This binding civil judgment was rendered by the Guangzhou Intellectual Property Court, Case No. (2024) Yue 73 Min Chu No. 4172MMLC Group. The dispute arises from mass manufacturing and nationwide sales of infringing intelligent industrial sorting machinery, with a unique factual pattern distinct from all prior U.S. patent, Chinese copyright, foreign trademark and Chinese utility model patent cases: a large parent industrial manufacturing group created a low-capital anonymous limited liability shell company to carry out all production, OEM processing and offline exhibition sales of infringing patented equipment, deliberately concealing the parent’s full technical design control, full supply chain input and 96% profit collection to insulate the parent from patent litigation damages and industry reputation risks.
The patent plaintiff is HuiSheng Intelligent Equipment Co., Ltd., a domestic Chinese industrial automation enterprise holding valid invention patent registration ZL202110376249.7 for an intelligent multi-channel logistics sorting machine, with complete exclusive manufacturing, sales and licensing rights. The nominal defendant listed in the initial complaint is HongSheng Automation LLC, a newly incorporated Guangdong shell enterprise with registered capital of only RMB 1 million, no independent mechanical R&D laboratory, no self-owned raw material procurement channels, and nominal bank accounts with zero independent production operating capital reserves. Full court-ordered evidence discovery later confirmed HongSheng Automation functioned solely as an alter ego entity fully dominated by the undisclosed parent industrial holding group DaYuan Heavy Industry Group Co., Ltd. DaYuan Heavy Industry designed the entire infringing sorting machine core technical scheme, purchased all CNC processing machine tools, metal raw material supply chains and offline exhibition booth resources, drafted all product sales quotation templates, negotiated all large enterprise bulk distribution contracts, and collected over 96% of all operating profits generated by infringing equipment sales via pre-signed inter-group internal transfer settlement agreements. The parent intentionally operated all high-risk patent-infringing equipment manufacturing and sales business under the unknown shell subsidiary’s registered name to avoid being named a defendant and bearing massive statutory damage compensation awards.
Core binding statutory provisions of the Patent Law of the People’s Republic of China (2020 Revision), China’s Civil Code tort liability chapter and Company Law corporate personality denial judicial interpretation:
1. Article 11 & Article 71 of China’s 2020 Patent Law Exclusive Patent Rights: Invention patent owners enjoy exclusive statutory rights to manufacture, offer for sale, sell and import patented products for production and business purposes. Any commercial exercise of these exclusive rights without the written authorization of the patent owner constitutes direct patent infringement中华人民共....
2. Article 1168 of the Civil Code Joint Tort Liability Standard: Two or more parties jointly commit a tortious act causing damage to another person’s legitimate rights and interests, and shall bear joint and several liability for compensation. Where a parent enterprise fully controls a subsidiary’s core production and sales operations, provides all technical and material support for infringing conduct, and collects nearly all infringing profits, the parent and subsidiary constitute joint tortfeasors in patent infringementWorld Inte....
3. China Company Law Article 20 Alter Ego Corporate Veil-Piercing Two-Prong Test: To pierce the corporate veil and impose full joint and several liability on a parent corporation for its shell subsidiary’s patent infringement, the plaintiff must simultaneously prove two cumulative factual conditions: (1) complete unity of ownership, finance and business interests, such that the subsidiary has no genuine independent corporate personality; the parent fully controls all financial flow, technical R&D, raw material procurement, pricing and profit distribution of the shell subsidiary; (2) the parent established and utilised the separate anonymous shell corporate structure primarily to evade legal tort compensation liabilities arising from large-scale patent infringement, and all corporate formalities separating the two entities were completely disregarded to avoid legal sanctions司法文明协....
4. Article 71 of China’s 2020 Patent Law Punitive Statutory Damage Calculation Guidelines: Where the actual economic losses of the patent owner or the illegal profits obtained by the infringer cannot be accurately quantified, the people’s court may award statutory damages ranging from RMB 30,000 to RMB 5,000,000 for all infringed products in aggregate. If the court confirms the infringement was committed willfully and for large-scale continuous commercial profit, the statutory damage amount may be increased to reflect punitive compensation factors, with double to five times punitive increments applicableMMLC Group.
From March 2023 to May 2024, HuiSheng Intelligent Equipment commissioned professional industrial mechanical patent forensic engineers to conduct long-term offline exhibition tracking, notarized factory on-site inspection, and test purchase of sorting machine finished products sold by HongSheng Automation LLC.
1. HongSheng Automation built a full production mechanical processing factory and participated in national industrial equipment offline exhibitions across multiple provinces. The enterprise mass-manufactured, displayed and publicly sold complete unlicensed full-size copies of the intelligent multi-channel sorting machine covered by HuiSheng Intelligent’s invention patent. The enterprise adopted bulk wholesale and exclusive regional distributor sales models to obtain continuous large-scale commercial revenue from infringing mechanical equipment. Forensic extraction of CNC machine tool procurement invoices, metal raw material supply chain contracts and offline exhibition booth rental documents confirmed all core mechanical processing equipment, metal raw material inventory and national exhibition marketing resources used by HongSheng Automation were fully purchased, funded and deployed by DaYuan Heavy Industry Group Co., Ltd.
