Chinese Enterprise Prevails in U.S. Patent Litigation for the First Time

2007/08/01,By Harry Yang, China IP,[Patent]

On July 10, 2007, U.S. District Court Judge, James Browning, delivered a judgment ruling that GFCI products made by China General Protecht Group Inc. (Protecht) and sold in the United States did not infringe Leviton Manufacturing Company's (Leviton) U.S. patent No. 6246558 (No.558 patent). Finally, the Chinese enterprise, Protecht, which had spent three years and great expense in safeguarding its rights in the United States, won its case.

It was reported that this is the first time an American court ruled in a Chinese enterprise's favor in an IP case where a Chinese enterprise was sued by an American enterprise for infringement. The American media estimated that "the case's political significance far exceeds its commercial value". Industry experts also remarked that the case would be an example for Chinese enterprises' success in safeguarding their rights outside China, and was of great significance for their transnational operations and the tackling of IP litigation involving foreign parties.
  On July 19, Protecht called a press conference in Beijing and President Chen Wusheng informed the Chinese media of the exciting news.

Five Lawsuit against Protecht

The disputes between Protecht and Leviton may be traced back to three years ago. As an export-oriented enterprise with proprietary intellectual property for high and new technologies, Protecht, through independent innovation, developed six serials of products, of which GFCI is the main product. It also constructed a rising industrial chain incorporating research, development, production and trade. All of its products are exported to the United States, Canada and other countries in North America. It is the only company in the world that uses earth leakage protection technology based on the principle of electromagnetic structures of a permanent magnetic type for producing products that conform to and even surpass the updated standard made by the UL certification authority in 2003. Several major patented technologies fill the gaps of this industry both in China and abroad.   

GFCI is a safety device required by the U.S. government to protect citizens' personal safety. In the U.S., this product has a large sales volume of 3 billion US dollars per year. Four famous American enterprises, namely Leviton, Cooper, Pass & Seymour, and Habor have monopolized this market for more than 20 years. All of the GFCI products they make use electromechanical integrated earth leakage protection technology.

Due to their higher technical content, Protecht's GFCI products broke the technical monopoly of the American enterprises, became popular to American consumers and soon achieved market penetration. This action aroused the attention of industry giant Leviton. As of April 2004, Leviton has filed five lawsuits against four important customers of Protecht in the courts of New Mexico, Florida and California. In the lawsuits, Leviton uses one of its parent patents against a total of four patents of the Chinese company. 

Leviton, with the technological principle of electromechanical integration, has applied for more than 70 patents for its GFCI products. In the past 20 years, Leviton was involved in litigation with 38 foreign enterprises for their alleged infringement upon its patents. Ultimately, all of these foreign enterprises exited the U.S. market.

Leviton's Lawsuit Strategy

Leviton did not file a lawsuit directly against Protecht, but against its four most important customers in different courts. This seems to be opposed to routine practice. Possibly, its main purpose lies not only in safeguarding its patent rights, but also in using patent lawsuits as a tool for commercial competition to drive Protecht's products which have a high performance-price ratio, out of the U.S. market. Otherwise it was Leviton's intentional policy to file lawsuits against Protecht's dealers. Through deterrent actions, it intended to compel the dealers to cease cooperation with Protecht. 

Another lawsuit strategy adopted by Leviton was to file five infringement lawsuits in succession, with the aim of increasing the legal costs. According to circumstances in the U.S., during the pre-trial period, the defendants would be required to spend approximately 1-2 million US dollars in attorney fees for these five cases. The cost for the lawyers and Protechts' technicians to scurry about in five courts simultaneously and produce evidence is also very high. After the trial, the attorney fees for the cases could increase about 10 times. Protecht would possibly be deterred by the high legal costs since it is not a company of great strength. 

The plaintiff's attorney in the five lawsuits was Ball Sutton, a leader of the Patent Department in a famous law firm in the U.S. In these lawsuits, Sutton made allegations against the direct infringers and their managers, directors and shareholders. In the United States, when a person assumes an important post in an infringer's company and intends to commit infringement, and has participated in the direct infringing act, using the company as a tool for undertaking illegal actions to evade liability for personal infringement, the company's limited liability protection may be pierced. The person in charge of the company may be required to assume liability for patent infringement, including liability for compensation, and for stopping the infringement. This was also Leviton's tactic to further exert pressure on Protecht's American dealers.

