Haiwen IP Memo of July 7， 2016

Patent Indirect Infringement Rules Articulated by the Supreme People's Court through Judicial Interpretation
Patent direct infringement occurs when a person without authorization makes, uses, offers to sell or sells any patented invention for the purpose of production and business operation. However, given the heightened complexity arising from specialization and collaboration, this may well let off the hook the party who deserves to be held liable, with dispersed activities to potentially avoid patent infringement. With the issuance of Judicial Interpretation on Several Issues Concerning the Application of Law on Patent Infringement (II) ("Interpretation II") by Supreme People's Court ("SPC"), it articulates rules as to patent indirect infringement for the first time at the national level.
Article 21 of Interpretation II recognizes two types of patent indirect infringement, which substantially invokes aider and abettor liability and further defines general joint tortfeasors in Article 9 of the PRC Tort Law:
Contributory Infringement: It refers to such acts as "knowing the concerned products as materials, equipment, components, intermediates, etc. to be especially made for the exploitation of a patent, and yet still providing said products to others committing patent infringement, without licensing from relevant patentee and for the purpose of production and business operation."
Inducing Infringement: It refers to such acts as "knowing the concerned products or methods having been patented, and yet still actively inducing others committing patent infringement, without licensing from relevant patentee and for the purpose of production and business operation".
Pursuant to Interpretation II, when analyzing and determining patent indirect infringement, following elements should be considered:
First, state of mind: The infringer knew or should have known the concerned product was especially used as material, equipment, component, intermediates, etc. for an infringement of a patent, or knew or should have known the concerned patent.
Second, indirect infringement act: The infringer aided others in providing such special product or actively induced others to commit direct infringement. It is worth noting that in case of contributory infringement, one crucial question is whether the product assisting infringement is a "staple good" which has many purposes other than aiding in patent infringement.
Third, illegal and non-excusable act: The purpose was for production and business operation without licensing from patentee.
Fourth, existence of direct infringement: Regardless of the form indirect infringement takes, the threshold requirement is to prove direct infringement to establish liability for indirect infringement.
In light of the diffuse and distributed nature of indirect infringement, patent owners are always faced with quandaries over proof of requisite knowledge and direct infringement.
To prove state of mind, the patentee may provide evidence as below: the patentee had previously sent warning letter to inform the indirect infringer of others' direct infringement, or the patentee had entered into contract with the alleged indirect infringer such as patent license or OEM processing related to the concerned product as material, equipment, component, intermediate, etc. especially used for implementing the patent, etc.
To prove existence of direct patent infringement, it will be constructive and effective for patentee to formulate litigation strategy. Specifically, if the patentee has obtained an effective decision from court or administrative authority in favor of himself on a direct infringement, then the patentee may file patent indirect infringement suit solely against the accused indirect infringers. Otherwise, the patentee should sue the indirect infringers and the direct infringer jointly when filing patent indirect infringement litigation.
In China's judicial practice, a decision that raised eyebrows in 2014 was Yin Yongjiang vs. Shanghai Keyan Photoelectricity Co., Ltd. , which was tried by Shanghai High People's Court. The court concluded that there were insufficient allegations to support an inference of direct infringement. For the same reason, it was hard for the patent owner to base inducing infringement solely on bare allegation of specific intent. Consequently, the court denied patent indirect infringement.
Conclusion
In addition to giving a patentee the right to exclude producers, sellers and distributors etc. of final products from directly infringing a patent, Article 21 of Interpretation II allows patentees to pursue actions against those contributing to or inducing direct infringement. It should draw attentions of both patentees and providers of components. On one hand, it seems a good way for patentees to expound the information regarding granted patents or determined patent infringements in warning letters or contracts with providers of components, which can help to prove the indirect infringer's subjective intent. On the other hand, providers of components should take more serious attitude to warning letters or contracts from patentees to avoid the risk of indirect infringement.
Prior to the release of Interpretation II, the judicial practice for determining patent indirect infringement probably differed throughout the country, leading to inconsistency. Undoubtedly, Interpretation II has set forth a unified framework. Nevertheless, some questions remain to be further clarified and elaborated concerning standard of intent, scope of inducement, burden of proof, etc. And in a particular case, any of these questions could be a part of the arguments between the parties.