Written by:Jin MAO, Chao WU (Intellectual Property)
Case in brief
Sichuan Golden-Elephant Sincerity Chemical Co. Ltd. and Beijing Yejing Technology Co. Ltd. are patentees of the melamine production system and production process. King & Wood Mallesons (KWM), entrusted by the patentees, filed a complaint with the Guangzhou Intellectual Property Court on December 13, 2016 against Hualu Hengsheng Company, Ningbo Yuandong Company, Ningbo Design Institute Company and Yin Mingda for infringement of the patent rights, requesting the four defendants to stop the infringement and to pay, jointly and severally, compensation of 1.2 billion Yuanas well as other reasonable rights defense expenses to the plaintiffs. On June 10, 2020, the Guangdong Higher People’s Court ordered the four defendants to stop infringing in the first instance, specifically ordering Hualu Hensheng Company to pay 80 million Yuan to the plaintiffs for compensation and ordering Ningbo Yuandong Design Institute Company to be jointly and severally liable for 40 million Yuan of the compensation.
Focus of present case
1.Determination of evidence based on which the infringing technical solution is determined
In the present case, the plaintiffs applied to the court to retrieve the “Safety Assessment Report” and “Design Special” filed by the defendant Hualu Hengsheng Company in the local safety supervision department. Given the facts that the Hualu Hengsheng Company repeatedly and explicitly refused the court the on-site inspection, the plaintiffs claimed to determine the alleged infringing technical solution based on the above-mentioned filing materials. The Hualu Hengsheng Company argued that the technical solution implemented in practice was different than the filing materials, but did not provide any relevant evidence. However, the court held that, in accordance with the pertinent legal provisions, the technical solution implemented by the Huahu Hengsheng Company in practice should be the same as that recorded in the filing materials. The filing materials could be mutually verified, highly credible and sufficiently convincing. Considering that the Hualu Hengsheng Company had refused to preserve evidence and failed to provide evidence reflecting the actual technical solution in accordance with the Court Oder for Filing of Documentary Evidence, and the alleged infringing project, a large-scale chemical project, brought about objective difficulties in on-site inspection, the court upheld the plaintiffs’ claim.
2.Determination of infringement liability in alleged infringing project with participation of multiple particles
The patents in question include a product patent and a method patent involving the melamine technology. Regarding the product patent in question, the alleged infringing project is a large-scale production system involving participation of multiple parties. More specifically, the Hualu Hengsheng Company, the Ningbo Yuandong Company and the Ningbo Design Institute Company signed a Technology Transfer and Engineering Design Contract involving the alleged infringing project; Hualu Hengsheng Company paid the consideration for the project; the Ningbo Yuandong Company and the Ningbo Design Institute Company had gained profits from the project. In view of the above, the court thus concluded that the defendants cooperated in manufacturing the production system in the alleged infringing project and jointly implemented the manufacturing activities. Considering that the activities of using alleged infringing production system, performed by Ningbo Yuandong Company and the Ningbo Design Institute Company were not targeted for production and business, which were merely dependent on the manufacturing activities, the court found that the Hualu Hengsheng Company had committed the act of using infringing products. For the method patent in question, the Ningbo Yuandong Company and the Ningbo Design Institute Company could not influence or control the Hualu Hensheng Company’s acts of using the infringing production process and selling the manufactured products, nor did they make any profit from the above acts. Thus, the court found that the Hualu Hengsheng Company had committed the acts of using the alleged infringing production process and selling the products manufactured with the alleged infringing production process.
3.Basis for determining amount of compensation and factors taken into account
The plaintiffs claimed to calculate the amount of compensation based on the infringers’ profits, and submitted prima facie evidence, including the defendant’s annual reports, and the like. The court ordered the Hualu Hengsheng Company to submit accounting books and materials related to the patent infringement, but Hualu Hengsheng Company refused the submission. The court held that, in order to further investigate the facts related to infringement and profits, any company or individual should provide true and complete evidence in the lawsuit as required by the Court Order for Filing of Evidence to fulfill the legal obligation in litigation on one hand, and to exercise the right to timely rebut the amount and calculation method of compensation claimed by the right holder on the other hand. Having a full picture of the actual profits gained from the infringement, the infringer was fully capable of and obligated to provide counter-evidence if the evidence submitted by the right holder was untrue or the amount of compensation claimed was unreasonable. Trade secrets were not a legitimate reason for refusing to submit evidence, nor could they be used as an excuse to hinder the litigation. Therefore, the court determined the profits of the Hualu Hengsheng Company according to the claim and the evidence submitted by the plaintiffs.
When calculating the amount of compensation, the court awarded the highest amount of compensation (80 million Yuan) among the counterparts for the patent infringement cases to date, considering the following factors:
1.Since the patent involved in the case was an improved patent and the products manufactured with the patent involved were not new products, the Hualu Hengsheng’s profits gained from sale of the products were not all brought by the patent involved, and the patent involved owed its credit to the technical improvement part;
2.The technical solution of the patent involved in the case related to the key and core technology of the alleged infringing project, which played a crucial role in Hualu Hengsheng Company’s production and sale of the products;
3.The plaintiffs filed three lawsuits against the four defendants involving the alleged infringing project, and the amounts of compensation claimed by the plaintiffs in two related cases were related to the profits made by Hualu Hengsheng Company in the production and sale of the products;
4.Reasonable rights defense expenses spent by the plaintiffs.
In this case, the defendants argued that the technical solution implemented in practice was different than the filing materials, and repeatedly refused the on-site inspection with the excuse of protecting the trade secrets. In order to convince the court that the technical solution implemented in practice was the same as the filing materials, the KWM explained the formation of the filing materials to the court in detail to impress the court with the authenticity of the filing materials. In addition, by citing the relevant provisions of Work Safety Law of the People’s Republic of China, Regulations on the Safety Management of Hazardous Chemicals, and the like, the KWM made it clear that: the filing materials provided by the relevant chemical companies should truly reflect the technical solutions implemented in practice, and any changes to the solutions implemented in practice should be filed with the safety supervision department; otherwise, the concerned parties might be subject to criminal liability. On the basis, the KWM expressed, in the case that the safety supervision department had no filing materials about the modified technical solution in record, it should be determined that the filing materials retrieved could truly and objectively reflect the technical solution implemented by the defendants in practice. To further convince the court, the KWM cited two cases where the respective alleged infringing technical solutions were identified based on filing materials. The KWM’s effort successfully convinced the court that the filing materials retrieved could truly reflect the technical solution implemented by the defendant in practice, and the court thus upheld the plaintiffs’ claim to determine the alleged infringing technical solution based on the above-mentioned filing materials.
When determining the amount of compensation, the KWM collected not only the business data published by the defendant Hualu Hengsheng Company but also the business data published by companies in the comparable scale in the same industry. On the basis, the KWM calculated the Hualu Hengsheng Company’s profits from infringement based on the operating income, the operating margin and the gross margin of melamine product-related chemicals published by the Hualu Hengsheng Company, and the gross margin of melamine products published by companies in the comparable scale in the same industry, to convince the court that the Hualu Hengsheng Company’s profits from infringement were between 257 million and 436 million Yuan, much higher than the plaintiff’s claim. As a result, the court awarded 80 million Yuan, the highest one among the awards for patent infringement cases to date.