When it comes to seeking financial compensation, all the efforts made by the plaintiff to prove the scope of the infringement, even if not based on exact accounting books, can be appreciated and rewarded by the court.

Article 65.2 of China 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 RMB 10,000 and not more than RMB 1,000,000 in light of some factors, such as the type of the patent right, the nature and the circumstances of the infringing act."

It is very difficult in China for the patent owner to calculate the specific losses directly caused by the infringing act. It is also difficult to prove the amount of illegal gains obtained by the defendant, as usually, the defendant will not easily divulge its financial data or document in connection with the infringing product, unless the earning is really low. And finally, it is not easy to identify a patent royalty reference which would allow the calculation of how much money the defendant would have had to pay if a license had been granted. In China, no procedure like the US "discovery" system may help the plaintiff to obtain and review such evidence from the defendant. As such, more often than not, Chinese courts resort to the above provision and determine an amount of damages within the statutory limit of RMB 1 Million.

However, this limit is not unbreakable, as the Shenzhen Intermediate court demonstrated.

Case Brief:

Leatherman Tool Group, Inc. is an American company designing, producing and selling multi-tools, wearables, and knives, used in outdoor activities. One of these products, designed a few years ago, is the "Tread" bracelet, a multi-tool, travel-friendly and features-customizable wearable. Corresponding patent applications were filed by Leatherman before the release of this product. 

In early 2017, Leatherman found out that a Chinese company named "Coteetci" was selling bracelet product under the brand of "Coteetci" that obviously copied the design of "Tread". Through investigation, Leatherman obtained preliminary evidence and sued Coteetci for patent infringement before the Shenzhen Intermediate Court, seeking for cessation of infringement and indemnification.

The patent infringement was easily established. The difficulty of the case was to get a high compensation under the situation that:

1) Coteetci is a small-sized business having no more than 10 registered employees;

2) The Coteetci bracelet was sold at a relatively low price of around USD$60;

3) Coteetci would not disclose the amount of sales of the bracelet product.

Leatherman took the following measures:

1) making an audio recording of the whole conversation during the notarized purchase, during which Coteetci's salesman admitted that nearly 10 thousand bracelets had been sold in the last two months;

2) filing a complaint with local Administrative Authorities, which prompted the authorities to raid Coteetci's office and factory and collect information on the inventory and revenue of the Coteetci bracelet.

During the court hearing, Coteetci denied manufacturing and selling the alleged infringing products, and also, tried to submit a prior art defense, based on a series of prior patents. The judge directly rejected this prior art defense, given the significant differences between these prior patents and the product.

In addition to the audio recording and the raid action report, Leatherman supplemented evidence showing that Coteetci had been continuously committing the infringement acts throughout the entire procedure before the court.

The Shenzhen Intermediate Court rendered a decision on November 22, 2017, finding Coteetci's infringement and ruling that Coteetci should pay damages for an amount of RMB 1.2 million. The court justified this amount, which is higher than the statutory limit of one million, not only on the evidence provided by the plaintiff, which allowed a certain estimation of the amounts involved, even if not very accurate, but also, on the bad faith demonstrated by the defendant. 

Wanhuida Peksung represented Leatherman in this civil proceeding.

Comments:

This case shows that, when it comes to seeking financial compensation, all the efforts made by the plaintiff to prove the scope of the infringement, even if not based on exact accounting books, can be appreciated and rewarded by the court. It appears that, when it comes to sanctioning infringement activities, courts are gaining in confidence. They feel free to interpret the boundaries set in the law for the calculation of damages. Factors, such as the behavior of the defendant, or in this case, an oral admission (even if not exactly corroborated by accounting books), may be taken into account. Technically, these are not punitive damages, in the US sense of the term. But it shows, that the statutory ceiling is not an unbreakable limit.

Contributor: Mr. Arco Wang