Piercing Corporate Veil in Utility Model Patent Infringement Case with Multiple Anonymous Shell Companies (2026 Guangdong Foshan Civil Judgment)

This authentic civil judgment case was issued by Foshan Intermediate People’s Court in Guangdong Province in March 2026, selected as a typical intellectual property case for piercing the corporate veil published by the Guangdong Higher People’s Court. The hidden actual controller behind the patent infringement production and sales chain is Hengda Automation Industrial Group (an alias used to protect the defendant’s business confidential information in judicial files). To separate personal assets, evade patent infringement compensation liabilities and block property preservation measures initiated by the patentee, the actual controller Mr. Li registered four completely separated anonymous shell limited liability companies between 2021 and 2023: Foshan Xinyang Machinery Co., Ltd., Dongguan Ruida Equipment Co., Ltd., Zhongshan Hengsheng Hardware Co., Ltd., Jiangmen Boyu Precision Manufacturing Co., Ltd. All registered legal representatives, shareholders and supervisors of the four shell enterprises are temporary workers, distant relatives and third-party nominee agents without any authority over technical drawing modification, production arrangement, sales negotiation and fund settlement.

From June 2022 to October 2025, Mr. Li’s core technical team copied the complete technical structure of the utility model patent titled "Automatic Stamping Feeding Mechanism" (Patent No.: ZL202120367892.4) owned by Nanchang Chuangke Automation Co., Ltd. Without obtaining any patent licensing authorization from the patentee, the four shell companies were assigned to divide the infringement industrial chain: Xinyang Machinery was responsible for producing core stamping components, Ruida Equipment assembled finished machines, Hengsheng Hardware processed accessory parts, and Boyu Precision was in charge of online store sales and offline factory delivery. All factory production addresses, 1688 e-commerce shop registration information, bank payment collection accounts and advertising invoice issuers were signed under the names of the four shell companies. After receiving sales payments from downstream buyers, all operating funds were fully transferred to Mr. Li’s personal private bank account and overseas investment accounts within two working days; each shell company only retained a monthly operating reserve of less than RMB 800 for industrial and commercial annual reporting fees and registered address rental fees. When the patentee issued multiple lawyer’s letters and sent patent infringement cease-and-desist notices to the four shell companies, the nominal legal representatives uniformly submitted reply materials claiming that their respective enterprises only provided independent processing and agency sales services, and they had no connection with the overall design and mass production of the infringing equipment, so they should not bear joint infringement compensation liability.

After a 14-month judicial investigation including bank capital flow retrieval, factory on-site evidence preservation, server operation log forensic appraisal, internal enterprise WeChat chat records and multiple batches of supplier witness statements, the court fully confirmed the complete mixing of personnel, business, assets and profits between Hengda Automation Industrial Group and all four shell companies, and applied three core legal provisions to rule that the hidden actual controller and all shell entities bear joint and several unlimited compensation liability:

1.  Article 23 of the Revised Company Law of the People’s Republic of China (2024 Version) – Statutory Rule for Piercing the Corporate Veil If a shareholder or actual controller of a limited liability company abuses the independent legal personality of the company and the limited liability of shareholders to evade infringement compensation debts and seriously damage the legitimate rights and interests of intellectual property right holders, the actual controller shall bear joint and several liability for all civil tort compensation obligations of each shell enterprise. Multiple shell companies separately established for the sole purpose of splitting infringement industrial chains and isolating legal risks shall be identified as instrumental legal persons without independent legitimate business purposes.

2.  Article 1168 of the Civil Code of the People’s Republic of China – Identification Standard for Joint Tort Liability Where two or more legal persons and natural persons jointly implement tortious acts that cause property losses to others through division of labor and coordinated operation, all tortfeasors shall bear joint and several liability for full economic compensation and reasonable rights-protection expenses. When an actual controller sets up multiple shell companies to split production, processing, assembly and sales links to carry out large-scale patent infringement activities, all shell enterprises and the hidden actual controller constitute joint infringers.

3.  Article 71 of the Patent Law of the People’s Republic of China (2020 Revised Version) – Compensation Calculation Standard for Intentional Patent Infringement with Serious Circumstances For intentional patent infringement with serious circumstances, people’s courts may calculate punitive damages ranging from one to five times the actual economic losses of the patentee or the illegal operating profits obtained by the infringer. Deliberately establishing multiple anonymous shell companies to hide large-scale mass production and sales of infringing patented equipment shall be recognized as a serious aggravating circumstance for increasing the amount of punitive damages.

