Interview on Patent Infringement Litigation Strategy and Skills
By Our Correspondence Xiao Hai
Of the IP right protections, patent protection is one of the relatively strong means of protection. For a highly technical product an enterprise would choose the patent protection. However, patent infringement lawsuit is most time and energy consuming since a patent usually involves sophisticated technical problems. Faced with years of lawsuit, some foreign businesses even choose to leave the Chinese market. Strix, a company from the U.K., the world's largest manufacturer of small-type automatic temperature controllers and proprietor of nearly 100 patents in China, is one of the foreign corporations that choose to stay. Strix's products began to enter China in the late 1990s. Since 1998, it has spent more than a million (RMB) yuan to fight counterfeit and patent infringement in China for the protection of its such small type temperature controllers. Not long ago, Strix won two first-instance cases involving invention patent infringement. Its perseverance has been paid off. To enable readers to understand how to bring a patent action in China, our correspondences have recently interviewed Mr. Dong Wei from the China Patent Agent (H.K.) Ltd. (CPA), an attorney-at-law who has represented Strix in the lawsuits in China.
Correspondent: Recently, you have won Strix's lawsuits involving patent infringement. Please tell us about the cases.
Dong: The CPA began to represent Strix in patent lawsuit in 1998.
Strix has been active in the patent community. It has not applied for an unusually large number of patents in China, but most of its invention, utility model and design patents have been put into industrial application. So far, it has instituted proceedings involving all the three classes patents. Strix has been making such full use of the IP system in China to protect its market there that it has sued many Chinese manufacturers of temperature controlling switches and circuit connectors. Some have later become its partners, and some are still involved in disputes with it.
By 2005, Strix won two lawsuits in Beijing that involved two invention patents. The other parties have appealed after the hearing of first instance, and the cases are pending. We can only say Strix has won victory at this stage.
Besides the Strix cases, the parties we have represented have won other patent infringement cases. For example, it has been four years since the German OBE Corporation sued against to a process patent infringement. It won in the first-instance trial after going through the time of difficulties and frustration. Also, the Japanese Shimano Inc. won the first-instance case against infringement of its patent for the design of bicycle derailleur.
Correspondent: What preparations a rightholder has to make before bringing a patent lawsuit?
Dong: For me, to win a lawsuit, close study should be done and litigation strategy worked out first.
As elaborated below, the strategy normally covers these aspects:
Where;
When;
Whom; and
What
1. Where
It means where to sue. This is important to both foreign and Chinese interested parties because under the Civil Procedure Law, the place to sue is where the defendant is domiciled. However, since it is very difficult to establish infringement in cases involving IP rights, lawsuit instituted in a place where the defendant is domiciled is often interfered with by local protectionism, which is a common phenomenon in cases involving not only foreign interested parties, but also Chinese interested parties. For that matter, it is very important to choose jurisdiction for patent infringement lawsuit. According to the judicial interpretation of the Supreme People's Court (SPC), it's a good choice to take the place where an infringement is committed as the place of jurisdiction. By way of investigation of, and collection of evidence regarding, an infringement, we sued in the courts of the places where the defendants were not domiciled in the above cases. In this way, we were faced with clearly less interference.
In GP v. KT, the two French companies are involved in a dispute over the patent for a process for producing a chemical fertilizer. KT has no domicile in China, but it has a user of the technology in suit in the provinces, such as Shanxi, Hebei and Shaanxi respectively. The three users have imported KT's technology through a Beijing-based agency, which may be taken as a joint defendant. Since the agency is located in Beijing, GP might have brought the action there; but GP has its own concern: it has other business with the agency. For that matter, GP chose to sue KT in the three provinces, and its lawsuit ran into extreme difficulty there. After five years, GP lose its lawsuit in all the three provinces. It is no denying that the cases were adversely affected by strong local protectionism as all the three defendants were powerful state-owned large enterprises there. Besides, something quite unexpected happened: the higher people's courts in the three provinces worked out three different interpretation of the same patent, the same interested party and the same claim, which is very surprising. GP has now appealed to, and its appeal has been accepted by, the SPC. Now, the duration of the patent in suit has expired, but the dispute continues.
2. When
When to sue, whether or not to send a letter of warning, whether to negotiate first and then bring an action, or the other way round should all be considered before taking an action. The time to sue is different for different cases. For example, the Shimano Inc. did not consider licensing, so we sued the infringer at the time we thought right. The OBE considered to licensing its technology, and we chose to contact the infringers before bringing an action. We have received one ruling so far, but the alleged infringers were several enterprises which acted differently: one ceased the infringement upon receipt of our letter of warning; one continued its infringement after receipt of our letter of warning, but reconciled with us after we brought an action; only one enterprise stood to the end of the lawsuit. In the Strix cases, its temperature controller is an intermediate product; the case involves not only the direct competitor, but also the manufacturer of the end product of an electric water heater. In the procedure, "negotiation" and "lawsuit" intertwined. The time to sue should be properly determined according to the facts of a case.
