Guiding Case No.159: Shenzhen Dunjun Technology Co., Ltd. v. Shenzhen Jixiang Tengda Technology Co., Ltd. et al.
(dispute involving infringement of invention patent right)

Keywords: civil, infringement of invention patent right, method patent involving multiple entities, calculation of damages for infringement, burden of proof, technical contribution of the patent

Key Points of Judgment

1. If the alleged infringer, for the purpose of production and commercial operation, incorporates the essential content of the patented method into the accused infringing product in such a way that the act or its result plays an irreplaceable and substantive role in fully covering the technical features of the patent claims, and the patented method can be naturally performed during the normal use of the accused product by end users, then the alleged infringer shall be deemed to have implemented the patented method and thereby infringed the patentee’s rights.

2. Where the patentee claims damages based on the infringer’s profits obtained from the infringement and has preliminarily fulfilled the burden of proof regarding the scale of infringement, but the alleged infringer, without justified reasons, refuses to provide relevant evidence concerning the scale of the infringement, resulting in the inability to ascertain the factual basis for calculating the infringing profits, the court may reject the alleged infringer’s defense that the contribution of the patented technology to the profits from infringement should be taken into account.

Basic Facts

The plaintiff, Shenzhen Dunjun Technology Co., Ltd. (hereinafter referred to as“Dunjun Company”), alleged that Shenzhen Jixiang Tengda Technology Co., Ltd. (hereinafter referred to as“Tengda Company”), without authorization, had manufactured, offered for sale, and sold multiple models of commercial wireless routers, and that Jinan Lixia Hongkang Electronic Products Store (hereinafter referred to as“Hongkang Store”) and Jinan Lixia Haowei Electronic Products Store (hereinafter referred to as“Haowei Store”) had sold the same products without authorization (hereinafter collectively referred to as the “accused infringing products”). These products, according to the plaintiff, fell within the scope of protection of its invention patent titled “A Method for Easy Access to the Network Operator's Portal Website” (Patent No. ZL02123502.3, hereinafter “the patent-in-suit”). The plaintiff requested the court to order Tengda Company, Hongkang Store, and Haowei Store to cease the infringement and to jointly compensate for economic losses and reasonable expenses incurred in stopping the infringement, totaling RMB 5 million. 

The defendant, Tengda Company, argued as follows: 1. The accused infringing products implemented website redirection in a manner different from that of the patent-in-suit, and their access processes were not equivalent. Therefore, Tenda Company did not infringe Dunjun Company's patent rights. Furthermore, the patent-in-suit protects a network access authentication method. While Tenda Company manufactured the accused infringing products, it did not employ the technical solution protected by the patent-in-suit. Consequently, Tenda Company's acts of manufacturing and selling the accused products do not constitute patent infringement. 2. The compensation amount claimed by Dunjun Company is excessive and lacks sufficient factual and legal basis. In calculating damages, proper consideration should be given to the technical contribution of the patent and the existence of alternative solutions to the patented technology.

Hongkang Store and Haowei Store jointly argued that the accused infringing products they sold were lawfully sourced from authorized distributors, and that they were not the manufacturers of the the accused infringing products; therefore, they should not be held liable.

Upon trial, the court ascertained the following facts: Dunjun Company explicitly asserted its rights based on Claims 1 and 2 of the patent-in-suit, the contents of which are as follows:

1. A simplified method for accessing a network operator's portal website, characterized by comprising the following processing steps: A. An access server's underlying hardware directly submits the first uplink HTTP packet from a portal service user equipment before authentication to a "virtual web server", wherein the "virtual web server" function is implemented by a "virtual web server" module of the access server's high-level software; B. The "virtual web server" emulates the website that the user intends to access to establish a TCP connection with the portal service user equipment, the "virtual web server" returns a packet containing redirection information to the access server's underlying hardware, which then sends a packet redirecting to the genuine portal website Portal_Server to the portal service user equipment according to normal forwarding procedures; C. The browser of the portal service user equipment automatically initiates access to the genuine portal website Portal_Server upon receiving the redirection packet.

