Shanghai  GreRoyalt

Comments on Philips (Renamed as Signify) Company’s Cases on Dispute over Design Patent Infringement
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--By Pan Xiaofei and Jin Yifeng, Shanghai Greroyalt Law Firm

  With regard to the 6 cases on the dispute between Philips Lighting Co., Ltd. (renamed as “Signify Co., Ltd.”, hereinafter referred to as the plaintiff) and a lighting company in Danyang along with Zhang (hereinafter referred to as the defendants) over design patent infringement, the Intermediate People’s Court of Nanjing Municipality adjudicated in the first instance that the defendants committed infringements, and upheld the plaintiff’s litigation claim in full for 1 million Yuan of economic losses and reasonable expenditures in 3 cases. Meanwhile, the court adjudicated Zhang, a shareholder of the defending company, to bear joint and several liabilities. The defendants appealed to the Higher People’s Court of Jiangsu Province, where the cases were finalized by mediation in the second instance.

  Since June 2016 when the plaintiff found infringement clues, the cases went through three and a half years covering on-site investigation, notarial preservation, administrative combat, acceptance, filing, declaration invalidity of the patents, court hearings of the first and second instances, and finalization between the plaintiff and the defendants by mediation. Shanghai Greroyalt Law Firm acted as the plaintiff’s agent and participated in the cases throughout the process. Thus we’d like to share some comments, and some focuses of the cases are worth review and summary.

I. To fix and preserve infringement evidence is the premise to handle intellectual property lawsuits.

  To collect and fix the alleged infringing products and relevant infringement evidence is the premise and base for litigation, which not only decides whether the infringements may be put into comparison, but also influences the court’s consideration on the method of infringement and the liabilities. In the cases, based on 6 design patents the plaintiff complained against the defendants on infringements on 9 types of lamp products. According to the principle that “one patent right corresponds to one case”, the court totally filed 6 cases – in 3 cases of them, each patent corresponded to 2 alleged infringing products. At the preparatory phase in the litigation, the alleged infringing products were fixed and preserved as evidence in the following aspects:

1. Exhibition Evidence Fixing.
  
In June 2016, the plaintiff found that the defendants displayed the alleged infringing products at a lighting exhibition. It was the earliest time when the plaintiff obtained the infringement clue. In June 2017, the defendants displayed the alleged infringing products at another exhibition, and the plaintiff’s agent timely entrusted the local notarial office to make notarial preservation of the on-site products by taking photos. In addition, at the two exhibitions, the plaintiff acquired the product manuals released by the defendants, where pictures and relevant views on the alleged infringing products were displayed.

2. Webpage Evidence Fixing.
  
The defendants advertised the alleged infringing products on its own website and 1688.com. The plaintiff’s agent entrusted the notarial office at the earliest time to take screenshots and preserve the pictures and text about the alleged infringing products on the webpages. In addition, by consulting the archived ICP information of the Ministry of Industry and Information Technology, the plaintiff further determined the website was owned by the defendants of the cases.

3. Notarial Purchase of Material Objects.
  
There was a QQ number published on the Danyang company’s website for sales contact. The plaintiff’s agent chatted with the sales personnel via QQ, and ordered the alleged infringing products. All the chat records and the products were notarized by the notarial office throughout the process. As instructed by the defendants, the payments for the products were directly remitted to Zhang’s personal bank account.

4. Fixing Evidence by Off-line Investigation and Administrative Action.
  
After getting the infringement clues, the plaintiff made an on-site investigation on the defendants, and found the alleged infringing products in the defendants’ business site. There is a particular point in the cases. In addition to patent infringement, two of the alleged infringing products bore the registered trademark of Philips Company. Therefore, the plaintiff’s agent filed a trademark infringement complaint to the Market Regulatory Bureau of Danyang Municipality on March 23, 2017. The Market Regulatory Bureau of Danyang Municipality inspected the defendants’ business site on the same day, and distrained the two lamp models involved in trademark infringement (249 pieces in total) and a large number of accessories. Meanwhile, other models of alleged patent infringement lamps were found on site, and the plaintiff’s agent fixed the evidence as well. The administrative action proved the defendants’ manufacturing activities, cracked down trademark infringements, fixed the physical evidence on the alleged patent infringement products. The court obtained the distrained products upon the plaintiff’s application in the first instance. This gave the court a clear understanding of the facts and scale, etc. of the defendants’ infringements.

