank was subsequently filled by the supreme court in its patent trial provisions.[28]

a. calculation of the losses of the patent owner

article 20 of the supreme court patent trial provisions further provides that the losses suffered by the patent owner due to the infringement may be computed by the total of the infringing products sold in the market times the reasonable profit of each infringing product. where it is difficult to determine the total reduction in the volume of sale by the owner, the total of the infringing products sold in the market times the reasonable profit of each infringing product may be deemed the losses suffered by the patent owner due to the infringement.[29]

one example of how to calculate losses of the patent owner is the case pan duohua and zhejiang little fellow food ltd v. zhejiang jinyi group, ltd., et al. in that case, the higher people’s court of jiangxi appointed an accounting firm to audit the defendants’ books to determine the sales of the plaintiff patent owner between march 1999 and june 2001 and its profit from such sales. the audit report showed the level of plaintiff’s sales and average profit before infringement began in april 1999 and the drop of its sales and profit after april 1999. therefore the court used the sales figures in april 1999 as the starting point for calculating the total reduction of sales and losses up until may 2001. finally the court awarded the plaintiff 13 million yuan rmb against one defendant based on the audit report. soon after, another defendant settled the dispute with the plaintiff by paying 12 million yuan rmb. it was reported that these were the largest amounts of damages or settlement received by a plaintiff in a patent infringement litigation since china adopted its patent law and up to 2003. [30]

b. calculation of the gains of the infringer

the gains of the infringer from infringement may be computed according to the total of infringing products sold in the market times the reasonable profit of each infringing product. the income of the infringer from the infringement is generally calculated according to the business profit of the infringer. as for the infringer whose entire business is the infringing conduct, the income may be computed according to the proceeds of its sales.[31]

a case in which the method of calculating damages in patent infringement litigation is at issue is jiekang health ltd, inc. of shenzhen v wan ji pharmaceutical company of shenzhen. this involves the design of a small, transparent packaging of a health food product and received broad public comment. jiekangsued wan ji in may 1999 for infringement of its design patent. wan ji filed an application to “cancel” the patent with sipo within the time limit for answering the complaint and sought a stay of the litigation. on july 28, 1999 the trial court (the intermediate court of shenzhen city) stayed the action. on november 25, 1999, sipo denied wan ji’s cancellation request, upholding jie kang’s patent. subsequently, wan ji appealed to the board for review of sipo’s decision and converted the application for cancellation into application for invalidation as the revised chinese patent law of 2000 substituted the former procedure with the latter.

after the infringement litigation resumed, the court found wan ji liable for infringing jie kang’s patent and appointed an accounting firm, great wall accountants in shenzhen, to audit wan ji’s books. this case raised the question of how to calculate damages in patent infringement litigation. based on the audit report of great wall, the court entered a judgment of 12 million yuan rmb against wan ji. [32] this amount was the biggest award in patent infringement cases in china until pan duohua and zhejiang little fellow food ltd v. zhejiang jinyi group, ltd., et al. was decided a few months later.[33]

there has been much debate about whether the trial court calculated the plaintiff’s damages correctly. one commentator pointed out that one of the grounds based on which wan ji filed its appeal was that the audit result was not accurate and for that reason it requested the appeal court (the higher court of shenzhen) to order a new audit by another auditor. the appeal court, however, neither allowed in-court cross- -examination of the original auditor regarding the audit report nor appointed another auditor. at the same time, it held an ex parte hearing with the first auditor and asked it to explain the audit report. wan ji submitted the originals of certain evidence to the board and copies of such to the court with the latter’s permission. but ultimately the court refused to admit such evidence on the ground they were not originals. the commentator questioned whether this practice was consistent with due process of law.[34]

c. statutory damages

article 60 of the chinese patent law provides that where it is difficult to determine the losses which the patentee has suffered or the profits which the infringer has made, the award of damages may be determined according to “the appropriate multiple of the royalty” of the patent at issue under license agreement, [35] the royalty being an amount inferred by the court. however, how many “multiples” of the inferred royalty can a court use in maximum in fashioning such relief? the patent law provides no guideline on this point. to find the answer, one has to consult the supreme court patent trial provisions. article 21 of that document provides two alternative methods to calculate the damages where it is difficult to determine the losses of the plaintiff or the gains of the infringer. two options are given:

