【The main gist of the judgement】

The defendant holds account books related to patent infringement, and when the court organizes a third-party organization to audit the account books of the allegedly infringing products that it manufactures or sells, it refuses to provide the account books requested by the audit agency without justifiable reasons. Therefore, the people's court shall consider the claims of the right holder and the evidence on the record to determine the amount of damages. If the right holder fails to provide evidence to prove that the loss or the profit of the infringement is significantly higher than the statutory maximum damages limit, the people's court may determine the amount of damages as high as possible based on the fact that the infringer refused to submit the financial account by fully considering the facts on the record.

 

【Case introduction】

First trial case number: (2017) Shanghai 73 Civil Judgement No.56

Plaintiff: Bridgestone Corporation

Defendant: Shandong Huasheng Rubber Co., Ltd. (abbreviated as Huasheng Company), Shandong Hongsheng Rubber Co., Ltd. (abbreviated as Hongsheng Company)

The plaintiff is the patentee of the design patent (hereinafter referred to as the patent in question) with the patent number of ZL200830004694 titled "car tire". The filing date of the patent is February 14, 2008, and the authorization announcement date is April 29, 2009, which expires on February 14, 2018. On September 28, 2016, the plaintiff entrusted an agent to come to the scene of the "14th China International Tire Expo" at the booth marked "Shandong Huasheng (Hongsheng) Rubber Co., Ltd." and "Huasheng Tire". Photos of IceMax RW501 model tires (hereinafter referred to as allegedly infringing products) were taken on the spot, and related promotional materials and business cards were obtained. Among them, the business cards had the English names of the defendant Huasheng Company and the defendant Hongsheng Company. On November 7, 2016, the plaintiff entrusted an agent to purchase four tires with the label of "Haibeide Tire 165/70R14 81Q" at a unit price of RMB 150, paid a total of 600 yuan at a tire shop at No. 23 Xunye 4th Road, Tiexi District, Shenyang City. The tire sidewall has RW501 model, 165/70R14 specifications and DOT 87 FJ WAHS marking; the product label has "HABILEAD" and "Haibeide" trademarks and shows that the manufacturer is "Hongsheng Rubber Co., Ltd.". After inquiry, the defendant Hongsheng Company was the trademark owner of the above-mentioned "HABILEAD" trademark and "Haibeide" trademark. The plaintiff believed that the act of jointly manufacturing, selling, and promising to sell products similar to the involved patent without the permission of the defendant Hongsheng Company and the defendant Huasheng Company was a patent infringement act, so it filed a lawsuit and requested the court to order the defendant Hongsheng Company and the defendant Huasheng Company jointly to compensate the plaintiff for the economic loss of RMB 3 million due to the infringement and the reasonable cost of RMB 300,000 for the plaintiff to investigate and stop the infringement.

The evidence submitted by the plaintiff to prove its damages is: 1. On the www.sinoimex.com.cn website, click on the in-depth query, and select and enter the search terms: "Chinese seller data special edition" "2015.01-2016.09" "4011", showing that the total number of "Shandong Huasheng Rubber Co., Ltd." is 6759084.00. 2. The "About Us" page of the defendant Huasheng Company's website shows, "Huasheng Company... car tires, with an annual output of 24 million sets...".

During the hearing of this case, the plaintiff applied for a judicial audit of the account books of the defendant Hongsheng Company and the defendant Huasheng Company. The Shanghai Intellectual Property Court commissioned BDO CHINA SHU LUN PAN CERTIFIED PUBLIC ACCOUNTANTS LLP. to audit the account books of the defendants. However, during the audit process, the defendants refused to provide the account books requested by the auditing agency on the grounds that the plaintiff had previously delayed checking the account books.

 

【Court trial】

The Shanghai Intellectual Property Court believes that after the design patent is granted, within the validity period of the patent right, any unit or individual that implements the patent without the permission of the patentee, that is, manufactures, promises to sell, sells, and imports it for the purpose of production and operation, shall be an infringement of the patent right and the infringer should bear civil liability for stopping the infringement and compensating for losses according to law. In this case, the design patent of ZL200830004694.1 "Auto Tire" was authorized by the National Intellectual Property Administration of the People's Republic of China according to law and should be protected according to law. There is no substantial difference in the overall visual effects of the infringed design and the patent involved, and the two constitute similarity, and the infringed design falls within the protection scope of the plaintiff's design patent right. Since the patent in question has expired on February 14, 2018, the infringer should bear civil liability for compensating for the infringement within the protection period of the patent in question.

