The objective of patent infringement damages is to restore the patentee, as much as possible, to the position they would have been in had the infringement not occurred, thereby maintaining incentives for innovation. For products that are not publicly sold, since damages cannot be directly calculated based on market sales, the court may, depending on the specific circumstances of the case, use products from the most directly profit-generating stage related to the implementation of the patented technical solution as a reference for calculating infringement damages.
Guangdong A Company filed a lawsuit claiming that: It is the patentee of the invention patent titled "Riveting Mold for Fastening the Cover of a Magnetron" (the “Patent”). Zhongshan B Company, without authorization, manufactured and used riveting molds that infringed the Patent for production and business purposes, which demonstrates clear subjective malice and has caused severe economic losses. Therefore, Guangdong A Company requested the court to rule that: Zhongshan B Company immediately ceases the infringement of the patent, including stopping the manufacture and use of the infringing riveting molds, destroying the accused infringing products in use and in inventory, as well as the specialized equipment and molds used to produce them, and compensating Guangdong A Company for economic losses of CNY 10 million and reasonable litigation expenses of CNY 200,000.
Zhongshan B Company argued: The Patent inolved did not comply with legal requirements; the structure of the accused infringing product differed from that of the Patent and thus did not constitute infringement; the Patent played a minimal role in magnetron production, and magnetrons themselves were low-value components, so Guangdong A Company's claimed damages were excessive and lacked factual basis.
The first-instance court found after trial: Four notarization documents from 2020 showed that Guangdong A Company purchased multiple models of microwave ovens from Zhongshan B Company’s stores on Taobao and JD.com on October 27 and 28, 2020, among other dates. The magnetrons used in these microwave ovens were all produced by Zhongshan B Company.
The first-instance court issued a civil judgment to dismiss all of Guangdong A Company's claims. Dissatisfied, Guangdong A Company appealed. The Supreme People's Court rendered a final civil judgment on October 7, 2023 to: 1) Revoke the first-instance civil judgment; 2) Zhongshan B Company shall immediately cease manufacturing and using the riveting molds that infringe Guangdong A Company's invention patent and destroy the molds; 3) Zhongshan B Company shall, within ten days of the judgment taking effect, compensate Guangdong A Company for economic losses of CNY 10 million; 4) Zhongshan B Company shall, within ten days of the judgment taking effect, pay Guangdong A Company CNY 200,000 for its reasonable litigation expenses; and 5) All other claims of Guangdong A Company are dismissed.
The court's effective judgement held: In this case, Guangdong A Company claimed that calculated based on its actual losses, the damages should be CNY 10 million. The calculation method was: Profit per magnetron sold by Guangdong A Company × Sales volume of magnetrons by Zhongshan B Company × Technical contribution rate of the Patent. Specifically: Guangdong A Company asserted that its magnetrons were sold for no less than CNY 70 each, with a cost of CNY 26.94, yielding a profit of CNY 43.06 per unit. Zhongshan B Company sold 4,494,585 magnetrons from 2018 to October 2020. The technical contribution rate of the Patent was 10%. Thus, CNY 43 × 4,494,585 × 10% = CNY 19,326,715, which exceeded Guangdong A Company’s claimed actual losses of CNY 10 million. Zhongshan B Company argued that the accused infringing product was not the magnetron itself but a processing mold used to rivet the magnetron cover, which contributed minimally to the overall value of the magnetron. Therefore, Guangdong A Company’s damages claim and calculation method lacked legal basis. The court’s analysis on this issue is as follows:
A. Whether the actual losses of Guangdong A Company can be calculated based on the profit and sales volume of magnetron products
First, the objective of patent infringement damages is to restore the patentee, as much as possible, to the position they would have been in had the infringement not occurred, thereby preserving incentives for innovation.
Second, when the accused infringing product is not publicly sold on the market, its value generally cannot be directly calculated based on market sales.
Third, businesses achieve profits by providing products to the market to trade, meaning profits are ultimately achieved through market transactions. Therefore, using the most directly profit-generating link in market transactions as the basis for calculating economic losses is causally justified.
In this case, the accused infringing riveting mold is a processing tool for magnetron production and does not enter the market itself. There is also no evidence showing that alternative technical solutions for such a mold exist on the market, making its market value indeterminable. Under these circumstances, considering the objectives of the patent infringement damages system and the fact that the riveting mold is an essential production tool for manufacturing magnetrons, it is reasonable to use the magnetron—the product in the most directly profit-generating link—as the basis for calculating Guangdong A Company’s actual losses.
B. Calculating losses based on the sales profit of Guangdong A Company’s magnetrons and the sales volume of Zhongshan B Company’s magnetrons
A patentee’s actual losses can generally be calculated by multiplying the reduction in sales volume of the patented product by the profit per unit. If the total reduction in the patentee’s sales volume cannot be determined, the total sales volume of the infringing products on the market multiplied by the profit per patented product may be deemed the losses suffered by the patentee due to the infringement.
In this case, the total reduction in Guangdong A Company’s magnetron sales could not be determined. Therefore, the losses can be calculated based on the total sales volume of the infringing products multiplied by the profit per patented product. Additionally, according to an appraisal report from a related criminal case, Zhongshan B Company sold a total of 4,494,585 magnetrons from 2018 to October 2020, and the unit cost of Guangdong A Company’s self-developed magnetrons was CNY 26.94 per unit. In the absence of counterevidence from Zhongshan B Company, these facts are confirmed. Based on the export and sales records submitted by Guangdong A Company, its claim that the selling price of its magnetrons was no less than CNY 70 per unit is factually supported and thus affirmed.
C. The technical contribution rate of the Patent
The Patented relates to a technical solution for riveting the upper cover of a magnetron, which is one step in the magnetron production process. By using this Patent, the common issue of loose riveting in prior art solutions is avoided, reducing defect rates and improving production quality and efficiency. Considering the importance of the Patent to magnetron production, Guangdong A Company has reasonably distinguished other intellectual property rights related to the magnetron product. Its claim of a 10% technical contribution rate for the Patent is relatively reasonable. Moreover, Zhongshan B Company did not provide any effective rebuttal to this allocation.
D. Using sales profit as the basis for calculation
According to relevant judicial interpretations, for infringers whose business is entirely based on infringement, damages may be calculated based on sales profits. Determining whether an infringer operates entirely on infringement involves both subjective and objective considerations. If objectively, the infringer has actually engaged in infringing activities, which constitute its main business and primary source of profit, and subjectively, the infringer knowingly committed the infringement, they may be deemed as having operated entirely on infringement.
In this case, Zhongshan B Company’s infringing activities were its main business—closely tied to the manufacture and sale of magnetrons—and formed its primary profit source. Furthermore, based on the effective criminal judgment and the facts ascertained in the second-instance trial, Employee X, the sole person responsible for Zhongshan B Company’s magnetron R&D, was a core technician in Guangdong A Company’s magnetron division during the patent prosecution period, and should have been aware of the Patent. Combined with Zhongshan B Company’s failure to provide any technical source evidence during the proceedings, it can be reasonably inferred that Zhongshan B Company subjectively knew that its actions constituted infringement but proceeded regardless. Thus, Zhongshan B Company belongs to an infringer operating entirely on infringement, and damages may be calculated based on its sales profits.
Overall, the calculation method for Guangdong A Company’s claimed losses is supported. Given that Guangdong A Company only sought compensation of CNY 10 million, this claim is also upheld.
(2022) Zui Gao Fa Zhi Min Zhong No. 1584
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