“RETROSPECTIVE” INFRINGEMENT OF PATENT AFTER RESCISSION OF ASSIGNMENT AGREEMENT
◆ First Instance Docket: (2017) Su01MinChu No. 518
CASE 7 :
Jiangsu Province
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[Headnotes]
Assignee of patent, upon recordation of the lawful assignment of patent, relying on good faith belief of its own identity and rights as patentee, may properly and reasonable exercise the patent rights. When patent assignor enters into bankruptcy proceedings, and its assets manager obtains a judgment for rescission of the assignment on basis of unreasonable assignment price, the assignee’s conduct of practicing the patent during the period when it becomes the patentee due to assignment up to the cancellation of the assignment, shall not retrospectively become patent infringement because of the cancellation of the assignment.
[Synopsis]
Plaintiff: Nanjing JiuZhu Enterprise Co., Ltd. (JiuZhu)
Defendant: Nanjing HouHe Mechanical Technology Co., Ltd. (HouHe)
In 2014, HouHe, by a patent assignment agreement with patentee JiuZhu, became the patentee of record. In 2015, JiuZhu entered into bankruptcy proceedings for reorganization, when its assets manager filed suit to rescind the patent assignment agreement on basis of obvious unreasonable price. In August 2016, Nanjing Intermediate People’s Court awarded judgment for JiuZhu’s bankruptcy manager, to be affirmed by Jiangsu High People’s Court in December 2016. In February 2017, change of the patent ownership was re-recorded showing JiuZhu as patentee. In March 2017, JiuZhu obtained evidence for HouHe’s making and selling alleged infringing products. JiuZhu contends that the assignment when lawfully cancelled is void ab initio, and therefore HouHe’s manufacture and sale of its products in August and October of 2016 are an infringement of its patent, for which it sought damages of 1 million yuan (in addition to reasonable expenses of 206,600 Yuan). At trial, JiuZhu asserted only the legal cause of patent infringement.
Upon trial, Nanjing Intermediate People’s Court found that from the perspective of the fact that a patent assignment was concluded between JiuZhu and HouHe, HouHe is of course entitled to exercise the patent rights according to the assignment, which JiuZhou should have recognized and subjectively consented. The cancellation proceeding of the assignment executed by the bankruptcy management represents the will of the bankruptcy creditor rather than that of JiuZhu, and in fact bankruptcy creditor’s interference of the improper disposition of the debtor’s own property, the causation of which does not depend on the parties’ will, and therefore it is wrong to think that the assignment violates the true intentions of JiuZhu and HouHe, let alone the effect of the interference hinges on the result of a litigation. Thus, HouHe may reasonable and faithfully rely on the assignment which has been properly recorded prior to formal cancellation of the same. In sum,despite the cancellation is treated retrospectively of the invalidity of the assignment for HouHe’s patent right ab initio, it cannot take out HouHe equitable intervening right during the assignment. In the absence of bad faith of HouHe in practicing the patent, infringement is unfounded, and such allegations may not be sustained.
In the end, the court dismissed all plaintiff’s claims.
[Judge’s Comment]
Acquisition of patent through assignment is an important means for the transfer of patent right. There, validity of the assignment is significant to the effect of the transfer of actual patent rights. Factors affecting assignment validity vary, some representing true intentions of the parties but violating third party interest, others causing invalidity or rescission for violation of the parties’ intentions, and still others though against the true intention of the patentee, resulting in good faith practicing the patent by the assignee. In the various circumstances, after the assignment is invalidated or rescinded, if the original patentee brings suit against assignee for patent infringement during designated period, it shall be first determined the legal status prior to execution of the patent assignment; second, the assignee shall be recognized as acquiring no patent rights ab initio; then, a finding of all the necessary elements of infringement shall be made based on the allegation. In finding of infringement, emphasis is placed on whether practice of the patent is in violation of the patentee’s will. If it can be determined or presumed that there is no such violations, and as long as the conduct is in good faith, no infringement should be found in principle.
As to damages, compensation of interest or unjust enrichment once a patent assignment is declared to be invalid or canceled by law, determination as such should be made in consideration of the parties’ contentions and the legal consequences proven be evidence.
Similarly, in the matter of trademarks arising out analogous administrative procedure, an allegation of trademark infringement due to use during assignment once the trademark assignment is pronounced invalid or cancelled, may be analogized to the idea and treatment of whether practicing patent under assignment which would later be invalidated or cancelled.
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