Regarding the determination of the amount of damages in this case, Article 65 of the Patent Law of the People's Republic of China stipulates that the amount of damages for infringement of patent rights shall be determined according to the actual loss suffered by the right holder due to infringement; if the actual loss is difficult to determine, it may be determined in accordance with the benefits obtained by the infringer from the infringement. If the loss of the right holder or the benefit obtained by the infringer is difficult to determine, it shall be determined reasonably with reference to the multiples of the patent license fee. The amount of damages should also include the reasonable expenses paid by the right holder to stop the infringement. Article 27 of Interpretations (II) of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Cases Involving Patent Infringement Disputes (hereinafter referred to as "Interpretations (II)") stipulates tha: where it is difficult to determine the actual loss suffered by a right holder, the competent people's court shall require the right holder to furnish evidence to prove the gains obtained by the infringer from the infringement in accordance with Paragraph 1 of Article 65 of the Patent Law; where aright holder has provided the prima facie evidence proving the gains obtained by the infringer but the account books and materials related to the acts of patent infringement are mainly controlled by the infringer, the competent people's court may order the infringer to submit such account books and materials; where the infringer refuses to provide such account books and materials without justification or provides false account books and materials, the competent people's court may determine the gains obtained by the infringer from the infringement based on the claims of the right holder and the evidence furnished thereby.

In this case, the actual loss suffered by the right holder due to the infringement is difficult to determine. The two defendants held account books and materials related to the patent infringement and provided it when the court organized the pre-trial meeting. In the case of auditing the account books of the allegedly infringing products manufactured or sold, defendants refused to provide the books required by the audit agency without justifiable reasons. Therefore, the court comprehensively considers the claims of the right holders and the evidence on hand to determine the amount of damages in this case. Regarding reasonable expenses, the notary fees, translation fees, and product purchase fees claimed by the plaintiff all provided corresponding bills, which were supported by the court. With regard to the lawyer's fees claimed by the plaintiff, the court will comprehensively determine the actual costs of the case.

In summary, the Shanghai Intellectual Property Court ruled that the defendant Huasheng Company and the defendant Hongsheng Company jointly compensated the plaintiff for economic losses and reasonable expenses totaling RMB 990,000 and rejected the plaintiff's remaining claims. After the first-instance judgment, neither party filed an appeal, and the first-instance judgment is now in effect.

 

【Case analysis】

This case involves the determination of the amount of damages in patent infringement cases. The particularity of this case lies in the fact that the defendant refused to submit the account books in the proceedings, which constitutes a hindrance to the proof. The court determines the amount of damages under the damages system of the Chinese Patent Law based on the claim of the plaintiff and the evidence provided. The hearing of the case can provide a reference for the same type of case, playing a role as a guide and warning for the party's honesty litigation, and also helping guide the right holder to actively provide evidence. After the judgment, both parties accepted the judgment and the defendant took the initiative to contact the court to perform the effective judgment and achieved good social and legal effects.

 

(1) The status of the failure to obey court orders relating evidence in the patent infringement damage 

China's Patent Law and related judicial interpretations constitute the general rules for determining the damages for patent infringement¹. According to Patent Law, the method of calculating the amount of damages for patent infringement can be summarized as: the actual loss of the right holder, the profit obtained by the infringer, a reasonable multiple of the patent licensing fee, and statutory damages. In addition, according to the Judicial Policy of the Supreme People's Court, if it is difficult to prove the actual loss or the specific amount of infringement profits, but there is evidence to prove that it obviously exceeds the statutory damages maximum limit, the amount of damages can be determined at the statutory maximum limit of more than 1 million yuan². As for the calculation method of damages, the right holder, as the plaintiff in the patent litigation, has the right to choose and provide evidence based on the preferred method.

