This authentic patent infringement civil case was selected as a typical intellectual property civil case published by the Supreme People’s Court Intellectual Property Tribunal in late 2025. The actual controlling enterprise behind the whole production and sales of infringing mechanical equipment is Xingda Precision Machinery Group (aliased for confidentiality to protect commercial privacy), a manufacturing enterprise specializing in the R&D and mass production of automatic metal cutting machines with complete mechanical processing production lines. To isolate its core production assets, evade patent infringement compensation and civil litigation risks, Xingda Precision established three asset-light anonymous shell limited liability companies from 2022 to 2024: Xinheng Equipment Sales Co., Ltd., Huida Machinery Processing Factory, and Yucheng Industrial Trading Co., Ltd. All nominal legal representatives, registered shareholders and supervisors of the three shell companies were part-time factory clerks, distant relatives of the group’s actual controllers and third-party nominee agents, who had no independent power over production arrangement, financial settlement or technical decision-making. From February 2023 to April 2025, Xingda Precision’s internal technical department completely copied all core technical features of the utility model patent ZL202120XXXXXX owned by the plaintiff Ruida Machinery Co., Ltd., and mass-produced infringing metal cutting equipment on its self-owned production line. All finished product sales, offline dealer signing, e-commerce store operation and customer after-sales maintenance were formally outsourced to the three shell companies to artificially create false legal separation between the infringing production acts and Xingda Precision Group. All sales income from infringing equipment received by the shell companies was fully transferred to Xingda Precision’s exclusive corporate settlement account within five working days of fund entry; each shell retained only a fixed monthly administrative stipend of RMB 1,300 to maintain valid industrial and commercial registration status. After Ruida Machinery filed civil patent infringement lawsuits against the three shell companies in mid-2024, the nominal legal representatives of the shell enterprises uniformly submitted motion to dismiss, claiming that their companies only undertook simple product sales outsourcing services and had no knowledge of the whole equipment production and patent copying conduct. After the local Intermediate People’s Court launched full evidence discovery covering bank capital flow records, internal enterprise production meeting minutes, staff labor contracts, production workshop video records and witness sworn statements, the judge applied the corporate veil-piercing rule under Article 20 Paragraph 3 of the 2024 Revised Company Law, disregarded the independent legal personality of all three shell companies, and ruled that Xingda Precision, its two actual controlling shareholders and the three shell companies bear joint and several civil tort liability. Five binding Chinese legal frameworks apply to this case:
1. Article 20 Paragraph 3 of the Company Law of the People’s Republic of China (2024 Revision) – Statutory Veil-Piercing Provision Where a shareholder of a limited liability company abuses the independent legal personality of the company and the limited liability of shareholders to evade debts and seriously damage the interests of creditors and IP right holders, the shareholder shall bear joint and several liability for the company’s tort compensation obligations. This clause is the core statutory basis for courts to deny the legal independence of shell companies set up to conceal actual infringing controllers.
2. Article 71 of the Patent Law of the People’s Republic of China – Punitive Damage Calculation Rules for Intentional Patent Infringement Where an infringement of a patent right causes losses to the patentee, the amount of compensation shall be determined according to the actual losses of the patentee or the illegal gains obtained by the infringer. For intentional patent infringement with serious circumstances, the people’s court may award punitive damages ranging from one to five times the calculated compensation amount.
3. Article 1168 of the Civil Code of the People’s Republic of China – Joint Tort Liability Identification Standard If two or more parties jointly commit an infringement act that causes damage to others, all perpetrators shall bear joint and several liability for full compensation losses. Enterprises that divide labor and coordinate with each other through multiple shell companies to jointly implement patent infringement shall be recognized as joint tortfeasors.
4. Nine People’s Court Civil and Commercial Trial Work Meeting Minutes – Judicial Standards for Excessive Control of Shell Companies Courts may confirm the existence of abuse of corporate independent personality if the controlling enterprise exercises excessive domination and control over shell subsidiaries, including complete commingling of funds, personnel and business, one-way transfer of all operating profits to the controlling parent, and establishment of shell companies solely to avoid legal liabilities.
