Http:// [email protected] Patent Infringement Damage in China Liu, Shen & Associates: Jun Qiu May 2015.

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Patent Infringement Damage in China

Liu, Shen & Associates: Jun Qiu

May 2015


• Current Laws and Regulations• Statistics• Measures for improving damage awards• Case Examples• Summary

Outline

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1. Patentee’s actual loss

2. Infringer’s illegal profit

3. 1-3 times of patent license fees

4. Statutory damages between

RMB10,000-1,000,000 ($1,613-161,300)

5. Reasonable legal expenses

Article 65, Patent LawDamage is calculated on one of the following bases:

Current Laws and Regulations

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1. Patentee’s actual loss

Formula 1.1

Patentee’s loss= reduced number of sale units of patentee’s products due to infringement X reasonable profit of a unit of Patentee’s product

Formula 1.2

Patentee’s loss= number of sale units of infringer’s products X reasonable profit of a unit of Patentee’s product

Rule 20, Provisions of the Supreme Court on Patent Disputes


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2. Infringer’s profit

Formula 2

Infringer’s profit = number of sale units of infringer’s products

X reasonable profit of a unit of infringer’s product



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3. One to three times of Licensing fees

Formula 3

Licensing fees = number of sale units of infringer’s products X

1 ~ 3 times X referenced licensing fees per unit



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Number of 1st Instance Litigations of Patent Civil Cases Accepted by Courts Nationwide –

Supreme Court

Statistics


For patent infringement cases 2008-2012

1.Average damage awards: RMB 80,000 ($12,900)

2.Statutory Damage ratio: 97%

IP infringement damage case example report in 2013

- IP Center at Zhongnan University of Economics and Law

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Statistics


For patent infringement cases 2002-2012

Average damage awards: Lower than RMB 300,000 ($48,400)

Statutory Damage ratio: 92%

Judge of Beijing High Court presented at IP court forum 2014

Judge of Guangdong High Court in IP court forum 2014 For IP infringement cases

Statutory Damage ratio: Greater than 95%

Statistics


Among 68 invention patent infringement cases

Damage award: 38 cases

Over RMB 1 million 2 cases;

500,000-1 million 11 cases;

Below RMB 500,000 15 cases

Average damage awards: RMB 500,000 ($80,600)


Among 9 utility model patent infringement cases

Average damage awards: RMB 90,000 ($14,500)


Our investigation on some effective decisions issued by Beijing Court from 2011-2013

Statistics


Statistics

Common perception

• Low damage awards• High ratio of statutory damage

Judge of Beijing High Court• For patent infringement cases, 93.2% of patentee claimed statutory

damage

Judge of Beijing First Intermediate Court• For patent infringement cases in 2010-2013, 86.3% of patentee claimed

statutory damage in damage claims supported by the court

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Insufficient Evidence

• Difficulty to collect evidence such as real account books• Difficulty to obtain referenced license fees due to lack of

patent licensing activities in China

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Measures taken by Legislation

Proposed Fourth Amendment of Patent Law in China

Lessening burden of evidence collection regarding damages by the patentee

If patent infringement can be established, more liability is imposed on alleged infringer to provide accounting books, documents

Punitive damage for willful infringement, up to 3 times

Administrative ActionAuthorizing the administrative authority to impose fines

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Measures taken by CourtsGuangdong High Court•Evidence disclosure system

• Evidence disclosure liabilities of participating parties

•Obstruction of evidence disclosure system• Liabilities in case of obstruction of evidence disclosure

•Preponderance of evidence system• Discretionary damage greater than statutory damage if evidences

show greater damage but can not determine exact damage

•Bigger role for expert testimonies and judicial appraisal

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Measures taken by attorneys

• Public available sales figures• Evidence preservation procedure• Experts testimony• Previous contracts

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• Goertek v. Knowles

• Kubota v. Fengling

• Longchen v. Tongba

• Huawei v. IDC

Case Exmples

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Goertek v. Knowles

• US corporation with headquarter at Illinois

• Market leader and global supplier of advanced miro-acoustic devices

• Manufacturing sites at Jiangsu, China and Malaysia

• Chinese Acoustic chip manufacturer located at Weifang, Shandong

• Public held company established in 2001 and listed in ShenZhen Stock Exchange in May 2008

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June 21, 2013 ， Knowles sued Goertek in ITC and district court on patent infringement of three US patents regarding silicon microphone packaging product

July 12, 2013Goertek sued Knowles (China) in Weifang, China on patent infringement of five CN UM patents regarding silicon microphone, UM patents stands after invalidation actions

Goertek v. Knowles

February, 2013Goerteck & Knowles reach agreement

June 21, 2013 ， Knowles sued Goertek in Suzhou, on patent infringement of one CN patent, CN patent was invalided

April 17, 2014Weifang court awards RMB 74.4 million on infringement of 2 patents

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Venue ShoppingBuying infringing product from a second dealer located at

