The Beijing IP Court recently made headlines by granting a record amount of damages for patent infringement -no less than RMB 49 million (USD7.15m)-, one of the highest amounts since the court was established in November 2014. Moreover, the Court also granted the Plaintiff’s demand for a reimbursement of no less than RMB 1 million (USD150k) in legal fees, which is –to our knowledge- also one of the highest amounts ever granted for this type of expenses in China. These figures are no doubt eye-catching, and this case proves especially interesting because of the reasoning employed by the court to get to those amounts.

Factual background of the case

The patent infringement dispute was brought by Plaintiff Beijing Watchdata System Co., Ltd. (“Watchdata”) against Defendant Beijing Hengbao Co., Ltd., (“Hengbao”) over an invention patent on security tokens used for online banking.

The patent invoked in this procedure protects a process using a physical security device (e.g. a USB token) to secure online operations, as well as the security device itself, which involves the technical process performed by the token device: receiving operational instructions from an online system (e.g. online banking instructions for a money transfer), receiving user input on the USB key token (e.g. keying-in a password or pressing a confirm button on the token device), confirming the user action, and sending operational instruction to the online system (e.g. electronical data to approve the money transfer).

The patent infringement was clear-cut. Hengbao’s USB tokens, as tested and analyzed in court, fell squarely within the scope of protection of the patent.

The damages

After a swift finding of patent infringement, the court turned to the analysis of the damages and expenses claimed, which was the key issue, taking up a substantial part of the judgment.

The court considered several factors: the Defendant’s sales volume, its profits and the Plaintiff’s expenses, a major part of which consisted of their lawyers’ fees. To prove the amount of damages, the Plaintiff submitted the Defendant’s sales volume (obtained from a dozen banks and financial institutions) but failed to prove its profits, which the Defendant – unsurprisingly- refused to disclose. Nevertheless, the court accepted an average profit figure, based on Plaintiff’s evidence of its own profit rate, as well as comparative figures from other companies in the sector.  Eventually, the court reached its award of RMB 49 million in damages by multiplying the assumed profit by the proven sales volume, which ended up being particularly high because of the high proven sales amount.

Turning to the Plaintiff’s expenses, the Plaintiff provided its lawyers’ fees, standing at a total of RMB 1.04 million (approximately 150k USD), calculated on the basis of no less than 450 billed hours. The Plaintiff demanded the reimbursement of RMB 1m for these expenses, which was –quite surprisingly- fully accepted by the court.  The court held that these lawyers’ fees were reasonable by primarily taking into account: (1) the legal and technical complexity of the case, which requires a specialized team of lawyers (2) the fact that the Plaintiff could provide the actual amount of time and effort (in “billable hours”, with narratives per hour) spent by the Plaintiff’s lawyers to pursue this case before the court.

Summary and take-aways

China’s legal system allows for “reasonable” expenses to be recuperated by the prevailing party in IP procedures. Permissible expenses generally range from lawyer’s and notary fees to out-of-pocket expenses such as travel and accommodation.

Nonetheless, plaintiffs often face a lot of rigid formalities (e.g. evidence needs original chops, signatures, notarization, etc.) and a high burden of proof when trying to claim back such expenses, as much evidence is considered unacceptable and -even relatively low- costs are often held to be inadmissible. This has traditionally also been the case for lawyer’s fees, of which, most often, only a fraction is allowed to be recuperated from the losing party. In this sense, this judgment by the Beijing IP Court is definitely a step in the right direction and an encouragement for right owners to bring cases before the Chinese IP Courts. Moreover, one of the most valuable lessons of this case lies in the fact that the court accepted that the “reasonableness” of lawyers’ fees can be established by reference to the complexity of the case and to the amount of “billable hours” (with narratives) performed by the prevailing party’s lawyers.

Link to full-text judgment (Chinese)