*AI-generated translation, for reference only.

Keywords: Civil Litigation; Compensation for Property Damage; Failure to Pay Patent Annual Fees; Termination of Patent Right; Compensation for Losses

Judgment Digest

During the period of a dispute over the ownership of a patent right, the registered patentee bears a duty to maintain the validity of the patent right in good faith. Where, through its own fault, the patent right is terminated, invalidated, or lost, thereby harming the lawful rights and interests of the true right holder, such conduct constitutes an infringement of the property rights of the true right holder, and the registered patentee shall bear civil liability for compensation of losses.

Case Facts

The patentees of the invention patent with patent number ZL200910192778.6, entitled "A Multifunctional Recirculating Water Treatment Equipment" (hereinafter the "patent at issue"), are Nan [REDACTED] Aquaculture Research Institute and Guangzhou Yu [REDACTED] Aquaculture Technology Co., Ltd. (hereinafter "Yu [REDACTED]"), and the inventors are Jiang [REDACTED]ping, Li [REDACTED]hou, and Xie [REDACTED]yong. The filing date of the patent at issue was September 28, 2009, and the grant date was May 30, 2012. Due to failure to pay the fees in a timely manner, the patent right of the patent at issue was terminated on September 28, 2012.

Guangzhou De [REDACTED] Aquaculture Equipment Technology Co., Ltd. (hereinafter "De [REDACTED]") contends that Jiang [REDACTED]ping was once an employee of De [REDACTED] and, after leaving, became a shareholder of Yu [REDACTED], while Li [REDACTED]hou and Xie [REDACTED]yong are employees of Nan [REDACTED] Aquaculture Research Institute. The patent at issue is Jiang [REDACTED]ping's service invention, and the right to apply for the patent should belong to De [REDACTED]. In 2010 and 2011, De [REDACTED] had separately filed lawsuits against Nan [REDACTED] Aquaculture Research Institute, Yu [REDACTED], and others over disputes concerning the right to apply for the patent at issue, requesting the court to rule that the right to apply for the patent at issue belongs to De [REDACTED]. At the time the patent right of the patent at issue was terminated and rendered ineffective due to non-payment of fees, the relevant ownership dispute was still being adjudicated. Accordingly, on the ground that Yu [REDACTED] and Nan [REDACTED] Aquaculture Research Institute had intentionally failed to pay the annual fees for the patent, thereby causing the patent right to be terminated and rendered ineffective and causing irretrievable losses to De [REDACTED], De [REDACTED] filed a lawsuit with the court, requesting that each defendant be ordered to compensate it for economic losses and reasonable expenses for rights protection in the aggregate amount of RMB 1.5 million.

Judgment Result

On July 12, 2019, the Guangzhou Intellectual Property Court rendered Civil Judgment (2016) Yue 73 Zhi Min Chu No. 803: I. Yu [REDACTED] and Nan [REDACTED] Aquaculture Research Institute shall, within ten days from the effective date of this judgment, compensate De [REDACTED] for economic losses and reasonable rights-protection expenses in the aggregate amount of RMB 500,000; II. Other litigation claims of De [REDACTED] are dismissed. Following the pronouncement of the judgment, Yu [REDACTED] and Nan [REDACTED] Aquaculture Research Institute filed an appeal with the Supreme People's Court. On April 1, 2020, the Supreme People's Court rendered Civil Judgment (2019) SPC IP Civil Final 424, which, on the basis of amending the cause of action of this case, dismissed the appeal and upheld the original judgment.

Judge's Opinion

The Supreme People's Court holds that:

I. On the Determination of the Cause of Action in This Case

Article 11, Paragraph 1 of the Patent Law provides that, after the patent right for an invention or utility model is granted, except as otherwise provided by this Law, no entity or individual may exploit the patent without the permission of the patentee — that is, no entity or individual may, for production and business purposes, manufacture, use, offer for sale, sell, or import the patented product, or use the patented method or use, offer for sale, sell, or import the product directly obtained by the patented method. According to this provision, acts of infringement of an invention patent right are limited only to acts of manufacturing, using, offering for sale, selling, or importing the patented product for production and business purposes, and acts of using the patented method and using, offering for sale, selling, or importing the product directly obtained by the patented method. In other words, the Patent Law adopts the principle of statutory determination of patent-infringing acts; except for the acts that the law expressly stipulates as infringing the patent right, other acts, even if related to the patent right, do not fall within the scope of acts infringing the patent right. Where the registered patentee is not the owner of the patented technology, if the registered patentee intentionally fails to pay the patent annual fees, resulting in the termination and lapse of the patent right and causing economic losses to the owner of the patented technology, such losses are in fact property losses related to the patented technology. The act of intentionally failing to pay patent annual fees, resulting in the termination and lapse of the patent right, shall fall within the category of general tort, and the cause of action of such a case may be determined as a dispute over compensation for property damage. In this case, according to the assertions of De [REDACTED], it contends that Nan [REDACTED] Aquaculture Research Institute and Yu [REDACTED] filed for a patent on a service invention that belonged to De [REDACTED], but subsequently intentionally failed to pay the patent annual fees, resulting in the termination and lapse of the patent right, which caused the technology to enter the public domain, lose the protection of the patent right, and harmed the market exclusivity interests that De [REDACTED] should have obtained on the basis of the patent at issue. Therefore, the infringing act asserted by De [REDACTED] is not an act of infringing the patent right, and the economic losses it claims are in fact property losses related to the patented technology; accordingly, this case shall fall within the category of a dispute over compensation for property damage, rather than a dispute over infringement of an invention patent right. The judgment of the original instance, which determined the cause of action of this case as a dispute over infringement of an invention patent right, was clearly improper and should be corrected.

II. Whether Nan [REDACTED] Aquaculture Research Institute and Yu [REDACTED] Shall Bear Liability for Compensation for the Termination and Lapse of the Patent Right at Issue, and Whether They Shall Compensate De [REDACTED] for Economic Losses and Reasonable Expenses in the Amount of RMB 500,000

The principle of good faith is a basic principle of civil law. It requires civil subjects in civil activities to keep their promises, to be honest and free from deceit, and to pursue their own interests on the premise of not harming the interests of others and the interests of society, thereby achieving a balance in the relationships of interests between the parties and between the parties and society, and maintaining the moral order of the market. A patent right is an intellectual property right of limited duration that is granted after administrative examination by the State; its effective subsistence within the term of protection requires that the patentee continue to pay the patent annual fees, refrain from voluntarily abandoning the right, and so forth. Regardless of the reason for which the parties dispute the right to apply for a patent or the ownership of a patent right, on the basis of the principle of good faith, the registered patentee shall ordinarily bear a duty of prudent management to maintain the validity of the patent right that has already been granted, including continuing to pay the patent annual fees, because once the patent right is terminated and lapses, the patented technology will, under ordinary circumstances, enter the public domain, thereby causing the owner of the patented technology to lose market exclusivity interests and harming the lawful rights and interests of the owner of the patented technology. Where the registered patentee fails to discharge such duty of prudent management and causes losses to the owner of the patented technology, it shall bear liability for compensation. In this case, given that in 2010 and 2011 De [REDACTED] had already twice filed lawsuits against Nan [REDACTED] Aquaculture Research Institute and Yu [REDACTED] on the ground of disputes over the ownership of the right to apply for a patent — particularly given that the second lawsuit, in which De [REDACTED] asserted that the invention at issue was a service invention, was still ongoing — Nan [REDACTED] Aquaculture Research Institute and Yu [REDACTED], as the registered patentees, should have borne the duty of prudent management to maintain the continued validity of the patent at issue after its grant, including continuing to pay the patent annual fees, so as to avoid possibly causing harm to De [REDACTED]. However, Nan [REDACTED] Aquaculture Research Institute and Yu [REDACTED] failed to pay the patent annual fees, resulting in the termination and lapse of the patent right at issue on September 28, 2012, thereby infringing upon the lawful rights and interests of De [REDACTED]. They clearly failed to discharge the duty of prudent management and violated the principle of good faith, and they shall compensate for the losses thereby caused to De [REDACTED]. As to the specific amount of compensation for losses, the specific amount of compensation in this case shall be determined on the basis of the market price of the patent right at issue at the time of its termination and lapse. Given that neither party provided evidence to prove the market price of the patent right at issue at the time of its termination and lapse, and considering comprehensively that the patent at issue was an invention patent, that the patent right at issue was terminated and rendered ineffective in the same year of the grant announcement, that Nan [REDACTED] Aquaculture Research Institute and Yu [REDACTED] were seriously at fault, and that De [REDACTED]'s rights protection lasted for a relatively long period, even taking into account that De [REDACTED] also bore a certain degree of fault, the compensation in the aggregate amount of RMB 500,000 for economic losses and reasonable expenses determined in the original judgment is also not improper.

Relevant Legal Provisions

Articles 1165 and 1173 of the Civil Code of the People's Republic of China (the laws applied in this case are Articles 6 and 26 of the Tort Liability Law of the People's Republic of China that took effect on July 1, 2010)