The Importance of Being Prepared 

Understanding patent litigation is essential to any company's IP strategy

 By Johnson Jiang Li
 
Patent litigation plays a very important role in the patent protection system. More and more multinational companies are starting to think about litigating their patents in China or at least plan for patent litigation in case they ever need to sue, or are sued.
 
The reason for this is that China is called the factory of the world and products made in China flood every corner of the world. In any patent dispute, the best strategy is always to solve it at the source. This makes China one of the most important places in the world for patent litigation.
 
In general patent litigation in China is fast and cheap compared to many countries, but the damages are quite low. This article aims to introduce some basic knowledge and practical guidelines on patent litigation in China.
 
Process 
Rights under protection 
The Chinese patent law prevents any entity or person from using a patent without the permission of the patentee. Use refers to manufacturing, producing, offering for sale, selling, or importing the patented product, or, implementing, using, offering for sale, selling, or importing products manufactured employing the patented method.
 
The Chinese patent law grants the patentee or the interested party the right to sue infringers who violate these rights above that are entitled to the patentee.
 
Jurisdiction 
Four level court system and two instance trial 
The Chinese judicial system has four levels of courts: the District People's Court (county or district level), the Intermediate People's Court (city level), the Higher People's Court (province level), and the Supreme People's Court (state level). A lawsuit can go through at most two instances. Once the first instance court (the trial court) makes a judgment, either party can appeal to the court on the next level (the appellate court), the decision of which will be final.
 
Jurisdiction by forum level 
Chinese courts specify the jurisdiction over patent infringement cases, mostly assigning the Intermediate People's Court as the trial court. There are 75 intermediate people's courts in Beijing, Tianjin, Shanghai, Chongqing, every provincial capital and designated major cities, and one District People's Court, YIWU Court in Zhejiang Province, all with jurisdiction over patent infringement disputes. The corresponding Higher People's Courts are the appellate courts.
 
Most patent disputes end in the Intermediate People's Court as a trial court or the Higher People's Court as an appellate court. However, the Higher People's Court acts as the trial court in patent cases that have significant impact on society and where the amount of damages is large. If these cases are appealed, the Supreme People's Court will be the appellate court.
 
Territorial jurisdiction 
A patent owner can start proceedings at the intermediate court either where the infringing manufacturer is based, or where the infringement activities are taking place, which is usually where the infringing dealer is located.
 
This means that the plaintiff may have a choice of forum if the allegedly infringing products are being distributed in different places. If the claimed damages are over a certain amount, the corresponding court of a higher level will have the first instance jurisdiction over the case.
 
Limitation period 
The limitation period for starting legal proceedings for patent infringement in China is two years from the date when the patentee or any interested party obtains knowledge of the infringement, or the date when they should have known.
 
Burden of proof 
Under Chinese civil law, it is the patentee's duty to demonstrate infringement unless the patent concerned relates to a process for the manufacture of a new product. In this case, under normal situations, the patentee must prove that the alleged infringing activity is within the protection scope of the patent. The evidence that the patentee needs to provide in a patent infringement lawsuit may include the following:
 
· Evidence of patent right and the identity of the parties: identity evidence can include business registration documents to prove the identity, scale of, and business area, location and other information on the infringing manufacturer and infringing dealer, if any. When attorneys are authorized, the patentee's authorization documents, including the power of attorney and the identity certificate of the person who signs the power of attorney, must be submitted. Evidence of patent right includes the patent right certificate, the patent specification, and the proof of paying the annual fee.
 

· Evidence of infringement: typically, a purchased sample of the infringing product, together with the invoice. Product manuals are often used to prove the infringing product falls within the scope of the patent.

 
· Evidence of damages: as it is difficult to prove the patentee's losses from the infringement, it is more practical to prove the value of the infringing products sold by the infringer, using an account book or other such documents. In many cases it is hard to obtain this evidence and so it is possible to request the court to conduct evidence preservation or decide on statutory damages.
 
When collecting evidence of infringement in China, it is preferable to have the process of purchasing the infringing product notarized, as notarized evidence usually carries more weight.
 
Trial proceedings 
Actions are begun by filing a complaint with the court. The complaint should specify the claims, supporting facts, the evidence that will be referred to and where it was sourced, and the names and domicile of the parties. The court must first accept the case formally. If accepted, a notice of acceptance will be issued. A notification of the appointment of the panel of judges will usually be sent together with the notice of acceptance, or separately in some cases depending on the court. The court will serve a copy of the complaint and these two notifications to the defendant, who then has 15 days (30 days in a foreign-related case) to file a defence. After receiving the defence and serving it to the plaintiff, the court will review the complaint, defence and related evidence and may conduct its own further investigation if necessary.
 
