Where an alleged infringer engages in dishonest conduct in legal proceedings, such as making false statements, such behavior may be taken into consideration by the People’s Court when determining the amount of the rights holder's reasonable enforcement expenses.
US Company A, as the patentee of the invention patent titled "Endoglucanase STCE and Cellulase Preparation Containing the Same" (hereinafter "the Patent"), accused that Company B, a biotechnology firm, had engaged in offering for sale and selling products infringing the Patent, while Company C, a pharmaceutical company, had manufactured, used, offered for sale, and sold infringing products. Accordingly, Company A petitioned the court to order: 1) both companies to immediately cease patent infringement; 2) Company B to destroy all unsold infringing products and Company C to destroy both equipment specialized in manufacturing the infringing goods and unsold infringing inventory; and 3) both companies to jointly compensate CNY 18.5 million for economic losses plus 4) CNY 1.5 million for reasonable enforcement costs.
Company B argued in its defense that: The accused infringing products it sold were purchased from Company C, that is, legally sourced; the accused infringing technical solutions did not fall within the scope of protection of the Patent; the accused infringing products were no longer in stock; Company A’s claimed damages and calculation method lacked basis; and, Companies B and C had neither the intent nor conduct of joint infringement.
Company C argued in its defense that: The technical solutions of the accused infringing products did not fall within the scope of protection of the Patent; the accused infringing products were no longer in stock; and, Company A’s claimed damages lacked factual and legal basis.
However, the court found through trial that: During the second instance, Company C admitted that two models of the accused infringing products fell within the scope of protection of claims 1 and 11 of the Patent. Both defendants provided inconsistent statements regarding the sales process and technical specifications of two additional product models. Regarding the distribution process for neutral cellulase products: Following execution of sales contracts with downstream customers, Company B would prepare customized letters of entrustment reflecting customer requirements and forward the letters to Company C. Company B explained that, as a enzyme preparation manufacturer based in Hunan Province with extensive technical staff, it had capitalized on this competitive advantage to gradually establish a distribution partnership with Company C beginning in April-May 2016. Under this arrangement, Company B would fully distribute Company C’s feed enzyme preparations and textile enzyme preparations.
The court of first instance rendered a civil ruling, which ordered: 1) Company B and Company C to immediately cease infringement of the subject patent upon the judgment's effective date; 2) Company C must, within ten days of the judgment taking effect, compensate Company A CNY 10 million in economic losses plus CNY 1 million in reasonable costs, with Company B bearing joint and several liability for up to CNY 7.5 million of this amount, while 3) dismissing all other claims by Company A. Dissatisfied with the ruling, Company A appealed the inadequate damages award, Company B appealed on grounds of legitimate product sources, and Company C appealed the excessive damages determination. On December 14, 2023, the Supreme People's Court issued its final judgment as the following: 1) affirming the first item (the injunction) of the first-instance ruling; (2) revoking the second and third items (the damages and costs award) of the first instance ruling; 3) ordering Company B and Company C to jointly pay CNY 18.5 million in damages and CNY 1.5 million in reasonable costs within ten days of judgment effectiveness; while 4) rejecting Company A's other appeals; and 5-6) denying all appeals by Company B and Company C respectively.
The court's final judgment affirmed that the accused technical solutions fell within the scope of the Patent's protection, thereby establishing infringement. With respect to reasonable enforcement costs, the Supreme Court made the following determinations: First, Company A properly submitted corresponding documents for proving its claimed expenses, including CNY 25,130 for notarization fees, CNY 1,698 for translation services, and CNY 30,000 for testing fees, all of which were deemed necessary evidentiary costs and should be accordingly supported. Second, all other reasonable costs claimed by Company A were attorney fees, for which it provided billing statements as proof. The submitted billing statements should be valid proof of actual expenses, considering their consistency with standard business practices in Company A’s home jurisdiction. Third, this case involved substantial evidence and relatively complex facts, with the infringement exhibiting certain concealment characteristics and strong technical specificity, all of which justified elevated legal fees beyond typical litigation matters. Fourth, Company B and Company C had made multiple inconsistent statements during the litigation process – some constituted false statements – which objectively increased the workload of Company A’s litigation representatives. Therefore, the Supreme Court concluded that the amount of attorney fees in Company A’s claimed enforcement costs is in a reasonable range and accordingly granted the entire amount of CNY 1.5 million, modifying the initially awarded sum in the first-instance judgement which it found to be insufficient.
(2021) Zui Gao Fa Zhi Min Zhong No. 2480
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