Judging from the rules of proof, according to the "Who Claims and Who Proves" rule of the Civil Procedure Law, the plaintiff bears the burden of proof for the claim of the amount of patent damages. In practice, because the account books and materials related to the infringement are mainly controlled by the infringer, it is often difficult for the right holder to prove the actual sales volume of the patent infringing product. Regarding the evidence of "infringement and profit", Article 27 of the Patent Dispute Judicial Interpretation (2) is based on the failure to obey court orders relating evidence in the Civil Procedure Law. According to the patentee's preliminary proof and the infringer's possession of relevant evidence, the obligation of proof concerning the profit of the infringer is assigned to the infringer, that is, the rule of failure to obey court orders relating evidence in the Patent Law. The legislative purpose of the rule is to encourage evidence holders to assist in providing evidence so as to better discover the facts of the case³. In patent infringement cases, the rule of failure to obey court orders relating evidence play an important role in solving the problem of "difficult to prove" for right holders, and is also a great weapon for solving the problem of damages determination under the current legal framework⁴.

In this case, the plaintiff claimed that the amount of damages was RMB 3.3 million, which was based on the calculation method of the infringer's "infringement profit". During the trial, the defendant refused to provide the account books required by the audit institution during the audit process. The plaintiff requested the court to fully support the amount of damages it claims in accordance with the rule of failure to obey court orders relating evidence provided by the Patent Dispute Judicial Interpretation (2).

 

(2) The application of the rule of failure to obey court orders relating evidence in determining the amount of damages in this case

1. Constitutive conditions and legal effects of the rule of failure to obey court orders relating evidence 

According to Article 27 of the Patent Dispute Judicial Interpretation (2), there are three elements of the failure to obey court orders relating evidence: First, the right holder has carried out preliminary proof of infringement and profit. The preliminary evidence here may include the infringer's own promotional materials, website introduction, company annual report, etc. on the profit of the infringement and the company's overall profit. The proof requirements for right holders should not be too strict⁵. The second is that the infringer holds the account books and materials related to the infringement and refuses to submit it after being ordered by the court. The third is that the defendant refused to submit the account books and materials related to the infringement without proper reasons. The legal effect of the evidence hindering the application of the rule is that the court can determine the amount of profit from the infringement based on the claims of the right holder and the evidence provided.

In this case, for element one, the initial evidence submitted by the plaintiff for infringement and profit included the defendant Huasheng Company's website publicity materials and the profit rate of the patented product. It could be determined that the plaintiff had carried out preliminary proof of the defendant's infringement and profit. For element two, first, the audit agency accepts the commission of the court to audit the defendant's account books, representing the requirements and authority of the court; second, the defendant once provided the account books in the pre-trial meeting, indicating its possession of account books and materials related to patent infringement. Therefore, the defendant's refusal to provide account books in the course of the audit was considered as "possessing the account books and materials related to the infringement but refuse to submit them after being ordered by the court". For element three, the reason for the defendant not to provide the account books was that the plaintiff had postponed the verification of the account books, which was not a valid reason for not submitting the account books.

In summary, the defendant has an act of failure to obey court orders relating evidence provided in the Patent Dispute Judicial Interpretation (2). The court can apply the provisions of this judicial interpretation and determine the amount of infringement and profit based on the claim of the plaintiff and the evidence provided.

 

2. Handling of the rule of failure to obey court orders relating evidence in different situations where the amount of damages is determined 

According to the obstruction of proof rules stipulated in the Patent Dispute Judicial Interpretation (2), the court can determine the amount of infringement and profit based on the claims of the right holder and the evidence provided. In this regard, the court needs to further review the plaintiff's claims and the evidence submitted, and deal with different situations within the framework of China's patent damages system. According to the different situations and treatments of individual cases, this article summarizes the following three situations:

First, the profit of infringement is greater than or equal to the amount of damages claimed. If the evidence submitted by the plaintiff can prove that the infringement profit is more than or equal to the amount of damages it claims, it should fully support the plaintiff's claim on the amount of damages. Usually, in such cases, the plaintiff fully proves the quantity or selling price of its infringing products, for example, through the JD.com and Tmall e-commerce platforms to obtain evidence of the quantity and selling price of the accused infringing products sold by the official flagship store of the defendant. Therefore, it can be proved that the scale of infringement is greater than the amount of damages claimed in the lawsuit based on the above evidence⁶, and the defendant's claim can be directly presumed if the defendant refuses to provide account information without justifiable reasons. As for the defendant's refusal to provide relevant evidence without justifiable reasons, the basic facts used to calculate the profit of infringement cannot be accurately determined, and the court may not consider the reasons for its defense.

Second, the profit of infringement is less than the amount of damages claimed. If the evidence submitted by the plaintiff proves that the profit of infringement can be determined and is less than the amount of damages claimed, it should partially support the claim of the plaintiff for damages in accordance with the amount of profit from infringement determined after the examination.

