VI.Liability for Intellectual Property Infringement

29.Determination of the Amount of Damages for Patent Infringement

Since the damages of IP infringement are characterized by intangibility，uncertainty and complicated causal relations，it is relatively difficult and complex to determine the amount of damages for infringement in practice.The focus should be placed on reasonableness and proportionality when determining the factors of damages.

In the patent infringement dispute case of Hua Jiping&Hefei Andyhua Import&Export Co.，Ltd.（hereinafter referred to as Andyhua，appellants）v.Shanghai Siboting Trade Co.，Ltd.（hereinafter referred to as Siboting，appellee），Rudong Fengli Machinery Co.，Ltd.（hereinafter referred to as Fengli，appellee）&Nantong Tianlong Plastics Industry Co.，Ltd.（hereinafter referred to as Tianlong Company，appellee）［（2007）MSZZ No.3，Hereinafter referred to as Suitcase Patent Infringement Case］，the SPC made a concrete and profound analysis of how to reasonably determine the damages amount when multiple factors such as the sales volume，patent royalties and profit margin of the infringing product were involved simultaneously.Furthermore，the SPC defined that the damages amount for IP infringement can be determined according to the extent of the concerned party's subjective fault，in particular when determining the specific calculation standard.

The basic facts of the case are as follows：Hua Jiping was the patentee of the utility model patent‘Suitcase for dumbbell set’that was authorized with announcement on December 10,1999.On May 14,2001，Hua Jiping and an outsider established the Andyhua，with Hua Jiping serving as its legal representative.On January 18,2003，Hua Jiping granted the Andyhua the‘non-exclusive and nontransferable license’on the disputed patent，agreeing to a license fee of RMB 5 million per year.On August 16,2004，Hua Jiping transferred all of his shares in the Andyhua to the outsider and ceased to act as the legal representative.In October，2005，Hua Jiping applied to Nantong Customs to detain 2,160 dumbbell set suitcases exported by Siboting and Fengli through Nantong Customs on the grounds that those suitcases infringed upon his patent，then applied to the High People's Court of Jiangsu Province to request the order of the cessation of infringement acts and property preservation before initiating a lawsuit.Hua Jiping and the Andyhua then lodged litigation with the High People's Court of Jiangsu Province.In the first instance，the High People's Court of Jiangsu Province held that the defendants，Siboting and Fengli，had jointly infringed upon the plaintiffs’patent.Because the plaintiffs had provided the number and profit margin of the infringing products，the damages should be determined according to the plaintiffs’losses.Based on the value of the infringing suitcases and their role in helping the dumbbell to make profits，and in combination with other factors like the profit margin stated by the parties concerned，the court determined that the reasonable profit margin of the suitcases involved was 15%of the selling price of the concerned dumbbells.Thus，the High People's Court of Jiangsu Province ordered Siboting and Fengli to immediately cease the infringement，destroy the detained dumbbell set suitcases and compensate the plaintiffs for economic losses of RMB 682,129.56，reasonable expenses of RMB 20,000 incurred by the plaintiffs in the course of dealing with the infringement，lawyers'fees of RMB 110,000 and the actual storage expenses for the detainment of the suitcases.Hua Jiping，the Andyhua and Siboting all filed appeals.The SPC made a judgment on June 11,2009，rejecting the appeals and reaffirming the original judgment.