  The preliminary evidence collection basically followed the progressive process of promised sale, sale and manufacturing. The full collection of evidence was the premise and base for obtaining desirable judgments on the cases.

II. Comparison on the Adjudication on Design Patent Infringements

  The adjudication on design patent infringements is the process to determine whether the alleged infringing products fell into the scope for protection design patent right. A necessary segment was to compare the alleged infringing products with the plaintiff’s involved patent. At present, the principle of comparison adopted in judicial practices is “whole observation and comprehensive judgment”, which means to compare all design factors of the involved patent with the corresponding design details of the alleged infringing products, instead of making a conclusion on partial features or the design features distinguishing the involved patent from the alleged infringing products. Certainly, there were some disputes over application of such principle in the cases.

1. Is “completeness” a prerequisite for making comparison and conclusion on the infringement?

  In the cases, both the alleged infringing products and the plaintiff’s patented products fall into the scope of lighting lamps. The focus of comparison on infringement lies in the shape of the products. Both the plaintiff and the defendants had no dispute over this point. Generally, the shape of a product is displayed by stereogram and six sided views (front view, rear view, left view, right view, bottom view and top view). However, in one case concerned, the plaintiff only got the stereogram and partial views on the alleged infringing product – the top view and rear view were absent. Therefore, the defendants argued that the conclusion made from the comparison in absence of some views went against the principle of “whole observation and comprehensive judgment”.

  The plaintiff’s agent refuted that, “completeness” was not a compulsory legal requirement, and whether the comparison and conclusion on infringement could be made in absence of partial views should be analyzed case by case. The cases in question mainly reflected that the design character of the patented products lied in stereogram and bottom view, etc., while the stereogram, bottom view, front view, left view and right view, etc. of the alleged infringing products obtained by the plaintiff were sufficient to resume the main features and entire visual effect of the alleged infringing products. The absent top view was used to illustrate the back of the road lamp, and the absent rear view was used to illustrate the side with a slot. Under normal use, both absent views were hard to be observed, and did not essentially influence the entire visual effect. Legal basis of such viewpoint can be found in both the “Interpretation of the Supreme People’s Court on Some Issues concerning Application of Laws for Hearing Cases on Disputes over Patent Infringements” and the “Guide to Patent Examination”. For example, Section 5.1.2 of Chapter V of Part IV of the Guide prescribes that, if the difference lies in the part which is invisible or is hard to be seen when being in use, the two objects may be determined as essentially identical.

  The court went for the plaintiff’s viewpoint. It held that, the stereogram and bottom view of the alleged infringing products were exactly the states which could be easily observed by consumers when the products were in use, while the design features reflected form such states were manifested when at the time of comparison, and furthermore, the differences from comparison would not distinctively influence consumers. Therefore, according to the principle of “whole observation and comprehensive judgment”, the design of the alleged infringing products was similar to the involved patent, and fell into the protection scope of the involved design patent right.

2. Influences of Design Space and Distinguishing Design Features to the Determination on Infringement.

  The defendants defended in the appeal by citing design space and distinguishing design features, and held that the determination on design patent infringements should include the existing design as much as possible. They argued that the court of the first instance did not emphatically analyze the influences of authorized partial design features to the entire visual effect of the patent, and thus the determination of facts and application of laws were wrong.

  Design space and authorized distinguishing design features are meant for remedying the defects of the principle of “whole observation and comprehensive judgment”. At the time of “whole observation and comprehensive judgment”, it is required to sum up both the similarities between the alleged infringing products and the patent right in respect of protection scope and the differences between them, and comprehensively analyze the influences of each design detail on the entire visual effect of the existing design. To bring in design space and distinguishing design features is helpful to identify the extent of influences of the design details on the entire visual effect.

  During the defense in the appeal instance, the plaintiff’s agent responded to the issue by three steps.

(1) Analyzing design space. On the basis of the “Design Patent Right Appraisal Report” and the “Decision on Examination of Request for Declaration as Invalid”, the National Intellectual Property Administration and the Review Committee concluded that, although the shape of the alleged infringement lamp products (e.g., rectangle) and the composition of parts (e.g., principal part, frame, connecting parts and heat radiating parts on the back) were common, there were many design changes with the proportion of the light-emitting area to the front side of the principal part, the lamp bulb design, the back lamp structure and the heat radiating parts on the back (including specific shapes and the proportions among the entirety), etc. No fixed perception was developed among common consumers. Therefore, there was a big design space for the plaintiff’s design patent products. The product design could be diversified, and some minor differences could be ignored when the comparison on infringement was made, or the influences on the entire visual effect was minor.