Third, the profit of infringement cannot be determined. If the evidence submitted by the plaintiff proves that the infringement and profit cannot be determined, the aforementioned judicial policy should be applied, that is, it is difficult to prove the specific amount of infringement damage or infringement profit, but there is evidence that the aforementioned amount obviously exceeds the legal limit of damages. In the case of evidence in the whole case, the amount of damages should be reasonably determined above the legal maximum limit. Therefore, in this case, the court should further determine whether the profits of the infringement proved by the evidence in the case clearly exceeds the maximum legal damages limit of RMB 1 million. If there is an evidence that clearly exceeds RMB 1 million, damages shall be made at RMB 1 million or more. If there is no evidence to prove that it exceeds RMB 1 million, the evidence and facts of the whole case should be reasonably determined within RMB 1 million.

In this case, the plaintiff requested full support for the amount of damages it claims. After trial, the court held that:

First of all, according to the evidence submitted by the plaintiff, the annual output shown on the defendant's website’s publicity materials is the sales volume of all passenger tires. It cannot be proved to be the sales volume of the alleged infringing product. The number of sales involved in the calculation method of the amount of damages claimed by the plaintiff cannot be supported. The evidence submitted by the plaintiff in this case cannot be determined that its infringement profit is equal to or higher than the amount of damages it claims, so it should not fully support the plaintiff’s claim for damages. 

Secondly, from the aforementioned evidence submitted by the plaintiff, the defendant’s infringement profit cannot be determined. The evidence in the case also cannot prove that the defendant's infringement profit obviously exceeded RMB 1 million. Therefore, the plaintiff’s damages amount should not be supported above RMB 1 million.

Finally, the plaintiff did not have obvious evidence to prove that the profit from the infringement exceeded RMB 1 million, and the evidence and facts of the whole case should be consolidated below RMB 1 million to determine the amount of damages the defendant should bear reasonably. Combining the evidence and facts of the whole case, the important fact of this case is that the defendant provided the account books in the pre-trial meeting, but refused to submit it during the audit process, there was a failure to obey court orders relating evidence, and it should bear the adverse consequences of proof. In civil litigation, both parties have normal expectations and balance of interests in the arrangement of their litigation. From the perspective of the defendant’s litigation, it usually makes preliminary judgments on the plaintiff’s claims and evidence, and on this basis makes arrangements that are beneficial to them. In this case, the defendant still refused to submit evidence to refute the case, knowing that once it did not submit the account books, it was likely to be determined to bear the consequences of damages of less than RMB 1 million based on the evidence of the plaintiff. It can be seen that the defendant’s act of providing account books will bring him even more unfavorable consequences.

Therefore, it can be inferred that he should have higher damages within the range of less than RMB 1 million, so as to be as close to the facts as possible. Therefore, on the basis of respecting the evidence in the case and objective facts, the court made an unfavorable presumption against the defendant and determined the damages from a higher level within the damages limit of RMB 1 million, so it finally determined that the damage compensation amount, in this case, was RMB 990,000.

 

 

1 See Article 65 of the Patent Law and Article 20 of the Several Provisions of the Supreme People's Court on Issues Concerning Applicable Laws to the Trial of Patent Controversies.

2 Article 16 of Notice of the Supreme People's Court on Issuing the Opinions on Several Issues concerning Intellectual Property Trials Serving the Overall Objective under the Current Economic Situation, “Actively guide parties to choose damages calculations based on loss caused or profits made, as far as possible avoid simply using the statutory damages method. Where it is difficult to prove the loss caused or profits made but there is evidence it is significantly more than the statutory maximum amount of compensation, this should be combined with the actual case situation, and reasonable compensation greater than the statutory maximum determined.”

3 Bi Yuqian, Research on Obstruction of Civil Litigation Proof, Peking University Press, 2010 edition, pp. 12-16.

4 Interpretation (II) of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases will increase the protection of patent rights and try to solve the problems of "long cycle, difficult to produce evidence, and low damages" as one of the guiding ideas.

5 Song Xiaoming, Wang Chuang, Li Jian, The Understanding and Application of "Interpretation (II) of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases), People's Judicial Application, 2016, p. 35.

6 (2019) Supreme People’s Court Intellectual Property Tribunal Final Judgement No. 147