Header graphic for print
China Law Blog China Law for Business

Good China Patent Infringement Case? Tell Me Lots More.

Posted in Legal News

Someone called KAS just left us the following comment:

We have a pretty blatant patent infringement where the Chinese manufacturing company (with whom we have a contract) has sold the product to Australia. Our goal is to shut down the sales in countries outside of China, e.g. Australia. Under these circumstances, would it make any sense to sue? We are just starting down this path and I do not want to waste my client’s money. Thank you for your informative posts.

For various reasons, we virtually never answer comments seeking legal advise. The main reason we demure is simply because there is usually no way to give a real answer without knowing all of the facts and without going into great depth as to the additional facts needed. And that is definitely true here as well.

This comment raises such an interesting question and it so well highlights the sort of initial analysis that goes into answering these sorts of fairly typical questions, that I am going to venture an email like response (without a “yes” or a “no”) as though this comment had just come to me via email from a potential client.

Dear KAS,

For us to be able to know whether it would “make any sense to sue,” we would need to gather up all sorts of additional information from you and then conduct our own research regarding various aspects of it. At this point, I am going to give you a taste of just some of what more we would need to know and if you wish to continue the discussion, I would urge you to answer the questions below and then we should follow that up over the telephone. 

For us to have any sense at all regarding whether you should sue or not, we would want to know the following:

  1. Is there really a patent infringement?  You say it is pretty blatant, but what do you mean by that? We would first need to see your patent and then see exactly what it is you say is infringing it.
  2. Where do you have this patent? If, for instance, you have this patent in the United States and nowhere else, your case is not looking so good. This is because for you to assert patent infringement against a company that is manufacturing your product in China and selling it in Australia, you almost certainly (note how lawyers always hedge a bit) will need to have a patent in either China or in Australia.
  3. Where do you propose suing this Chinese company? if you propose suing the Chinese company for violating your Australian patent, you probably (yes I know I am hedging again, but without conducting the specific research, I am always hesitant to say that anything too strongly) can only sue in Australia. If this Chinese company does not have any assets in Australia, there will probably be no point in suing it in Australia unless you can then take your Australian court judgment to China and enforce it there. i know that Chinese courts do not enforce US judgments but I do not know whether or not they enforce Australian ones. It is possible that they do and that is something it may end up making sense for us to research.
  4. Alternatively, if you have a Chinese patent, then your best bet may end up being to sue the Chinese company in China.
  5. What are your damages? Patent lawsuits anywhere are expensive and so if this Chinese company is not hurting your profits all that much, it may not be worth suing it. Of course, the fact that it may not be hurting your profits all that much right now does not necessarily mean that things may not get a lot worse and you may determine that it is critical for your business that you sue to stop the infringement. This is something we will need to discuss.
  6. Do you really have a valid patent? I hate to pose this question, but I must. Patent boards are notorious for being easy in granting of patents that courts then hold should never have been granted in the first place. We will certainly need to look at this issue.
  7. You say that the Chinese company infringing on your patent is (or at least was) your own manufacturer. Do you have a contract with that manufacturer?  I can tell you that when my law firm writes a China manufacturing agreement for our clients, we almost always put in provisions forbidding the Chinese company from copying our client’s product for itself or for others. I am very much hoping your contract has something similar and that it also provides for you to be able to sue the Chinese manufacturer in China and to receive liquidated damages for contract breaches. If all those things are true, you may very well have a good case against this Chinese manufacturer in China. Please send me the contract so I can review that. I am also hoping that your contract is in Chinese as that will make things go a lot smoother in any lawsuit in China. 

Once we get answers to the above, we will have a better sense of whether it will make sense for you to pursue litigation (or anything else) against the Chinese company. At that point, we will also be in a much better position to give you suggestions on how best to proceed and the estimated costs of the various options.  In the meantime, please don’t hesitate to contact me if you have any further questions.

  • Ackelan

    I found this very helpful. I have a similar case and I had no idea what the factors were that I should be looking at. Thanks for doing this.

  • Ben L.

    A few questions I work in:
    1. What kind of result would the client like to see. If all they want is to defend the Aussie market, then a judgment with injunction there is good enough (original question was shutting down sales). For some U.S. clients, a judgment and an injunction enforced by U.S. Customs against imports may be good enough, even if I get no money.
    2. What other market may be at issue. When the infringement can easily flow to a different market, I think suing in China makes more sense. If stopping infringement in Aussie means the fakes will flow to the U.S. market, then we aren’t really helping. On the other hand, if protecting 2-3 markets are good enough, then that may make sense by itself. For shutting down all export to “countries outside of China”, suing in China is the only way.
    3. What other companies are working with the infringer in the market country (clients in the line of business often know or can find out). Clients don’t always think of going after these but occasionally this gives the desired result and is a lot more convenient/effective due to location of the patent and jurisdiction issues.

  • Twofish

    Another question is who is buying the product?
    If it turns out that the product is either consumed or distributed by relatively small number of large corporates, one possible strategy if you have a strong case (i.e. the patents are valid, yadda, yadda, yadda) is to send nasty-grams to the legal departments of those corporations.
    Also, are there any possible trademark or copyright issues?
    Trademark and copyright issues are much, much cheaper to litigate than patent issues. In particular, it’s usually the situation that the infringer can try to claim that the patent is invalid, whereas with trademark and copyright issues this is very infrequent.
    What are the countermeasures if you win? Suppose you do win. It’s is easy/cheap for the infringer to switch to an non-infringing method? Also, I think it’s likely that if you win that the Chinese company will no longer be interested in manufacturing your product, so what backup manufacturers do you have lined up?

  • http://www.foarp.blogspot.com FOARP

    “Trademark and copyright issues are much, much cheaper to litigate than patent issues. In particular, it’s usually the situation that the infringer can try to claim that the patent is invalid, whereas with trademark and copyright issues this is very infrequent.”
    In my admittedly quite limited experience, trademarks are easier to get a preliminary injunction for than patents, but patents are easier to get a preliminary injunction for than copyright due to the requirement for copying etc. that surrounds copyright. I guess it depends on the product in question and the jurisdiction concerned.
    I also should say, because of the US-specific quirks in US patent law, patent proceedings in the US give patents a bad rep as being expensive, long, drawn-out, and uncertain. This doesn’t apply in other countries though. UK proceedings are roughly a tenth of the cost of those in the US (i.e., about 500,000 USD versus 5 mil. USD for cases involving more than 25 Mil. USD of potential infringement through full trial), and proceedings in Aus are likely to be cheaper still.