Comments on Patent Infringement Case Crystal Source Company VS. Fujikasui and Huayang Company Zhang Guangliang Mar. 19, 2010

Basic Facts of Case Crystal Source Company is the patentee of patent for invention (No. ZL ) “aeration, flue gas desulfurization by seawater and a kind of aeration device”. Date of application, open date and authorized date of this patent are Dec. 22, 1995, Nov. 6, 1996 and Sep. 25, 1999 respectively. Claim 1 and Claim 5 of this patent right are independent claims intended for protecting a kind of aeration, flue gas desulfurization by seawater and related aeration device respectively.

Basic Facts of Case In Jan. 1997, Entrust Contract for Feasibility Study Report Zhangzhou Houshi Power Plant flue gas Desulfurization Project was made and entered into between Huayang Company and Shenzhen Crystal Source Environmental Protection Technology Co., Ltd. In Apr. 1997, both parties agreed to terminating this contract, and the study was assumed by Crystal Source Company. In Dec. 1997, Crystal Source Company finished the compilation of Overall Report of Feasibility Study of Zhangzhou Houshi Power Plant flue gas Desulfurization Project. This report draws a conclusion and makes a suggestion that it’s recommended to apply pure seawater flue gas desulfurization scheme to flue gas desulfurization system of Zhangzhou Houshi Power Plant.

Basic Facts of Case In Apr. 1997, “Flue Gas Desulfurization System” Contract was made and entered into between Huayang Company and Fujikasui. Fujikasui offered some parts and components, and mainly transferred its technology. In Article 20 “Intellectual Property Right”, both parties agreed that if any loss or penalty arises from the infringement caused by trademark, patent or copyright and/or related design (inclusive of drawing, equipment, computer software, data/mark) used for the equipment which the seller supplies in the buyer’s country or any other country, the seller shall make compensation and guarantee that the buyer will be exempted from any compensation or liability.

Basic Facts of Case In Dec. 1998, Manufacturing and Installation Project Contract for Equipments 1# － 6# Flue Desulfurization Area of Houshi Power Plant was made and entered between Huayang Company and China National Chemical Engineering Third Construction Co., Ltd. The Third Construction Co., Ltd. manufactured and installed Flue desulfurization equipment for Huayang Company by the technology transferred by Fujikasui to Huayang Company. Unit 1 and Unit 2 of Huayang Company were put into production in Feb and Sep respectively.

Basic Facts of Case From July 1999 to May 2001, Crystal Source Company contacted Huayang Company for times in respect that the technology Fujikasui provided for Huayang Company was suspected of infringing its patent right, but failed to achieve consensus.

Claim In Sep. 2001, Crystal Source Company brought a suit against Fujikasui and Huayang Company as defendants to The Higher People’s Court of Fujian Province, and claimed the defendants to stop infringing and make compensation for the loss of RMB 31 million, attorney fee, investigation fee and other losses arising from patent infringement, eliminate any impacts, etc. During litigation, Crystal Source Company claimed to add RMB 45 million to the amount of compensation for damage of patent infringement, and then the total amount of compensation for damage of patent infringement reached RMB 76 million.

Technical Appraisal During first hearing, The Higher People’s Court of Fujian Province entrusted an appraisal center to conduct technical appraisal for the sameness and the difference between protective range of the patent involved with this case and the technology accused of infringement upon the application of Crystal Source Company in Nov

Technical Appraisal Conclusion of appraisal: The characteristics a‘, b‘, c‘, d‘, e’ and f’ of desulfurization method embodied through equipment of flue gas desulfurization by seawater provided by Fujikasui for Huayang Company are the same as corresponding technical characteristics a, b, c, d, e and f of the technical plan described in Claim 1 of the patent right involved with this case. The two technical plans are the same in view of patent law. The characteristics A‘, B’, E‘ and F’ of seawater flue gas desulfurization equipment provided by Fujikasui for Huayang Company are the same as corresponding technical characteristics A, B, E and F in Claim 5 of patent right involved with this case respectively, while C‘ and D’ are equivalent to C and D respectively. The two overall technical plans of equipment are equivalent to each other.

Request for Invalidation and Related Administrative Action During first hearing, Fujikasui made a request for invalidation of patent right involved with this case to The Patent Reexamination Board of the State Intellectual Property Office of the P.R.C. China on Dec. 13, The Board maintained the validation of the patent right involved with this case on June 28, Fujikasui objected the judgment above and raised an administrative action to The First Intermediate People's Court of Beijing. The court maintained the Board’s judgment of claim for invalidation on Dec. 20, Fujikasui still objected, so it lodged an appeal to the Higher People's Court of Beijing. The court still maintained the original judgment on Aug. 1, 2007.