Upon investigation and retrial，the SPC held that the losses of the infringed party and illegal gains could be figured out based on the profit margins of the patented product or infringing product，if the sales volume of the infringing product could be determined，which made the damages determined accordingly.The people's court may determine a reasonable profit margin provided that the profit margin of the related product cannot be calculated accurately.However，if the concerned party can prove that there is a true and reasonable patent royalty based on the pieces of product，the damages can be determined according to such a standard for each piece multiplied by the quantity of the infringing product.However，in this case，the patent royalty was determined on a yearly basis rather than according to the pieces，so it could not be taken as a reference.Moreover，the plaintiff must also bear the burden of proof to prove the authenticity and reasonableness of the patent royalty even if the damages are calculated on that basis.In this case，the patentee was the shareholder and legal representative of the licensee when the involved patent license contract was signed，so the patentee had a stake in the licensee obviously.Although the patentee transferred all his shares to others and did not act as the legal representative of the licensee any more，this could not remove reasonable doubt about the authenticity and reasonableness of the patent royalty.Furthermore，the plaintiffs failed to present evidence proving that the patent royalty had indeed been paid to the patentee along with the relevant taxes.Thus，the authenticity and reasonableness of the patent royalty could not be recognized in this case.Moreover，both parties objected to the reasonable profit margin，15%，that was determined by the court of first instance.In the second instance，the plaintiffs claimed that the damages should be determined as 44%of the profit margin，as indicated in the cost calculation statement，but they claimed it should be 30%of the profit margin in the first instance.In addition，the evidence offered therein was not new evidence after the completion of the first instance，so it could not be taken as new evidence for the second instance.Even if the evidence could have been admitted，some figures were calculated by the plaintiffs at their own discretion.The authenticity of those figures could not be recognized just based on the stamp of the tax authority without other evidence to support it.Besides，assuming that the profit margin was authentic，such a figure was the overall profit margin of the dumbbell set product（20KG）which was packaged in the involved suitcase，and the profit of the total product set could not naturally be taken as the profit of the involved suitcase.The infringing parties claimed that the price and profit margin of the involved suitcase should be calculated according to the price difference between the use of such a suitcase as a packing case and the use of a carton as a packing case，which was reasonable to some extent but not absolutely correct.Based on the specific marketing strategy，the price difference between a patented product and a non-patented product could not certainly reflect the contribution of the patent.Besides，the damages for IP infringement could be determined according to the extent of the concerned party's subjective fault，in particular when determining concrete calculation standards.In this case，after terminating the purchase of the dumbbell set using the involved suitcase from the Andyhua，Siboting bought the identical products from Fengli，showing subjective fault obviously，and this should be reflected in the damages.Based on the aforesaid findings，because the parties concerned could not provide evidence to determine the profit margin of the involved patent or the infringing product，the court of first instance determined that the reasonable profit margin of the involved suitcase should be 15%of the selling price of the concerned dumbbells based on the value of the patented product and infringing suitcases and their role in helping the dumbbell make profit，and combined with other factors like the profit margin self-identified by the infringer and the profit margin stated by parties concerned.The figure was relatively high，but there is nothing impropriate and no need to be changed due to the evident subjective fault of the infringing party.

30.Determination of Reasonable Expenses from the Investigation and Cessation of Infringement Acts

In IP infringement cases，the rights holders always claim for the compensation of reasonable expenses arising from the investigation and cessation of the infringement acts.How to determine the scope and amount of such reasonable expenses directly relates to the issue concerning whether the cost of safeguarding their rights and interests incurred by the rights holders can be reasonably compensated.The key of this issue should be the general status of rights safeguarding.

In the aforesaid‘Suitcase’Patent Infringement Case，the SPC conducted a concrete analysis of the determination of reasonable expenditure arising from the investigation and cessation of infringement acts and the nature of guarantees paid by the rights holder for infringing goods to apply to customs to take relevant measures in accordance with the plea of the parties.

The SPCconsideredthatanyreasonableexpenditurearisingfromthe investigation and cessation of infringement incurred by the rights holder should be incorporated into the scope of the compensation.Such expenditure is not necessarily supported by the invoices，thus the people's court can consider other possible factors that indeed caused the expenditure to determine the damages of reasonable expenditure synthetically within the limit of the figure claimed by the plaintiff，based on reasonable expenses with invoices and according to the actual situation of the concerned case.In the‘Suitcase Patent Infringement Case’，the expenditures of the penalty for traffic violation and the purchase of cigarettes and chewing gum in the course of investigating the infringement acts were obviously unreasonable，and such itemsshouldbedisregardedwhendeterminingtheamountofreasonable expenditure.The dining expense of more than RMB 1,000 was also unreasonable，and due consideration should be given to this fact.The expenses for the purchase of general foods and beverage by the investigators to conduct the investigation were reasonable.The hotel charges and taxi fares to different hotels were obviously not unreasonable，for the rights holder explained that many people conducted the investigations in different places on the same day.The reasonable expenses of earlier work amounting to RMB 340,000 claimed by the plaintiffs included security money of RMB 240,000 for infringing goods paid by the outsider Hefei Andy Fitness Products Co.，Ltd.and charged by Nantong Customs when detaining the infringing products，and relevant expenses arising from the enforcement of the judgment thereof.Pursuant to the relevant provisions of the Regulations of the People's Republic of China on the Customs Protection of Intellectual Property Rights，the security money provided by IP right holder shall be used to compensate for the losses suffered by the consignee and consignor due to an improper application，and pay the expenses for the warehousing，maintenance and disposal of the goods incurred after being detained by customs.When the suspected infringing goods are determined to have infringed upon an IP right，the holder of that IP right may claim the paid expenses for warehousing，maintenance and disposal as reasonable expenses incurred in stopping the infringement.Thus，in IP infringement cases，after deducting the expenses for the warehousing，maintenance and disposal of the goods incurred after being detained by customs，the security money that has been paid by the rights holder will be returned to the rights holder.Hence，the security money may not necessarily be taken as the loss of the concerned party，except when the expenses for the warehousing，maintenance and disposal of the infringing goods paid by the rights holder are regarded as reasonable expenses incurred in stopping the infringement，and are accordingly compensated.

