China: China's New Patent Infringement Trial Rules Become Effective - Introduction To The Judicial Interpretation (II) Regarding Patent Infringement Of The China's Supreme People's Court (III)

V. Procedural Aspects

1 Burden of Proof in Determining Damages

Article 27 of the Judicial Interpretation (II) reads,

Where it is difficult to determine the actual loss suffered by a right holder, the people's court shall require the right holder to proffer evidence to prove the gains obtained by the infringer from the infringement in accordance with Paragraph 1 of Article 65 of the Patent Law. Where the right holder has proffered the prima facie evidence in relation to the gains obtained by the infringer but the account books and materials related to the acts of patent infringement are mainly under the control of the infringer, the people's court may order the infringer to submit such account books and materials; where the infringer refuses to provide such account books and materials without justification or submits false account books and materials, the people's court may determine the gains obtained by the infringer from the infringement based on the claims of the right holder and the evidence proffered thereby.

Since there is no discovery procedure in China, it is usually difficult to collect evidence, especially evidence of damages. This article aims at easing collection of evidence of damages by shifting the burden of proof to the defendant when the plaintiff has proffered preliminary evidence as required. However, there are some concerns: 1) the accounting books and relevant materials of the defendant might not be so canonical and complete; and 2) the patentee may abuse his right and try to obtain the trade secrets of the defendant by litigation. So, how to allocate the burden of proof shall be made on a case-by-case basis.

Whatever, the above provision is a good indicator to patent holders. Hopefully, increased damages may be obtained in a patent infringement litigation in the future.

By the way, the "materials" mentioned in this article shall be the materials relating to finding damages caused or gains of the defendant by infringement.

2 Agreement on Damages

Article 28 of the Judicial Interpretation (II) reads,

Where a right holder and the infringer have legally agreed on the amount of damages for patent infringement or the methods for calculating the amount of damages, and one of them claims during a patent infringement lawsuit that the amount of damages shall be determined in accordance with such an agreement, the people's court shall uphold such a claim.

This article affirms the efficacy of an agreement on damages either before or after infringement between the right holder and the accused infringer. To accurately determine the possible damages, it might be better for the parties to determine the damages based on a unit price instead of a lump sum under this article.

Further, whether the agreed damages can be revoked by introducing the Contractual Law, for example where an obviously unfair civil act is found, is not clear yet. It is expected that, in most cases, the courts will respect such agreed damages.

In Zhongshan Longcheng Commodity Co. Ltd. v. Hubei Tongba Children's Commodity Co. Ltd., Longcheng brought a lawsuit against Tongba asserting that Tongba continued infringing its patent after signing a mediation agreement and claiming damages of RMB 1,000,000 for patent infringement, not for violation of the agreement. Since the amount of compensation was not supported by the first and second instance courts, Longcheng requested retrial with the Supreme Court.

Said mediation agreement was reached by the two parties in a previous action initiated by Longcheng during the second instance before the Hubei High Court, in which Tongba warranted that it will not infringe any more and it shall voluntarily compensate Longcheng for RMB 1,000,000 if infringement upon the patent is found again.

The Supreme Court found that Tongba offered to sell the infringing products after signing the mediation agreement and held that,

Since there is no basic business contract between the two parties, Tongba shall bear the liability for tort instead of the liability for violating an agreement. The mediation agreement, which solely clarifies the liability of Tongba non-infringing, was reached by the two parties voluntarily and shall be binding to the two parties in determining the amount of compensation.

3. Termination of a Lawsuit based on an Invalidation Decision

Article 2 of the Judicial Interpretation (II) reads,

Where the claims of a patent on the basis of which the right holder asserts patent infringement in a lawsuit are declared invalid by the Patent Re-examination Board, the people's court trying the patent infringement dispute may render a ruling to dismiss the lawsuit filed by the right holder on the basis of the invalid claims.

The right holder may file a lawsuit separately if there is evidence showing that the decision to declare the claims invalid is revoked by a binding administrative judgment. If the patentee files a lawsuit separately, the period for limitation of action shall be calculated from the date of service of the administrative judgment mentioned in Paragraph 2 of this Article.

The basic purpose of this article is to accelerate the legal proceedings of a patent infringement case with a view that only a small percentage of decisions regarding the validity of a patent made by the Patent Reexamination Board were revoked by the courts.

Several points shall be mentioned regarding this article: 1) A court may rule to dismiss a lawsuit either in the first or in the second instance whenever the claims of the patent in dispute are announced invalid by the Patent Reexamination Board; 2) Only when all of the claims of the patent forming the basis of the complaint are announced invalid by the Patent Reexamination Board, can the court adjudicating the infringement lawsuit render a ruling to dismiss the lawsuit; 3) Will the damages be affected by the interruption of the lawsuit or can the damages incurring during the period the patent is announced invalid be calculated? There is no clear answer as to how the second lawsuit is connected to the first lawsuit and how the damages are calculated yet.

4 Designation of Specific Claims for Pleading

Article 1 of the Judicial Interpretation (II) reads,

Where the claims of a patent contains two or more claims, the right holder shall specify in the complaint the claims based on which the accused infringer is being sued for patent infringement. Where such claims are not specified or not clearly stated in the complaint, the people's court shall require the right holder to specify the claims; where the right holder refuses to do so upon requirement of the people's court, the later may rule to dismiss the lawsuit.

In the past, in a patent infringement litigation, many plaintiffs made infringement analysis only on the basis of the independent claims. Should the independent claims be announced invalid by the Patent Reexamination Board, the court would have to ask the plaintiffs to make further comparison between the accused products or processes and the asserted claims which are maintained valid during the invalidation proceedings. This will inevitably prolong the legal proceedings and is not fair to the defendants. This article requires the plaintiff to define the claims on the basis which the complaint is based initially and is in favor of accelerating the proceedings.

VI. Conclusion

The Judicial Interpretation (II) is a law which the courts of all levels shall comply with. Any person who is intending to seek patent protection in China shall keep the above provisions in mind from both the procedural aspects and the substantive aspects. The Interpretation reflects the spirit of the Supreme People's Court in the ruling of patent infringement cases in recent years, and clarifies certain debating issues.

Even though the Judicial Interpretation are coordinating issues concerning the application of law in the trial of paten infringement cases, it also has meaning in the guidance of applicants during the drafting and prosecution of patent applications. For instance, where not necessary, it would be better not to incorporate the close-ended expressions into a claim, and to avoid emphasis of the terms such as "at least" and "not more than" plus a number or a numeric range on technical effects in the description, so as to prevent the negative effect exerted by such limitation on protection scope during the enforcement and exploitation of a patent. Also, an applicant shall pay more attention to the observations made in the prosecution and look into the file of a related divisional if any, since these materials would have relation to the principles of file wrapper estoppels. Further, considering the higher level for the establishment of equivalent infringement and the interpretation on functional features, it would be favorable to include more embodiments and/or working examples in the description.

Further, the Interpretation provides more measures to lower the burden of proof for a patent righter holder, especially for a foreign patent righter holder who may encounter more obstacles in collecting evidence, and may increase damages in the future, and also shorten the cycle of the legal proceedings, which are in favor for a patent right holder and may encourage innovation in a long term. The effect of the Interpretation will be more clearly reflected with the judgement of more cases by the courts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.