The Supreme People's Court issued a judgment in a dispute over exclusive rights to an integrated circuit layout design. In the binding decision, the Court provided clear guidance on the liability of chip packaging companies. The Court held that before and after packaging, chips are essentially independent upstream and downstream products. When a packaging company completes the packaging process, it is engaging in the commercial exploitation of an upstream product. In the absence of sufficient evidence, it cannot be automatically assumed that the packaging company knew or had reasonable grounds to know about the rights status of the layout design. However, if the holder of the exclusive right to a layout design files a lawsuit against a party who has in good faith commercially exploited an integrated circuit or article containing a protected layout design, that lawsuit itself shall be treated as a notice of infringement. From the date the complaint is received, that party must pay reasonable compensation to the right holder.
The case involved Company A, the holder of the exclusive right to the layout design in dispute. Company B sold the accused infringing chips to Company C for packaging, and Company C then sold the packaged chips to the market. Company A believed that the layout design of the chips manufactured and sold by Company B and Company C was very similar to its own, fully copying all three original features of its layout design. Company A argued that the accused chips fell within the scope of protection of its layout design. It filed a lawsuit alleging that Company B and Company C had jointly infringed its exclusive right to the integrated circuit layout design, and requested the court to order both companies to stop their infringing activities and to bear joint liability for damages.
Regarding the liability of the chip packaging company, Company C, the first instance court found: In the normal course of business, Company C had no practical way to know whether the chips it was packaging were infringing, even if it paid close attention to layout designs. Meanwhile, Company A bore the burden of proving that Company C knew or should have known that the chips it received contained an illegally copied layout design. The evidence Company A submitted on this point was insufficient. Based on this, the court held that even if the chips Company C packaged and sold contained an illegally copied layout design, Company C's conduct did not constitute infringement. However, the court found that Company B had engaged in copying and commercial exploitation, thereby infringing Company A's exclusive right to the layout design. Company B was ordered to stop its infringing activities and pay damages. Both Company A and Company B appealed. The Supreme People's Court upheld the lower court's ruling.
On the issue of Company C's liability, the Supreme Court pointed out in its binding judgment: During the chip manufacturing process, wafer fabrication and chip packaging are separate stages and are typically handled by different manufacturers. A circuit layout design generally only concerns the chip design and wafer fabrication stages. The packaging process after wafer fabrication does not involve copying the circuit layout design. Therefore, chips before and after packaging should be treated as independent upstream and downstream products. When a packaging company completes packaging, it is engaging in the commercial exploitation of an upstream product. Given that layout designs are not publicly disclosed even after registration, as long as the packaging company's parameter requirements to the wafer manufacturer are directed at functionality rather than a specific layout design, and in the absence of other evidence, it cannot be automatically assumed that the packaging company knew or had reasonable grounds to know about the rights status of the wafer's layout design.
In this case, Company C had purchased the wafers it processed from Company B. The evidence presented did not show that Company C knew, at the time it obtained the wafers, that they contained an illegally copied layout design. The fact that a packaging company knows the technical parameters of the chips it packages does not mean it knows that those chips contain an illegally copied layout design. Nor can the mere presence of a packaging company's trademark, company name, or product model number on the packaging after encapsulation be used to conclude that the company engaged in copying the layout design. According to Article 33(1) of the Regulations on the Protection of Integrated Circuit Layout Designs, which states that a party who obtains an integrated circuit containing a protected layout design or an article containing such an integrated circuit, and who does not know and has no reasonable grounds to know that it contains an illegally copied layout design, and who then puts it into commercial exploitation, shall not be deemed to have committed infringement. Based on this provision, the Court concluded that Company C had not committed infringement.
While holding that Company C was not liable for infringement, the Supreme Court further clarified the application of Article 33(2) of the Regulations. This provision states that “The party referred to in the preceding paragraph may, after receiving clear notice that a layout-design contained therein is unlawfully reproduced, continue to commercially exploit the existing inventory or previous orders, must pay reasonable compensation to the layout design right holder.” The Court held that Company A's act of filing the lawsuit itself constituted a notice of infringement to Company C. From the date Company C received the complaint, it, as a good faith party, was required to pay reasonable compensation to the right holder.
Article 33 of the Regulations establishes a good faith commercial exploitation exception, that is, a good faith party's commercial exploitation activities performed before receiving a notice of infringement are not deemed infringement. After receiving notice, the party need only pay reasonable compensation for the subsequent flow of existing inventory and may continue its business operations. This approach avoids imposing an overly burdensome duty on good faith market participants to verify the legality of every layout design, while still adequately protecting the legitimate economic interests of layout design right holders. The Supreme People's Court's binding judgment in this case accurately interprets and applies the original legislative intent of these provisions. Through this individual case, the Court has further clarified the boundaries of the legal provisions, transforming abstract legal rules into practical guidance that market participants can directly follow. The decision equally protects the legitimate rights and interests of all parties involved and provides a clear standard for resolving similar disputes, offering significant guidance to the integrated circuit industry.
(2022) Zui Gao Fa Zhi Min Zhong No. 565
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