Helitai Company v. Surui Company and Kuainv Company's Utility Model Patent Infringement Dispute Case

——The nature of the seller’s legal source defense and its responsibility

First trial case number: (2017) Yue 73 Minchu No. 2833

Second trial case number: (2019) SPC Zhimin Zhong No. 25

【The main takeaway of the trial】

The legal source defense is only a defense exempting liability, not a non-infringement defense; the establishment of seller’s legal source defense neither changes the infringing nature of the act of selling the infringing product nor exempts the seller from the responsibility to stop selling the infringing product. The seller should still bear the reasonable expenses paid by the right holder to obtain relief to stop the infringement.

【Case Introduction】

Appellant (defendant in the original trial): Guangzhou Surui Machinery Co., Ltd. (referred to as Surui Company)

Appellee (plaintiff in the original trial): Shenzhen Helitai Technology Co., Ltd. (referred to as Helitai Company)

Defendant in the first trial: Guangdong Kuainv Biotechnology Co., Ltd. (referred to as KuainvCompany)

Helitai Company is the patentee of ZL201420443XXX.X "packaging machine" utility model patent. Helitai Company filed a request to the court of first instance: ordered Surui Company to immediately stop manufacturing, selling and promising to sell infringing products, destroying the special equipment, molds and inventory infringing products used to manufacture the infringing product; also ordered Surui Company to compensate Helitai Company's economic losses and reasonable expenses paid to stop the infringements amounted to 1 million yuan; Kuainv Company was ordered to stop using the infringing products immediately; Surui and Kuainv Company were ordered to bear the litigation costs in this case.

In this case, Surui Company argued that the alleged infringing product had a legal source, which originated from Guangzhou Xinjin Machinery Equipment Manufacturing Co., Ltd. Kuainv Company is a user of the infringed product indicted. It also argues that the infringed product has legal origin and claims that the infringed product was purchased from Surui Company.

The first-instance judgment of the Guangzhou Intellectual Property Court ruled: (1) Surui Company ceased sales and promise to the sales of the utility model patented product of Helitai Company’s ZL201420443XXX.X “packaging machine” since the date of the legal effect of this judgment; (2) Within 10 days from the date of the legal effect of this judgment, Surui Company shall make a one-time compensation 150,000 yuan of economic losses of Helitai Company; (3) Reject other litigation requests of Helitai Company. The case acceptance fee for the first instance is 13,800 yuan, with Helitai Company paying 5,865 yuan and Surui Company bearing 7,935 yuan. Surui Company appealed to the Supreme People's Court against the judgment of the original trial court.

The second instance of the Supreme People's Court held that Surui Company's appeal request was partially established. The review of the original trial court's review of the defense of the legal source of Surui Company had errors in fact determination and application of law, which should be corrected. The judgment was as follows: (1) Maintain the first item of the civil judgment of Guangzhou Intellectual Property Court (2017) Yue 73 Minchu 2833; (2) Cancellation of the second and third civil judgments of the Guangzhou Intellectual Property Court (2017) Yue 73 Minchu No. 2833; (3) Guangzhou Surui Machinery Equipment Co., Ltd. shall compensate Shenzhen Helitai Technology Co., Ltd. for reasonable expenses of 30,000 yuan within 10 days from the date of the legal effect of this judgment,; (4) Dismiss other litigation requests of Shenzhen Helitai Technology Co., Ltd.

【Typical meaning】

Article 70 of the Patent Law of China stipulates that a patent infringing product that is used for production and business purposes, promised to be sold, or sold without knowing that it was manufactured and sold without the permission of the patentee can prove that the product has a legitimate source and shall not be liable for compensation responsibility. At the same time, Article 22 of the Several Provisions of the Supreme People’s Court on the Application of Law in the Trial of Patent Infringement Disputes stipulates that the people's court may, according to the request of the right holder and the specific case, the reasonable fee paid by the right holder for investigation and suppression of infringement may be included in the amount of compensation.

From the literal meaning of the above provisions, it is not difficult to conclude that if the seller, promised seller or user of the alleged infringing product can establish a legal source defense, then there is no need to bear compensation; if the seller, promised seller or user of the alleged infringing product fails to establish a legal source defense, it constitutes a patent infringement, which not only bears the liability for compensation, but also bears the reasonable expenses paid by the right holder for the protection of rights. Another question that arises from this is, if the seller, the promised seller or the user of the infringed product filed a legal source defense can be established, does it still need to bear the reasonable expenses of the right holder to defend the rights?

Regarding this issue, the court of second instance clarified in this case the legal nature of the legal source defense of the alleged infringing product seller and the promised seller, and held that the legal source defense was only a defense exempted from liability for compensation and was not a non-infringement defense. The establishment of the legal source defense does not change the infringing nature of the act of selling infringing products. When the legal source defense is established, the seller and the promised seller of the infringed product still need to bear the reasonable expenses incurred by the right holder for the protection of rights.

It should be pointed out that the legal nature of the legal source of the defendant’s product infringement is not mentioned by the court of second instance. Neither the court of first instance nor the court of second instance has ruled that Kuainv Company (the user of the alleged infringing product) bears the reasonable expenses incurred by the right holder for the protection of rights. At the same time, according to Article 25 of the Interpretation (II) of the Supreme People's Court on Several Issues concerning the Application of Law in the Trial of Patent Infringement Dispute Cases, if the legal source of the defendant’s infringing product was established and the reasonable consideration was paid, the alleged infringing product may continue to be used. It can be obtained comprehensively that if the legal source defense of the user of the infringed product is established, and the reasonable consideration has been paid for the infringed product, the infringed product can continue to be used, and there is no need to bear the reasonable expenses incurred by the right holder for the protection of rights. It can be seen from this that the legal nature of the legal source defense of the user of the infringed product seems to belong to the non-infringement defense, or at least has the same legal effect as the non-infringement defense.

This analysis is based on the case mentioned in Summary of the Judgment of the Intellectual Property Court of the Supreme People's Court (2019), you can referred to the original article through links below:

Link to the Part I: http://www.chinaiptoday.com/post.html?id=832

Link to the Part II: http://www.chinaiptoday.com/post.html?id=833

Link to the Part III: http://www.chinaiptoday.com/post.html?id=834

Link to the Part IV: http://www.chinaiptoday.com/post.html?id=837