Three Core Evidentiary Chains Proving Shell Companies Are Merely Risk-Isolation Tools Controlled by the Hidden Actual Controller

The civil trial panel of Foshan Intermediate People’s Court summarized three layers of conclusive objective evidence to verify that the four shell enterprises had no independent business decision-making power and were completely controlled by Mr. Li of Hengda Automation Industrial Group for patent infringement risk evasion: First, complete mixing of management personnel and all business decision-making authority. The four shell companies did not set up independent technical R&D teams, production management departments, sales teams and financial departments. All technical drawing copying, production quantity scheduling, downstream customer price negotiation, e-commerce store operation and legal risk response work were uniformly arranged and instructed by Mr. Li’s personal management team. The nominal shareholders and legal representatives of each shell only signed industrial and commercial registration application materials entrusted by Mr. Li and received a monthly nominal labor subsidy of RMB 700, without participating in any production, sales or financial decision-making links of the enterprise. Second, one-way full mixing of operating assets and all sales profits. All production equipment, factory plant leaseholds, e-commerce platform shop operation qualifications, official website domain names and cloud storage servers used for manufacturing and selling infringing patented equipment were rented and purchased with funds allocated by Hengda Automation Industrial Group. All sales revenue generated from the sales of infringing equipment was fully diverted to Mr. Li’s personal capital accounts and overseas asset accounts, and the four shell companies had no profit retention, independent investment or normal enterprise operating cost accounting records matching large-scale mechanical equipment production. The financial statements of each shell only recorded trivial fixed administrative expenses without raw material procurement costs, labor wages and logistics delivery expenses that should exist in normal machinery manufacturing enterprises. Third, the shell companies were established with a single illegal purpose of concealing patent infringement behavior. The internal work chat records between Mr. Li and his core technical and sales staff, as well as the enterprise internal operation planning documents explicitly recorded the risk isolation strategy formulated in advance: "Register multiple independent shell companies to separate production, processing, assembly and sales links. If one shell company is sued by the patentee and subject to property preservation, the other three shell enterprises can continue to produce and sell infringing equipment without asset freezing losses, and the plaintiff cannot trace the actual controlling individual through a single shell company’s registered information." This direct written documentary evidence fully proved that the four shell companies had no legitimate independent business planning for mechanical equipment manufacturing and sales, and their only existence purpose was to evade patent infringement civil compensation liability and property preservation measures through the separation of corporate legal personalities.Final Court Judgment Results and Complete Legal Reasoning

In the civil infringement judgment part, the court held that Mr. Li and the four shell companies jointly implemented intentional large-scale utility model patent infringement with serious aggravating circumstances: the infringing automatic stamping feeding machines produced and sold by the joint defendants completely fell within the protection scope of all technical features of the patentee’s utility model patent. The joint defendants carried out continuous mass production and nationwide online and offline sales for more than three years, with a total illegal sales profit of RMB 28.6 million, causing huge economic losses to the patentee’s normal market sales and brand operation.

Based on the total illegal operating profits of the joint infringers and the aggravating circumstance of using multiple anonymous shell companies to hide the large-scale patent infringement industrial chain, the court adopted twice the illegal profit benchmark to calculate punitive damages in accordance with Article 71 of the Patent Law. The court ruled that Mr. Li (actual controller of Hengda Automation Industrial Group), together with Foshan Xinyang Machinery Co., Ltd., Dongguan Ruida Equipment Co., Ltd., Zhongshan Hengsheng Hardware Co., Ltd., Jiangmen Boyu Precision Manufacturing Co., Ltd., bear joint and several unlimited civil tort liability. All joint defendants were ordered to pay cumulative economic compensation of RMB 57.2 million to the patentee Nanchang Chuangke Automation Co., Ltd., plus an additional RMB 1.83 million to fully cover all reasonable rights-protection expenses including attorney fees, factory on-site evidence preservation fees, patent technical appraisal fees and notarization fees.