2. The simplified method for accessing a network operator's portal website according to claim 1, characterized in that: in said step A, the portal service user inputs any valid domain name, IP address or any number in the browser to form an uplink IP packet; in said step B, the "virtual web server" emulates a website corresponding to the IP address of said IP packet.

Dunjun Company, through a notarized purchase process, obtained one unit each of the “Tenda Router W15E” and the “Tenda Router W20E Enhanced Edition” from Hongkang Store and Haowei Store. Under the supervision of a notary, Dunjun Company conducted a technical demonstration of the process by which the “Tenda Router W15E” accesses the network operator’s portal website. The demonstration results showed that the operation of the “Tenda Router W15E” involved method steps corresponding to Claims 1 and 2 of the patent-in-suit.

The accused infringing products were available for sale on both the official Tenda flagship store on JD.com and the Tenda flagship store on Tmall.com, with high sales volumes. The JD.com official flagship store webpage displayed information including: an image of the “Tenda (W15E) Router,” a JD price of RMB 199, and over 10,000 cumulative reviews; the “Tenda (W20E) Router,” a JD price of RMB 399, and over 10,000 cumulative reviews; and the “Tenda (G1) Router,” a JD price of RMB 359, also with over 10,000 cumulative reviews. The Tenda flagship store on the Tmall.com website displayed an image of the “Tenda (W15E) Router,” a promotional price of RMB 179, monthly sales of 433 units, 4,342 cumulative reviews, as well as installation instructions and technical support information.

On December 13, 2018, the first instance court issued a notice, ordering Tengda Company to submit, within ten days, complete records and financial books relating to the production and sales of the accused router products since July 2, 2015. The notice stated that failure to comply within the prescribed time would result in corresponding legal consequences. However, as of the date of the second-instance judgment, Tengda Company had not submitted the relevant evidence.

Judgment

The Intermediate People’s Court of Jinan City of Shandong Province, rendered Civil Judgment (2018) LU 01 MINCHU No.1481 on May 6, 2019, as follows: 1. Tengda Company shall immediately cease the manufacture, offer for sale, and sale of the accused router products; 2. Hongkang Store and Haowei Store shall immediately cease the sale of the accused router products; 3. Tengda Company shall compensate Dunjun Company for economic losses and reasonable expenses totaling RMB 5 million within ten days from the effective date of the judgment; 4. Other claims filed by Dunjun Company were dismissed. The court acceptance fee for the first instance, amounting to RMB 46,800, shall be borne by Tengda Company.

Following the judgment, Tengda Company filed an appeal to the Supreme People’s Court. On December 6, 2019, the Supreme People’s Court rendered Civil Judgment (2019) ZUIGAOFAZHIMINZHONG No.147, dismissing the appeal and upholding the original judgment.

Judgment’s Reasons 

The Supreme People’s Court held that the key issues in this case include three aspects:

1. Whether the use of the accused infringing products falls within the scope of protection of the claims of the patent-in-suits

First, the term “the first uplink HTTP packet” in Claim 1 of the patent-in-suit should not be construed as the first packet in the TCP “three-way handshake” connection established between the user device and the actual website to be accessed; rather, it should be interpreted as the first uplink HTTP packet sent by an unauthenticated user device to the access server.

Second, according to the notarized test results on the accused infringing products, the forced portal process of the accused infringing products is identical to the method steps defined in Claims 1 and 2 of the patent-in-suit. The usage process of the three accused infringing products under the “Web Authentication Enabled” mode falls entirely within the scope of protection of Claims 1 and 2 of the patent-in-suit.

2. Whether the alleged infringing acts committed by Tengda Company constitute patent infringement

In determining patent infringement concerning method patents in the field of network communications, full consideration should be given to the characteristics of this technical field and due respect should be accorded to the rules of innovation and development therein. This is to ensure substantive protection of the legitimate rights of the patentee and to promote sustainable innovation and fair competition within the industry. If the alleged infringer, for the purpose of production and commercial operation, incorporates the essential content of the patented method into the accused product in such a way that the act or its result plays an irreplaceable and substantive role in fully covering the technical features of the patent claims, and the patented method can be naturally performed during the normal use of the accused product by end users, then the alleged infringer shall be deemed to have implemented the patented method and thereby infringed upon the patentee’s rights.