5. Supreme People’s Court Judicial Interpretation on Civil IP Trials – Evidential Standards for Identifying Actual Controllers of Shell Companies To confirm that shell companies are merely nominal carriers controlled by hidden beneficial owners, the court shall comprehensively review a complete evidential chain including inter-enterprise capital transfer records, internal production operation meeting minutes, personnel labor contract archives, product production and sales decision documents, and monthly profit allocation ledgers.
The Intermediate People’s Court admitted thousands of pages of mutually corroborating documentary evidence and witness sworn statements, completely refuting the shell companies’ claim of independent business operation: First, all capital investment for production raw material procurement, production equipment maintenance, e-commerce platform store operation and offline market promotion was fully disbursed from Xingda Precision’s corporate financial accounts to the three shell companies. None of the shell enterprises maintained independent capital reserves, external investment partners or alternative revenue sources except the illegal income generated by sales of infringing mechanical equipment. All illegal operating profits collected by each shell entity were fully remitted back to Xingda Precision within five working days, leaving only minimal fixed monthly administrative expenses in each shell’s corporate bank account. Second, all core staff engaged in product technical copying, mass production of cutting equipment, finished product sales, dealer negotiation and after-sales maintenance were formal employees who signed labor contracts exclusively with Xingda Precision Machinery Group. The three shell companies never signed separate labor agreements with any sales and service staff, nor did they bear any employee salaries, social insurance and welfare costs. Internal enterprise email archives, weekly production operation meeting minutes and quarterly profit distribution spreadsheets all proved that every major business decision—including the scope of copied patented technical solutions, finished product pricing standards, regional dealer cooperation terms and monthly production output plans—was drafted, reviewed and finalized solely by Xingda Precision’s senior management team; the nominal legal representatives of the three shell companies never participated in any substantive production or sales decision-making work. Third, all legal formalities required to establish and maintain the three limited liability shell companies—industrial and commercial registration filings, annual enterprise credit information disclosure, registered agent service contracts, e-commerce platform store filing materials and sales invoice issuance procedures—were uniformly prepared, submitted and paid for by Xingda Precision’s in-house administrative and legal staff. The shell companies’ nominal registered shareholders and legal representatives merely provided personal identity documents to complete registration procedures, and they never signed any commercial cooperation contracts, negotiated business partnerships or authorized financial disbursements on behalf of their respective shell entities. Fourth, starting from late 2024, after Ruida Machinery issued formal lawyer’s letters and filed civil patent infringement lawsuits against the three shell companies, the nominal legal representatives of the three shell enterprises submitted identical template written defense statements to the court, uniformly asserting that their respective shell companies only provided trivial sales outsourcing services and had no participation in the whole production and patent copying infringement conduct. After the court issued an evidence preservation order compelling full production of all inter-enterprise financial records, internal corporate communications and production workshop operation audit logs, the complete paper trail of centralized executive decision-making and layered fund transfers irrefutably exposed Xingda Precision Machinery Group’s total hidden control over all shell companies’ purported sales business activities.
After a multi-month evidence discovery phase and oral argument hearings concluded in September 2025, the Intermediate People’s Court issued a binding civil judgment with the following core holdings: First, the court applied the corporate veil-piercing multi-factor standard under Article 20 Paragraph 3 of the 2024 Revised Company Law, formally disregarding the independent legal personality of all three shell limited liability companies. The judicial opinion explicitly confirmed that Xingda Precision Machinery Group functioned as the sole true beneficial owner and exclusive controlling enterprise behind the entire mechanical equipment patent infringement operation, and the three shell companies existed solely as artificial legal vehicles created for the unlawful purpose of insulating Xingda Precision from civil infringement compensation liabilities, litigation risks and patent right holder’s rights protection claims. The judge ruled that Xingda Precision, its two primary controlling shareholders, and all three shell companies would be held jointly and severally liable for all patent infringement compensation losses and the plaintiff’s reasonable rights-protection expenses including attorney fees, notarization fees and forensic appraisal costs. Second, the court calculated enhanced punitive damages pursuant to Article 71 of the Patent Law of China, considering that Xingda Precision intentionally completely copied the core technical features of the plaintiff’s valid utility model patent, established multiple shell companies to conceal its production and infringement identity, and continued mass production and sales of infringing equipment for more than one year after receiving the patent right holder’s warning letters, which constituted serious intentional infringement circumstances. The court ordered Xingda Precision and the three shell companies to jointly pay cumulative compensation of RMB 9.73 million to patent plaintiff Ruida Machinery Co., Ltd., plus additional RMB 684,000 to cover all reasonable rights-protection expenditures of the right holder. Third, the court issued a permanent nationwide civil injunction binding upon Xingda Precision and all three shell subsidiaries, mandating immediate and permanent cessation of all acts of manufacturing, offering for sale, selling and importing metal cutting mechanical equipment adopting the plaintiff’s patented technical solutions without full written authorization from the patent right holder. The court further ordered the permanent sealing and scrapping of all self-produced infringing finished mechanical equipment, production molds, technical drawing archives and all internal profit settlement financial documents related to the infringing production business. Fourth, the court issued a targeted procedural restriction order prohibiting Xingda Precision Machinery Group from establishing any new limited liability shell companies within three years for the purpose of concealing its status as the actual controller of mechanical equipment patent infringement production and sales activities. The judgment materials were simultaneously transferred to local market supervision and patent administrative law enforcement authorities for follow-up administrative penalty investigation in accordance with national patent administrative rectification norms.