Weifang who is a retailer of a first dealer who is a distributor of the infringing product

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Goertek v. Knowles

Goertek located at

Weifang

Knowles (China) located at Suzhou


Damage claims

Goerteck provided sufficient evidences, but Knowles failed to provide counter evidence during proceeding

Patentee’s loss Formula 1.2Patentee’s loss= number of sale units of infringer’s products X reasonable profit of a unit of Patentee’s product

Number of sale units is based on public available data disclosed on the websites by Knowles (China), export number collected from Custom through evidence preservation procedure

Reasonable profit is based on an audit report on patentee’s product incorporating the patents and apportion analysis considering contribution of individual patent to overall profit of the patentee’s product

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Goertek v. Knowles


Kubota v. Fengling

• Kubota (Japan and China) and Taizhou Fengling are agriculture machinery manufacturers and competitors in China Market

• Kubata sued Fengling at Nanjing Intermediate Court in 2008

• Fengling sued Kubota for patent invalidation• PRB invalidated all claims• Beijing 1st Intermediate Court upheld the invalidation decision in

2009, • Beijing High Court reversed and remanded the decision in 2010• PRB upheld patent right in 2011

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Kubota v. Fengling

• Nanjing Intermediate Court held that Fengling infringed Kubota patent and awarded 800,000 RMB in statutory damage in 2012

• Jiangsu High Court upheld the decision in 2013

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Kubota v. Fengling• Kubota asked 2.5 million in damage

•Damage is calculated based on Formula 2Infringer’s profit = number of sale units of infringer’s products X reasonable profit of a unit of infringer’s product

•Number of units manufactured and sold was based on news reports on website of Fengling and newspaper regarding a specific model incorporating the patent

•Reasonable profits was based on administrative subsidy rate provided for agriculture machinery

• Although such evidences were not considered sufficient to support damage claim, the court awarded a high statutory damage

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Longcheng v. Tongba

• Zhongshan Longcheng and Hubei Tongba are stroller manufactures and competitors

• In April, 2008, Longcheng sued Tongba on patent infringement and Wuhang court found infringement

• During appeal, both sides reached a mediation agreement in 2009. In the agreement, Tongba agreed to stop infringing Longcheng’s patent and would pay RMB 1 million if one instance of infringement was found in the future.

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Longcheng v. Tongba

• Longcheng found that Tongba continued to infringe the patent in 2009 and 2010.

• Longcheng chose to sue in a case of patent infringement instead of breach of contract in 2011

• Wuhang court awardrf RMB 140,000 based on statutory damage due to lack of evidence

• HuBei High court affirm the decision

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Longcheng v. Tongba

• Longcheng filef petition to Supreme Court

• Supreme Court heard the case and awarded RMB 1 million Damage in December, 2013 based on following holdings:

• Mediation agreement is valid• Liability of Tongba does not belong to concurrence between

liability for breaching contract and infringement, but is solely a liability for infringement

• Court shall allow parties to reach agreement on damage awards occurred in the future due to difficulties to collect evidence and cost saving in law suits

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• IT cooperation• Members of 123 SSOs

including ETSI

• NPE • SEP patent holders for 2G/3

G/4G/IEEE802 standard

Huawei v IDC

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August, 2008 Licensing Negotiation Royalties 2% (2009-2016)

September, 2009 ， IDC joined ETSI and provides SEPs

July, 2011 IDC sued Huawei in ITC and district court on patent infringement December,2011

Huawei sued IDC in ShenZhen, China on antitrust violation and asked court to determine RAND rate

February, 2013 ShenZhen courtRAND Rate: 0.019%; Antitrust compensation: RMB 20 millionOctober, 2013 Guangdong High CourtAffirmation

Huawei v IDC

June, 2013NDRC started antitrust investigation on IDC

May, 2014IDC & Huawei reach agreement

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Huawei v IDCIn Shenzhen Court

• Huawei contended that royalty rate set between IDC and Samsung or Apple was much lower than royalty rate of 2% asked by IDC

• IDC contended that Samsung and Apple licensing agreement were earlier than Huawei negotiation and IDC did not fully recognize the values of the patent portfolio, the court should not determine royalty rate between private parties

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• RAND royalty rate for Huawei is determined based on Apple and Samsung royalty rate

Apple royalty fees=Fixed licensing fees

Product Revenue=

5.6 mil

31.3 bil = 0.018%Apple 0.018%*

Huawei 2.0%

Huawei v IDC

• RMB 20 million damage awards is a discretionary damage based on

• Legal expenses in US and China• Notarization fees• Loss of competitive advantages due to failing

to obtain licenses in time

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Summary

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THANK YOU!

[email protected]@LIU-SHEN.COM

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Http:// [email protected] Patent Infringement Damage in China Liu, Shen & Associates: Jun Qiu May 2015.

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