31.Remuneration for the Use of Another's Musical Work Revised According to the Ballad

Concerning the question of how to pay remuneration for the use of another's musical work that is revised according to the ballad，the SPC defined the standards for remuneration payment of such works in the aforesaid‘Sense Company’case.It considered anyone who used another's musical work that was revised according to the ballad to reproduce and distribute sound recordings should pay remuneration to the adapter in full.

In the ruling of the Sense Company case，the SPC stated that People's court should determine the standards for remuneration in accordance with the Interim Provisions for Remuneration Standards for Statutory Permission of Sound Recordings promulgated by the NCAC if the parties concerned have reached no agreement.This case involves many users of musical works，in whose name is the remuneration paid to the copyright owner should comply with the agreement or industry practice between the parties concerned.Because no laws stipulate that the remuneration must be paid before the work is used，‘remuneration after use’does not violate the relevant legal provisions on the premise that the user does not impair the copyright owner's right to obtain remuneration.Ballads are always being passed down from generation to generation and have no specific author，so the copyright owner of a musical work who adapts the ballad enjoys the copyright on the revised musical work.So，anyone who uses another's musical work that was revised based on the ballad to reproduce and distribute sound recordings should pay remuneration to the adapter in full.As such，the license fee for 700,000 units of musical work of which the remuneration was not paid should be RMB 14,477，i.e.，the wholesale price of RMB 6.5 per unit×the royalty rate of 3.5%×700,000 units÷11 songs.

32.Civil Liability for Infringement of a Registered Trademark that is Not Actually Used in Commercial Operation

In disputes over trademark infringement cases，if the registered trademark seeking protection is not put into commercial operation，the trademark owner usually suffers no actual loss when the trademark is infringed.Under such circumstances，the way that the infringing party bears the liability for the infringement should be of certain specificity.

In the aforesaid‘Honghe’trademark infringement case，the SPC first defined the assumption of civil liability for infringing upon a registered trademark that has not been put into commercial operation.The ruling of the case reflects the following judicial principle：when infringing upon a registered trademark that is not put into commercial operation，the infringing party should assume the civil liability of ceasing the infringement andcompensatingthetrademarkownerforthereasonable expenditure incurred in the course of ceasing the infringement.However，the infringing party can be exempted from the civil liability of compensating for the losses.This principle properly copes with the relationship of the actual use of the registered trademark and the bearing of civil liability，thus encouraging trademark use，activating trademark resources and conducing to preventing the trademark owner from seeking unfair gains by means of the registered trademark.

The SPC considered that Yunnan Honghe Company had hung an advertising banner with the words‘Honghe Beer’in its Sales Department，which actually constituted an act of using words identical or similar to the registered trademark as an unregistered mark on the same type of goods without the permission of the trademark registrant，thus constituting an infringement of the exclusive right of trademark use.Yunnan Honghe Company should bear the civil liability of stopping the infringement.The respondents failed to present evidences proving the actual use of the registered trademark‘Honghe’and the actual losses suffered by it due to the infringement act，but it indeed incurred losses objectively to some extent due to the cessation of the infringement.Therefore，based on the comprehensive situation of the case，the court ordered the retrial petitioner to compensate the respondents for losses amounting to RMB 20,000.

33.Liability for Stopping the Use of a Sued Enterprise Name in Unfair Competition Cases

According to Article 4 of the Provisions of the Supreme People's Court on Issues Concerned in the Trial of Cases of Civil Disputes over the Conflict between Registered Trademark or Enterprise Name with Prior Right，a court may determine the civil liability of the defendant for stopped use or standardized use according to the plaintiff's claims and concrete situation of the case if the enterprise name constitutes unfair competition.

In the unfair competition dispute case of Guangdong Xingqun Foods&Beverages Co.，Ltd.（hereinafter referred to as Xingqun Foods&Beverages Company，retrial petitioner）v.Guangzhou Xingqun Pharmaceutical Co.，Ltd.（hereinafter referred to as Xingqun Pharmaceutical Company，respondent）&Nourishment Nutrition Plant of Guangzhou Xingqun Pharmaceutical Co.，Ltd.（hereinafter referred to as Xingqun Nourishment Nutrition Plant，respondent）［（2008）MSZ No.982］，the SPC further clarified that the defendant should bear the liability of stopping the use if the continuing use of an enterprise name cannot prevent confusion.As the SPC defined，for the malicious use of another's enterprise name that has a certain reputation in the market or has been known to the relevant public，and that may easily mislead the relevant public because of their location in the same region，a court should directly order the operator to stop using that enterprise name.