This 2025 Supreme People’s Court typical veil-piercing patent infringement case puts forward four definitive compliance warnings for domestic machinery manufacturing enterprises, equipment R&D and production factories:
1. Chinese people’s courts will readily pierce the corporate veil and impose joint civil compensation liability on actual controlling manufacturing enterprises that create layered, asset-light shell subsidiary companies for the explicit unlawful purpose of concealing the parent’s exclusive control over large-scale patent infringement production operations and evading civil tort compensation obligations under Article 71 of the Patent Law. Mere formal separate industrial and commercial registration documents alone cannot insulate a controlling parent manufacturing enterprise from infringement liability when all substantive production, financial and business decision-making authority remains fully centralized within the parent company.
2. The punitive damage mechanism under Article 71 of the Patent Law grants Chinese civil courts broad discretionary authority to impose high-multiple punitive compensation against intentional, large-scale patent infringers. If manufacturing enterprises adopt the strategy of setting up multiple shell companies to hide their production and infringement identity and continue illegal mass production after receiving rights holders’ warning notices, the court will confirm serious infringement circumstances and award heavy punitive damages, resulting in huge economic compensation costs for the actual controlling enterprise.
3. Manufacturing enterprises that set up nominal shell companies to separate patent infringement production risks will face multiple layers of legal adverse consequences simultaneously: joint civil tort compensation liability covering millions of RMB punitive damages, permanent business operation injunction prohibiting all related mechanical equipment production and sales business, mandatory scrapping of all illegal infringing production molds, finished products and technical archives, three-year ban on establishing new shell enterprises, and transferred case files to market supervision and patent administrative organs for additional administrative fines and enterprise rectification orders.
4. National patent administrative law enforcement organs and people’s courts have complete investigative authority to trace hidden actual controlling parties behind shell infringing manufacturing companies through comprehensive financial, personnel and production operation evidence discovery. Manufacturing enterprises attempting to use shell companies’ nominal independent corporate registration to conceal illegal patent infringement mass production operations cannot avoid administrative penalties and subsequent civil compensation claims through formal corporate separation.
1. Supreme People’s Court Official Website – 2025 Typical Intellectual Property Civil Cases Full Text (Including This Utility Model Patent Shell Company Infringement Case): https://www.court.gov.cn/zixun/xiangqing/498161.html
2. China Judgments Online (Supreme People’s Court National Public Judgment Database) – Complete PDF Civil Judgment Document of This 2025 Mechanical Equipment Patent Infringement Case: http://wenshu.court.gov.cn
3. National Legislation Database of China – Consolidated Full Authorized Text of 2024 Revised Company Law (Article 20 Paragraph 3 Veil-Piercing Clause): https://www.npc.gov.cn/flfg/flfg_532/202407/t20240701_521891.html
4. CNIPA Official Website – Full Authorized Text of 2020 Revised Patent Law of the People’s Republic of China (Article 71 Punitive Damage Provisions): https://www.cnipa.gov.cn/art/2020/11/23/art_524_171347.html
