CHINT v. SCHNEIDER on Patent Infringement

2008-2-1Harry Yang, China IP,[Patent]

A first-instance judgment rendered by the Wenzhou Intermediate People's Court on September 26, 2007 ordered defendant SCHNEIDER Electric Low Voltage (Tianjin) Co., Ltd. (SELV) - a joint venture of SCHNEIDER Electric – to pay RMB 330 million in damages to Chinese plaintiff, CHINT, labeling it the "No. 1 Case of Patent Infringement in China". Rarely in China, do awards in patent cases exceed RMB10 million. Generally, compensation ranges in the hundreds of thousands RMB or less. In the Provisions Regarding Law Application in Cases concerning Patent Disputes from the Supreme People's Court it provides that a maximum of RMB 500,000  in damages may be given where the loss incurred by the infringed or the benefit received by the infringer is difficult to determine, and no patent royalties can be referenced. Consequently, the case has caught the attention of people everywhere. EU Trade Commissioner Peter Mandelson at the E.U.-China Summit 2007 said, "I regard the SCHNEIDER case as a test case of the level playing field in China on intellectual property protection that we want to see".

As one of the largest producers and sellers of electrical apparatuses for industrial use in China, the CHINT Group leads the electrical transmission and distribution industries in the nation, with assets over RMB 5 billion and sales income in 2006 of RMB 18 billion. SELV is an equity joint venture established by SCHNEIDER Electric. The parent company is a multinational company incorporated in France, and listed as one of the World's Top 500 organizations, with the core business in electrical distribution, automation, and control. SCHNEIDER entered China in 1979 with a current investment totaling RMB 5 billion.

A "miniature low-voltage circuit breaker", is the patented product in dispute. It is a regular air switch widely used in the building industry and civil residences, which has replaced the traditional fuse. SCHNEIDER launched its Merlin Gerin mini circuit breaker C45 in Europe in the 1980s. The next generation C60 was introduced in China in 1993. Chinese manufacturers of miniature low-voltage circuit breaker include the CHINT Group (incorporated in 1984), DELIXI Group, and China People Electric Appliance Group, among others.

It was alleged that the fast-closing contact mechanism (FCCM), included in the mini circuit breaker C65 of SCHNEIDER, had encroached on a CHINT utility model patent. However, according to Chu Yuansheng, legal counsel for SCHNEIDER, "the company (SCHNEIDER) began to sell the C60 products in Europe since 1991, which contained a few inventions (see Figure 1) including FCCM for the first time. In December 1996, it had the improvement patent of the C60 registered in France (FR9616151), with attached figures indicating the technical scheme of FCCM. At the end of 1997, it also applied for a patent for the improvement invention in the C60 in China (No. 97125489.3), claiming the priority date to be December 23, 1996. In 1999, SELV was authorized to use the improvement patent in the C60 and produce the mini circuit breaker C65."

The case is only one of the several actions between CHINT and SCHNEIDER. SCHNEIDER has filed nearly 20 law suits against CHINT since 1993. The case in point is deemed as a response from CHINT. "SCHNEIDER proposed to acquire 80%, 51% and 50% of the CHINT equities in 1994, 1998 and 2004, which were all rejected by CHINT", said Xu Zhiwu, legal counsel for CHINT. "SCHNEIDER would sue CHINT in any country for infringement every time it was refused by CHINT. The lawsuit does not mean that CHINT is the real infringer, and the intellectual property right has been used by the multinational company as a weapon to contain or press CHINT so that CHINT agrees to the acquisition. Finding CHINT unsubdued, SCHNEIDER moves to obstruct CHINT products from being published or sold in the market, with an end to eradicate the Chinese leading player in the electric industry. For instance, SCHNEIDER had ‘SCHINT' registered maliciously in 1999 in France, Russia, Brazil, etc., over ten countries in all, soon after CHINT had ‘CHINT' registered as a trademark in 1998. This is a good indication of SCHNEIDER to contain and press CHINT. Failing to acquire CHINT, SCHNEIDER turned to Delixi Group - another low-voltage appliance manufacturer in China – to establish Delixi Electric on November 16, 2007. SCHNEIDER and Delixi each hold 50% of the equities in the new joint venture with the total investment of RMB 1.8 billion."

The background of the case is complicated. China IP has collected information from both parties including the following facts:

Since 2004, SCHNEIDER has filed nearly 20 patent-related lawsuits against a number of CHINT products in Germany, Italy, France, and other countries in Europe. Several are still being litigated. Among them, 

March 2005: SCHNEIDER filed a lawsuit against CHINT for patent infringement with a German court CHINT filed an answer and cross complaint to invalidate the SCHNEIDER patent with the Federal Patent Court. The Federal Patent Court declared the Schneider patent void and the action was soon withdrawn by SCHNEIDER.