2. In November 2023, HuiSheng Intelligent Equipment delivered a formal cease-and-desist legal letter attached with invention patent registration certificates, mechanical structural feature comparison appraisal reports and full notarized infringement evidence to HongSheng Automation LLC. After receiving the notice, DaYuan Heavy Industry instructed its controlled shell subsidiary to temporarily remove all infringing sorting machine finished product samples from all national offline exhibition booths for 22 days; shortly afterward, the parent supplied new backup CNC production equipment, alternative regional exhibition booth resources and revised product sales quotation documents to HongSheng Automation, enabling the subsidiary to resume full-scale mass manufacturing and nationwide commercial wholesale sales of infringing sorting machinery. All wholesale and distributor sales revenue generated by HongSheng Automation’s equipment business was automatically transferred to DaYuan Heavy Industry Group’s corporate public account through pre-agreed inter-group internal fund settlement protocols, with only negligible monthly administrative overhead costs retained in the shell subsidiary’s nominal bank account.
3. During the early stage of litigation, DaYuan Heavy Industry Group completely concealed its 100% actual controlling relationship with HongSheng Automation LLC. The parent refused to participate in any court proceedings and submitted written pleadings claiming HongSheng Automation was an independent, unrelated manufacturing enterprise fully responsible for its own mechanical equipment production and sales business acts. After the Guangzhou Intellectual Property Court issued an expanded comprehensive discovery order mandating full production of all inter-group cooperation contracts, cross-enterprise bank transfer statements, internal corporate management email archives and group board meeting minutes, massive internal corporate communication records emerged as conclusive objective evidence proving DaYuan Heavy Industry Group directed every single core business decision of HongSheng Automation, including mechanical equipment structural design standards, bulk wholesale pricing tier systems, regional distributor cooperation negotiation strategies and post-cease-and-desist resumption of infringing equipment mass production plans.
DaYuan Heavy Industry Group raised two core legal defences during the formal court trial: first, HongSheng Automation LLC is an independent limited liability legal entity with separate corporate personality, and the parent industrial holding group shall not bear joint compensation liability for the subsidiary’s alleged patent infringement acts; second, the shell subsidiary independently purchased third-party mechanical equipment technical resources through normal commercial market channels, and the parent holding group had no knowledge of any potential patent authorization defects existing within the enterprise’s mechanical product library, so the parent cannot be identified as a joint tortfeasor participating in patent infringement. The Guangzhou Intellectual Property Court fully rejected both defensive arguments after comprehensive review of all industrial mechanical forensic engineering appraisal evidence and corporate internal written documentary records.
The court completed line-by-line mechanical structural feature comparison between the original registered sorting machine master technical drawings submitted by HuiSheng Intelligent Equipment and the full-size finished sorting machine physical samples manufactured and sold by HongSheng Automation LLC and held:All core multi-channel feeding structure, intelligent sensor positioning module, layered sorting transmission mechanical linkage and automatic material separation control technical features of the sorting machine finished products manufactured and sold on the defendant shell subsidiary’s nationwide commercial channels were completely identical to the plaintiff’s patented registered invention technical scheme. HongSheng Automation completed the acts of manufacturing, offering for sale and selling complete patented mechanical equipment for commercial production and business purposes without obtaining any written patent licensing authorization from HuiSheng Intelligent Equipment, which fully satisfies all constitutive elements of direct patent infringement under Article 11 and Article 71 of the 2020 Revised Patent Law of the People’s Republic of China. The anonymous shell subsidiary HongSheng Automation LLC bore primary direct patent infringement liability.
After comprehensively weighing the technical innovation value and domestic industrial automation equipment commercial market value of the plaintiff’s original intelligent sorting machine invention patent, the defendant’s nationwide multi-province offline exhibition and bulk wholesale large-scale equipment production operation scale, the continuous duration of infringing mechanical equipment manufacturing and wholesale commercial activities, the deliberate concealment of parent-subsidiary full control relationships during the entire litigation proceeding, the willful resumption of large-scale infringing machinery manufacturing and nationwide wholesale commercial operations after receiving formal patent cease-and-desist legal notification, and all reasonable rights-protection expenses including industrial mechanical patent forensic engineering appraisal fees, notarized factory inspection evidence preservation fees, professional intellectual property attorney fees and all court litigation costs, the Guangzhou Intellectual Property Court rendered the binding final civil judgment:
1. Enter a permanent nationwide injunctive order ordering both HongSheng Automation LLC and DaYuan Heavy Industry Group Co., Ltd. to immediately cease all manufacturing, CNC production processing, offline exhibition display, bulk wholesale distribution and commercial sales of all intelligent multi-channel sorting machine mechanical equipment that infringes ZL202110376249.7 invention patent owned by HuiSheng Intelligent Equipment Co., Ltd. All existing infringing sorting machine finished product inventory, semi-finished mechanical components, dedicated CNC production molds, mechanical structural technical design drawing libraries, offline exhibition booth promotional display materials and all national regional distributor sales quotation documents shall be permanently destroyed and fully scrapped within 20 calendar days of the judgment’s formal entry into force.
