IV. Reasonable assessment of the amount of damages

There have been three amendments of China’s Patent Law and the Supreme People’s Court has promulgated two judicial interpretations concerning specific issues in judicial practice. It should be admitted that China’s legal system has introduced the major compensation grounds and calculation methods. However, the fact is that there are still many problems for such principal provisions in actual operation.

1. Measure of actual loss

The calculation of profit losses is a very difficult problem in itself. For example, there are closely relevant factors other than infringement between the decrease of patented produce sales and product quality, market as well as target purchasers and etc., which will exert a varying influence on the final correct calculation. Therefore, the actual losses calculation had been seldom used in judicial practice although it is the first method for calculation of profit losses under China’s current Patent Law.

Considering the above situation, China may learn from foreign experience and introduce the system of expert opinion or professional asset evaluation agencies in judicial practice, and make a further refinement of the actual losses as well as the scope of every component of actual losses. Therefore, the court will have more references for trial and improve the accuracy in actual losses calculation.

2. Determination of unjust enrichment

A basic method applied in China, Germany, Japan, Korea and other countries to determine the amount of damages for infringement is to presume that the infringer’s unjust enrichment to be the loss suffered by the proprietor. In reality, most patented products or products obtained by patented process are some kind of improvement over prior art products or components, and seldom is a completely new product; whereas the infringing products made or sold by the infringer are usually composed of many components, some of which may be patented, as in home appliances. Where the infringing product is a high-tech one, it may be comprise of a host of patented technologies, belonging yet to different proprietors each of whom holds patents only to its own portion or portions of the technologies. For this reason, then, it is necessary in principle to distinguish which part of the infringer’s unjust enrichment comes from infringement upon the patent or from other factors; otherwise, there will be an unfair conclusion. To that end, the Supreme People’s Court introduced the rule of “reasonable deduction” in its judicial interpretation in 2009 that “there shall be a reasonable deduction of interest resulting from other rights.” However, some scholars think such interpretation is too narrow to cover all reasonable interest that should be deducted. For example, the infringer may improve his interests by his betterment in advertising campaign, marketing strategies, after-sales service, etc. in implementation of his patented technology. Therefore, it may be more reasonable to change the foregoing interpretation into that “there shall be a reasonable deduction of interest resulting from other factors.”

3. Calculation of royalty rates

In comparison with the above two methods, it is simpler and easier to operate in determining the amount of damages by a multiplicity of reasonable royalties for calculation. It is also applied by the court to require the party to submit evidences in judicial practice.

The application of such a method requires that (1) the proprietor has acquired or concluded an agreement on royalties before the infringement proceedings; (2) there has been a basically similar royalty rate for licenses in the same region; (3) such royalties should be reasonable and evidenced by the facts that a number of licensees has paid such royalties to the proprietor; and (4) that there is comparability between the license to use the patent and infringement in terms of geographical scope and specific rights to use such patent.

Then the question is: what is the reasonable number of royalties? There are two kinds of concepts concerning royalties according to judicial practice in US. The first is the “established royalty,” and the other “reasonable royalty,” which can be found in Section 284 of U.S. Patent Act that “upon finding for the claimant, the court shall award the claimant damages adequate to compensate for the infringement but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.”

The U.S. Legislature set some concrete standards for the calculation of “reasonable royalty” in the deliberation of U.S. Patent Reform Act in recent years. It includes the entire market value standard, which means that the amount of compensation shall be the entire market value of infringing product or process where the invention patent is featured by the decisive influence of market on the demand of infringing product in comparison with prior technology, the standard of agreed royalties on basis of non-monopoly license and the standard that the infringing product or process can be attributed to the economic value specifically contributed by the patent to prior technology. China’s courts may take the foregoing standards for reference in determining the amount of compensation.

4. Court’s decision on the amount of statutory damages

As mentioned earlier, the amount of statutory damages is the last method to be applied in calculation of damages under China’s Patent Law, which is similar to Japanese awarded compensation and shall be applied when the other three methods fail. It should take three factors into consideration. The first is the subjective condition of the infringer that his intention or negligence should be the precondition for statutory compensation with a reference to Japanese Patent Law. The second is that the application of such method should take the infringer’s request into consideration for the restriction of court’s active application of such method. The third is that, even if the method is applied, the patentee should submit as much useful information as possible, and the infringer may also be required to submit such information in order to help the judge to determine a reasonable amount of compensation.

In judicial practice, some courts also make conclusions regarding the factors which are generally required to take into consideration and make continuous improvement in their future trial of similar cases. These factors include: (1) The type of patent at issue. In general, an invention patent deserves larger amount than a utility model or a design patent; (2) The nature and circumstances of infringement such as the extent of the infringer’s subjective maliciousness, production scale, sales coverage, duration and price of the infringing products, etc.; and (3) The reasonable fees and expenses incurred to the proprietor in litigating and enforcing his patent.

(Translated by Yuan Renhui)