Chinese Patent Litigation – Practice Tips for US Companies (Part 1)

Case Study (1): CHINT v. Schneider Electric

Generally, damage awards for patent infringement in China are less than
$100,000 (USD). On September 26, 2007, however, the Wenzhou Intermediate People’s
Court in Zhejiang Province ordered defendant Schneider to pay about $48.5 million (USD) to CHINT, a company based in Wenzhou, for infringing CHINT’s Chinese patent directed to a miniature circuit breaker.

The Wenzhou Court calculated the damage award based on the profits Schneider made through infringement in China from August 2, 2004 until July 31, 2006. This is still the largest damage award for patent infringement in China! The case has been appealed and remains pending before the highest court in Zhejiang Province.

Schneider is one of the world’s largest manufacturers of medium to low voltage electronic equipment, while CHINT is a leader in China’s electrical transmission and distribution industries and generated sales revenue over $2.7 billion (USD) in 2006. Since 2004, Scheinder has filed about 20 patent lawsuits against CHINT in several European countries, all of which CHINT aggressively defended.

Allegedly, the patent disputes between these two companies arose out of Schneider’s failed attempts to acquire CHINT. Xu Zhiwu, legal counsel for CHINT, stated that “Schneider proposed to acquire 80%, 51% and 50% of the CHINT equities in 1994, 1998 and 2004, which were all rejected by CHINT.” Xu further alleged that “Schneider would sue CHINT in any country for infringement every time it was refused by CHINT. The lawsuit does not mean that CHINT is the real infringer, and the intellectual property right has been used by the multinational company as a weapon to contain or press CHINT so that CHINT agrees to the acquisition.”

Needless to say, CHINT’s lawsuit against Schneider came as a shock to Schneider. Because China does not publish court files or opinions, it is difficult to obtain and examine litigation files. I was fortunate enough to have talked to two judges involved in this case regarding litigation proceedings.

A former trial judge in the Wenzhou Intermediate People’s Court, who assisted in handling this case, told me that after CHINT sued Schneider in Wenzhou, Schneider tried to transfer the case to a different venue in another province. After all, CHINT is based in Wenzhou and has considerable influence there. Schneider, however, did not succeed in transferring the case out of Wenzhou.

After Schneider appealed the trial court’s judgment to the highest court in Zhejiang Province, I happened to visit Hangzhou, the capital of Zhejiang Province, and
had dinner with a friend who was the justice handling this appeal. I was told that he expected to issue his final decision in April 2008. He seemed confident, however, in his ability to render an unbiased decision, despite having political pressures from both sides.

Little did I know that the appeal would still remain pending a year later. More interestingly, the same judge who was going to issue the final decision in April 2008 has since left the highest court of Zhejiang Province and joined a private law firm. While I am not sure what exactly happened in the appeal, I am inclined to think that the long delay in the appeal would allow the parties to settle their differences before any formal decision.

(To Be Continued. Stay Tuned for Case Study (2): Holley Communications v. Samsung Electronics; Trends and Predictions; and Practice Tips for US Companies.)