By Ni Zhenhua King & Wood Mallesons’ IP group.
SAP SE (the Plaintiff), founded in 1972 and headquartered in Walldorf, Germany, is the largest provider of enterprise management and collaborative commercial solutions in the world. It is also the world’s third largest independent software supplier, with more than 102,500 enterprises in 120 countries worldwide using SAP software and over 80% of Fortune 500 enterprises benefiting from its management solutions. In the 1980s, SAP SE entered the Chinese market. Thanks to its successful operation over three decades, it has won great recognition in China.
In China, SAP SE provides training on its software via its Chinese subsidiaries and partners. This facilitates a quick and straight forward learning mechanism locally which produces highly skilled SAP software practitioners. To facilitate training, SAP SE compiled a series of textbooks corresponding to modules of software that explain interfaces and terms. SAP SE holds the copyright to the software as well as the textbooks for training.
Langze Enterprise Consultancy (Shanghai) Co., Ltd (“Langze”, the Defendant), founded in December 2010, has offices in eight cities in China including Shanghai, Beijing and Tianjin. Langze offered training sessions on modules of SAP software on a large scale. In November and December of 2013, using external investigators, King & Wood Mallesons (“KWM”) obtained the software concerned and 16 textbooks. In March 2015, on behalf of SAP SE, KWM filed a lawsuit against Langze and others with the Shanghai IP Court (the “Court”).The lawsuit argued that Langze’s conduct infringed upon the rights of reproduction, distribution and information network distribution of the software concerned, and the rights of reproduction and distribution of the textbooks as literary works, claiming total damages of RMB 5.01 million in economic loss.
After the hearing, in February 2016, the Court ruled that indeed the infringements mentioned were all established, and that Langze immediately stop the infringements and compensate SAP SE its economic loss of one million RMB as well as reasonable expenses of RMB180,000. Neither party appealed and the ruling has since come into effect.
Calculating the damage: judicial practice in China
This case is exemplary in terms of how the Court calculated damages:
- The Court accepted SAP SE’s evidence which was collected from Langze’s official website. It accepted this as self-admission, i.e. Langze provided training to at least 978 trainees, in the absence of Langze’s proof to the contrary on its exact number of trainees.
- In the absence of detailed training fees from Langze, the admission of such fees on its website (and such fees paid by the SAP SE’s investigators at enrollment) was considered by the Court as the actual training fee Langze charged.
- Last but not least, even if not all the 978 trainees had been involved in the training for material management and human resources modules, collected evidence alone could prove that SAP SE’s loss from the infringements exceeded RMB 500,000, the statutory ceiling for damage.
The Court, considered the evidence: Langze’s pricing for training; the nature of its infringements; subjective intention; and the duration and degree of infringements with reference to SAP SE’s license fee rate of 40% for its partners, and ruled the total damage to be RMB one million, despite the statutory ceiling of RMB 500,000.
Article 49 of Copyright Law of the People’s Republic of China provides three bases for calculating damage:
- actual loss of the plaintiff
- the amount of the defendant’s illegal proceeds; and
- discretionary power of the court.
In judicial practice, most cases are calculated on the third basis, i.e. based on the facts of a case, a court decides and awards damages depending on the circumstances. In essence, this is meant to recover the right holder’s actual loss. Whichever calculation is used, the principle of full compensation prevails. In practice, however, damages awarded are usually below the statutory ceiling of RMB 500,000, and do not cover plaintiffs’ losses in full.
The Supreme People’s Court stated in Opinions on Several Issues Concerning the Trial of Intellectual Property Rights Cases Serve the Overall Objectives of China Under the Current Economic Situation in 2009,
“Where the exact amount of the damage caused by the infringement or profits generated by such infringement is difficult to prove, but there is competent evidence that the aforementioned amount is apparently higher than the maximum compensation amount as provided by law, the court shall, on the basis of a comprehensive consideration of all evidence in the case, determine a compensation amount in excess of the said maximum amount.”
When SAP SE went all out to provide evidence, and in the absence of evidence to the contrary from Langze, it was exactly based on this principle of full compensation that the colliagiate bench accepted reasonable evidence from SAP SE and went beyond the statutory ceiling. By doing so, it both recognized the value of the copyright holder’s work and effectively deterred Langze from further infringement – a perfect show of muscle by IPR protection authorities.
Impact of the case
After the case was closed, many other training institutions that infringed upon SAP SE’s copyrights ceased their infringements, a demonstration of the exemplary power of this case. Shanghai IP Court’s effort to protect foreign copyright holder’s rights in this case was also commended by SAP SE’s executives and international counterparts.