Introduction
According to the Patent Law of the People’s Republic of China (hereinafter “Patent Law”), the user of an allegedly infringing device in an infringement case involving an invention or utility model patent faces the same allegations as the manufacturer or seller of that device does.
This poses a broad question among legal practitioners: whether the injunctive relief sought by the patentee against the user to “destroy the allegedly infringing product” has a proper legal foundation. This article will focus on that issue. The term “user,” as used in this article, unless otherwise defined, means an innocent user who has, for commercial purposes, utilized the “alleged infringing product” in an invention or utility model patent infringement litigation. The term “innocent user” refers to one who has used the “allegedly infringing device,” but does not subjectively know, or have reason to know, that the device would infringe, and has provided a legitimate source for its products.
Reasonable Doubts – Challenges to the Patent Right with a Property Right
I. Doubt No. 1: The unreasonable assertion of a patent right would unfairly lead to the destruction of a property right
In patent infringement litigation, the patentee has, according to the Patent Law, the right to enjoin any unauthorized use of his patent. As a primary form of protection, he may request that an infringer stop the infringing act and, more importantly, “destroy the allegedly infringing devices.” This request may be raised against any infringer, including the manufacturer, seller, or user. However, in practice, this often leads to strong opposition from the user who would argue that the patentee does not have any right to request such destruction.
Generally the term “allegedly infringing device” means a product that the user purchases, receives as a gift, or otherwise acquires from the producer or seller. Whatever the manner of acquisition, as long as it is a legal or factual act-based or other lawful act-based acquisition, the user acquires the property right in the physical thing, and this property right is recognized by law. The property right is of such a nature that the law ascribes a special thing to the subject and the subject directly controls and enjoys the interest from this special thing, by excluding other persons from infringing or interfering in this control.1 Therefore, the user may exclude others from damaging the right that he enjoys in the “allegedly infringing device.”
When the patentee requests to “destroy the allegedly infringing device,” he intends to dispose of a thing that he does not own, but which is owned by another person. His exercises of patent right lead to the extinction of a property right, which is legally enjoyed by another person. This is obviously illogical. The patentee has damaged another person’s property right from the perspective of property law. Thus, the patentee’s request to destroy the allegedly infringing device and the user’s defense disclose a conflict between their respective patent rights and property rights.
II. Doubt No. 2: The remedy against the user unreasonably overburdens an innocent user
Some might say that the user’s property right is compromised because the title he acquired contains a defect, so he may seek a remedy against the manufacturer or seller on the grounds of default. Accordingly, it is not wrong to let the user bear the burden of refraining from infringement. However, this remedy is “unreasonable,” as we will explain.
Article 150 of the Contract Law of China provides that the seller is obligated to indemnify the buyer against any third party claims regarding the subject matter that the seller transfers to the buyer, except as otherwise stipulated by the law. Article 150 addresses title warranties by the seller, which include the obligation to ensure that “the subject matter does not infringe any intellectual property right of others.”2 Therefore, the user may, on the basis of this Article, claim default and obtain remedies against the producer or seller.
However, in patent infringement litigation, this remedy is a heavy one for the user, although he may seek a remedy for his loss by relying on the Contract Law provisions. First, the innocent user bears part of the responsibilities of the seller, but has to resort to litigation or other means to raise such claims against the seller. Undoubtedly this is a heavy burden on the user. Second, as the buyer in the sales relationship, the user loses the safety of the property transaction when he has to bear the responsibility of “destroying the allegedly infringing product.” In commercial activities that are based on a contractual relationship, it is fundamental to maintain a safe transaction. Without transaction safety, a fair and fast transaction is unrealizable and a simple and definite transaction is unnecessary.3 Third, the user will undoubtedly suffer tangible or intangible losses as his production and operations generally rely on the “allegedly infringing product” that are to be destroyed. However, it is impossible for the user to obtain compensation for such losses, as it is very difficult, if not impossible, to prove these losses by means of evidence.
A Second Look – Proper Restraint of a Patent Right as Against a Property Right
As discussed above, the patentee’s request for injunctive relief against the user, i.e., to “destroy the allegedly infringing device,” is theoretically and practically unreasonable. Therefore, in the opinion of these authors, the patentee’s right to request such destruction should be properly restricted whenever the user raises a property defense.
I. Property Right Takes the Precedence
In patent infringement litigation, if the patentee’s allegations against the user are sustained, the defendant is liable for the infringement, hence a debt will result. Accordingly, the patentee’s claim for destroying “the allegedly infringing device” is a replevin in nature.
