Feynman LIANG Patent & Trademark Attorney	Published on March 11, 2020

In the final instance of Litens v. Gates etc., Chinese branch of the Canadian company Litens Automotive Group was awarded damages of CNY 10.64 million (around USD 1.53 million). The case provides an example of damage calculation theory and considerations.

Pursuant to Patent Law of P. R. China, damages are calculated in the following ways.

Article 65 The amount of compensation for patent right infringement shall be determined according to the patentee's actual losses caused by the infringement. If it is hard to determine the actual losses, the amount of compensation may be determined according to the benefits acquired by the infringer through the infringement. If it is hard to determine the losses of the patentee or the benefits acquired by the infringer, the amount of compensation may be determined according to the reasonably multiplied amount of the royalties of that patent. The amount of compensation shall include the reasonable expenses paid by the patentee for putting an end to the infringement.

If the losses of the patentee, benefits of the infringer, or royalties of the patent are all hard to determine, the people's court may, on the basis of the factors such as the type of patent right, nature of the infringement, and seriousness of the case, determine the amount of compensation within the range from 10,000 yuan to 1,000,000 yuan.

Namely, calculation of damages may be based on
1. The losses of the patentee,
2. The profit of the infringer, or
3. The reasonably multiplied amount of royalties

In addition, reasonable cost of enforcement should also be included in the damages.

Litens Automotive (Suzhou) Co. (hereinafter referred as “the Plaintiff”) is the licensee of Chinese patent No. ZL02823458.8 entitled “Synchronous drive apparatus with non-circular drive elements and its operation and construction methods”. The patentee is Litens Automotive Group, which is the Canadian parent company of the Plaintiff. Gates Unitta Power Drive (Shanghai) Co., Ltd. (hereinafter referred as “the Defendant”) is the solution provider of drive system for the engine products of the automotive manufacturer Chery Automobile Co., Ltd (hereinafter referred as “Chery”). The Plaintiff filed a lawsuit against the Defendant for patent infringement in October 2012. The case was first heard by Suzhou Intermediate People’s Court and eventually appealed to Jiangsu Province Higher People’s Court (hereinafter referred as “the Court”). The Court found the Defendant liable for patent infringement and awarded damages of CNY 10.64 million (around USD 1.53 million).

As provided in the Patent Law, damages are generally constituted of two parts: basic damages and enforcement cost.

I. Basic damages

In this case, the Plaintiff claimed damages for patent infringement from April 2010 to October 2012 and selected the profit of the infringer as the basis of the damage calculation. The profit of the infringer is calculated as:
Number of infringing products X unit profit

1. Number of infringing products
In the proceedings, both the Patentee and the Defendant provided evidence proving the number of infringing products.

A. The number of infringing products proposed by the Plaintiff
The Plaintiff provided the number of infringing products in two ways.
A1. 1st way of Calculation
Evidence:
a. “Production & Sales Statistic (by series) of 2010” (specifying the producing number of different engine model from January to December 2010) published by a third-party consulting company.
b. China Automotive Engine Sales and Production Analysis 2011 (specifying the producing number of engines for different car manufacturers from January to December 2011)
c. China Automotive Engine Sales and Production Analysis 2012 (specifying the producing number of engines for different car manufacturers from January to December 2012)

The Plaintiff failed to obtain the direct evidence proving the producing / sales number of the patented synchronous drive system. Instead, the Plaintiff provided indirect evidence proving the number of the engines equipped with the patented synchronous drive system during the period. For the purpose of calculation, the designated period of time can be divided further into three slots

(1) April 2010 to April December 2010
Evidence #a provided the producing number of the engine model equipped with the system in dispute from January to December. It was indicated in the Statistic that there are 122,026 relevant engines produced from January to December 2020. Therefore, the number of relevant engines produced from April to December 2010 should be:
122,026 (engines)÷12 (months) ×9 (months from April to December) =91,519 (engines)

(2) January 2011 to December 2011
The Plaintiff failed to provide the statistic regarding the producing number of the relevant engines in 2011 and 2012. However, the Plaintiff tried to calculate the producing number of the relevant engines in 2011 and 2012 based on the assumption that the percentage of the relevant engines among all engines produced by Chery remains the same from 2010 to 2012.

As indicated in evidence #a, while the number of relevant engines and the total number of engines by Chery in 2010 were known, the percentage of the relevant engines among all the engines of Chery in 2010 is as follow:
122,026 (engines) ÷ 695,953 (engines)≈17.53%

As indicated in evidence #b, the total number of engines produced by Chery from January to December 2011 is 634,777. Assuming the percentage of the relevant engines in 2011 remained the same as 2010, the number of relevant engines in 2011 should be:
634,777 (engines) × 17.53%≈111,276 (engines)

(3) January 2012 to October 2012
As indicated in evidence #c, the total number of engines produced by Chery from January to October 2012 is 435,303. Assuming the percentage of the relevant engines in 2012 remained the same as 2010, the number of relevant engines from January to October 2012 should be:
435,303 (engines)×17.53%≈76,309 (engines)

Therefore, the total number of allegedly infringing product during the designated period is 91,519 (engines) + 111,276 (engines)+ 76,309 (engines)= 279,104 (engines).

A2. 2nd way of calculation
From the relevant statistic, it is known that the sales number of cars equipped with one model of relevant engines from 2010 to October 2012 is 332,892.