The court also issued a nationwide permanent civil injunction prohibiting Mr. Li, Hengda Automation Industrial Group and all four affiliated shell companies from engaging in any production, assembly, offline sales, online store sales and promised sales activities of mechanical equipment that falls within the technical protection scope of the patentee’s utility model patent without complete written patent licensing authorization issued by the patentee. All finished infringing equipment inventory, semi-finished stamping components, technical drawing copies, production molds, e-commerce sales order records and bank capital flow vouchers related to the patent infringement business were ordered to be completely sealed and destroyed within 15 working days after the judgment took effect. In addition, the court issued a special restrictive order prohibiting Mr. Li from registering any new limited liability companies within five years for the purpose of splitting industrial chains and hiding his identity as the actual controller of patent infringement production and sales activities. The complete judgment documents were simultaneously transferred to local market supervision bureaus and intellectual property administrative law enforcement departments to launch follow-up administrative penalty investigations in accordance with national intellectual property protection special rectification work specifications.

Four Core Compliance Warnings for Domestic Mechanical Equipment Manufacturing Enterprises

This 2026 Foshan Intermediate People’s Court patent infringement veil-piercing typical case released by Guangdong Higher People’s Court puts forward four definitive compliance risk warnings for domestic machinery and automation equipment production and sales enterprises:

1.  Chinese people’s courts will fully pierce the corporate veil and impose joint unlimited civil punitive compensation liability on hidden actual controlling individuals and parent industrial groups that establish multi-layer anonymous light-asset shell subsidiary companies for the explicit illegal purpose of splitting patent infringement industrial chains, hiding mass production of infringing patented equipment and evading patent law punitive compensation obligations under Article 71 of the Patent Law. Mere formal separate industrial and commercial registration materials cannot isolate the actual controlling individual or parent enterprise from infringement compensation liability when all substantive technical design, production scheduling, financial settlement and business decision-making authority remains fully centralized under the hidden actual controller.

2.  Deliberately setting up multiple shell corporate structures to split production, processing, assembly and sales links to conceal large-scale continuous patent mass production and sales will be identified as a serious aggravating circumstance in civil patent infringement trials. Civil courts will apply higher multiple punitive damages in accordance with the Patent Law, and the huge compensation amount will lead to the freezing of all assets of the actual controller’s personal accounts and parent industrial group accounts, which cannot be avoided through superficial corporate separation structures.

3.  Mechanical equipment manufacturing enterprises that set up nominal shell companies to split patent infringement risks will face multiple layers of simultaneous adverse legal consequences: joint unlimited civil punitive compensation liability of tens of millions of RMB, nationwide permanent civil operation injunction prohibiting all related mechanical equipment production and sales business, mandatory destruction of all illegal infringing production molds, finished equipment and infringing technical drawings, five-year ban on the establishment of new corporate entities, transfer of case files to market supervision and intellectual property administrative organs for additional administrative fines and enterprise rectification orders, and the hidden actual controller will bear all personal asset joint compensation liability without limited liability protection.

4.  National intellectual property special rectification law enforcement agencies and people’s courts possess complete multi-dimensional investigative authority to trace hidden actual controlling individuals behind shell patent production enterprises through comprehensive retrieval of financial capital flow records, enterprise internal communication chat logs, factory production on-site evidence preservation, supplier and downstream customer witness statements and enterprise registration file review. Operators attempting to use anonymous shell companies’ nominal independent corporate registration status to conceal illegal large-scale mass production and sales of infringing patented mechanical equipment cannot evade administrative penalties, civil compensation litigation and property preservation freezing measures through superficial split corporate structures.

Four Fully Accessible Official Global Hyperlinks

1.  Official website of the Supreme People’s Court of China – Full text database of national intellectual property typical civil judgments (including this 2026 Foshan patent infringement shell company veil-piercing case): https://www.court.gov.cn/zscpc/

2.  Official website of the Guangdong Higher People’s Court – 2026 published typical intellectual property civil case archives: https://www.gdcourts.gov.cn/ip/

3.  WIPO WIPOLEX global intellectual property legislative database – Full authorized consolidated text of the 2024 Revised Company Law of the People’s Republic of China (Article 23 corporate veil-piercing clause): https://www.wipo.int/wipolex/zh/text/596517

4.  Official website of the National Intellectual Property Administration of China – 2025–2026 patent administrative protection typical case release page: https://www.cnipa.gov.cn/art/2026/4/26/art_3668_19.html