Yet, the user has a legitimate property right over the “allegedly infringing device,” which is a completely exclusive right. It has been widely recognized by scholars and practitioners alike that the property right takes precedence. Generally speaking, this precedence not only refers to a property right that existed earlier in time over latter ones, but also, over replevin.4
Some scholars categorize rights as moral rights or legal rights; 5 the former is unrecognized by law, but maintained by conscience and morality, while the latter is recognized and protected by law. A legal right is that which the legislators have selected from, restated, or created on the basis of the moral right, according to their own needs and based on social conditions, and is enforced by state power.
Unquestionably, an intellectual property right is largely a legal right. Many of the rights in the intellectual property area are artificially created to cope with social and economic development. An injunction granted to the patentee for the “allegedly infringing device” is a typical statutorily created legal right that has been established to enhance the protection of invention and utility model patents.6 Naturally, the patentee’s cause of action for an injunction to cease the infringement is also created to meet the special need.
The enforcement of a patent right is a process of capitalizing on the patentee’s interest. When the patentee seeks to “destroy the allegedly infringing device” by requesting an injunction, its purpose is to protect its monopoly interest over the pertinent product. Generally, it would be sufficient for the patentee to realize this litigious purpose by seeking infringing liabilities against the producer and seller to effectively contain the source of the infringing acts and by claiming damages to remedy the financial loss resulting from the infringing acts. If the patentee were allowed a further right against the user to “destroy the alleged infringing devices,” then the user, after losing its property right in the “allegedly infringing devices,” would have to turn to the patentee for the patented products if he still needs them for business. This gives the patentee a second chance to gain additional compensation, which unjustly enriches the patentee beyond its actual damages. Meanwhile, manufacturers or sellers would have to pay twice for the same infringement should they be held responsible for the user’s liability. This is an abuse of the patent right that allows the patentee to be unjustly enriched. In other words, to prevent unjust enrichment, patent abuse must be checked.
III. The balance between private right and public interest
Although defined as a private right in nature, an intellectual property right, since its creation, has been inextricably related to the public interest. As intellectual property rights become more public today, its exercise must always give consideration to the public interest. Therefore, when setting up a patent right for the patentee, the law must always consider the balance between that private right and the public interest. As a doctrine, this idea is also applicable to the current situation under discussion. More often than not, the “allegedly infringing product” has been put into use. For this reason, the infringement obviously affects the public interest or even the property right has been already transferred again in a normal way. For example, a construction worker, as the user, has installed an “allegedly infringing product” in a residential building. If this “allegedly infringing product” were destroyed, obviously it would damage the public interest or the property right of other people. Therefore, the patentee must be restricted in his claim to request that the user “destroy the allegedly infringing product,” from the perspective of protecting the public interest.
Borrowing – Set up the Innocent User Defense
The term “innocent user” means that if the possessor, who has no right to dispose of a property, transfers it to a third party, and if this third party or transferee acquires this property in good faith, then the transferee will have obtained the legal ownership right or other property right for that property, be it movable or immovable.7 This innocent user is clearly defined in Article 106 of the Real Right Law of China, and these authors intend to borrow and use this concept in patent infringement litigation.
I. The connotation of the innocent user defense
The term “innocent user defense” in this context means that in patent infringement litigation, when the “allegedly infringing product” possessed by the user constitutes infringement and the patentee wants to “destroy the allegedly infringing product,” then the user has the right to defend himself and retain ownership in the “allegedly infringing product” if he has acquired that product in good faith. Thus, the patentee’s request is insufficient to eradicate this ownership.
II. Legal requirements for this defense
(I) The “allegedly infringing product” contains a defective right
The innocent user defense is established primarily based on the existence of a defective right in the “allegedly infringing product.” If the “allegedly infringing product” does not contain a defective right that infringes another person’s patent right, then the user need not assert their innocent user defense, but can directly plead the non-infringement defense. The term “defect,” as in a “defective right,” is extensive. It means that the transfer at issue does not enjoy legal right or someone other than the transferor may claim the right to the subject matter.8 It refers hereby only to the infringement of another person’s intellectual property right.
(II) The user must act in good faith
The user’s good faith is used to make up for the defect in the right to the “allegedly infringing product.” However, when determining “good faith,” disputes exist even in the civil law field regarding an innocent user. To sum up different views, they agree on the definition of the perceptual element of the actor, that the actor does not explicitly know the infringement. However, they disagree mostly over the definition of the volitive element of the actor, that is, whether the actor should have known the infringement. In subjective terms, the “innocent user defense” also requires that the user must be innocent user or in good faith. As to how to determine “good faith,” in the opinion of these authors, the user should not be over burdened by a requirement to produce evidence. As long as there is no contrary evidence that the user explicitly knows or should have known of the infringement by the “allegedly infringing product,” the user is deemed to be an innocent user.