Sutton's investigation of infringement by Protecht and its American partners, and his lawsuit policy may be traced back to 2003 or earlier. As a following-up step for Sutton's arrangement, in June of 2003, Leviton declared that it would keep pursuing all parties to the maximum extent allowed by American law. Meanwhile, Leviton publicly announced that it had received tip off calls involving the infringement of its GFCI patent. Within a year, Leviton, in succession, took Protecht and its four major customers to American courts.

Leviton has three tactics in its IP lawsuit strategy. Firstly, it filed lawsuits in different courts for the purpose of increasing litigation costs and exerting pressure on the defendants by the high legal costs. Secondly, it tries to delay the time limit for the adjudication. Thirdly, it brings allegations against the defendant's dealers so as to cut off the defendant's marketing channels. Such policies are the "open sesame" that helps Leviton wins the lawsuits.

Protecht Actively Responds to the Lawsuits

Facing Leviton's "unassailable" lawsuit policy, President Chen Wusheng decided to go to the U.S. to make active response to the lawsuits. He retained Morris Manning & Martin LLP, a famous law firm in Atlanta, as the legal representative for the litigation.    

On Oct. 6, 2004, Protecht formally responded to this patent litigation as a defendant in the New Mexico Court. In order to reduce the legal costs and centralize the proceedings, Protecht requested the transfer of all five cases to the New Mexico District Court, and received approval.

In fact, when Protecht's products first entered the American market, Chen Wusheng had them appraised as being non-infringing goods upon similar products by its law office in the U.S. He firmly believed that Protecht did not commit an infringing act. "This is the most important precondition for us", said Mr. Chen. With this support, he decided to carry on the lawsuits at any cost.

Still, Leviton's lawsuit policy caused serious troubles to Protecht. When the lawsuits began, Protecht's reputation in the United States was badly affected. Its orders were rapidly decreasing, and it suffered huge economic losses. Additionally, Protecht had to pay large attorney fees and legal costs every month.   

Protecht actively involved itself in the litigation, and meanwhile, it never abandoned its independent innovation and business expansion. Up till now, it has obtained 46 Chinese and American patents in three categories, and 39 patents in three categories are pending.

Success Achieved after Three Years

Protecht's perseverance gained results. On March 28, 2005, Judge Browning held Markman hearings in the New Mexico District Court. In May 2006, Protecht saw the first light of success: the court delivered the "Markman Order" that had a decisive influence upon the case outcome, and adopted Protecht and the other defendants' request explaining the relevant rights of No.558 patent, which was an obvious revelation that Protecht's products were non-infringing. 

A "Markman Order" is a judicial ruling made by an American judge hearing patent infringement cases through interpreting the requirements of patent rights and confirming the scope of protection. In a Markman procedure, the party that loses the lawsuit is not allowed to appeal to a higher court on this judicial order independent of a judgment of infringement, and the prevailing party will usually make a summary judgment motion requesting that the judges decide the case without requiring a trial. Protecht became the first Chinese enterprise to obtain a "Markman Order" from an American court, and prevailed in the Markman procedure. This set the stage for Protecht's success in the lawsuit.

Following its victory, Protecht immediately made a summary judgment motion to the court hearing the No. 558 "non-infringing" patent case requesting that the court render a decision without a trial. On April 12, 2007, the court held a hearing on this motion, and concluded that Protecht's products did not contain "resetting contacts", "resetting parts" and other such factors related to No.558 patent right, or the same or similar structure that uses equivalent measures to fulfill the same functions. The judgment that Protecht won the lawsuit was issued on July 10.

Although Protecht suffered huge losses in the litigation, it marked a new starting point for Protecht's successful development. GE Corporation decided to cooperate with it, and Wal-Mart decided to purchase its products. In the near future, Home Depot, the largest building material and home upholstery department store in the United States is to become its customer.  

Protecht persisted in making independent innovations, and energetically developed new and hi-tech intellectual property rights, while actively expanding into the American market, and firmly battling Leviton in litigation, and finally achieved success. This is a typical example of how Chinese enterprises can use intellectual property to participate in international competition. Protecht will become more mature from this experience. Its litigation victory will infuse other Chinese enterprises with confidence when taking action in foreign countries to safeguard their rights. Meanwhile, it serves as a warning to other enterprises to pay more attention to IP protection in overseas markets, and to learn more about the local law, so that they can better protect their rights and interests through the application of law.
                                                                                (Translated by Hu Xiaoying)



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