The court will set a timetable, which usually gives 30 days for each party to submit evidence. The parties may agree a timetable for the submission and exchange of evidence which needs to be approved by the court. The exchange of evidence provides an opportunity for the parties to review and gain an understanding of their respective cases and supporting evidence. A member of the judges' panel will supervise the process of exchanging evidence and may hear the parties' arguments on the main issues shown by evidence.
 
There will usually be a series of pre-hearings and at least one formal hearing. The pre-hearing may cover a variety of subjects including the admissibility of evidence, procedural grounds, claim construction, infringement analysis and non-infringement defence. The pre-hearings are usually presided over by one judge and judges regularly use them to ask the parties questions and educate themselves on the technology and the parties' arguments.
 
If technical questions remain unclear or disputed, the court may appoint one or more experts. The usual procedure is for both parties to agree together on the expert panel, failing which, the court chooses. The parties are permitted to veto experts from the panel due to connections to the other party or other reasons. The experts produce a technical report for the court.
 
Once the court has completed its investigations, it will set a date for the formal hearing which all judges of the panel should attend. A formal hearing will usually include the following stages:
· checking the participants' ID;
· opening remarks;.
· the plaintiff's brief;.
· the defendant's brief;.
· the plaintiff's rebuttal;
· the defendant's rebuttal;
· The optional introduction of a witness who has made an affidavit;
· the court's investigation;.
· the parties' statements; and.
· the closing remarks.
 
Judgment and appeal 
The court delivers its judgment within a few months of the last hearing, depending on the complexity of the case. After the first instance court has rendered its decision, the plaintiff or defendant has 15 days to appeal to a corresponding higher level court. Foreigners that do not have an address in China have 30 days after receiving the decision. The appeal brief has to be filed to the court that rendered the decision. Then, after a formality examination, the case is shifted to the second instance court. The second instance proceeding is similar, but because the investigation and fact finding in the first instance will have clarified many issues, the second instance proceeding is faster.
 
Time 
A straightforward patent infringement action in most courts in China will generally take 6 to 12 months, but can be longer in the more popular courts. For domestic cases, the judges are under pressure from the courts to conclude cases within prescribed time limits, but for foreign-related cases there is no fixed time frame.
 
Some alleged infringers also seek the invalidation of a patent when they are accused of infringing a patent, if they will gain from delaying the litigation in court. Infringement litigation may be suspended depending on the judges' estimation of the chances of the invalidation case.
 
Costs 
The cost of a patent infringement case involves an official fee, disbursement and the attorney's fee.
 
To initiate infringement litigation, the plaintiff should pay the court fee first which is between 0.5% and 2.5% of the claimed damages and calculated cumulatively. For most regular cases in which the claimed amount is between RMB 10,000 to RMB 1,000,000, the court fee is 1% to 2.5% of the damages. The court fee is borne by the losing party.
 
Besides the court fee for initiating litigation, the patentee may also claim disbursement for preparing for and proceeding with the litigation, for example, the cost of producing evidence, travel, or the fee paid to experts for technical appraisal. If the judges deem the disbursement or part of it as reasonable, such a claim could also be supported in the judgment.
 
Usually in China each party bears its own lawyer's fee. Lawyer's fees can vary a lot and it is hard to determine whether they are reasonable. Therefore, although the patentee may claim the lawyer's fee as disbursement, usually only a very limited portion of the lawyer's fee can be awarded by the court, if any.
 
Damages 
The court will assess damages on the basis of the plaintiff's losses or the defendant's profits. If there are appropriate documents for such an assessment, the patentee may apply for the court to audit the documents and assess the damages.
 
If it is not possible to determine damages on either of these bases and there is a relevant and reasonable patent licensing fee that can be referred to, the court will impose damages based on a multiple of one to three times such royalties.
 
If no reasonable patent licensing fee can be referred to, the court can instead impose statutory damages of up to RMB 1,000,000 ($150,000). Because there are no documents, statutory damages are the usual basis of assessment. In exercising its discretion to award statutory damages, the court will consider comprehensive factors such as the period of trading, the price at which the infringing product was sold, and the production capacity of the defendant.
 
Research has shown that statutory damages are awarded in 95% of court cases and the average amount of damages is between RMB 100,000 and RMB 200,000.
 
(This article was first published in Managing Intellectual Property, written by Johnson Jiang Li, patent attorney, trademark attorney and attorney-at-law at China Patent Agent (H.K.) Ltd.)