(By Luo Yanjie) Generally, the manufacture and sale of patented products are easily distinguished. Sale normally refers to infringing sale and purchase of patented products with no engagement in assembly or manufacture. In the case introduced in this essay, however, whether the behavior of the defendant was “manufacture” or “sale” is the key point argued. Now we would like to use the case and relevant law to introduce the difference between design patent “manufacture” and “sale.”
The plaintiff, Zhao Luling, held a design patent for a “flashlight with a motion rechargeable radio” with the patent number ZL200530054790.3. The plaintiff purchased a radio flashlight from the Shenzhen Sheng Di Neng Technology Co., Ltd. (the “defendant”). The flashlight plaintiff purchased was very similar to that designed by the plaintiff, which is protected by law. For this reason, the plaintiff filed a lawsuit with the Shenzhen Intermediate People’s Court accusing the defendant of infringing its design patent right through the manufacture and sales of the infringing flashlight.
The defendant replied that its activities are sales—not manufacturing. The main reason is that it purchased the casing of the accused infringing product from Shenzhen Jian Bai Plastic Modeling Co., Ltd. In order to fully assemble the flashlight, the defendant purchased some parts of the flashlight enclosure directly from the market. Additionally, some inner parts of the flashlight’s inner enclosure were first designed by the defendant and then entrusted to other parties for manufacture. The defendant would then assemble the enclosure and the inner parts of the flashlight and then sell it to clients.
Under Article 22 Paragraph 2 of the Interpretation on Several Issues on the Application of Law in Hearing Patent Dispute Cases (the “Interpretation”):
“To use a product protected by a design patent as a part of manufacturing a new product and then selling it is classified as sales.”
For this reason, the defendant believed that its actions fell within Article 70 of the Patent Law:
“Where any person, for the purpose of production and business operation, uses, offers to sell or sells a patent-infringing product without knowing that such product is produced and sold without permission of the patentee, he shall not be liable for compensation provided that the legitimate source of the product can be proved.”
After the hearing, the Shenzhen Intermediate People’s Court held that the design patent right of the plaintiff shall be protected. On comparison, the design of the accused infringing product was almost the same as the plaintiff’s patented design and fell within the patent’s scope of protection. The defendant purchased the enclosure of the patented product, and then assembled the inner parts together with the enclosure for sale afterwards, and this behavior is should be viewed as manufacture rather than sale. According to the regulations of the Patent Law, manufacture does not consider contradictions in legal origin. Based on these reasons, the defendant is liable for the manufacture and sale of the infringing patented product. Therefore, the court ordered the defendant to immediately cease manufacturing and sales that infringed plaintiff’s patent and pay the plaintiff 80,000 RMB in compensation for economic losses. The defendant was dissatisfied was the first instance decision and appealed.
After hearing the case, the Guangdong Higher People’s Court similarly held that the purchase by the defendant of the enclosure and the subsequent assembly of the inner parts and the enclosure for sale must be defined as manufacture rather than sales. Furthermore, the defendant could not apply Article 2 Paragraph 2 of the Interpretation. On these grounds, the appellate court refused the appeal and sustained the original decision.
Lawyer’s Comments
The key point of the dispute rests on whether the assembly of the product by the defendant is manufacture or sale. As described above, the Patent Law regulates that the sale of the products having legal origins does not incur liability for compensation, but there is no free-liability clause for manufacture. Both the first and second instance courts issued a negative decision, which we analyze as follows:
- The judgment standard for design infringement
Article 59 of the Patent Law provides that:
“For the patent right of an invention or a utility model, the scope of protection shall be confined to what is claimed, and the written description and the pictures attached may be used to explain what is claimed.”
Therefore, for the design patent right, the lawful protection scope includes “specific design and product made thereby.” In other words, once there is any difference in design or kind of product, no infringement can be found. For the case described in this post, although the exterior of the flashlight sold by the defendant was identical to the plaintiff’s design patent, because they are two different products (one is of enclosure, and the other is a flashlight), only selling the enclosure after purchasing it will not constitute any infringement. However, when the defendant assembles the enclosure into the flashlight and then sells it, both the design and the product will be in the protective scope, and infringement can be found.
2. Why the defendant could not apply Article 2 Paragraph 2 of the Interpretation
As regulated in Article 2 Paragraph 2 of the Interpretation:
“To use a product protected by a design patent as a part of manufacturing a new product and then selling it, shall be determined as sale in Article 11 of the Patent Law by the People’s Court. But, this does not include situations where the infringing product is only technically functioning in the manufactured product.”
At first glance, the defendant seems to only have engaged in sales. Based on the aforesaid analysis, however, the defendant could not apply this regulation to its conduct. This is because the defendant did not adopt the infringing products as product parts, but rather used parts of the infringing product as parts of its final product. So, the precondition to apply the clause cannot be met. Not to mention, the defendant also had design pictures in addition to the assembly. Therefore, the first and second instance court decided it actions were manufacture, and that decision fits with the law.
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