In Chinese patent litigation, a common malicious tactic adopted by infringers is separating manufacturing operations and sales entities. The real‑world case discussed below was heard by Wuxi Intermediate People’s Court in 2024, focusing on utility‑model patent infringement of industrial water‑treatment filter equipment. The actual manufacturer is anonymised as Nova Filtration Equipment Co., Ltd, which owns production workshops, moulds and technical teams. The plaintiff is an industrial environmental‑protection enterprise, Aqua‑Tech Industrial Limited, holding a valid Chinese utility‑model patent for a modular filter housing structure.
Since mid‑2022, Aqua‑Tech Industrial Limited discovered large quantities of filter devices reproducing all technical features of its patent circulating on domestic B2B platforms and industry bidding projects. When purchasing sample products and reviewing bidding documents, the plaintiff only found three sales‑focused limited‑liability companies: Delta Trading Co., Ltd, Epsilon Industrial Sales Co., Ltd and Zeta Supply Chain Co., Ltd. No product labels, bidding documents, invoices or delivery notes contained any reference to Nova Filtration Equipment Co., Ltd. All public business materials presented these three trading firms as independent suppliers with in‑house manufacturing capacity.
The plaintiff initially filed patent infringement lawsuits solely against these three apparent sales defendants. During preliminary proceedings, it quickly became obvious that each trading defendant maintained minimal operating scale. They rented small office spaces, possessed no production workshops or processing equipment, and their corporate bank accounts held very limited liquid assets. Judging only from surface public information, these shell sales entities could not afford substantial patent infringement compensation even if found liable. If the case stopped at these nominal defendants, the genuine manufacturer behind massive infringing output would escape civil liability.
The plaintiff’s IP legal team recognised that patent right holders cannot merely rely on product‑labelling information or platform‑disclosed merchant subjects to identify true manufacturing infringers. The core litigation objective shifted to collecting multi‑source circumstantial evidence to prove that Nova Filtration Equipment Co., Ltd controlled the three trading shell companies and completed all manufacturing work for the infringing filter equipment.
Multiple dimensions of evidence were gathered with court‑assisted evidence preservation. First, bidding project background data, delivery‑warehouse GPS records and after‑sales maintenance service logs demonstrated that all infringing goods were shipped directly from Nova Filtration’s factory premises. The three trading shell companies never held physical inventory. Second, industrial‑and‑commercial archival investigation revealed overlapping practical controllers: the three shell companies employed nominee shareholders and nominal legal representatives, yet their business contact emails, official mobile numbers and bank settlement accounts were managed by Nova Filtration’s administrative personnel. Third, forensic accounting reports submitted to the court exposed complete capital flow paths: customer payments flowed into shell‑company bank accounts, then were transferred out under payment descriptions of “processing fees” and “custom‑manufacturing service charges”, and finally remitted to Nova Filtration’s main corporate account. Capital transfer under disguised transaction descriptions constitutes key evidence for Chinese courts to identify concealed joint patent‑infringement relationships. Additionally, the court obtained internal WeChat work records via evidence preservation. Nova Filtration’s operation manager explicitly instructed staff: “All finished products shall be delivered under the names of our three trading subsidiaries. Avoid disclosing our factory name on any public documents. If one trading entity gets sued, we can suspend that company and continue sales through remaining entities to protect factory core assets.” This record directly confirmed that splitting manufacturing and sales into separate entities was a deliberate strategy for evading patent‑infringement risks.
During court hearings, Delta Trading, Epsilon Industrial Sales and Zeta Supply Chain argued they only purchased finished goods from unknown external suppliers and had no knowledge of patent‑related technical features. Nova Filtration Equipment Co., Ltd denied any connection with the three trading firms, asserting it only undertook ordinary processing orders for third‑party clients and should not bear tort liability for patent infringement.
After cross‑examining electronic records, forensic accounting reports, factory delivery evidence and corporate registration files, the court delivered its key factual findings. First, the three shell trading companies possessed no manufacturing capacity, inventory warehouse or processing equipment. Their sole function was external sales channels for Nova Filtration, serving as legal risk‑insulation vehicles. Second, substantial personnel overlap, business control and disguised fund transfer existed between Nova Filtration and the three trading entities. Nominal shareholders of shell companies merely received fixed agency remuneration without actual decision‑making authority. Third, the infringing filter products fully fell within the scope of the plaintiff’s utility‑model patent protection, and the whole infringement arrangement was pre‑arranged with subjective bad faith.
Applying China’s Patent Law, Civil Code tort‑liability provisions and relevant Company Law rules, the court ruled that Nova Filtration Equipment Co., Ltd and the three shell trading companies should bear joint and several liability for patent infringement. The total compensation amounted to RMB 2.16 million, covering the plaintiff’s economic losses, notarisation fees, product‑appraisal costs and attorney fees. A permanent injunction was granted ordering all defendants to cease manufacturing, selling and offering for sale products falling into the disputed patent scope.
This case delivers critical practical takeaways for patent owners. When facing sales‑only defendants lacking manufacturing capacity and assets, applicants must actively apply to courts for evidence preservation covering delivery records, fund flows and internal business communications. Relying solely on product labels often results in missing the real manufacturing infringer. For industrial‑sector patent enforcement, warehouse‑delivery trails, forensic financial auditing and internal corporate communication evidence frequently form decisive links of the evidence chain. Enterprises participating in industrial bidding projects should also remain alert: frequent changes of bidding‑participant entities may signal attempts to separate sales identity from actual production for risk‑evasion purposes.
1. China Judgments Online, official civil verdict database: https://wenshu.court.gov.cn/
2. CNIPA official patent retrieval and inquiry portal: https://cpquery.cponline.cnipa.gov.cn/
3. Supreme People’s Court Intellectual Property Court typical patent cases: https://ipc.court.gov.cn/
4. WIPO‑LEX English text of China Patent Law: https://www.wipo.int/wipolex/en/legislation/details/21066
