This case derives from a real civil judgment issued by Guangzhou Intellectual Property Court. All corporate names are anonymized. The plaintiff, Peak Mechanical Technology, holds a valid Chinese utility‑model patent for an improved automated material‑cutting apparatus, widely used in domestic hardware‑processing workshops. The defendants include Alpha Manufacturing Co., Ltd. and its wholly‑owned subsidiary Beta Trading Limited. Alpha Manufacturing engaged in product design, mould development and actual mass production, while Beta Trading was set up as a nominal sales‑oriented shell entity. This litigation focuses on joint tort liability for patent infringement under Chinese Patent Law, evidentiary criteria for piercing corporate veil, and the legal consequence of using controlled shell companies to isolate infringement risks.
Peak Mechanical Technology completed structural innovation for automatic material‑cutting equipment and obtained an authorized utility‑model patent from the China National Intellectual Property Administration (CNIPA). The patent evaluation report confirmed the stability of the patent’s creative and practical features. The plaintiff invested in mould‑making and market promotion, and signed supply contracts with multiple downstream processing factories. Peak Mechanical Technology never granted any manufacturing or sales licence to Alpha Manufacturing or Beta Trading.
Alpha Manufacturing intended to copy the patented cutting‑equipment structure. To avoid direct litigation risk and asset freezing, it incorporated Beta Trading as a wholly‑owned subsidiary. Formally, Beta Trading was registered as the seller on e‑commerce platforms, issued sales invoices and received customer payments. In substance, Alpha Manufacturing independently completed mould production, product assembly, technical debugging and after‑sales service. Beta Trading maintained almost no production equipment, technical staff or independent decision‑making power. Most sales revenue collected by Beta Trading was transferred back to Alpha Manufacturing through related‑party fund settlement. Beta Trading only kept a small handling fee for each transaction.
Without the patent holder’s permission, Alpha Manufacturing produced a large quantity of cutting devices adopting nearly all technical features of the utility‑model patent. Beta Trading listed and sold these infringing products on multiple B2B industrial trading platforms. Peak Mechanical Technology purchased sample products, completed notarized purchase procedures, and preserved webpage publications, online transaction records and bank capital flow evidence. After cease‑and‑desist letters achieved no settlement, Peak Mechanical Technology filed a patent‑infringement civil action before Guangzhou Intellectual Property Court. The plaintiff requested the court to confirm patent infringement, order cessation of manufacture, sale and offer‑for‑sale of infringing products, award economic compensation plus reasonable litigation expenses, and impose joint‑and‑several liability upon both Alpha Manufacturing and Beta Trading.
During litigation, Beta Trading argued that it merely performed sales activities and all manufacturing acts were undertaken by Alpha Manufacturing. Beta Trading claimed that each legal person should bear civil liability independently according to corporate registration documents, and its parent company should not be responsible for its subsidiary’s sales‑related tort. The defendant also raised the prior‑art defence, asserting that the equipment technical solution belonged to common general knowledge within the mechanical‑processing industry.
The intellectual‑property court conducted technical comparison between patent claims and seized infringing samples. The court confirmed that the accused product reproduced every essential technical feature of the utility‑model patent, and the prior‑art defence lacked factual support. Further examination of corporate files, internal chat records, bank transfer records and witness statements revealed substantial control relationships. The court held three key conclusions. First, manufacturing and sales together constitute complete patent‑infringement conduct under Article 11 of the Chinese Patent Law. Second, although Beta Trading formally executed sales, the whole infringement plan, product production and profit distribution were controlled by Alpha Manufacturing; the shell subsidiary was only a nominal tool for external transactions. Third, under Article 83 of the Civil Code of the People’s Republic of China, where a parent company abuses the independent corporate personality of its wholly‑owned shell subsidiary to implement patent infringement and evade tort liability, both entities shall bear joint‑and‑several compensation liability. Formal separation of corporate registration cannot exempt the actual controlling entity from tort obligations.
The first‑instance judgment ordered Alpha Manufacturing and Beta Trading to immediately stop manufacturing, selling and offering for sale infringing cutting‑equipment products. Two defendants were jointly ordered to compensate the plaintiff for economic losses and reasonable legal costs. Neither party filed an appeal, and the judgment took legal effect.
This case delivers practical lessons for enterprises operating in China. Enterprises cannot evade patent‑infringement compensation risks by separating production and sales through controlled shell subsidiaries. Chinese intellectual‑property courts focus on substantive control and actual conduct rather than only corporate registration appearances. For patent owners, collecting multi‑dimensional evidence including product samples, platform web‑pages, transaction invoices and related‑party capital flows becomes critical when facing shell‑company‑related infringement disputes. Obtaining an official patent evaluation report in advance helps consolidate evidentiary foundation during litigation.
1. https://wenshu.court.gov.cn/
2. https://www.cnipa.gov.cn/en/
3. https://ipc.court.gov.cn/en‑web/index/index
