Patent Damages in China: Crossing the River by Feeling the Stones. Jill (Yijun) Ge April 20, 2017

Transcription

1 Patent Damages in China: Crossing the River by Feeling the Stones Jill (Yijun) Ge April 20, 2017 Allen & Overy 2017

2 China: The Low Damages Jurisdiction Average damages award: RMB 80,000 to RMB 150,000. Statutory damages have been the norm. Upper limit: RMB 1 million. For about 95% of the cases. Boilerplate language in the judgments - considering the factors as a whole, the Court hereby orders damages of RMB 2 reasons: (1) strict burden of proof on the part of patentees actual profits/ actual sales, and (2) lack of discovery. Chinese courts have started to address the low damages issue. Allen & Overy

3 Recent Trend #1 Use procedural measures to mitigate the lack of discovery Infringers: Rule of obstruction of evidence Request a defendant to adduce books/accounts and draw negative inference if the defendant refuses to do so. Article 27 of 2016 Supreme Court s Judicial Interpretation Article 61 of draft Amendment to Patent Law Article 63 of 2014 Trademark Law Third parties: Courts inherent investigative powers Investigation letters issued to third parties Allen & Overy

4 Recent Trend #2 Relax the patentees burden of proof Support the plaintiff s rough estimate and order damages based on the defendant s illegal gains. Use industrial average as a proxy for the defendant s profit margin. Enhance statutory damages awards when evidence so warrants. Considering bad faith evidence (a built-in punitive component) Considering circumstantial evidence Supreme Court has coined the term discretionary damages. For damages amount exceeding the upper limit of the statutory damages Allen & Overy

5 WatchData v. Hengbao (Beijing IP Court 2016) Ordered damages of RMB 49m (~ US$ 71m). Also ordered attorneys fees of RMB 1m. A record for the most powerful IP court in China. Chinese company sued another Chinese company. Patented technology: USB encryption product for online banking. And the plaintiff s damages theory was fully adopted Allen & Overy

6 WatchData v. Hengbao (Beijing IP Court 2016) Part I: P s lost sales in respect of D s sales to 12 banks (1) Per unit profit = RMB 10 P s audit report: P s profits are RMB and RMB 9.82 for two respective sales; Public disclosure documents of a third party: average profit is RMB (2) Total units sold to 12 banks = 4,814,200 Per the responses from Bank of China and 2 other entities to court s investigation letter. Lost sales = Per unit profit (1) * total units (2) = RMB million Part II: D s illegal gains derived from sales to 3 other banks D twice refused to submit its books re those sales. P s estimation: in accordance with industry standard, D s profits > 2m. Court: need to draw a negative inference against D and P only requested RMB 0.858m. Total damages = RMB m + RMB 0.858m = RMB 49m Allen & Overy

7 Does rough estimate lead to overcompensation? Huawei v. InterDigital (Guangdong High Court, October 2013) 0.019% running royalty rate calculated from Apple s 7-year lump sum license signed with InterDigitial in Clearly not economically sound. Hailed as a model case by the Chinese judiciary. Iwncomm v. Sony (Beijing IP Court, March 2017) Ordered close to RMB 9 million for past infringement of a single SEP. Relied on 4 portfolio licenses as a benchmark for reasonable royalties. No detailed analysis; unclear if the comparables are reliable. Allen & Overy

8 Issues to Watch How rough is too rough? Comparable licenses? Apportionment? Sales profits v. operating profits? Allen & Overy

9 Crossing the river + feeling the stones Allen & Overy

10 Questions? These are presentation slides only. The information within these slides does not constitute definitive advice and should not be used as the basis for giving definitive advice without checking the primary sources. Allen & Overy means Allen & Overy LLP and/or its affiliated undertakings. The term partner is used to refer to a member of Allen & Overy LLP or an employee or consultant with equivalent standing and qualifications or an individual with equivalent status in one of Allen & Overy LLP s affiliated undertakings. Allen & Overy