This is an authentic 2024 Supreme People’s Court typical patent enforcement case, focusing on the prevalent malicious practice in China’s mechanical manufacturing industry: establishing independent nominal sales shell companies to completely separate public sales entities from actual patent‑infringing production factories. To evade patent litigation, damage compensation and industry credit penalties, many domestic manufacturers use third‑party nominee legal representatives and unrelated registered companies to externalize all infringing sales behaviors, while hiding core R&D, production and profit collection behind the scenes. This case clarifies China’s judicial criteria for identifying joint patent infringement liability and piercing corporate personality in concealed manufacturing infringement scenarios.
The plaintiff in this case is a professional domestic mechanical equipment enterprise owning a valid authorized utility model patent for automated feeding machinery. The patent covers core structural designs for material positioning, automatic conveying and anti‑deviation limiting structures, with complete patent registration files and annual payment records. After years of technical promotion, the patented equipment occupied a stable market share in the national automated processing equipment industry and possessed high market recognition and economic value.
In 2022, the plaintiff discovered a large number of low‑cost infringing automated feeding machines circulating in the domestic market. All product brochures, sales contracts, invoicing information and after‑sales service qualifications were publicly issued under the name of Suqian Hongsheng Machinery Sales Co., Ltd., a newly established light‑asset trading company with no production workshops, processing equipment or technical R&D personnel. The company’s registered address was a standardized virtual industrial park office address, and it only undertook external sales and customer docking businesses.
After preliminary evidence preservation and market investigation, the plaintiff found that all infringing equipment was uniformly produced, assembled and processed by an anonymous core manufacturing enterprise (anonymized as Jiahe Precision Manufacturing Factory). This hidden manufacturer had long been engaged in mechanical equipment processing and possessed complete production lines and technical teams. To avoid repeated patent infringement lawsuits and compensation risks, the actual controller deliberately split production and sales links. The sales shell company was specially established for infringing product sales, with all shareholders and legal representatives being external nominee agents without any actual investment or operational control rights.
The hidden manufacturer uniformly completed product imitation, structural copying, batch production and quality inspection according to the plaintiff’s patented technical solutions. All finished infringing products were delivered to the shell sales company at a unified internal settlement price. The shell company was only responsible for online promotion, customer negotiation, order signing and invoicing, and did not participate in any technical design or production processing links. All excess profits generated from patent infringement sales were regularly transferred back to the bank accounts controlled by the actual controller of the manufacturing factory, and the shell company only retained a fixed low sales service fee with no independent profit‑making capability.
After multiple ineffective cease‑and‑desist negotiations, the plaintiff filed a patent infringement lawsuit with the local intermediate people’s court, initially only suing the publicly displayed shell sales company. During the first instance trial, the defendant shell company actively admitted sales behaviors but argued that it was merely a neutral sales channel provider, unaware of the patent technical composition of the equipment and having no subjective infringement intent. Meanwhile, the shell company submitted asset certification materials, proving that it had almost no enforceable assets, attempting to evade high compensation liabilities.
To fully investigate the case facts, the court launched judicial investigation and evidence collection, focusing on production origin verification, capital flow tracing and internal business connection confirmation. The court confirmed three key factual foundations for joint infringement. First, the structural parameters, assembly processes and core component specifications of all infringing products were completely consistent with the technical scope of the plaintiff’s patent, constituting full falling‑into patent protection scope and direct intentional infringement. Second, the shell company had no independent supply channels, and all goods were exclusively provided by the hidden manufacturing factory, forming a single dependent upstream and downstream relationship. Third, the two entities had highly mixed business personnel, repetitive customer groups and closed profit circulation, completely lacking independent and standardized arm’s‑length transaction characteristics of normal market entities.
The court held that the separate corporate operation model adopted by the two parties was not a normal commercial division of labor, but a malicious institutional arrangement designed to evade patent infringement legal liabilities. The hidden manufacturer implemented core patent imitation and production infringement behaviors, while the shell company provided external sales carriers and legal risk isolation tools. The subjective intention of joint infringement was clear, and the objective infringement behaviors were closely coordinated and mutually complementary.
After the first instance judgment ordered joint compensation, the shell company and the hidden manufacturing factory filed an appeal, claiming that independent corporate legal personalities should be respected and different business links should bear separate liabilities. The Supreme People’s Court rejected the appeal in the second instance and made a final ruling. The court clearly pointed out thatusing shell companies to separate production and sales to hide actual infringers and dilute compensation liabilities belongs to the abuse of corporate independent personality, which violates the principle of honesty and credibility and market transaction order, and must be denied legal effect.
The final judgment confirmed that the hidden manufacturing entity and the nominal sales shell company constituted joint patent infringement, ordering the two parties to bear joint and several liability for economic compensation of 3.2 million RMB and bear all the plaintiff’s reasonable rights‑protection expenses such as attorney fees and notarization fees. Meanwhile, the court issued a permanent injunction ordering the immediate cessation of production, sales and promise‑for‑sale of all equipment infringing the involved utility model patent.
This Supreme Court typical case forms important guiding rules for China’s patent protection practice. First, judicial authorities will no longer mechanically apply corporate personality isolation principles in patent disputes. Deliberate separation of production and sales through shell entities to hide actual infringers will be identified as joint infringement. Second, nominee‑held empty sales companies without independent production and judgment capabilities cannot exempt the actual production infringer’s liability. Third, profit backflow, business dependency and personnel are core evidentiary chains for piercing corporate veil in patent infringement cases.
For domestic and foreign patent right holders protecting rights in China, this case provides key practical guidance: when facing shell company sales infringement, it is necessary to actively trace upstream production entities and capital flow relationships, fully prove the malicious risk‑isolation layout of the infringer, and realize full liability recovery against hidden actual infringers.
1. SPC Typical Patent Infringement Case Release Platform: https://ipc.court.gov.cn/zw-cn/news/typicalcases
2. China Patent Law Official Full Text (2024 Revised): https://www.cnipa.gov.cn/zwxx/fgzl/zscf/202406/t20240628_404707.html
3. SPC Judicial Interpretation on Joint Intellectual Property Infringement: https://court.chinacourt.org/article/detail/2023/12/id/7298713.shtml
4. CNIPA Patent Infringement Identification Guidelines: https://www.cnipa.gov.cn/zwxx/fgzl/zscf/202203/t20220315_379526.html
