CHINA Trends and Developments Contributed by: Feng Zheng, Xiaoyang Yang, Baihe Liu and Hongfeng Li, Wanhuida Intellectual Property
It is worth noting that in the above calculation the first-instance court doubled the average monthly sales of the infringing product of the manufac- turer, in view that the two defendants defied the court’s order to produce evidence relating to the sales of the infringing product. The court also trebled the royalty rate prescribed in the licence agreement for calculating damages, considering the nature of the patent at issue, the nature and severity of the infringement and the content of the licence agreement. The court awarded punitive damages for the last three months of infringement, as the law provid- ing for punitive damages was not effective until then. Specifically, the court awarded quintuple damages apportioned to the last three months of infringement, in view of the brazenness of the two defendants to infringe and the duration and scale of infringement. As a result, the first-instance court awarded damages of RMB10 million. Second instance Both the plaintiff and the two defendants appealed to the SPC. Whilst also finding infringe- ment, the SPC took a different approach to dam- ages calculation. Upon the request of the plaintiff, the SPC issued a ruling demanding that the two defendants pro- duce their books of accounts. In response, the manufacturer produced its books of accounts for more than three years. The vendor produced some purchase contracts, tax receipts and orders of infringing products, but still refused to produce its books of accounts. Based on the books of accounts of the manu- facturer, the SPC calculated the profits made by the manufacturer out of selling the infringing
products during that time period. The SPC then found most (around 90%) of the infringing prod- ucts manufactured were sold to the vendor at prices approximately 1.5 times the factory gate prices. In calculating the vendor’s sales revenue, the SPC used the figures of the manufacturer as a benchmark and multiplied it by 90% (to reflect the sales figure of the vendor) and 1.5 (to reflect the vendor’s sales price of the infringing products). The court then projected the derived revenue throughout the entire period of infringe- ment, using an estimated gross profit margin of 33% (estimated based on the vendor’s operation mode and sales price of the infringing product) and an estimated minimum operating profit mar- gin of 12% (estimated based on data used by the vendor in calculating its own profits). The SPC also applied a contribution rate of 100% for the patent at issue, as the infringing product included protein of the amino acid sequence of the patent at issue. The vendor’s profits were therefore calculated to be more than RMB23 million. Based on this calculation, and by taking into account the procrastination of the manufac- turer and the defiance of the vendor in turning in their books of accounts, the court awarded damages of RMB18.5 million as claimed by the plaintiff without applying punitive damages, as the claimed damages had already been granted. Another major divergence from the first-instance court is the SPC found the two defendants were severally and jointly liable for the full amount of damages awarded, and the vendor’s defence of legitimate source should not apply. The SPC reasoned that the vendor’s active involvement in the infringement suggested that it was more than an innocent vendor.
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