(2) Summing up the authorized distinguishing features of the plaintiff’s design patent. The agent made comparison and analysis on the plaintiff’s involved design and the comparison documents cited in the “Design Patent Right Appraisal Report” and the “Decision on Examination of Request for Declaration as Invalid” (such comparison documents were the most similar to the plaintiff’s design) one by one, listed their similarities and differences, and summed up the authorized distinguishing features of the plaintiff’s design, with particular focus on the differences. These were also the creative part of the plaintiff’s design, which had more influences on the entire visual effect.

(3) By making comparison between the alleged infringing products and the plaintiff’s design, the agent found that the alleged infringing products completely used the authorized distinguishing design features of the plaintiff’s involved patent for reference. Certainly, such comparison could not take place of the principle of “whole observation and comprehensive judgment”, but it had more influences on the comprehensive conclusion.

  In conclusion, the plaintiff’s involved design patent right was stable, there was a big design space for the class of products involved in the patent right, and some minor differences did not distinctively influence the entire visual effect at the time of comparison on infringement. The authorized distinguishing design features of the plaintiff’s involved design could be found on the alleged infringing products. Therefore, similarity could be determined according to the principle of “entire observation and comprehensive judgment”.

III. Liabilities for Infringement

1. Dispute over the Infringer

  On March 23, 2017 when the administrative action took place, the administrative law enforcement document was signed by Zhang’s father. Therefore, during the court hearing, the defendants held that they had nothing to do with the alleged infringing products found at the law enforcement site. As a result, both parties fell into a dispute over the infringer.

  Consequently, the plaintiff’s agent stated to the court in details on how to lock up the defending company’s site and on the process of the administrative law enforcement. As Zhang was not at the law enforcement site, the administrative law enforcement document was signed by his father. Furthermore, the plaintiff’s agent looked for clues from a large amount of evidence. For example: (1) The defending company’s registered trademark on the products found on site. (2) A delivery list photographed at the law enforcement site, which was printed with the words “Danyang ×× Lighting Co., Ltd.” Although the company brand in the name was covered by a binder clip, it was enough to prove that the company was located at the site. (3) A photo of the law enforcement site, which showed a business license. (4) It was found from comparison that the on-site products were consistent with the pictures displayed on defending company’s website and in its product manuals. (5) The defendants’ argument on unlicensed operation of mass industrial production was unreasonable.

  All the above mentioned evidence was mutually confirmed, formed an entire evidence chain, and could prove that the law enforcement site and the products were run by the defending company. Finally, the court of the first instance adopted the plaintiff’s viewpoint. It reminds us that evidence is fundamental in litigation and we should never ignore or omit any detail.

2. Determination of Compensation Liabilities

  The system of legal compensation should apply to the case. The plaintiff’s agent carefully sorted out and summed up in respect of the popularity of the plaintiff’s products and brand, the defendants’ intention of infringement, the nature and circumstance of infringement as well as the reasonable expenditures. This also set a base for the court to decide on 1 million Yuan of compensation.

(1) Popularity of the plaintiff’s products and brand. Both parties had a dispute over this point. The defendants did not think that popularity of product or brand should be taken into consideration in patent infringement lawsuit. However, we held the view that highly popular intellectual properties should be under strong judicial protection, and such kind of protection conformed to judicial hearing policies. In the cases, the type of patent right was design, which had certain functions as a commercial mark, was manifested as shape of products, and was easy to be perceived by consumers. Meanwhile, the high popularity of the plaintiff and its brand would spread to the plaintiff’s products. Therefore, the court of the first instance confirmed that the plaintiff’s products were highly popular in market due to its brand, and considered such popularity as a basis for compensation.

(2) The infringing products and the infringements were diversified. The defendants used the plaintiff’s design patent on 9 models of lamps, with the methods of infringement including manufacturing, sale and promised sale. In addition to patent infringement, the defendants committed infringements and unfair competition against the plaintiff in other aspects. For example, they committed trademark infringements, copied the plaintiff’s product model name, made false propaganda on disguise of brand by stating “Production Place: Philips Chengdu Plant” and “Shockproof: Comply with Philips’ Internal Strict Shockproof Test” on webpages. Such massive copying and imitation must be deliberate.

