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Landmark melamine cases prove that a proactive, comprehensive litigation strategy can result in substantial compensation in China, explains Ji Liu of CCPIT Patent and Trademark Law Office.
In late 2022, China’s Supreme Court presided over two prominent cases involving the patent and trade secrets of melamine, a widely used industrial compound.
These cases resulted in record-breaking compensation of ¥218 million RMB ($30.3 million) to the rights holders.
Among the plaintiffs were a Sino-foreign joint venture and a private high-tech company, and one of the defendants was a state-owned enterprise. The court’s judgment illustrated its consistent approach to ensuring equal protection for all business entities, regardless of their domestic or foreign capital ownership.
The Supreme Court’s final decision ordered the dismantling of the existing infringing melamine production system—a 100,000-tonne-per-year melamine project—until it no longer infringes the involved patent.
"These cases resulted in record-breaking compensation of ¥218 million RMB ($30.3 million) to the rights holders."
While the lower courts hesitated due to potential “massive societal wealth waste”, the Supreme Court’s firm stance affirmed China’s commitment to the robust judicial protection of intellectual property
This noteworthy case found its way into the “Annual Report of the Intellectual Property Court of the Supreme People’s Court 2022” and the “50 Typical Intellectual Property Cases of Chinese Courts in 2022”.
Using a multipronged strategy, the plaintiffs in the patent case secured substantial compensation. These cases illuminate a noteworthy strategy for similar IP litigation in the future.
A. Comprehensive evidence collection and diverse compensation calculation methods
• Profit derived from the infringement was estimated based on the defendants’ overall business profit margin.
The plaintiffs took into account multi-year annual reports, where the defendants had disclosed their overall business profit margins, and the percentage of melamine product revenue.
Using these figures, they calculated the business income and profits of melamine products during the infringement period.
• Moreover, they calculated the gross profit stemming from the infringement based on the gross profit margin of the defendants’ organic amine product (as disclosed in their annual reports), and the melamine product’s gross profit margin as reported by comparable companies.
This calculation involved verifying the accuracy of the gross profit figures and making any necessary adjustments.
"In the array of patent and trade secret infringement suits brought forward by the plaintiffs, they astutely forwent certain suits."
• In addition to the above, the plaintiffs made use of relevant data from third-party platforms to make estimations of the profits.
These calculations yielded consistent results, providing a reliable estimate that the defendants’ reasonable profit from the production and sale of melamine products during the infringement period was somewhere between ¥257 RMB ($35.7 million)
and ¥436 million RMB ($60.6 million)
Given these estimates, the plaintiffs’ claim for damages was fully upheld.
B. Effort to establish the value of the involved IP rights and reasonable allocation of claim amounts across related cases
The Supreme Court noted that the defendants’ profits from the production and sales of melamine products were not solely derived from the infringing patent rights.
Therefore, the determined reasonable profits should also account for benefits originating from other rights and be adjusted accordingly.
In relation to this, the court considered the following factors:
• The nature of the patent: The Supreme Court deemed the patent in question to be an improvement invention. Despite not creating a new product per se, it effectively resolved issues of low production efficiency, high energy consumption, long-term operational instability, and high by-product treatment costs.
Therefore, by using the patent, both production efficiency and economic benefits can be greatly enhanced.
• The impact of the patent’s implementation on product production and sales scale: The court recognised the patent’s significant effect on the defendants’ melamine product production and sales. Its implementation directly and substantially increased the output of melamine products, consequently boosting sales profits.
• The defendants’ evidence: The Supreme Court highlighted that the defendants had failed to provide evidence to counter the reasonable profit acknowledged by the original trial court in the second instance trial, or to challenge the plaintiffs’ claimed profit from the infringement.
• Claims regarding other intellectual property rights: The Supreme Court noted that the total compensation sought by the plaintiffs across the associated case and this case was ¥263 million RMB ($36.6 million). This figure did not exceed the estimated reasonable profit range of ¥257–¥436 million RMB ($60.7 million) calculated by the original trial court.
This thorough analysis led the Supreme Court to fully support the plaintiffs’ requested compensation.
C. Selecting beneficial courts and vigorously chasing higher damages through appeals
In the array of patent and trade secret infringement suits brought forward by the plaintiffs, they astutely forwent certain suits. Instead, they focused intently on proceedings held by specialised IP court and intermediate court with IP tribunal, known for their extensive adjudication experience and predisposition to grant more substantial damages.
Even with initial compensation awards of ¥80 million RMB ($11.1 million) and ¥50 million RMB ($7 million), they continued to appeal in search of more substantial damages. This unyielding will of the plaintiffs was a pivotal factor in their ultimate success in securing significant compensation.
These landmark melamine infringement cases provide an essential insight—that a proactive, comprehensive litigation strategy can result in substantial compensation in China’s IP legal landscape.
By using a multi-angle evidence collection approach and various compensation calculation methods, the plaintiffs set a new compensation record in IP cases. The cases also underscore the Chinese courts’ equal treatment of all business entities and emphasise their commitment to strengthening judicial protection for IP rights.
Ji Liu is a patent litigation attorney in China and director of patent litigation at CCPIT Patent and Trademark Law Office. He can be contacted at: email@example.com
CCPIT Patent and Trademark Law Office, IP infringement, China, melamine, litigation strategy, technology, Supreme People's Court