China’s Supreme People’s Court: Patentee Entitled to Punitive Damages for Breach of Settlement Agreement
In a decision highlighted by China’s Supreme People’s Court (SPC) on February 7, 2023, the SPC ruled that a plaintiff patentee was entitled to punitive damages when the defendant sold the infringing product after concluding a settlement agreement in an earlier case to stop infringing. Jin XX sued Baijia Hardware, Electrical, Labor Insurance and Building Materials Business Department and Zhengzhou Baifa Trading Co., Ltd. for invention patent infringement of CN1131364 for a “Reverse Ground Planer.” On appeal to the SPC, the SPC held that Bajia resold the same infringing product after a settlement agreement was reached and therefore there was intentional infringement and the infringement was serious, which is in line with the applicable conditions for punitive damages. Punitive damages were calculated based on the amount paid in the prior settlement agreement.
Prior to this case, Jin XX filed a lawsuit with the court of first instance for the sale of the same accused infringing product by Baijia. In the previous case, the two parties reached a settlement agreement on May 13, 2021. Baijia promised to stop the infringement and compensate Jin XX for economic losses and reasonable expenses totaling 30,000 RMB. Jin XX withdrew the lawsuit on June 11, 2021 . After the previous case was withdrawn, Baijia Operations Department sold the accused infringing product again on July 1, 2021, so Jin XX filed this current lawsuit. In this case, Jin claimed that the Baijia sale constituted repeated infringement, intentional infringement with serious circumstances, and requested punitive damages.
The court of first instance held that the alleged infringing product fell within the protection scope of the patent right involved in the case. Although Baijia intentionally infringed, it did not reach the seriousness of the circumstances and did not meet the conditions for applying punitive damages. The Jia Business Department compensated Jin XX for economic losses of 8,000 RMB and reasonable expenses for rights protection of 2,000 yuan, totaling 10,000 RMB. Jin XX appealed.
The SPC held that when judging whether to apply punitive damages to Baijia, it should examine whether it has subjective intent and whether the infringement is serious. After the prior lawsuit, Baijia knew that Jin was the patentee involved in the case, and also knew that the sale of the accused infringing product infringed the patent right involved in the case. Nonetheless, after making a commitment to stop the infringement and paying compensation in the previous case, Bajia continued to sell the alleged infringing product. This shows an intent to infringe and constitutes repeated infringement, which falls under the “Other Circumstances That Can Be Determined as Serious Circumstances” as stipulated in Article 4 of the Interpretation of the Supreme People’s Court on the Application of Punitive Compensation in the Trial of Civil Cases of Infringement of Intellectual Property Rights. Bajia should therefore bear the responsibility for punitive damages.
Per Article 4 of the Interpretation, to determine if circumstances are serious, Courts “shall comprehensively consider the infringement methods and frequency, the duration, geographical scope, scale, and consequences of the infringement, and the infringer’s actions in the lawsuit.” Article 4 further lays out specific circumstances that can be considered serious:
(1) After being punished by an administrative penalty or a court decision for infringement, he commits the same or similar tort again;
(2) Taking the infringement of intellectual property rights as its business;
(3) Forging, destroying or concealing evidence of infringement;
(4) Refusal to perform the preservation ruling;
(5) The infringement gains are huge or the right holder suffers huge losses;
(6) Infringements may endanger national security, public interests or personal health;
(7) Other circumstances that can be determined as serious.
With regard to the amount of compensation, none of the parties involved has provided evidence to prove the actual loss of the patentee due to the infringement, the infringer’s profit from the infringement, or the patent license fee, etc. Baijia in this case reached a settlement agreement in the previous case and repeated infringement occurred less than two months later, the duration of the infringement was relatively short, the profits from the infringement were limited, and the patent involved in the case expired on August 10, 2021. Therefore, the amount of compensation from the Settlement Agreement shall be used as the calculation basis, and it is determined that the Baijia shall be liable for the punitive damages. Thus, the SPC increased compensation to 60,000 RMB.
The case number is (2022）最高法知民终871号 and the original is available here (Chinese only).
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