Landmark patent rights compensation payout now in doubt

For Qian Jing, chairman of Hengbao Co Ltd, it was a big surprise to hear that his company might not have to pay 50 million yuan ($7.2 million) to Watchdata Co Ltd for violating its patent rights.

One year after the result of the first trial was announced, attracting much attention, the case, famous for its rare large compensation sum, saw signs of a dramatic reversal recently.

Both companies are developers of USB keys, a technological tool used as electronic authentication devices in financial services.

Defendant Hengbao was charged with violating the rights of Watchdata by using its patent “physic identification method and electronic device” in USB key products sold to banks across China.

In December 2016, the Beijing Intellectual Property Court ordered Hengbao pay 50 million yuan in damages to Watchdata, the highest amount since the court was founded in November 2014.

However, the case saw signs of being overturned when the Patent Reexamination Board of the State Intellectual Property Office announced Watchdata’s patent was invalid, after receiving an application from a third-party participant.

“It may not be necessary for a second trial,” Qian said. “It means the net profit of our company could increase 50 million yuan.”

However, Watchdata said it was still too early for a final result.

“It sounds like they already succeeded,” Watchdata VicePresident Guo Tianguang told China Securities Journal. “But it’s just the beginning.”

Watchdata said it has initiated an administrative lawsuit against the Patent Reexamination Board and is waiting for the final result, which may not be confirmed for two years.

The dispute between the two companies was listed among many other major and typical intellectual property-related cases handled by specialized IP courts in Beijing, Shanghai and Guangzhou since they were founded in late 2014, in a report delivered by Zhou Qiang, head of the Supreme People’s Court, last August.

A day after the original ruling on Dec 9, 2016, the stock market reacted negatively with Hengbao’s share price dropping 7.09 percent, and continuing to decrease 4.58 percent in the next day’s trading.

“At the beginning, Watchdata asked for compensation of 1 million yuan, and we thought it was not a big problem. But it shocked us when we were asked to pay 50 million yuan in the end,” Qian said.

To that, Watchdata’s Guo may have mixed feelings when defending their patent rights.

In 2012, Watchdata sued Hengbao for using their patent antenna used in intelligent cards. In 2015, the defendant was ordered to stop producing and selling products which violated the plaintiff’s rights, and pay 200,000 yuan as compensation.

“It took three years to get compensation from Hengbao, which could not even afford the legal fees,” Guo said.

Zhou, from the supreme court, said in his report that the compensation amount will be increased in accordance to the law. And for repetitive and deliberate violations, the amount of indemnity will be judged according to the market value.

In terms of Watchdata’s case, Beijing Intellectual Property Court said it approved the plaintiff’s request to have the defendant pay litigation costs up to 1 million yuan, for the first time, said Zhou.

Guo said they would protect their rights more actively after the amount of compensation had increased.

“If the market space is 10 billion yuan, we could only earn 5 to 6 billion yuan, with the rest stolen through infringements,” Guo said.

Qian, from Hengbao, said the company would strengthen development of its intellectual property.

“We expect to become a company which has the most patents with highest quality in the USB keys industry within three to five years,” he said in a report in the China Securities Journal.