B. The number of infringing products proposed by the Defendant
In the second instance, the Court believed that the plaintiff had provided preliminary infringement evidence and the evidence as the basis of damage calculation such as profit, cost, sales number and producing number was under control of the Defendant. Therefore, the court issued a court order requesting the Defendant to provide relevant evidence. The Defendant provided the evidence, indicating 265,159 non-circular components which is the core part of the invention had been provided to Chery during the designated period.

The Court therefore determined the number of infringing products as 265,159 based on the following reasons.
(1) Both the 1st and the 2nd way of the calculation are based on assumption only.
(2) Neither the evidence of the Plaintiff nor the evidence of the Defendant directly proved the producing number of patented drive system. However, there is no substantial difference between the number proposed by the Plaintiff (279,104 / 332,892) and the number proposed by the Defendant (265,159). If a complete audit is carried out on the statistic of designated period, there would be high auditing cost incurred.
(3) Besides the infringing solution, the Defendant did not provide other non-circular solution to Chery as alternative solution.
(4) The data was extracted by the Defendant from its system under the witness of notary public and therefore it should be deemed as true and reliable evidence.
(5) The plaintiff generally agreed with the number of non-circular components provided by the Defendant.

2. Unit Profit
Unit profit as a result of infringement can be calculated as
Unit profit = unit price X profit rate

Unit profit was a key debating issue in the proceedings. The subject matter of the patent is the drive system. The Plaintiff argued that the timing drive system as the subject matter of the patent should be the basis of unit profit calculation. However, the Defendant believed that the non-circular components as the point of invention should be the basis of unit profit calculation.

The Court decided that the drive system instead of the non-circular component should be the basis of unit profit calculation because of the following reason:

Although the point of invention is focus on the non-circular component, solving the technical problem requires operation of the whole system instead of a single component. What’s more, there is no other evidence showing value contribution of other IP right. Last but not the least, the Defendant started an invalidity action in Germany challenging the correspondent German patent of the Plaintiff in absence of infringement action in Germany. It can be seen that the invention is a very valuable asset in the market.

Therefore, the drive system as a whole should be served as the basis of the profit calculation.

2A. Unit Price

The Plaintiff provided the evidence of a product page in the online marketplace “Taobao.com”. It was indicated that the price for “Gates Timing Belt Repair Kit: belt + wheel+idler +ideler for Chery A51.6L/1.8L/2.0LChery A31.6L/1.8L/2.0L Timing Belt Repair Kit, Repair Timing Belt 77173*25.4 + Timing Tension Pulley GTS1025+ Idler GTS5004+Idler GTS5005"” as CNY 490. What’s more, during the court hearing, the Plaintiff demonstrated a shop in another online marketplace “JD.com” with the product price of CNY 498.

The Court agreed with the claim of the Plaintiff and decide that the unit price should be CNY 490.

2B. Profit Rate
The plaintiff provided a third-party research report entitled “AlixPartners 2010 China Automotive Research Report” as the basis of profit rate calculation. It was indicated in the report that the average profit rate of automotive part in China is 10%.

The Court disagreed with the Plaintiff and decided that the profit rate should be 7% based on the following reasons:
1. The report was produced by a well-known international consulting company and the statistic should be true and reliable
2. 10% as proposed by the Plaintiff was the statistic of the fourth quarter of 2009. First three quarter of the same year (1%, 8% and 9%) should also be considered. Therefore, the average profit rate should be calculated as follows,

（1% [1st quarter]+8%[2nd quarter]+9%[3rd quarter]+10%[4th quarter]）÷ 4= 7%

In view of the figure above, damages based on the profit of the infringer should be CNY 9,094,953.7 (around USD 1.3 million) calculated as follows, 265,159 (synchronous drive systems) × 490 (CNY) × 7% = 9,094,953.7

II. Cost of enforcement
The Plaintiff claimed that the cost of enforcement should include the attorney fee, the cost of purchasing infringing product and the cost of notarization.

1. Attorney fee
The Plaintiff believed attorney fee of CNY 1.5 million (around USD 215,000) should be recovered. The court held the attorney fee was reasonable and completely supported the claim for the following reasons.
The case was a highly complicated case involving large amount of attorney time. More than 27 rounds of litigation activities such as cross examination, court meeting and hearing occurred in the proceedings and there were 479 pages of written record. Thousands of pages of evidence document, legal opinions and cross examination opinions had been submitted.

2. Other cost

A cost of CNY 49,080 (around USD 7,062) for purchasing of the infringing product and notarization was completely supported by the court.

III. Total damages
The court awarded total damages of CNY 10.64 million (around USD 1.53 million) including the basic damages and enforcement cost.

Basis of damages Calculation

When determining infringement damages, one key issue is calculating unit profit. Total damages as a result of the unit profit of a small component can be very different from that of the unit profit of a whole system. Certain factors should be taken into consideration when determining the unit profit.

1. Generally speaking, the infringing product / part corresponding to the subject matter claimed in the invention should be the basis of unit profit calculation.
2. If the improvement only lies in certain features of the product / part and the features alone can solve the technical problem of the invention, the claimed subject matter may be determined as overly broad and the basis of profit calculation may be adjusted to smaller scope taking into consideration of the technical contribution. Otherwise, the infringing product / part corresponding to the subject matter claimed in the invention should be the basis of the unit profit calculation.
3. If the value of the infringing product is also originated from the contribution of other rights such as trade secret or trademark, the profit from the said rights should be considered. Otherwise, all the calculated profit should be deemed as profit due to the infringement.


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