The Logic of Claims for Astronomically Huge Compensation

2011/05/03,By Yuan Zhenfu, Deputy Director Shanghai Intellectual Property Academy,[Patent]

Astronomical compensation is not new in foreign countries. In recent years, massive awards and enormous claims have been prevalent in the United States.In 2006, US NTP, Inc. and Canadian RIM settled a patent infringement dispute over Blackberry, and RIM paid NTP an ominous USD 612.5 million. In January 2010, US software company Cybersitter claimed that the green filtering software “Green Dam - Youth Escort” developed by China's Internet filtering companies was in serious violation of its intellectual property (IP) rights and filed with a federal court in Los Angeles, claiming USD 2.2 billion in damages against the software makers and seven computer manufacturers with the pre-installed software.

Although there have been IP cases in China with claims for over 100 million Yuan in compensation, the court ordered amount had not broken the 100 million Yuan record until 2007. In September 2007, the Wenzhou Intermediate People’s Court rendered a first-instance judgment ordering French-invested Schneider Electric Low Voltage (Tianjin) Co., Ltd. to pay 330 million Yuan in damages to the Chint Group for infringement upon the patent of Chint’s switch protection devices that equaled the size of a matchbox. “The first patent case in China” has caused extensive concern from home and abroad, and sources said French President Nicolas Sarkozy particularly mentioned the case during his visit to China.
This judgment apparently boosted confidence of domestic right holders for high amounts in compensation. Subsequently, many IP cases have continued to emerge with claims for over 100 million Yuan. In Zhejiang province, Li Daozhi and Panati Wine sued CASTEL FRERES SAS over trademark infringement and unfair competition and claimed 106 Yuan million in damages; Qu Tao sued the Hangzhou Municipal Government over infringement of invention patents and claimed 368 million Yuan in compensation.
However, the possibility of receiving astronomically huge compensation from the Chinese courts is not high. In June 2007, Beijing University Founder Electronics Co., Ltd. sued US Blizzard Entertainment Limited for copyright infringement over use of its Chinese typefaces and claimed 100 million Yuan in damages, which was later increased to 408 million Yuan. However, in 2010, the Beijing High People’s Court only ordered 1.4 million Yuan in compensation and 50,000 Yuan in reasonable expenses, which was not enough for Founder to pay 2.08 million Yuan in legal fees.
On the one hand, it is difficult for the right holders to provide valid evidence to support their gigantic claims, and the court is considerably cautious in these cases. The colossal numbers can destroy an enterprise, thus Chinese courts may find it difficult to render a decision. In 1998, US Paragon, the world's third largest manufacturer of diapers, was ordered to pay a huge amount for its infringement upon P&G's dual cuff diaper patents. Paragon was forced to file for bankruptcy relief. Afterwards Paragon agreed to pay P&G USD163.5 million in a settlement agreement. However, there are still a few companies willing to have a try for huge compensation, because it is one of the important weapons of IP protection.
More profound considerations may lie behind the mammoth claims. The increase in the amount of claims often leads to the reputation of “the first case” and accordingly attracts the media attention. The advertising effect of the claims is naturally very valuable, and the mere tens of thousands or even millions in legal fees are nothing to the advertising costs. In fact, litigation has been one of the advertising plans for a number of companies.
Of course, some huge compensation claims may be a strategic consideration specifically targeting competitors. In June 2010, just prior to Harbin Gloria Pharmaceuticals Co., Ltd. listing on the Shenzhen Stock Exchange, its competitor Welman lodged a lawsuit for patent infringement claiming 50 million Yuan in damages. Harbin Gloria’s controllers Zhu Jiman and Bai Lihui shared liability. The Henan Xindaxin Materials Co., Ltd. was delayed on the eve of their listing. The previous lessons are still fresh.
However, even in the United States, Microsoft, Apple, Intel and other companies are questioning the reasonableness of huge awards. They are of the view that the amount of compensation is too high in patent infringement cases, and to a certain extent, stifle innovation. Objectively speaking, huge compensation claims, particularly those supported by the courts, will play a positive role in optimizing the IP protection climate in contemporary China.
If the amount of compensation is very little, then who will seriously take into account IP infringement? Over the years, the relatively low compensation amount in domestic judgments has given rise to deliberate strategic actions by some individuals. Since the compensation amount is so low and the profits are so high, why not infringe? Therefore, the huge compensation claims (particularly the compensation) may push unscrupulous infringers to control themselves a bit.

(Translated by Wang Hongjun)

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