First-Hearing Judgment On May 12, 2008, The Higher People’s Court of Fujian Province made first-hearing judgment that

First-Hearing Judgment The technical characteristics of desulfurization method embodied by flue gas desulfurization through seawater technology provided by Fujikasui for Huayang Company are the same as corresponding technical characteristics of the technical plan described in Claim 1 of patent right. The technical characteristics of seawater flue gas desulfurization equipment Fujikasui provided for Huayang Company are partially the same as and partially equivalent to corresponding technical characteristics in Claim 5 of patent right. Therefore, the technical characteristics of desulfurization method and desulfurization device Fujikasui provided for Huayang Company fully cover the technical characteristics of Claim 1 and Claim 5 of patent right involved with this case. Such act constitutes patent infringement, so Fujikasui shall bear relevant civil liability for infringement.

First-Hearing Judgment The literatures Fujikasui offered embody only part of corresponding technical characteristics, and all of them are not complete technical plans and don’t fully cover all the technical characteristics of independent claims of the patent involved with this case. Therefore, the flue gas desulfurization technology provided by Fujikasui for Huayang Company is generally recognized technology, and the patent of Crystal Source Company involved with this case isn’t novel or creative and fails to meet other claims, further. Crystal Source Company isn’t supported because of inadequate facts and legal basis.

First-Hearing Judgment The facts and calculation basis of compensation of RMB 76 million Crystal Source Company claimed are inadequate, so the request isn’t adopted. The loss of the right owner Crystal Source Company arising from such infringement can’t be clarified, so the amount of compensation is determined according to the reported profit of Fujikasui under this case. According to existing evidence of this case, the total price of two sets of systems of flue gas desulfurization by seawater is RMB million, Fujikasui mainly transferred technology except for the supply of some parts and components, so the value of such parts and components should be deducted from the amount of compensation, and the rest should be the profit of Fujikasui. However, Fujikasui refused to offer the price list of related parts and components, so the court views all of the contract price as the profit Fujikasui gained through infringement. According to the provisions related to intellectual property right guarantee specified in “flue gas Desulfurization System” Contract made and entered into between Huayang Company and Fujikasui in 1997, the civil liability for infringement under this case shall be borne by Fujikasui.

First-instance Judgment Huayang Company thought that it could use the technology of glue gas desulfurization through pure seawater recommended in overall report of feasibility study compiled by Crystal Source Company according to related provisions in Entrust Contract for Feasibility Study Report Zhangzhou Houshi Power Plant flue gas Desulfurization Project made and entered into between Crystal Source Company and it. The court thought that Crystal Source Company, in the overall report of feasibility study, only put forward that Zhangzhou Houshi Power Plant Desulfurization technique could adopt pure seawater method, the feasibility of the technical plan of this method and the environment and social benefits and others of the use of this method, and didn’t mention the complete technical plan of the patent involved with this case or authorize Huayang Company to use the patent involved with this case freely, so the claim of Huayang Company above couldn’t be supported.

First-Hearing Judgment Huayang Company thought that the provisions of Patent Law prior to the revision in 2000 should apply to this case, so any use or sales of patented products that were manufactured and sold without the authorization of the patentee on the premise that the user or seller didn’t know the fact in advance shouldn’t be viewed as infringement to patent right. The court thought that it couldn’t be deduced that the party concerned could permanently use another’s patent without compensation therefrom. As soon as the party concerned knew the technical method and device it used are involved with another’s patent, it’s obliged to stop using them immediately. So the claim of Huayang Company above couldn’t be supported.

First-Hearing Judgment Because thermal power plant’s use of flue gas desulfurization facility conformed to the basic national policy of environmental protection and related national industrial policy and the power supply directly influenced the local economy and people’s living. In order to balance the right owner’s interest and public interest, the request of Crystal Source Company that Huayang Company should stop its infringement wasn’t supported, but Huayang Company should pay relevant use charge to Crystal Source Company till the patent right involved with this case terminates. According to the type and others of the patent involved with this case, the court determined the use charge according to RMB 240,000 per unit per year.

