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Alert 351 - China - New guidance in patent infringement actions
On 1 January 2010, the Supreme People’s Court of the People’s Republic of China issued guidance in relation to patent infringement trials, by issuing its Interpretation by the Supreme People’s Court on Some Issues Concerning the Application of Laws to the Trial of Patent Infringement Disputes (Interpretation).
Two key provisions are Article 16 on patent damages and Article 18 on warning letters.
Article 16 – Calculation of Damages for Patent Infringement
Under Article 16, a Court must limit damages for patent infringement to 'the profits gained by the infringer due to the infringement of the patent right.' '[T]hose profits generated from other rights shall be reasonably excluded.'
In a similar vein, if the infringing product is a component part of another product, the Court must 'reasonably determine the amount of compensation in accordance with the value of the component per se and its function in achieving the profits of the finished product and so on.'
Taken together, damages for patent infringement are to be limited to the ‘specific’ contribution that the infringed technology contributes to the infringer’s profits.
An example of the need for more equitable damages awards for patent infringement can be seen in the Chint Electronics v. Schneider case. There, Schneider was found guilty of infringing one of Chint’s patents which covered a very small part of the product produced by Schneider. This resulted in a startling damages award of US$46 million against Schneider as a result of the disgorgement of all of Schneider’s profits. The interpretation should prevent these lopsided damages awards for patent infringement in the future.
Article 18 – Warning Letters
Before the Interpretation was issued, an alleged patent infringer could proceed to their local Court immediately after receiving a warning letter, to file an action seeking a Declaration of Non-infringement. If the local Court accepted the action, it would then also seize jurisdiction of any future civil litigation relating to infringement of the patent in dispute, thus providing the infringer with home Court advantage.
Article 18 provides that an alleged infringer who receives a warning letter must first send a reply urging the patentee to assert their patent rights through legal proceedings against that infringer, and must then wait at least one month before filing an action with a Court for a Declaration of Non-infringement.
As a result, patent owners who have previously resisted the urge to send warning letters to infringers, due to the possibility of facing the infringer in the infringer’s local Court, may now make greater use of warning letters as part of their enforcement strategy.
The Interpretation provides some welcome guidance in relation to patent infringement actions, and should make such actions fairer for patentees and alleged infringers alike.
