The Supreme People’s Court concluded a utility model patent infringement dispute concerning the determination of the retroactive effect of a patent invalidation decision (declaring the patent invalid) on prior effective infringement judgments, where multiple alleged infringers has fulfilled their compensation obligations at different times.
Natural person X, as the patentee of the utility model patent titled “Foldable Stand for Mobile Terminal” (the patent at issue), claimed that the phone stand manufactured and sold by Dongguan A Company and Shenzhen B Company and sold by Fuzhou C Company fell into the protection scope of his patent. He filed a lawsuit before the court, requesting to order these three companies to stop the infringement, destroy inventory, and compensate his economic losses and reasonable expenses for the protection of his rights, totaling CNY 150,000.
Upon trial, the first-instance court found that the alleged infringing technical solution fell into the protection scope of the patent at issue. However, the evidence on file could not prove that the alleged infringing products were from Shenzhen B Company or manufactured by it, and the court presumed that the alleged infringing products sold by Fuzhou C Company were manufactured and sold by Dongguan A Company. Accordingly, the first-instance court ruled Dongguan A Company to stop infringing, destroy inventory, and compensate X CNY 30,000 for his economic losses and reasonable expenses, and Fuzhou C Company to compensate X CNY 2,000 for his reasonable expenses.
No party concerned appealed against the first-instance judgment. Later, Dongguan A Company petitioned a retrial before the Supreme People’s Court on the ground that the patent at issue was announced as invalid by an invalidation decision issued by the CNIPA.
During retrial, the Supreme People’s Court found that: The CNIPA issued an invalidation decision announcing the patent at issue invalid on November 14, 2022, and the parties concerned did not initiate administrative lawsuits to the people’s court within the legally stipulated term. The first-instance court accepted X’s compulsory execution application on February 18, 2022, and disbursed to him CNY 2,000 on March 29, 2022, which was the proceeds of enforcement of Fuzhou C Company. On April 2, 2022, the first-instance court issued a Consumption Restriction Order to Dongguan A Company, and Dongguan A Company paid its proceeds of enforcement, i.e. CNY 30,000, to the first-instance court on October 31, 2024, to remove the consumption restriction measures to get refinancing. On December 25, 2024, X received these proceeds of enforcement.
In the examination of the retrial application and during the retrial proceedings, the Supreme People’s Court explained the legal effect of the invalidation decision to X multiple times and informed him of the situation where Dongguan A Company could not refinance due to the consumption restriction measures. However, X explicitly expressed his rejection to revoke his compulsory execution application relevant to the first-instance judgment.
In the retrial, the Supreme People’s Court determined that, given that according to Article 47(1) of the Patent Law, the patent announced invalid is deemed to be non-existent from the beginning, the benefits obtained by the right holder based on the patent belongs to unjust enrichment and shall be returned. However, to safeguard existing orders, Article 47(2) of the Patent Law justified the unjust enrichment that had been performed before the patent was announced invalid. Additionally, the provision of Article 47(2) and Article 47(3) restricted the said justifiable scope following the principle of fairness. In this case, the invalidation decision against the patent at issue had taken into effect, so the patent at issue was deemed to be non-existence from the beginning. X’s accusation of infringement could not stand due to lack of the basis of the rights, and his claims should have been refused. The first-instance court, upon X’s requests, had completely executed the payment obligation of Dongguan A Company and Fuzhou C Company, as confirmed in the first-instance ruling. As for the proceeds of enforcement from the two alleged infringers, the people’s court may recover the proceeds either upon the parties’ request or ex officio and may order X to return the principal plus interest that he had obtained.
First, in the circumstance that the patent at issue had been announced invalid, despite repeated explanation by the court, X still resolutely refused to revoke the Compulsory Enforcement Application against Dongguan A Company, causing Dongguan A Company being compelled to pay the proceeds of enforcement to remove consumption restriction measures imposed on them, which further led to the subsequent recovery procedures. X’s conduct was obviously not in conformity with litigation integrity. Second, Dongguan A Company paid the proceeds of enforcement to the first-instance court after the invalidation decision of the patent in question was issued, i.e., the relevant enforcement happened after the issuance of the invalidation decision, causing the case not to fall under the situation where the invalidation decision has no retroactive effect on the effective patent infringement judgment as stipulated by Article 47(2) of the Patent Law. However, Fuzhou C Company had paid the proceedings of enforcement before the issuance of the relevant invalidation decision. If the court applied provisions of Article 47(2), the relevant invalidation decision would not have retroactive effect on the proceeds of Fuzhou C Company. Therefore, it can cause an issue where, compared to Dongguan A Company, Fuzhou C Company’s proactive fulfillment of their responsibility in the first-instance judgment could bring adverse impact on their legal rights and interests, i.e., causing the proceedings of enforcement that they should not have paid unable to be recovered, which was obviously unfair. Article 47(2) of the Patent Law, intending to safeguard the stability of social and economic orders, stipulated exceptions to the performed or executed patent infringement judgments, meditation letters, decisions, enforcement licensing, and assignment contracts, exempting them from being revoked due to the retroactivity of the patent invalidation decision. However, as to patent infringement judgments involving multiple alleged infringers, if the only reason to distinct whether to apply this provision is the timing difference of the enforcement of the infringers’ compensation obligations - where e proactive performers bear the adverse impact of not recovering the proceedings of enforcement – it could objectively encourage negative performance, delayed performance, and even non-performance. This is unfavorable for patent protection and also undermines the construction of the integrity of the litigation system. Under this circumstance, the court should, based on the principle of fairness, proactively apply Article 47(3) of the Patent Law to launch the recovery proceedings and fairly protect the legitimate rights of all parties concerned.
Accordingly, the Supreme People’s Court determined in the retrial to revoke the first-instance judgment, dismiss all of X’s litigation claims, and order X to return the proceedings of enforcement and pay the damages caused by occupation of funds to Dongguan A Company and Fuzhou C Company within seven days from the retrial judgment taking effect.
This retrial specified that in patent infringement litigation involving multiple alleged infringers who fulfilled their compensation obligations before and after the issuance of a patent invalidation decision respectively, the application of Article 47 of the Patent Law should be guided by both its legislative intention and the principle of fairness. The court shall correctly determine the retroactive effect of the invalidation decision on the infringement judgment and avoid simply and rigidly taking the enforcement time as the only judgment standard for enforcement recovery.
(2024) Zui Gao Fa Zhi Min Zai No. 1
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