3. Whom
Whom to sue is one of the key issues. What is common to all the above cases is they involve several infringers, but it is impossible for you to sue all of them in one infringement lawsuit since you cannot afford all the time, money and efforts. Besides, if you sue them all, all the defendants would join hands to form a strong coalition which would have an impact on the entire industry and even on the authorities concerned. This would, in turn, bring the patent invalidation process under the official influence, and, thus, result in the invalidation of the patent. Then, how to choose the defendant in litigation? We usually sue medium-sized, private enterprises, not large state-owned businesses as much as possible. In a typical case, we represented a famous Swiss textile machine manufacturer to bring an infringement action, whose technology was infringed by several enterprises. We suggested suing a medium-sized, private enterprise, but our suggestion was then not taken by the Swiss textile machine manufacturer. Instead, it sued a leading large state-owned enterprises, together with some private ones. The plaintiff was faced with strong resistance from the entire industry, and its patent was eventually invalidated. This case shows that, whom to sue will have subtle effect on a case.
4. What
What patent to protect is also an important issue. The patents that foreign manufacturers were granted in China in the early days were mostly invention patents. For them, it would suffice to own a monopolising technology. However, things are not that simple in China. Under a lot of situations, minor patents, like utility model and design patents, have unexpected effect on lawsuit. As a case in point, Strix mainly depended on design patents for protection of its rights before it was granted its invention patent in 1998. Therefore, choosing a stable patent for which the case is within one's control and evidence can be easily accessible in litigation is one of the matters to be considered in adopting litigation strategy.
Lawsuit involving a design patent does not long time, and the Shimano Inc.'s lawsuit against infringement of its design patent was closed within half a year.
This litigation strategy is useful to both foreign and domestic rightholders.
Correspondent: You have just talked about the choice of pre-trial strategies. Are there anything we should draw our attention to in litigation?
Dong: We should primarily draw our attention to the application of some litigation skills.
Every lawyer has his own preference and way to handle matters, but they share some basic litigation skills.
1. Attesting to infringement
Adequacy of evidence is extremely important in patent infringement lawsuit. A plaintiff needs to attest that an alleged infringing product or process falls within the extent of claims of the patent right in suit; and the defendant's infringing act is a statutory infringing act.
In this aspect there are some negative examples. Suing a wrong enterprise would put the plaintiff in a passive position. For example, a famous US consumer chemicals enterprise's patent related to the design of the bottle for a detergent. The defendant argued that it had bought the bottles and that what it sold was the detergent, not the bottles, which should not be the subject matter relevant to the lawsuit. Accordingly, the court decided that the defendant had not committed the infringing act, and the plaintiff was forced to reconcile with the defendant.
2. Experts' conclusion
In patent lawsuit, the courts in Beijing and elsewhere are evidently different in their dependence on experts' conclusion. In patent infringement lawsuit involving a foreign interested party, a court of a place other than Beijing usually appoints an expert appraisal organisation to compare and appraise a patent in suit, while a court in Beijing attaches more importance to the interested parties' own statement. If an interested party can clearly describe his/its technology, it does not need any expert's conclusion. This is an adversary system pro-statement practice.
3. Pre-trial injunction
Almost all patentees are concerned about the issue of pre-trial injunction because it has a strong effect. Almost all of them hope to force infringers to cease their infringing acts this way. According to the SPC's statistics, since the pre-trial injunction was established by the Patent Law as revised in 2001, the courts have decided on the pre-trial injunction in 199 cases (including the cases in which the pre-trial injunction was not granted).
For the pre-trial injunction to be granted, two conditions must met. First, there should be clear and solid evidence of infringement. Second, there should be evidence showing that, without the pre-trial injunction, irreparable losses would occur. The second condition is hard to meet in most cases.
In practice, a large number of foreign rightholders apply for interlocutory injunction after bringing an action. The courts in various localities treat the interlocutory injunction in a quite different manner. Under the current law, there is no such concept as the interlocutory injunction. For this reason, many courts insist that, except the pre-trial, and post-trial permanent, injunction, there exists no such temporary measure as interlocutory injunction. Some other courts hold, however, that interlocutory injunction may be performed in applying mutatis mutis the provisions for pre-enforcement. But for us, this is rather unreliable since pre-enforcement, very limited in scope, is directed to the special cases of providing and supporting, and the court may decide on pre-enforcement. We believe grant of the interlocutory injunction in an infringement case is legally baseless. Therefore, if the court does not grant the pre-trial injunction, an interested party should make sure to preserve evidence and property to secure future enforcement of the court's ruling. Meanwhile, he/it should work closely with the court to expedite the hearing of the case. To date, it takes shorter and shorter time to hear a case in China. With the judges becoming more familiar with patent cases, a lawsuit will be treated at a faster rate, and, ideally, the two-instance hearing of case is finalised less than a year.