1) where there is patent licensing fee to refer to, the court may determine the reasonable amount of compensation according to the kind of patent right involved, the nature and facts of the infringement by the infringer, the amount of the patent licensing fee, the nature, extent and time of the patent license based on one to three times the patent licensing fee (similar to the “treble damages” in u.s. patent law);

2) where there is no patent licensing fee to refer to, or the license fee is obviously unreasonable, the court may, depending on various factors such as the kind of the patent right, the nature and facts of the infringement, set the amount of damages at more than rmb 5,000 yuan and less than rmb 300,000 yuan in usual situation, but in no case exceeding rmb 500,000 yuan.[36]

generally, courts would use “reasonable royalty” as the yardstick for measuring damages. only in situations of willful infringement, egregious infringement, repetitious infringement would courts apply the treble damages provision.[37] the royalty to be used as reference by the courts can be either the royalty provided in license agreements entered by the patent owner with third parties, or the level of royalty used widely in the relevant industry.[38]the first option is preferred by the courts in setting the amount of damages. the provision on statutory damages was included in the provisions in light of the experience of other countries such as the provisions in united states copyright law, and in light of article 45 of trips. [39]in sum, the plaintiff in a patent infringement action should consider all the relevant factors and choose the most advantageous remedy.

in april 2003, the higher court of fujian province affirmed a judgment from the intermediate people’s court of fuzhou city, which awarded the plaintiff, jindeli company, ltd., 500,000 yuan rmb as statutory damages against one defendant and 50,000 yuan rmb against another defendant in a patent infringement action. after the lawsuit was started, the defendants applied for invalidation of the patent with the board and successfully stayed the litigation. but after the board upheld the validity of the patent, the litigation resumed. ultimately, the trial court found the defendants liable for infringement and awarded the maximum amount of statutory damages to the plaintiff because its products had very good reputation on the market and occupied significant market share while the defendants continued to sell the infringing products even after they received a demand from the plaintiff to stop such conducts, causing significant damages to the plaintiff. [40]  

d. limitation on damages: the “innocent infringer doctrine”

a unique provision in china’s patent law about damages for infringement is the provision in article 63 of the chinese patent law, which allows an infringer to escape liability for damages if he can prove that he “obtains the product from a legitimate source.”[41]

in the first example above, the court ordered the plaintiff to be audited. in the second example, the party audited was the defendant. this difference in treatment is because in the first case, the plaintiff’s loss exceeded the defendant’s gains. in the second case the plaintiff did not suffer apparent damages. in such a situation, the calculation of damages should be based on the defendant’s gains. in the third example, the court simply applied the maximum amount of statutory damages allowed because the defendants willfully continued their infringing conduct even after warnings from the plaintiff, and because such conduct caused serious injury to the plaintiff. 

2. legal cost and attorney fees

a. legal cost

pursuant to article 22 of the supreme court patent trial provisions, trial

courts may, at the request of the patent owner or according to the specific facts of a case, include reasonable expenses paid by the plaintiff for investigation or for stopping the infringement in the total amount of award.[42]

b. attorney’s fees

neither the chinese patent law nor the patent implementing regulations provide for award of attorney’s fees to a prevailing plaintiff in a patent infringement litigation.[43] while the supreme court patent trial provisions specifically provides for award of “reasonable expenses paid by the patent owner for investigation or for stopping the infringement ,“ it contains no reference to attorney’s fees.[44] furthermore, the “reasonable expenses” in article 22 do not encompass attorney’s fees incurred for the litigation. as explained by the honorable cao jianming, then vice-president of china’s supreme court, the absence of any mentioning of attorneys’ fees was deliberate. under trips, argued justice cao, award of damages “may” include appropriate amount of attorney’s fees. member countries had a lot of leeway in deciding whether to include it according to specific circumstances in their own countries. considering the specific circumstances in china and similar lack of mentioning of attorney’s fees in china’s unfair competition law, the supreme court decided not to classify attorney’s fees under the “reasonable expenses” in article 22. however, where it is appropriate, trial courts may order defendants to pay a prevailing plaintiff reasonable attorney’s fees. [45] it is probably not inaccurate to say that award of attorney’s fees in patent infringement litigation in china is an exception, not a rule.