Authors: Jing Xu, Intellectual Property group, King & Wood Mallesons

Recently, the Supreme People’s Court of PRC (“SPC”) ruled in the final judgments of two cases of infringement upon utility model patents that even if the infringer had only committed the infringement conduct of offering for sale, it should be also held liable for the damages caused to the right owner in addition to ceasing the infringement.

Case Overview

The plaintiff Company A is a manufacturer of large-scale construction machinery and equipment. In 2018, Company A found that Company B displayed products suspected of infringing its patent rights in its online store and official website. Company A believed that Company B manufactured, offered for sale and sold infringing products. Company A sued Company B before Qingdao Intermediate People’s Court, claiming that Company B immediately cease the infringement and compensate Company A for damages of RMB 100,000 and reasonable costs. The Qingdao Court found that the products fell within the protection scope of the involved patents and that Company B constituted offering for sale by displaying the accused product. However, Company A failed to prove that Company B had manufactured and sold the infringing products. The Qingdao Court finally awarded a damages of RMB 30,000 (including reasonable costs) to Company B against Company A based on the statutory damages rule.

Company B appealed to the SPC, claiming that Company B’s conduct of offering for sale did not cause any damages to Company A or make any profits to Company B. Therefore, it should only be liable for reasonable costs but shall not be held liable for damages.

The SPC eventually rejected Company B’s appeal. The SPC holds that the prices of the infringing products offered by the infringer are usually lower than the prices of patented products, which would cause an implication on potential consumers to impact the reasonable prices of patented products. It would even make consumers not purchase patent products, delaying or reducing the normal sales of the patented products. In addition, the act of offering for sale may also weaken the advertising effect of the patented products. These damages can be reasonably inferred. Meanwhile, holding the act of offering for sale liable for damages is more favorable for protecting and stimulating innovations, and could better achieve the legislative purpose of the Patent Law. When the patentee has difficulties in proving the specific damages caused by offering for sale, the amount of damages can be determined based on statutory damages, which is the very purpose why the Patent Law provides the statutory damages.

Comments and Recommendations

In the 2020 amendment to the Patent Law, it was the first time that the act of offering for sale was introduced in the Patent Law as an independent infringement conduct. The act of offering for sale means that a person or an entity has a manifestation of intention to sell products by way of advertising, displaying the products in a shop window or exhibiting the products in a fair. In the previous judicial practice, the Chinese courts (including the SPC) usually would not support the right holder’s claim for damages against the conduct of offering for sale alone, by holding that the conduct of offering for sale would not cause actual damages to the right holder or the actual damages had not been proven, but the defendant having only offered for sale the infringing products would be only held liable for reasonable costs of the right holder.

In the above-mentioned case, the SPC changed its attitude. The court concluded that the act of offering for sale alone would also cause damages to the right holder based on the considerations of the potential adverse impacts on the sales price, transaction opportunities and advertising effect of the patented products, as well as the policy of strengthening the protection for intellectual property. This is undoubtedly a good news for the patentee, based on which the patentee will not only be able to cease the infringement timely at the early stage of offering for sale, but may also be able to obtain an expectable economic compensation. For the defendant, it is necessary to change the defense strategy when only accused for offering for sale. The defendant needs to actively defense against the damages claim, such as the legitimate source defense to reduce the possible amount of damages that may be awarded by the court.