Battery maker wins lawsuit on IPR

A recent US court's decision to shoot down the patent infringement claims of a US battery maker has ended a lengthy case against Chinese battery manufacturers and marks the first victory of Chinese enterprises in similar trade disputes.

"It lasted five years and cost millions of dollars," the China Battery Industry Association said in a press release. "But the victory marks a perfect ending."

Experts said the win would put Chinese battery enterprises in a better position to tap overseas markets, the US in particular, which have seen an annual two-fold increase in recent years. According to Wang Jingzhong, spokesman for the association, China batteries cost only half that of their US-made counterparts, so the Chinese battery makers are in a very competitive position in the US market.

Five years ago, citing Section 337 of the US 1930 Tariff Act, Energizer filed a complaint with the Washington-based US International Trade Commission (ITC), a quasi-judicial agency whose role is to determine import injury to American industries.

In its complaint, Energizer asked the ITC to issue a cease-and-desist order and bar 28 foreign companies from exporting and selling household-size mercury-free alkaline batteries in the United States. Energizer claimed that batteries from China and several other countries had infringed on its mercury-free alkaline battery patent.

Of the 28 companies cited by Energizer, seven are from the Chinese mainland, including Fujian Nanping Nanfu Battery Co Ltd, Zhongyin (Ningbo) Battery Co Ltd, Guangzhou Tiger Head Battery Group Co Ltd, and Sichuan Changhong Electric Co Ltd.

Under Section 337, imported goods can't be sold in the United States if they have been determined to be violating American patent rights. This provision has affected many companies in developing countries that hope to export products to the United States.

The lawsuit caught the seven Chinese companies by surprise. Wang Jianhao, general manager of Zhongyin, dismissed Energizer's claim. "We had the technology to produce mercury-free alkaline batteries back in 1993," he was quoted by the Xinhua News Agency as saying.

"The Hong Kong-based Jinshan Group, which owns my company, was able to produce alkaline batteries three years before Energizer had begun to apply for patents," Wang said.

The mercury-free compound for the batteries is like wheels for a car, and everyone knows that a car needs four wheels, says Wang.

"We saw this technology as common knowledge, rather than an invention belonging to a single company," says Wang from the association. "In comparison with other trade measures such as anti-dumping, a Section 337 investigation could have more severe consequences since similar batteries made by all Chinese companies would never be allowed to enter the US market," he said.

Chinese battery makers thus worked together to fight the suit. According to experts from the association, fees for Section 337 investigations are very high and therefore companies stand to gain when they share the legal costs.

According to Hogan & Hartson, the law firm that helped Chinese enterprises with the case, the patent claims were unfounded.

The US Court of Federal Appeals for the Federal Circuit in late April affirmed a previous ruling by ITC that Energizer's claim was not valid. It is the final decision on the case since it was the second time Energizer appealed.

Energizer had asked the Chinese manufacturers for $1 million for patent fees, plus 2 to 3 cents on each battery sold. "That was unacceptable since we earn only 1 cent on each battery," says Wang from the battery association.

The outcome was greatly encouraging for Chinese battery companies and protects the industry's export interests, the BIA's Wang says.

With Section 337 cases increasing, the legal victory was a good example for other disputes involving Chinese companies, Wang adds.

The Section 337 investigation has been a hot issue in Chinese legal and trade circles because of the severe penalties involved. An adverse ruling means that it isn't just the accused companies whose exports are affected: it also applies to other enterprises in the same sector, even though they might not have engaged in any violations.

The US last year initiated 17 Section 337 investigations against Chinese enterprises. The products included recorders, digital TVs, memory cards and media players.

Ding Liang, a Beijing-based lawyer, attributed the increase of actions involving Chinese companies to the restructuring of Chinese industry and the rapid growth of high-tech Chinese exports to the United States.

Gong Bohua, a law professor at the Shanghai-based Fudan University says that there were signs of Section 337 investigations being abused by American companies in recent years.

"In lawsuits concerning Section 337, the time for investigation is relatively short and the cost to institute the investigation is low but the punishment against companies ruled to be violating patent rights is very severe. So American companies make easy use of it," Gong says.

A recent report released by the Ministry of Commerce said Chinese enterprises are facing increasing trade barriers. Yu Benlin, deputy chief of the ministry's bureau of trade fairs for imports and exports said earlier that enterprises should take the lead in dealing with these suits and protecting their interests.

Legal experts have also urged Chinese companies to raise their awareness of patent rights and to draw up their strategies regarding intellectual property rights.

"Many domestic companies failed in international law suits because they don't pay enough attention to the development, application and protection of patent rights," says Zou Guorong, a lawyer from Hogan & Hartson.