Watchdata System Company Ldt., a manufacturer of USB keys used as electronic authentication devices in financial services, filed a lawsuit against Hengbao Company Ltd., a manufacturer of USB keys as well, in February 2015. Hengbao was charged with developing and selling many USB key products to "scores of banks across China" while infringing Watchdata’s single patent on data encryption technologies. Hengbao claimed that the questioned products and physic identification method in online bank transfers were not protected by Watchdata's patent.
On December 8, 2016, the Beijing IP Court found in favor of the patentee Watchdata and ordered Hengbao to pay an unprecedented amount of 50 million RMB (7.2 million USD) for patent infringement. This is the highest damages awarded by Beijing IP Court since its establishment in 2014. In general, “it is the duty of a party to an action to provide evidence in support of his aggregation.” (Article 64 Civil Procedure Law of P. R. China.) The burden of proof and of providing supporting evidence, therefore, typically lies on the patentee which alleges patent infringement and makes damages claims. But it also says in Art. 64 Civil Procedure Law, that in case the party is unable to collect the evidence by itself or if the people's court considers the evidence necessary for the trial of the case, the people's court shall investigate and collect it. As a result, Watchdata was able to obtain evidence such as sales figures from the defendant’s client banks, which formed part of basis for damage calculation.
In accordance to Art. 65 of the Patent Law of P. R. China damages may be determined according to actual losses of the patentee, the profit of the infringer or reasonably multiplied amount of royalties. If the losses of the patentee, benefits of the infringer, or royalties of the patent are all hard to determine, the damages will be determined by the judge at his discretion from 10,000 to 1,000,000 RMB (1,450-145,000 USD ).
Investigations found the specific sales volume of the infringing products to 12 banks nationwide. The court also confirmed that Hengbao had provided infringing products to another three banks, but was unable to acquire sales data from the banks or the company. Art. 27 Patent Law of P. R. China provides that if the infringer refuses to comply with the request by the court, the court can determine the profit made by the infringer based on the patentee’s claim and evidences. Therefore the court accepted Watchdata’s calculations, which led to actual damages of about 49 million RMB.
Besides “the amount of compensation shall include the reasonable expenses paid by the patentee for putting an end to the infringement” (Art. 65 Patent Law). Thus the court also granted reasonable cost of litigation to bore by the Hengbao as 1 million RMB (145,000 USD). It is remarkable that this is the first case, the Beijing IP court awards litigation cost based on attorney fee charge by hour.
In this connection the case may set a precedence for future cases. Moreover this case displays a new trend of the Chinese IP courts - “enhancing IP protection by greatly increasing compensation from rights violators, especially those committing bad faith and repetitive violations, so that the cost of IP infringement will no longer be low” (Chen Jinchuan, deputy director of the court).