(3) The infringements lasted long and the involved quantity was large. In June 2016, the defendants released the infringing product manuals at a lighting exhibition. On March 23, 2017, a number of the alleged infringing products and raw materials were found at the administrative law enforcement inspection site. There were two models or 249 products distrained by the Market Regulatory Bureau of Danyang Municipality, which were valued at more than 300,000 Yuan. This was merely the quantity found at the site. If the time of the plaintiff’s infringements was taken into account, the quantity involved in infringements would be very large.

(4) The defendants continued infringements after the cases occurred. Since the administrative action on March 23, 2017, the defendants still displayed the products of design patent infringements at a lighting exhibition in June 2017, and released brochures on such infringing products.

IV. Accurately Grasping Application of Laws in Case of Mixture of Personalities

  Whether mixture of personalities was constituted, and whether Zhang as the company’s shareholder (also the legal representative) should bear joint and several liabilities for compensation are other two disputed focuses in the cases.

 Paragraph 3 of Article 20 of the “Company Law” prescribes, “If a company’s shareholder abuses the company’s independent status as a legal person or the limited liabilities for shareholders, evades debts and severely harms the interests of the company’s creditor, he shall bear joint and several liabilities for the company’s debts.” The plaintiff alleged mixture of personalities in the cases, prepared evidence and argued in the following aspects:
(1) It was unlawful and unreasonable for Zhang to make use of his personal bank account to receive the payments for the goods. During the notarized purchase of products by the plaintiff’s agent, Zhang ordered the payments for the goods to be remitted to his personal account for twice. That implied Zhang’s behaviors were not accidental, but long-term and constant.
(2) Zhang did not remit the payments to the company. The defendants argued that Zhang turned over the payments for the goods to the company in cash, and showed the company’s receipts and book keeping vouchers, etc. The plaintiff held in the cross-examination of evidence that, it was obviously unreasonable to turn over the payments for the goods in cash, and there was an obvious contradiction on the evidence provided by the defendants because one receipt recorded that Zhang turned over the payment for the notarized purchase to the company on June 28, 2017 – the day when the plaintiff just began approaching the defendants via QQ , but both the time when the products were ordered and the time of payment for the goods were June 29, while the time of remittance was June 30. Thus it was impossible for Zhang to turn over the payment for the goods to the company before the plaintiff placed the order and made the remittance. The time sequence was obviously reversed. It could be determined that the evidence was forged by the defendants for responding to the lawsuit. The details of the evidence helped powerfully refuting the defendants’ viewpoint.
(3) The defendants was characterized by family operation. According to the defending company’s archived materials and relevant information, Zhang’s family relationship was found out accurately. The defending company was established in 2013. Zhang and his wife were shareholders, and Zhang was the company’s legal representative. The house in the company’s use was jointly owned by Zhang’s parents. Zhang’s father participated in the company’s operation, and signed the administrative law enforcement document of the Market Regulatory Bureau of Danyang Municipality on March 23, 2017. After the cases occurred, Zhang and his wife transferred all their equities in the company to Zhang’s mother. Such a close family relationship provided the company and the shareholders with great possibility and convenience for mixture of personalities.
(4) The defendants were suspected to evade legal liabilities. After the administrative action, Zhang and his wife transferred all their equities in the company to Zhang’s mother. Such behavior was in essence to make use of the company’s independent status and the shareholders’ limited liabilities again to evade their own liabilities.

  The court of the first instance finally adopted the plaintiff’s opinions, and decided on mixture of personalities. In fact, the defendants also put forward some arguments and reasons in the first instance and in appeal, and both parties debated on the issue, for example:

1. The defendants alleged that, in view of the behavioral elements of mixture of personalities, not only mixture of properties but also mixture of business, mixture of personnel affairs and mixture of site should be taken into consideration. However, the plaintiff’s agent held that, mixture of personalities did not necessarily require mixture of all the above mentioned four elements, and especially, when the shareholder was a natural person, it would be impossible to take business, personnel affairs and site into consideration. The fundamental element lied in mixture of personalities. Such viewpoint of the plaintiff’s agent was basically consistent with the subsequently promulgated “Minutes of the National Court Meeting on Civil and Commercial Hearing Work”. The said Minutes stated, “The most fundamental standard for determining whether a company’s personality is mixed with a shareholder’s personality lies in whether the company has an independent will and independent properties, and the most important behavior is whether the company’s properties are mixed with and cannot be distinguished from the shareholder’s properties.” The plaintiff considered mixture of properties as the fundamental factual basis and considered family relationship as a supplement. It was a logic way of determining mixture of personalities.

