Monday, November 18, 2013

Two articles on patent damages in China

A few weeks ago I posted a story titled "Draft Fourth Amendment of the Chinese Patent Act Would Authorize Treble Damages for Willful Infringement," available here, and mentioned a recent article.on the subject by Professor Zhang Guangliang, titled Thoughts on Effect of Patent Protection in China with Analysis of Some Important Issues Involved in Amendment to Chinese Patent Law, China Patents & Trademarks No. 3, 2013, pp. 100-03.  Professor Zhang also published an earlier paper in China Patents & Trademarks No. 1, 2012, pp.88-92, titled Punitive Damages Not Sound Strategy to Address Tough Issues of IP Protection in China.  Professor Zhang points out, among other things, that punitive or enhanced damages for patent infringement are not common worldwide (the U.S., Canada, Australia, and after a brief hiatus Taiwan are the only major patent systems I'm aware of that permit them); and that Chinese law already authorizes courts to enhance awards of reasonable royalties in cases involving intentional infringement (as I discuss in my book at p 358), and to take various factors into account in awarding statutory damages (see my book p.359).  Professor Zhang notes that "If it is impossible to find out the right owner's actual injury or the infringer's iillicit benefits, there is no basis for calculation of punitive damages.  Unfortunately, this is true in most IP infringement cases in China."  He argues that, rather than awarding punitive damages, it would make more sense if  litigants were more careful in trying to quantify actual damages or profits, and courts more receptive to granting evidence preservation measures and not imposing an excessively high burden of proof.  His analysis makes sense to me.

Another article in that same issue of China Patents & Trademarks (No. 1, 2012, pp.47-51) is by Xue Libo, Former Counsel to the Patent and Trademark Law Office CCPIT, and is titled Reflections on Damages for Patent Infringement.  The article discusses China Environmental Project Co., Ltd. v. Fujikasui Engineering Co., Ltd., Huayang Electric Power Co., Ltd. (Wuhan Jingyuan v. Japanese Fuji), a case I discuss in my book at pp.349-50, for its significance as a Chinese patent infringement decision in which the court declined to award a permanent injunction and instead ordered payment of an ongoing royalty.  The article by Mr. Xue focuses on the damages award.  The patentee Wuhan had been hired to consult Huayang and Fujikasui on a project, and later filed suit against them for patent infringement after they implemented Wuhan's proposed technical solution.  (Fujikasui made the infringing system and Huayang installed it.)  The patent application had been filed before the consultation arrangement, but if I'm reading Mr. Xue's analysis correctly Wuhan didn't inform its clients.  Mr. Xue argues that the court should take this fact into account in setting damages.)  Anyway, the trial court awarded Fujikasui's profits based on its total contract price, since Fujikasui did not provide information that would have allowed the court to deduce appropriate costs; and an ongoing royalty payable by Huayang.  On appeal, the court affirmed as to the amounts, but concluded that the two parties were jointly liable for the damages.  Mr. Xue argues that the finding the parties were jointly liable for damages was incorrect.  He also suspects there is some duplication in the damages award, since Fuijkasui was ordered to pay to Wuhan the price Huayang paid Fujikasui for the use of the technology, and then Huayang was ordered to pay royalties to Wuhan as well.  In addition, he is critical of the fact that the court did not apportion Fujikasui's profits, "since the contractual price (even if the hardware factors are deducted) includes . . . the technological R&D, design test Fujikasui Engineering Co., Ltd.  made to turn the technology into one of commercial value, costs paid for technical services and training for Huayang, and thus the value added to the contract . . . ."  A similar problem arose in the Chint utility model infringement case I discuss in my book at p.357, resulting there in an award of RMB 330 million (the largest to date) due in part to a failure to apportion.  Overall, a good read, though I would counsel against the author's advocacy, toward the end of the paper, of the 25% rule which was rejected in the U.S. Uniloc decision in early 2011.   

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