4. Damages
It is not advisable for an interested party to claims too much damages in a lawsuit.
The current practice of patent-related trial in China shows that claiming much damages, except for fueling news explosion, does no good to an interested party because it is indeed difficult to adduce evidence according to the method of calculating the amount of damages under the current Chinese Patent Law. For this reason, most damages are decided on in patent infringement case, at the court's discretion. The highest amount of which is RMB 500,000 yuan according to the statutory damages. For damages of millions upon millions RMB yuan, you have to pay huge amount of litigation fees, but the damages you are going to get is far less than you would expect. Besides, claiming a large amount of damages does not necessarily do good to the plaintiff because such a case would put the court under some unnecessarily heavy pressure. In many patent infringement cases, it is due to claim a proper amount of damages. According to our study, it is relatively proper to claim the damages amounting to RMB 200,000 to 300,000 yuan for patent infringement in a lawsuit.
Correspondent: We have noted that most interested parties you represent in patent infringement cases choose to settle their disputes in the court, that is, they adopt the judicial approach. What would you like to suggest as to whether they should choose to resolve their disputes judicially or administratively?
Dong: The infringement dispute involving Strix's early design patent was resolved administratively by the patent authority. The advantages of dispute resolution this way are simple, fast and inexpensive. However, nowadays, there are not many cases involving foreign interested parties that are settled by the patent administrative authority for various reasons. Firstly, the administrative procedure is no simpler than the judicial one. Most patent administrative authorities in China require notarisation and legalisation. In the past, it used to be quite simple, and a power of attorney was enough. Now their requirements are substantially the same as those of the courts. Secondly, the patent administrative authorities have no power to decide on the matter of damages. If an interested party claims damages, he/it has to bring a judicial action. Thirdly, any decision made by the patent administrative authority is subject to the judicial review. Any party who is dissatisfied with it may initiate administrative lawsuit in the court. It takes two instances to close the hearing of an administrative case. Since the administrative handling of a dispute is less enforceable and time-consuming, it is obviously more efficient to have it resolved judicially. Fourthly, there is not much room for the litigant strategy and skill to play their part when one petitions a patent administrative authority to deal with an infringement dispute. The Strix cases involve infringers from Ningbo, Shanghai and Beijing. Strix may sue them in one city. If it petitions the patent administrative authorities to resolve the disputes, it would run into some difficulty in dealing with the cases and in enforcement. Besides, almost all patent administrative authorities at the provincial level have their own regulations for patent protection. That is to say, if it sues in the court, its case is resolved under the procedure law and the SPC's judicial interpretation; if it petitions the provincial patent administrative authorities to deal with the case, it has to study their respective regulations, which is obviously not an easy job. Fifthly, most foreign interested parties institute proceedings in the court in respect of their invention patents. Cases of the kind are relatively complicated, and petitioning the court to deal with them would be more cost effective. Now, we seldom advise our clients to have their patent infringement disputes resolved administratively.
Correspondent: Any patentee considers the matter of cost and effect in legal action to protect their rights. What is the practical situation in this aspect in patent procedure in China?
Dong: Under the current legal system in China, it is possible for a foreign patentee to obtain the patent protection in a timely manner. As the two recent cases show, the first-instance decisions are made within a year; it would take half a year for a decision to be made in a case involving a design patent. The courts would support most claims for reasonable damages.
An interested party's all expenses, including the lawyer's fee and other costs on its own employees, are impossible to be compensated by the damages as determined by the court for the time being, but a successful lawsuit against infringement will undoubtedly increase foreign rightholders market share. And, losing the lawsuit is disastrous to an infringing enterprise. The patent infringement lawsuit is one of the means for business competition. Strix is successful in protecting its patent right this way.
Correspondent: As far as we understand it, foreign rightholders used to appoint Chinese lawyers through their home or international law firms. Now they tend to directly appoint their Chinese lawyers. What's the reason for this change?
Dong: The most important reason for many foreign businesses to approach the Chinese law firms through overseas law firms have something to do with communication and trust. In any litigation, communication between an interested party and the lawyer is crucial. If they fail in this aspect, they can hardly win a case even with telling evidence at their disposal. In the past, foreign business chose foreign law firms primarily to ensure smooth communication, which was not only a matter of language, but also one of mutual understanding and trust. Strix used to bring action through law firms based in Hong Kong and in its own country. It knew it was more costly this way, but it had to do so in order to ensure trust and communication. Years of practice and cooperation have made it possible for the Chinese attorneys to become empirically and professionally proficient enough to communicate with foreign clients with trust, so it is unnecessary for them to spend more than necessary for the purpose.