In the high-stakes world of global competition, China is emerging as a key battleground, making the protection of intellectual property rights more crucial than ever. With its recent revisions to its patent enforcement and damages laws, China took a decisive step towards a more rigorous patent system that favors patentees, both domestic and foreign. This new landscape challenges businesses to adapt and reassess their strategies in the face of these transformative changes.

    Historically, the challenges of proving damages and a default statutory damage limit of one million RMB (approximately $160,000 USD) in China’s system discouraged many foreign entities from pursuing actions, despite lower litigation costs in China compared to the United States. However, the latest modifications enable businesses not only to receive increased damages for infringement but also recover legal costs and punitive damages. Thus, in a post-COVID business environment, organizations should reevaluate their patent enforcement strategies within China.

    Key Changes

    Central to China’s updated Patent Law, effective from June 1, 2021, is the reform of the discovery process rules for determining damages. Under the revised law, courts can now order infringers to disclose accounting books and other materials necessary for calculating damages. If an infringer refuses, the court may determine damages based on the patentee’s claims and evidence, and grant the patentee certain evidentiary presumptions. This significant change reduces the litigation burden and improves the likelihood of victory for patentees.

    The revised law also enhances the damages system for patent infringement, expanding the statutory damages range and introducing punitive damages provisions. Specifically, statutory damages have increased from $1,400-$144,800 USD to $4,300-$723,800 USD, a nearly five-fold increase in the maximum amount. These changes represent a substantial progression in patent enforcement, acting as a strong financial deterrent for potential infringers. In conjunction with the revised discovery rules, the mandatory damages rules contribute to creating a markedly enhanced patent enforcement environment in China.

    Foreign businesses often enforce patents in China to shield their home-market positions from domestic competition who manufacture in China, diverging from the licensing revenue model frequently favored by non-practicing entities (NPEs) in the U.S. Occasionally, patent enforcement in China complements enforcement in other jurisdictions, adding pressure on targeted companies. Attorney fees for initiating patent litigation in China typically range from $50,000 to $200,000, with additional costs (like evidence notarization and reverse engineering) between $10,000 and $50,000. Given these relatively lower enforcement costs, foreign patentees can expect at least a break-even result in patent enforcement over time.

    How the Amendments are Working in Practice

    The results of the revised laws are promising from an enforcement perspective. Based on data from June 2021 to May 2023, foreign patentees prevailed in 85.29% of patent cases where judgments were rendered, with average awarded damages around $250,000. Among the top 20 cases in China involving significant damages during this period, foreign patent holders initiated seven actions, five of which were against Chinese companies. Damages awarded in these seven cases averaged about $1 million, with one case awarding $2 million. These cases are not only indicative of increased statutory damages, but the willingness of the Courts to consider damages theories apart from statutory damages.

    A notable case involved Swiss firm SynthesGmbH, who filed a patent infringement suit relating to a medical device against Dabo Medical Technology Co., Ltd. claiming 20,000,000 RMB (about $3 million) in  damages and an additional 100,000 RMB (about $16,000) in expenses. The first-instance judgment ordered Dabo to halt the infringement and compensate SynthesGmbH with statutory damages of 1,000,000 RMB (about $160,000) and rejected SynthesGmbH’s infringer’s profits damages theory. Both parties appealed to the Supreme People’s Court. In November, 2021, the Supreme People’s Court reversed and granted SynthesGmbH’s damage claims in full, awarding the 20,000,000 RMB (about $3.2 million), swayed by its thorough effort to provide supporting evidence and Dabo’s refusal to produce evidence in their possession. Specifically, the Supreme People’s Court recognized SynthesGmbH’s efforts to demonstrate the infringer’s profits through Dabo’s corporate prospectus and providing multiple methods of damages calculations, and punished Dabo for failing to provide sales receipts and other information specifically requested by the Court.  The case is instructive as it illustrates, under the revised laws, the willingness of the Courts to award higher damages under other recovery theories.

    Nevertheless, several challenges exist. First, identifying the correct plaintiff can be difficult and tedious due to the elaborate structures of Chinese businesses. Second, choosing the optimal court requires strategic consideration, including factoring in potential local favoritism. Engaging knowledgeable local Chinese attorneys, or even retired patent court judges, is of great significance. Third, there are unique challenges related to securing and notarizing evidence. Fourth, quantifying and proving damages remains a substantial task. Finally, before litigation, patentees should consider the likelihood of patent invalidity challenges, a common defense in China. Addressing these challenges necessitates comprehensive knowledge of Chinese patent law and the practicalities of litigation within this jurisdiction; successful enforcement requires a thoughtful, well-prepared plan for execution that may take two to three months to execute.

    Winning in China Takes a Comprehensive Approach

    For businesses with patent portfolios in China, understanding the revised patent law is essential. Close collaboration between Chinese patent attorneys and domestic counsel familiar with both legal systems is crucial. As with other jurisdictions, successful patent enforcement in China depends on strategy, with timing, venue selection, and efficient evidence collection playing pivotal roles. Due to China’s distinct discovery process, companies must establish strict procedures for investigation and evidence collection and preservation. The revised law’s relaxed burden of proof offers a lever that patent holders can effectively exploit.

    Successful patent enforcement extends beyond in-house patent counsel. Participation from various departments, notably marketing and product development, is vital to gather necessary evidence of infringement and damages. Companies should conduct regular training sessions, emphasizing the importance of patent protection in China.

    The evolution of China’s patent enforcement environment warrants strategic adaptation and agility from in-house counsel. The recent revisions to China’s patent law have meaningfully and significantly enhanced patent protection and increased potential damages, offering a strategic moment to rethink and reinforce your company’s patent enforcement policies. By understanding the revisions, establishing robust legal partnerships, and involving your company’s various divisions in this process, a company can maximize the value of its intellectual property. The responsibility now rests on in-house counsel to leverage and capitalize the enhanced patent damages system to your company’s benefit.

    Source: ipwatchdog.com-Lu Yin and Shuang Ma