Speaking in the wake of the agreement, Chint Group's Nan Cunhui said that the outcome will encourage China's business leaders to take notice of IP Rights, engage with the relevant laws and seek protection.
Schneider entered the Chinese market in 1979 with its Tianjin-based arm, Schneider Electric Low Voltage Company, Ltd. As its name indicates, Schneider's China operation was set up to handle the development and production of small-scale electronic devices an area that placed it in direct competition with Chint Group. In 1993, the firms became locked in a series of IP disputes initially with Schneider alleging infringement against Chint, although the roles soon reversed. This week, the High People's Court of Zhejiang ordered Schneider to pay Chint 157.5 million Yuan (US$23 million) in damages for infringing a circuit breaker's utility patent model.
However, this is less than half of the 334 million Yuan that Chint was awarded at an earlier stage of the case in September 2007, by the lower-ranked Intermediate People's Court of Wenzhou. The size of that sum prompted then-EU Trade Commissioner Peter Mandelson to remark at the 2007 EU-China Summit: 'I regard the Schneider case as a test case of the level playing field in China on intellectual property protection that we want to see.' While Schneider managed to reduce the payout to 157.5 million yuan through further legal action, it was unable to change the lower court's infringement verdict.
The Wenzhou ruling of 2007 came just two months after Chinese company General Protecht Group's successful defence against infringement allegations from US manufacturer Leviton. As this was the first successful patent suit defence mounted by a Chinese firm against a US rival with the ruling delivered by a District Court judge on US soil the case was seen as a politically significant watershed that gave Chinese IP a renewed sense of legitimacy. Together with Protecht's defence, the Schneider case shows how Chinese firms are changing industry views of their ability to hold their own against Western firms in patent suits.
According to law firm Foley & Lardner LLP, under Chinese law, a utility patent is particularly vulnerable to infringement because it is 'not examined on its substance during prosecution, but is registered with a substantive examination deferred until enforcement'. As such it can be 'viewed as providing weaker or less certain protection of intellectual property rights than an invention patent'. In addition to its flurry of legal action against Chint, Schneider had launched three failed attempts between 1994 and 2004 to purchase significant stakes in its rival a tactic that the Chinese firm read as victimisation. This view is reflected in Nan Cunhui's comments to Chinese news agency Xinhua following the Zhejiang Court's decision: 'Suing business rivals for patent infringement is a common resort that some transnational companies use to elbow out competitors and dominate the market.'
The ruling coincides with news from China's State Intellectual Property Office (SIPO) indicating robust domestic patent activity in the pharmaceutical sector. According to SIPO's figures, while foreign filings and grants continue to dominate the field, the actual growth rate for domestic participation between 2002 and 2008 was much stronger. While growth in foreign activity over that period was recorded at 13.8% for filings and 14.4% for grants, domestic filings and grants grew by 29.8% and 42.8% respectively. SIPO has released the figures to demonstrate that domestic companies are quickly adopting best practice in IP registration.