November 2005: SCHNEIDER filed a lawsuit against CHINT claiming design patent infringement with a court in Venice, Italy. CHINT answered. SCHNEIDER later withdrew the action.

March 2006: SCHNEIDER filed a complaint against CHINT on three counts patent infringement. The judgments given by the Tribunal de Grande Instance (first instance) and the Appellate Court Paris (second instance) rejected the allegations SCHNEIDER and ordered it to compensate CHINT for losses. The case is still under appeal. The Tribunal de Grande Instance ordered SCHNEIDER to pay Euro 10,000 in damages to CHINT. The award was increased to Euro 15,000 by the Paris Appellate Court. The symbolic compensation makes us understand SCHNEIDER's real end - to use the intellectual property right as a weapon and obstruct the publication and distribution of CHINT products in Europe. Although CHINT has won the cases above, it has lost the opportunity of timely entrance into the European market. 

SCHNEIDER has provided the following regarding litigations between the two companies:

SCHNEIDER sued CHINT in 2005 and 2006 for product infringement of Schneider's GV2 switch, Compact molded case switch, LRD thermal relay and mini circuit breaker C60, among others. The court in Venice, Italy issued a provisional injunction against the alleged infringing products of CHINT. The Appellate Court Düsseldorf also issued a provisional injunction against all alleged infringing products by CHINT, and affirmed the allegation in the first and second-instance trial regarding some of the alleged infringing products. The Supreme Court of Paris has been hearing a case regarding CHINT's alleged infringement of three patents concerning SCHNEIDER'S C60 products.

1. Two rulings in France: the court of first instance and the court of appeal reject SCHNEIDER's application for interim injunctions on NB1-63 mini circuit breaker (or the imitation of the C60). Statistically about 80% of interim injunction applications would be rejected. Presently, the case in point is being tried by the Paris Court of First Instance.

2. One judgment in Germany: the Federal Patent Court decides that a patent relating to GV2 is void (however, the same court determined the patent as valid in another case between SCHNEIDER and Siemens. The patent was also declared valid by SIPO of China). Now the case has been brought to the Supreme Court.

Certainly a Chinese court of law should determine patent infringement on the basis of the current laws and regulations and whether intellectual property rights have been used to compete against potential competitors. Regarding the case at bar, the first-instance judgment from the intermediate court of Wenzhou focused mostly on three points in dispute:

1. Whether SCHNEIDER may use earlier implementation as a defense

The first-instance judgment holds that although it is not explicitly provided in law, the defense on account of earlier implementation of a patent may be admissible since such a defense has the same jurisprudential basis as the prior art defense; the standard on novelty in the patent examination directive should be applied to determine on the technical content disclosed in the earlier patent application as a comparative document; and SCHNEIDER's defense of earlier implementation cannot sustain itself because the earlier patent (ZL97125489.3) does not disclose all the technical features of the alleged infringing product corresponding to the patented technical scheme.

2. Whether the alleged infringing product falls under patent protection

The first-instance judgment holds that for the "locking paw" as stated by SELV, alias "rocking arm" as in the Patent Claim, the alleged infringing product includes the technical features in Claim 1 and 2; for the "resilient tadpole-shaped piece which accumulates energy and resets elastically" as stated by SELV, which is a curved limiter, the alleged infringing product includes the technical features in Claim 2 regarding the curved limiter; for the "closing arm" as stated by SELV, which is a contact support, the alleged infringing product includes the technical features in Claim 1 and 2; to sum up, the infringing product is found to include all the necessary features in Claim 1 and 2 and falls into the protection for the utility model.

3. The amount of compensation

The first-instance judgment holds that the commercial facts of SELV be used to calculate the profit of SELV from the infringement, as SELV does not provide the cost book; the amount of compensation is determined to be RMB 355,939,206.25 on account of the operating profit of SELV from August 2, 2004 until July 31, 2006; since this amount is higher than that claimed by CHINT which is RMB 334,869,872, RMB 334,869,872 is awarded.

The judgment of first instance has been appealed to the Higher Court of Zhejiang Province. Because of the complexity and the wide attention to the case. The second-instance trial may prove to be costly in time. The first-instance judgment, has brought several disputed legal issues to the surface, including;  the suspension of judicial proceedings involving utility model infringement because of patent invalidation, the grade jurisdiction for patent infringement involving subject matter in a large volume, technical comparison and questions for the defense of earlier implementation, and the compensation amount for utility model infringement. With these questions in mind, we invite lawyers from law firms globally to comment.

                                                                                      (Translated by Ren Qingtao)

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