2. HongSheng Automation LLC and DaYuan Heavy Industry Group Co., Ltd. shall be jointly and severally liable to pay HuiSheng Intelligent Equipment Co., Ltd. base compensatory statutory damages, double punitive enhanced willful infringement damages plus all reasonable litigation and rights-protection costs totaling RMB 2,173,500. The court confirmed the infringing conduct constituted willful large-scale commercial patent infringement, thus applying double punitive enhanced statutory damage calculation standards under Article 71 of the 2020 Revised Patent Law of the People’s Republic of China.
3. Both corporate defendants shall preserve all corporate cross-enterprise financial transfer records, CNC production workshop operation log archives, mechanical equipment technical design drawing libraries, national regional distributor bulk wholesale cooperation contracts and all inter-group internal corporate communication documents for a minimum period of three full years following the judgment’s entry into force for potential follow-up supplementary damage recovery civil proceedings.
1. Establishing separate subsidiary limited liability companies cannot automatically insulate parent industrial manufacturing holding groups from patent infringement joint tort compensation liability. Chinese intellectual property courts evaluate substantive operational control, core mechanical technical scheme design input and actual infringing profit ownership rather than merely relying on formal corporate registration names and independent legal entity written paperwork.
2. Supplying complete core CNC production equipment, metal raw material supply chains, full mechanical product technical design plans and unified national offline exhibition marketing sales channel resources to a mechanical production subsidiary constitutes joint tort patent infringement if the subsidiary mass-manufactures and commercially wholesale sells unlicensed patented industrial mechanical equipment, regardless of whether the parent holding group individually operates the subsidiary’s production workshop or directly signs bulk wholesale sales contracts with downstream enterprise clients.
3. Deliberately creating anonymous low-capital shell limited liability corporate entities exclusively to carry out high-risk patented industrial mechanical equipment manufacturing and nationwide wholesale commercial operations for the purpose of evading potential patent litigation massive damage compensation awards will trigger alter ego corporate veil-piercing judicial rulings, imposing full joint and several compensation liability on the parent controlling industrial holding group.
4. Receiving a formal patent cease-and-desist legal notification requires comprehensive, permanent shutdown of all infringing mechanical equipment production and nationwide wholesale commercial channels across the entire corporate group. Temporary removal of offline exhibition infringing machinery finished product samples followed by resumption of large-scale commercial manufacturing and wholesale sales of infringing patented mechanical equipment will be deemed willful patent infringement, resulting in punitive enhanced statutory damage compensation amounts awarded by Chinese intellectual property courts.
1. Corporate group senior management mistakenly believes that registering a separate anonymous low-capital shell limited liability subsidiary to operate industrial mechanical equipment production workshops and nationwide offline exhibition wholesale sales business can fully isolate parent industrial holding group liability for mechanical product patent infringement damage compensation awards.
2. Corporate headquarters provides full proprietary mechanical product technical design drawing documents, dedicated CNC production molds and complete national raw material wholesale supply channel resources to a mechanical production subsidiary without conducting comprehensive pre-production patent clearance risk retrieval and mechanical equipment invention patent authorization validity evaluation for all commercial mechanical products manufactured by the subsidiary.
3. After receiving formal patent cease-and-desist legal notices from legitimate patent owners, enterprise groups only temporarily take down partial offline exhibition infringing mechanical equipment finished product samples of the shell subsidiary, and rely on backup CNC production equipment and alternative national offline exhibition booth channels to resume large-scale commercial manufacturing and wholesale sales of infringing patented mechanical equipment shortly afterward.
4. During patent infringement civil litigation proceedings, parent industrial manufacturing holding groups deliberately conceal their full operational production control and infringing profit collection relationships with their shell mechanical production operation subsidiaries, leading the intellectual property court to draw adverse evidentiary inferences against the parent holding group and ultimately order alter ego corporate veil piercing to impose full joint infringement compensation liability.
1. WIPO official full English text of the 2020 Revised Patent Law of the People’s Republic of China: https://www.wipo.int/wipolex/en/legislation/details/21065
2. Official website of the Supreme People’s Court of China (national intellectual property judicial interpretation database): https://english.court.gov.cn/2015-09/11/c_761579.htm
3. Guangzhou Intellectual Property Court official case judgment retrieval portal: http://gzscq.court.gov.cn
4. WIPO Asia-Pacific regional IP resource hub Chinese patent enforcement practice guidelines: https://www.wipo.int/asia-pacific/en/resources/patent/
