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Largest Damages Award for Patent Infringement - International Law Office

International Law Office

Intellectual Property - China

Largest Damages Award for Patent Infringement

December 15 2008

Facts
Decision
Comment


A Chinese firm has won a patent infringement case against Schneider Electric and its Chinese distributor. The award of Rmb334.8 million ($48.6 million) in damages is the largest issued for patent infringement in China.

Facts

In August 2006 Chint Group Co, China’s largest manufacturer of low-voltage electrical equipment, filed legal proceedings before the Wenzhou Municipal Intermediate People’s Court for patent infringement against Schneider Electric Low-Voltage (Tianjin) Co Ltd, a joint venture of Schneider Electric, and Ningbo Star Electrical Appliances and Equipment Co Ltd (Leqing Branch), an authorized distributor of Schneider's products in China.

Chint holds the utility model patent rights for a miniature circuit breaker. Chint claimed that Schneider manufactured and sold five circuit breaker models which incorporated its patented miniature circuit breaker. Chint had applied for a patent in November 1997 and the State Intellectual Property Office (SIPO) had granted it in March 1999. Between August 2004 and July 2006 Schneider manufactured five infringing models and sold the circuit breakers for a total of $128 million, generating a profit of $48.6 million. Chint demanded that Schneider:

  • immediately cease selling the five infringing models which incorporated its patented technology;
  • deliver up the inventory of infringing circuit breakers to the court; and
  • pay the equivalent of $48.6 million in damages.

Following Chint’s filing, Schneider brought a separate proceeding before the Patent Re-examination Board in which it sought to invalidate Chint’s patent on the grounds that the miniature circuit breaker had been publicly disclosed both in China and abroad before SIPO granted the patent, thereby rendering the patent invalid. In China, the board has exclusive authority over issues of patent validity (subject to judicial review). Once a patent has been issued and announced to the public, an entity or individual can request the board to declare it invalid. Schneider claimed that it had used the miniature circuit breaker in its circuit-breaking products in Europe since 1990. It registered the circuit breaker patent in France in December 1996 and in China in 1999. However, in April 2007 the board rejected Schneider’s arguments and confirmed the validity of Chint’s utility model patent, clearing the way for the trial to proceed in court.

In July 2007 Schneider brought separate proceedings before the Beijing No1 Intermediate People’s Court to set aside the board's decision. The case continues.

Decision

In September 2007 the Wenzhou court ordered Schneider and Star Electrical to cease selling the five circuit breaker models which incorporated Chint’s utility model patent and to compensate Chint for its economic losses by paying Rmb334.8 million.

The decision is remarkable not only because the court awarded the largest damages for patent infringement in China to date, but because it addressed the validity of the defence of earlier implementation of the patent against a claim of infringement.

Although no provision in the law expressly allows for the defence of earlier implementation of a patent against a claim of infringement, such a defence may still be admissible. When comparing the technical content of the earlier patent registration with the patent registration in dispute, reference should be made to the standard of novelty set out in SIPO’s Guidelines for Patent Examination in order to determine whether the two patents are identical in content. If so, the defence of earlier implementation may apply. In this case, Schneider could not use the defence of earlier implementation, as its earlier patent did not include all of the technical features of Chint’s miniature circuit breaker.

On the issue of damages, the court held that Schneider’s financial results should be used to calculate the illegal profit that it had gained between 2004 and 2006. In patent infringement cases, damages can be assessed with reference to the plaintiff's loss or the defendant's profit. Schneider’s profits were considered when determining the damages to be awarded to Chint for economic loss as a result of the patent infringement. As Schneider’s operating profit from the sale of the infringing products was $48.6 million, the court awarded Chint an equivalent sum in damages.

Comment

The judgment in Chint's favour represents the largest award of damages for patent infringement in China. This ruling is significant for its deterrent effect against patent infringement and should encourage both Chinese and international companies investing in research and development in China.

Schneider has appealed the judgment to the Superior People’s Court of Zhejiang. The appeal is pending.

For further information on this topic please contact Connie Carnabuci or Victoria White at Freshfields Bruckhaus Deringer's Hong Kong office by telephone (+852 2846 3400) or by fax (+852 2810 6192) or by email (connie.carnabuci@freshfields.com or victoria.white@freshfields.com).


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