2. The defendants argued that it was a commercial practice to receive payments with the legal representative’s personal account. The plaintiff’s agent held that it was unlawful and unreasonable for Zhang to receive the payments for the goods. Firstly, the real name system is applied to bank accounts in China. Article 171 of the “Company Law” prescribes, “No account shall be opened in the name of any individual for depositing company assets.” Meanwhile, according to relevant provisions of the “Accounting Law”, the “Tax Levying Administration Law” and the “Basic Accounting Standards for Enterprises”, etc., the company should use its account in business activities, and no illegal funds should be transferred between the company’s account and any manager’s or shareholder’s account, so that an independent and normal economic order could be guaranteed for the company’s properties. Secondly, no emergency occurred during the notarized purchase, nor was any face-to-face transaction made in cash. It was unnecessary for the defendants to receive payments with Zhang’s personal account, and the defendants did not give any reasonable explanation in this regard. Finally, after the plaintiff provided evidence, the defendants failed to provide enough evidence to prove that the payments had been turned over to the company.

3. The defendants held that the plaintiff violated the good faith principle and entrapped them for evidence collection, and thus the mixture of personalities should not apply. As a matter of fact, whether the good faith principle is an element for denying legal person’s personality is still a controversy. Moreover, in the cases, the plaintiff did not entrap the defendants for evidence collection or maliciously frame them up at all. The defendants’ display, release and promised sale of the infringing products took place earlier than the plaintiff’s normal purchase, and the plaintiff did not require the defendants to customize the products. Even in the process of purchase, it was the defendants who proactively provide Zhang’s personal bank account and required the payments for the goods to be remitted into the account. Therefore, the plaintiff did not set any trap when collecting evidence. In general, collection of evidence is always a challenge for an intellectual property right holder in maintaining his rights. So the court should encourage the right holder to actively collect and provide evidence, so long as he does not violate compulsory legal provisions or severely injure the opposite party’s lawful rights. The evidence obtained by the right holder could be used as the basis for determining facts in the cases.

4. The defendants held that Zhang was a salesman of the company, instead of the company’s legal representative, and that his behaviors were for performance of duty. The plaintiff’s agent refuted such viewpoints. Despite that Zhang was a salesman of the company, his identity as a shareholder remained unchanged, and the identity condition for mixture of personalities was mature. Despite that Zhang transferred all shares to his mother after the administrative action and he was no longer the company’s shareholder or legal representative at the time of court hearing, the alleged infringements were committed during the period when Zhang was the company’s shareholder. Therefore, when being in the event of mixture of personalities, Zhang should bear joint and several liabilities. Otherwise, the system for mixture of company personalities would be invalid, since the defendants could transfer equities during the court hearing in order to evade liabilities.

  The cases have now basically come to an end. This is a successful try for the plaintiff and its agent to maintain patent right. It was not only attributable to the plaintiff’s sound and careful work, but also embodied the professionalism of Jiangsu Higher Court and Nanjing Intermediate Court in confirming facts, making comparison and adjudication on patent infringements, and applying laws. Despite that the plaintiff is an enterprise from Netherlands, the court was always open-minded in the litigation, obeyed the judicial policies on equal protection and strict protection, and sufficiently remedied the plaintiff’s rights. We noticed that, the Higher People’s Court of Jiangsu Province promulgated the “Guiding Opinions on Implementing the Strictest Judicial Protection of Intellectual Properties and Providing High-quality Development with Judicial Safeguard” on August 6, 2019, clearly stating that further efforts should be made on judicial protection of intellectual properties, and that powerful judicial safeguard should be provided for high-quality development. The Opinions highlights the central government’s will and determination to protect intellectual properties, and also adds right holders’ confidence in Jiangsu as a regional leader in the judicial hearing of intellectual property cases.