In this case:

Although Tengda Company did not directly practice the patented method, the accused infringing products it manufactured, offered for sale, and sold for production for business purposes possess the capability to directly implement the patented method which plays an irreplaceable and substantive role in the process by which end network users fully perform the patented method using the accused products.

The unjust enrichment obtained by Tengda Company from the manufacture, offer for sale, and sale of the accused infringing products is closely connected with the patent-in-suit.

Since the conduct of end network users in implementing the patented method using the accused infringing products does not constitute infringement in the legal sense, the patentee’s investment in innovation cannot be adequately rewarded from these end users who directly practice the patented method. Failure to provide adequate compensation to the patentee would inevitably render research and innovation activities unsustainable.

On the other hand, as noted above, by exploiting the patented invention, Tengda Company has unjustly obtained benefits that rightfully accrue to the patentee, resulting in a serious imbalance in the distribution of benefits and unfairness.

Considering the factors above, under the circumstances of this case, Tengda Company’s manufacturing, offering for sale, and selling of the accused products should be deemed infringing acts, and Tengda Company shall bear civil liability for ceasing infringement and compensating for losses.

3. Whether the amount of damages determined in the first-instance judgment is appropriate

When the patentee claims damages based on the infringer’s profits, the scale of infringement constitutes the foundational fact for calculating damages. The patentee bears the initial burden of proof for this foundational fact. If the patentee has fulfilled the initial burden of proof and the alleged infringer, without justified reasons, refuses to provide relevant evidence concerning the scale of infringement, the court may reject the alleged infringer’s defenses such as the contribution of the patent-in-suit to the profits from infringement should be taken into account.

Specifically, in this case:

Dunjun Company claimed damages calculated based on the infringer’s profits and submitted evidence in the first instance regarding the quantities and prices of the accused infringing products sold by Tengda Company through its official flagship stores on JD.com and Tmall.com. Since the sales volume and prices were sourced from Tengda Company’s own official stores on reputable e-commerce platforms, the data are considered relatively reliable. Although Tengda Company argued that using cumulative reviews as sales volume might involve duplication and inflation, it failed to provide concrete evidence to support this claim. Considering Dunjun Company’s evidentiary capabilities regarding this fact, it should be held that Dunjun Company has fulfilled its initial burden of proof concerning the scale of infringement.

Based on the preliminary evidence of infringement scale submitted, Dunjun Company requested Tengda Company to submit financial books and related materials concerning the accused infringing products during the first instance. The court accordingly ordered Tengda Company to provide complete financial records reflecting the production and sales of the accused infringing products. However, Tengda Company did not submit such evidence. The first-instance court therefore fully upheld Dunjun Company’s claim for RMB 5 million in damages pursuant to relevant judicial interpretations. Despite Tengda Company’s objections to this amount on appeal, it still failed to provide the relevant financial records. Since Tengda Company faced no objective obstacles in submitting evidence related to the scale of infringement within its possession, it is deemed that Tengda Company has not fulfilled the ultimate burden of proof regarding this foundational fact.

Based on the available evidence, there is reasonable ground to believe that the actual sales volume of the accused infringing products far exceeds the quantity claimed by Dunjun Company.

In summary, where the infringement facts are relatively clear and evidence shows that Tengda Company’s actual scale of infringement is significantly greater than the compensation amount claimed by Dunjun Company, if Tengda Company disputes the full amount of damages awarded by the first-instance court, it should substantively contest whether the foundational facts underlying Dunjun Company’s calculation of damages are objectively accurate, rather than avoiding discussion of the scale of infringement and instead raising other defenses such as the patent’s technical contribution. Accordingly, Tengda Company’s various appellate defenses challenging the appropriateness of the first-instance damages are not supported.

Relevant Provisions

Article 1, Article 11(1), and Article 64(1) of the Patent Law of the People’s Republic of China (amended in 2020) (For this case, the applicable provisions are Article 1, Article 11(1), and Article 59(1) of the Patent Law of the People’s Republic of China (amended in 2008))