First-instance Judgment Crystal Source Company changed the amount of compensation it claimed during the court proceedings and the court had determined a due pleading period for both Fujikasui and Huyang Company. Therefore, the suit involved in Fujikasui and Huyang Company in respect of such change after the end of court trial violated the law of civil procedure and couldn’t be supported.

First-Hearing Judgment In summary, The Higher People’s Court of Fujian Province judged that I. The defendant Fujikasui shall stop infringing the patent right of the accuser Wuhan Crystal Source Environment Project Co., Ltd. upon ZL “aeration, flue gas desulfurization by seawater and a kind of aeration device” as of the date of execution of this judgment; II. The defendant Fujikasui shall compensate RMB million for the economic loss of the accuser Wuhan Crystal Source Environment Project Co., Ltd. within fifteen days as of the date of execution of this judgment;

III. The defendant Huayang Company shall pay the use charge for Patent ZL “aeration flue gas desulfurization by seawater and a kind of aeration device” (RMB 240,000 per unit per year) to the accuser Wuhan Crystal Source Environment Project Co., Ltd. in accordance with actual service life within fifteen days as of the execution of this judgment till the patent right involved with this case terminates, Unit 1 shall be delivered as of Feb. 2000, while Unit 2 as of Sep IV. Other claims of the accuser Crystal Source Company are rejected.

Second-Hearing Judgment All of Crystal Source Company, Fujikasui and Huayang Company refused to accept the judgment above as final and lodged an appeal. In Dec. 2009, The Supreme People’s Court of the People’s Republic of China made final judgment and summarized the focus issues of the dispute above as follows:

Second-Hearing Judgment I. Whether the accused infringing desulfurization method and aeration device is within the protective range of the patent right involved with this case or not (yes) During the second instance, the main dispute is whether the accused infringing product is within the protective range of patent right defined in Claim 5 of the patent right involved with this case or not. The original judgment judged that it is not improper to incorporate the accused infringing desulfurization method and aeration device into the protective range of patent right.

Second-Hearing Judgment II. Whether existing technical pleading of Fujikasui and Huayang Company is acceptable or not (no) According to existing evidence of this case, it can be concluded that existing technical pleading of Fujikasui and Huayang Company against Claim 1 and Claim 5 is unacceptable. Therefore, it’s unnecessary to conduct entrusted technical appraisal, and the application of Huayang Company for related appraisal isn’t approved.

Second-Hearing Judgment III. How should Fujikasui and Huayang Company bear relevant civil liability Fujikasui and Huayang Company jointly infringed the patent right of Crystal Source Company, so they shall bear joint and several liability. The assumption of such joint and several liability doesn’t hamper Huayang Company’s exertion of its right of recourse against Fujikasui according to law and “flue gas Desulfurization System” Contract made and entered into between Fujikasui and it, and it’s improper that the original judgment exempts Huayang Company from the liability for compensation according to the right defect security in the contract above.

Second-instance Judgment IV. Whether the original trial court’s retrial of additional claim of Crystal Source Company after the end of court trial violates related provision in the law of civil procedure or not (no) Crystal Source Company changed the amount of compensation it claimed during the court proceedings according to the change of facts of the case and the court had determined a due pleading period for both Fujikasui and Huyang Company and organized court trial, so the claim of Fujikasui and Huyang Company in respect of the change after the end of court trial violated related provision in the law of civil procedure and couldn’t be supported.

Second-instance Judgment V. Whether the revision of 2000 of the patent law applies to this case or not (no) The revision of 2000 of the patent law came into force on July 1, 2001, while the accused infringing act under this case occurred in 1997, so the version of patent law prior to the revision of 2000 applies to this case. Although it’s improper that the original judgment quoted provisions of the revision of 2000 of patent law, the original trial court judged this case according to the version of the patent law prior to the revision of 2000 in facts and the quotation above didn’t influence the judgment of this case, so Fujikasui’s claim of the original judgment’s wrong application of law can’t be supported.

Second-instance Judgment In summary, The Supreme People’s Court of the People’s Republic of China maintains Item I, III, IV of original judgment, and changes Item II of original judgment to that Fujikasui and Huayang Company shall jointly compensate RMB million for the economic loss of Crystal Source Company.

Comments (I) Determination of protective range of patent right

(II) Issues of judgment of patent infringement  The relation between technical appraisal and patent infringement judgment

(III) Existing technical pleading and its applicability

(IV) Applicability of civil liability for infringement to be stopped

Thank you.