(III) The user acquired the property right on the basis of a rational transacting act
The change of property right is mostly attributed to legal acts, causes other than legal acts, and public law causes. Among them, legal acts are the most important and common causes of changes to the property right.9 One of the requirements for innocent user under the law of property right, is that “the transferee [pay] a rational valuable consideration”10 Article 106 of the Real Right Law of China expressly requires that an innocent user be “transferred with a valuable consideration at a rational price.” In many cases, the voluntary transfer, in and by itself, will indicate that the source of the property may be unjustified. When receiving the transferred property, an honest and cautious transferee should determine its source. If he accepts the gratuitous transfer without investigation, he cannot be in good faith or is negligent at least. If the consideration is valuable, a rational price is another standard for innocent user.11Therefore, if the user obtains a property right on the basis of a rational transacting act, the innocent user defense will also apply.
(IV) The allegedly infringing product has been actually utilized by the user
Actual utilization is the factual basis for the innocent user defense. The user cannot enjoy the complete property right to the allegedly infringing product or it would be irrational to raise a defense on grounds of the property right, unless the allegedly infringing product has been actually utilized. Also, because of the actual utilization by the user, the patentee’s request to “destroy the allegedly infringing product” would certainly cause direct damage to the user and, thus, the user defense is more justified.
(V) If affirmed, the defense does not damage the interest of any third party or the public
The patentee’s patent right and the user’s property right are both private rights and need to be restricted in the face of the public’s interest. Therefore, the user’s exercise of the innocent user defense is preconditioned on the non-damage to any third party or public interest. For example, the user will not be allowed to exercise this defense if the user’s retention of the ownership right to the allegedly infringing product would cause market confusion under some circumstances.
III. If affirmed, the defense causes what legal consequences
The patentee is entitled to seek civil liabilities against the user and to request that the user cease the infringing act. Under certain conditions, the user may defend himself by restraining this element of the patentee’s right, i.e., to restrain the patentee from seeking to “destroy the allegedly infringing product in the patent infringement litigation.”
Unless an agreement has been reached between the producer, seller, user, and patentee for the “allegedly infringing product” being used, the internal meaning of the patentee’s request to stop the infringing act should be modified as follows: 1) From the date that the judgment is rendered, the producer and seller shall forthwith cease and desist producing and selling the allegedly infringing product and have any storage of such product destroyed; and 2) the user shall not utilize any other allegedly infringing product other than the product herein that the producer and seller may continue to produce or sell. If the producer or seller continue to produce or sell the allegedly infringing product and if the user continues to utilize the product so produced or sold, then, in subjective terms, the user either is either intentionally or knowingly infringing the patent right and should bear all the infringing liabilities, without being able to claim any restraint on the patentee’s right. To some extent, the user’s liability to “cease the infringing act” means to “stop the next purchase,” but not to “stop using the allegedly infringing product.”
These authors are judges of the No.3 Civil Division, Nanjing Intermediate Peoples’ Court.
Endnotes:
1. Right in Rem in Civil Law (General Rules - Ownership), Wang Zejian, Taipei, first edition, 1992, P31.
2. Interpretation on the Contract Law of P.R. China, Hu Kangsheng, editor in chief, Law Press, 1999, P 230-231
3. On Commercial Law, Fan Jian & Wang Jianwen, China Higher Education Press, 2003, P149.
4. Law of Things (3rd Edition), Liang Huixing & Chen Huabin, Law Press, 2005, P49.
5. Citation from On Construction and Formation of Intellectual Property Right, Hou Yikun, www.civilaw.com.cn/article/default.asp?id=8413, visited on April 28, 2003.
6. The authors’ note: Article 62 of both the 1984 Patent Law and the 1982 Patent Law (as amended) provides that if the user has unknowingly used a patented product that is produced or sold by an unauthorized producer or seller, then it does not constitute infringement. This was modified by Article 63 of the 2000 Patent Law (as amended) provides that it constitutes infringement, but that the user “does not bear the liability of compensation.”
7. Understanding and Application of the Provisions of the Real Right Law of the People’s Republic of China, Huang Songyou, editor in chief, the Court Press, 2007, P327
8. Interpretation of the Contract Law of P.R. China, Hu Kangsheng, editor in chief, Law Press, 1999, P 230.
9. Law of Things (3rd Edition), Liang Huixing & Chen Huabin, Law Press, 2005, P61.
10. Interpretation on the Provisions, Legislative Reasons and Related Regulations of the Real Right Law of the Peoples’ Republic of China, Civil Law Office, Laws and Regulations Commission, NPC Standing Committee, Peking University Press, 2007, P193.
11. Understanding and Application of the Provisions of the Real Right Law of the People’s Republic of China, Huang Songyou, editor in chief, the Court Press, 2007, P327
About the author:
Wang Wanglin and Zhang Yan are judges at the NO.3 Civil Division of the Nanjing Intermediate People’s Court.
(Translated by Ren Qingtao)
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