[Case Number]

First instance: Shanghai Intellectual Property Court (2021) Hu 73 Zhi Min Chu No. 612

Second instance: The Supreme People’s Court (2022) Zui Gao Fa Zhi Min Zhong No. 2892

[Basic Facts]

M** Netherlands B.V. (hereinafter referred to as “M**”), the patentee of the invention titled “Motion Mechanism”, purchased the allegedly infringing products manufactured and sold by the defendant Ningbo J* Car Industry Co., Ltd. (hereinafter referred to as “J*”) through different channels in 2018, 2020 and 2021. In 2020, it purchased the products from a 4S store operated by the defendant Shanghai D* Automobile Trading Co., Ltd. (hereinafter referred to as “D*”). In 2016, M** once filed a lawsuit with Beijing Intellectual Property Court on the grounds that the alleged products manufactured and sold by J* before September 18, 2016 infringed the patent rights concerned. The Supreme People’s Court made the judgment of second instance on August 20, 2020 that the products M** purchased in 2013 and 2016 were manufactured by J* and fell within the scope of protection of the patent concerned. M** sent letters of warning on infringement to J* on June 24, 2013, June 17, 2015 and November 3, 2015 respectively. The lawsuit filed by M** did not exceed the limitation of action, so J* was ordered to compensate M** RMB 610,000. On October 12, 2020, the above-mentioned civil judgment of the Supreme People’s Court was served to J*, but it failed to perform the obligations determined in the effective judgement. M** believed that J*’s manufacture and sale of the allegedly infringing products severely infringed on the patent rights with an apparent subjective malice, and thus the punitive damages should be applied in this case. It also claimed that D*, which sold the products that infringed on the patent rights, should also be held liable for the corresponding tort. Therefore, M** filed a lawsuit with the court, requesting that the two defendants should be ordered to cease their infringement, J* to compensate it RMB 30 million including economic losses and reasonable expense, and D* to compensate it RMB 500,000 including economic losses and reasonable expense. During the trial of the case, the plaintiff withdrew its claims requesting for cessation of infringement on the grounds that the patent rights had expired.

[Judgment]

Shanghai Intellectual Property Court held the view that J* manufactured all the allegedly infringing products which fell within the scope of protection of the patent rights concerned, so it should assume the corresponding liability for compensation. To calculate the amount of compensation, it was first determined that J* had gained a total of RMB 4,023,315.80 from infringement according to the sales amount of the allegedly infringing products and the profit margin of 6.5% in China’s auto parts sector as well as the contribution rate of the patents concerned. Second, M** had sent three letters of warning on infringement to J* before filing the previous lawsuit. J* did not cease its infringement despite the determination made by Beijing Intellectual Property Court that the allegedly infringing products fell within the scope of protection of the patent concerned. The allegedly infringing products constituted literal infringement on the patent, and J*, as a professional auto parts manufacturer, should have known the existence of the patent when manufacturing the allegedly infringing products. J* had acted in bad faith in legal proceedings of both the previous case and this one. After receiving the effective judgment from the Supreme People’s Court, J* continued to commit infringement. All these facts are sufficient to prove that J* deliberately committed infringement on the patent rights concerned, which was serious, so J* should assume liability for punitive damages, the amount of which should be determined to be twice the original amount. In conclusion, the court ruled that J* should compensate M** RMB 12,069,947.40 of economic losses and RMB 150,000 of reasonable expense. The defendant D*, as a seller with legitimate sources of products, should be jointly and severally liable for RMB 10,000 of reasonable expense. Both M** and J* refused to accept judgment of first instance and appealed. The court of second instance dismissed the appeal and affirmed the original statement. 

[Significance]

It is a patent infringement case involving the application of punitive damages. The establishment of the punitive damages system for intellectual property rights is an important manifestation of China’s efforts to intensify the protection of intellectual property rights. The judgment clearly stated that the defendants continued to commit infringement in a large scale after knowing that the allegedly infringing products fell within the scope of protection of patent rights concerned. In addition, the infringer made false statements in the proceedings and failed to implement the prior effective judgment, which proved that the defendants had deliberately committed the infringement on the patent rights, which was serious, so it should assume liability for punitive damages. The application standards of punitive damages, the way of determining the amount of compensation, and the ideas of making the judgment are of certain reference significance for trial of similar cases.