The basic facts of the case are as follows：Xingqun Drugs Company had used the name‘Xingqun’since 1950，and discontinued its use in 1966，but then resumed the name in 1980 and continuously used it thereafter.Through many years of operation，the trademarks‘Qunxing’and‘Qunxing+Graphics’owned by Xingqun Pharmaceutical Company were rated as‘well-known’many times from 1992 on，and its prunella mulberry chrysanthemum products were honored as national and provincial premium products and famous brands many times from 1985.Furthermore，Xingqun Pharmaceutical Company obtained multiple honors from 1986，and was recognized among the first‘famous time-honored brands’by the Ministry of Commerce on November 7,2006.The‘Prunella mulberry chrysanthemum granules’of Xingqun Pharmaceutical Company enjoyed good sales and boasted an extensive domestic and overseas market，and Xingqun Pharmaceutical Company had launched lots of advertising in various media.On January 14,2005，the Xingqun Foods&Beverages Company was registered and incorporated with the Guangdong Administration for Industry&Commerce，and the‘Prunella mulberry chrysanthemum granules’subsequently made by the company were very similar to those made by Xingqun Pharmaceutical Company in product packaging and decoration.Xingqun Pharmaceutical Company and Xingqun Nourishment Nutrition Plant sued Xingqun Foods&Beverages Company on October 25,2006，and requested the court to judge that the mark used by the Xingqun Foods&Beverages Company had infringed upon its enterprise's right of name and constituted unfair competition，and to order the Xingqun Foods&Beverages Company to stop using‘Xingqun’and compensate for economic losses.In the first instance，Guangzhou Intermediate People's Court thought the use of its enterprise name by the Xingqun Foods&Beverages Company did not infringe upon the right to the enterprise name of Xingqun Pharmaceutical Company and Xingqun Nourishment Nutrition Plant，and dismissed all of the claims of the plaintiffs.Against this judgment，the plaintiffs appealed to the High People's Court of Guangdong Province.Upon review and investigation，the court held that the Xingqun Foods&Beverages Company had indeed committed unfair competition，and ordered the Xingqun Foods&Beverages Company to stop using‘Xingqun’as its enterprise name，apply to change its enterprise name to the Guangdong Administration for Industry&Commerce，and compensate the plaintiffs for losses incurred.The Xingqun Foods&Beverages Company refused to accept this judgment and appealed to the SPC for a retrial.The SPC made a retrial judgment on September 24,2009，dismissing the appeal.

Upon review and retrial，the SPC held that any operator who uses another's prior name，which has a certain reputation in the market or is known to the relevant public，to make products that are similar to those of others and uses similar packaging that may easily mislead people due to their location in the same region，should be regarded as evident malice of‘hitchhiking’.Under such circumstances，the people's court should directly order the operator to stop using the name through civil judgment.Although the management of enterprise names falls under the authority of the administration for industry and commerce，the use of an enterprise name that infringes upon another's legitimate rights and interests and constitutes infringement or unfair competition falls within the scope of the judicial jurisdiction of the people's court，and the people's court enjoys the right to make the corresponding treatment for infringement or unfair competition through civil judgment.

34.Reasonable Sharing of Case Acceptance Fees

In the aforesaid‘Suitcase’Patent Infringement Case，Siboting stated in its appeal that the case acceptance fee should be shared in proportion to the plaintiff's requested amount and the court's recognized amount.Thus，the SPC defined the factors to be considered when determining the sharing of case acceptance fees.

The SPC stated that both the original Regulations on Litigation Costs for the People's Court and the Applicable Measures on the Payment of Litigation Costs stipulated that the litigation costs should be borne by the losing party.Where a party partially wins and partially loses the case，the people's court shall determine the proportion of litigation costs to be borne by each party according to the actual situations.Particularly in infringement cases，consideration should be given to the recognized proportion of the plaintiff's requested amount and attention should be paid to whether the infringement acts are tenable，the support of the plaintiff's other claims，the concrete situation of the claim rights of the parties concerned，to see whether there is any obvious fault；the sharing of litigation costs cannot simply be determined in proportion to the plaintiff's requested amount and the court's recognized amount.