Xiaoxia Zhang, an IP Partner in KWM’s Beijing office, introduces a view of the Chinese court on how to determine the infringement liability for offering to sell.
What happens if a company offers to sell a product that would infringe a patent in Mainland China? A recent judgment ruled that it can cause harm to the patent holder, even if no actual sale takes place. The case highlights the importance of respecting patent rights and the potential legal consequences for businesses that infringe on patents. It also explains that when it is difficult to prove the specific damages caused by offering to sell, the court can use statutory compensation to determine the amount of compensation.
The case: Offering to sell concrete mixing pumps similar to a patented design
In March 2021, the Supreme People’s Court of the People’s Republic of China (SPC) issued a second-instance judgment of (2020) Zui Gao Fa Zhi Min Zhong No. 1659, upholding the relevant findings of the first-instance judgment. The SPC held that the offering to sell of the JBT30、JBT40、DJBT40 mixing pumps (the involved products) by Qingdao Chenyuan Machinery Equipment Co., Ltd. (Chenyuan) constituted an infringement upon the utility patent of Qingdao Qingke Heavy Industry Co., Ltd. (Qingke) with patent number of 201720434420.X, titled “a Concrete Mixing Pump with Guide Rails” (the involved patent), ordering Chenyuan to cease the infringement and compensate Qingke for its economic losses and reasonable expenses.
In the second-instance judgment, detailed reasoning was provided regarding whether the accused infringer should bear the liability of compensating for the damages in case the aforesaid infringer merely conducted the act of offering to sell, and the damages of the patentee caused by the infringement or the gains obtained by the infringer cannot be proved.
This is helpful to understand how Chinese courts determine the infringement liability for offering to sell in judicial practices.
The court held that:
- The act of offering to sell will cause damages to the patentee, and the infringer should bear the infringement liability of ceasing the infringement and compensating for the damages.
The second-instance judgment held that, on the one hand, the act of offering to sell would objectively cause damages to the patentee. On the other hand, ordering the infringer to bear the liability of compensating for the damages of the patentee caused by the infringer’s act of offering to sell would be more conducive to protecting and stimulating innovation, and realizing the legislative purpose of the Patent Law.
Specifically, offering to sell under the Patent Law refers to an expression of intention to sell goods to an unspecified person through advertising, displaying in a store window, or exhibiting at a trade fair, etc. The act of offering to sell may occur after the products are manufactured or before they are manufactured, and may occur before the products are sold or during the sales process.
Although the purpose of offering to sell is the sale, the act of offering to sell is an independent and legal form of infringement. The civil liability for the act of offering to sell is not premised on whether the sale actually occurs. Once the act of offering to sell occurs, since the price offered by the infringer is usually lower than the price of patented products, it will have psychological implications for potential consumers and affect the reasonable pricing of patented products. Besides, it may also cause the consumers to give up purchasing patented products and consider to contact the infringer instead, causing delaying or even reducing the sales of patented products. In addition, the infringer’s act of offering to sell may also have an adverse impact on the advertising effect of patented products.
Therefore, the act of offering to sell will cause the patentee to suffer damages, such as price erosion of the patented product, reduction or delay in business opportunities, etc. And those damages are reasonably foreseeable results. When rights are damaged, there must be relief. Unless otherwise stipulated by law, the relief should at least comprise the two most basic forms of civil infringement liability, namely ceasing the infringement and compensating the damages, rather than only one of them.
Moreover, the act of offering to sell is an infringement expressly stipulated in the Patent Law. The purpose of the patent system is to protect and stimulate innovation. To protect patent rights in accordance with the law and create a good business environment and innovation environment, we should resolutely punish all infringements upon patent rights in accordance with the law, comprising the act of offering to sell, so as to effectively increase the cost of violating the law, and deter and stop the infringements. Without the licensing from the patentee, the act of offering to sell the patented products or products directly obtained according to the patented methods not only carries liability for infringement, but also has the consequences of actual damages.
If the specific damages caused by the act of offering to sell are difficult to prove accurately, the infringer will be exempted from liability of compensating damages and will only bear the liability of ceasing the act of offering to sell and compensating the reasonable expenses of the patentee for protecting the patent right. It is neither in line with the civil law principle that there must be relief when rights are damaged, nor is conducive to fully realizing the legislative purpose of the Patent Law.
- When it is difficult to prove the specific damages caused by the infringer’s act of offering to sell, statutory compensation can be used to determine the compensation amount.
The Patent Law stipulates the method of statutory compensation. When it is difficult to determine the actual damages of the patentee or the gains obtained by the infringer, the compensation amount can be determined based on the factors such as the type of patent rights, the nature and circumstances of the infringement, etc[1]. Therefore, when it is difficult for patentee to prove the specific damages caused by the infringer’s act of offering to sell, statutory compensation can be used to determine the compensation amount.
In the case where the infringer merely conducts the act of offering to sell, the actual damages may be less than the damages of actual sales. Therefore, when determining the compensation amount that an infringer should bear for offering to sell, a court should emphatically consider the malice and circumstances of infringement reflected by the evidence, comprising the infringer’s subjective fault, the type of the involved patent, the circumstances of the specific infringement, etc.
Key takeaways
Based on the above analysis, the second-instance court held that the act of offering to sell will cause damages to the patentee and the infringer should bear the liability of ceasing the infringement and compensating the damages. And when it is difficult to prove the specific damages caused by the infringer’s act of offering to sell, statutory compensation can be used to determine the compensation amount.
If you would like to know more about the cases those are informing how businesses protect their IP in China, see Xiaoxia Zhang’s other posts:
- Illegally disclosed a design or technology in the PRC? Say goodbye to the prior art defence.
- Does Participating in the Centralized Drug Procurement Constitute Offering to Sell?
[1] According to provision of Article 71 of the latest revised Patent Law of China (2020 Revised), the compensation amount for infringement of patent rights shall be determined according to the actual damages suffered by the patentee due to the infringement or the gains obtained by the infringer from the infringement. Where it is difficult to ascertain the damages of the patentee or the gains obtained by the infringer, the compensation amount shall be determined reasonably according to a multiple of the royalties of the said patent. For intentional infringement of patent rights, where the case is serious, the compensation amount shall be one to five times the amount determined pursuant to the aforesaid method.
Where it is difficult to ascertain the damages of the patentee, the gains obtained by the infringer and the royalties of the patent, a people’s court may determine a compensation amount ranging from RMB 30,000 to RMB 5 million according to the type of patent rights, as well as the nature and circumstances of the infringement, etc.
