This is a 2025 typical civil patent case released by the Supreme People’s Court Intellectual Property Tribunal, reflecting a common evasion tactic in China’s hardware manufacturing sector. Many real manufacturers set up asset‑light nominal sales shell companies to separate public sales channels from actual production workshops. The shell entities are staffed by nominee shareholders and legal representatives, holding almost no production equipment, technical personnel or independent operating funds. When patent infringement lawsuits occur, defendants attempt to shift all liabilities to these empty‑asset shells to shield the real production entity from compensation and injunction orders This case illustrates how Chinese courts evaluate fragmented corporate structures and adopt multi‑dimensional evidence rules to identify hidden actual infringers.
The claimant is an industrial equipment enterprise owning a valid Chinese utility‑model patent for an intelligent material‑handling apparatus. The patent covers critical structural improvements that reduce equipment wear and improve conveying efficiency. After launching the patented product, the patent holder soon discovered large quantities of low‑cost competing equipment circulating on domestic B2B platforms and industrial wholesale markets. Purchasing and notarization showed that product labels, online store qualifications and sales invoices all belonged to a small trading shell company named Lanyu Trading Co., Ltd. Public business registration records displayed unrelated natural persons as its legal representative and shareholder.
At the preliminary litigation stage, the shell company admitted selling the equipment but denied manufacturing activities. Its defence argued that Lanyu Trading only acted as a pure intermediary purchasing finished goods from unknown third‑party suppliers. Relying merely on product labelling and invoice information cannot automatically confirm the real manufacturer. If the court only held this shell trading firm liable, the patent owner would obtain a paper judgment without practical compensation, since the shell maintained minimal registered capital and almost no enforceable property. The patent holder therefore submitted multiple applications for evidence preservation, requesting the court to order preservation of sales contracts, bank settlement records, supplier lists and internal business chat logs.
Through court‑ordered evidence collection, several key factual layers emerged. First, all sales proceeds from infringing equipment ultimately flowed into the bank accounts controlled by the actual manufacturing enterprise, not the nominal shell company. Lanyu Trading only received fixed agency commission for each transaction. Second, internal WeChat and enterprise instant‑message records demonstrated that technical parameters, product quotations, after‑sales repair plans and delivery schedules were all formulated by engineers and managers of the hidden manufacturing plant. The shell trading company possessed no technical capacity to adjust product structures or handle technical customer complaints. Third, delivery logistics documents showed goods were directly shipped from the real factory’s warehouse to end‑customers, without passing through any warehouse operated by Lanyu Trading. The shell only completed formalities for invoicing and online‑store operation.
The respondent manufacturing enterprise further contended that it merely supplied generic components to Lanyu Trading and should qualify for legitimate‑source defence under Chinese Patent Law. The People’s Court rejected this argument after cross‑examining technical appraisal reports, delivery orders and business correspondence. The judgment held that where a shell company exists merely as a superficial sales tool completely dominated by a manufacturer, the manufacturer shall be recognised as the actual implementer of manufacture‑and‑sale infringement. Nominal shell entities with nominee investors, no independent decision‑making power and zero production capacity cannot independently bear substantive infringement consequences. Both the hidden manufacturer and the nominal sales shell constituted joint tortfeasors and should bear joint‑and‑several civil liability for damages.
In the final judgment, the real manufacturing enterprise and Lanyu Trading shell company were jointly ordered to cease manufacturing and selling infringing equipment and pay considerable economic compensation covering the patent holder’s losses and reasonable litigation costs. This case delivers critical practical takeaways for patent litigants. Patent owners should not solely rely on information printed on product surfaces or sales invoices to define defendants. When facing suspicious light‑asset trading entities, rights holders need to actively apply for judicial evidence preservation targeting capital flow records, logistics manifests, internal business communications and technical‑participation proof, to build complete evidence chains for piercing corporate appearances.
For foreign enterprises enforcing Chinese patent rights, special attention should be paid to Chinese manufacturing’s widespread shell‑sales‑entity arrangements. Successful enforcement requires distinguishing superficial nominal subjects from real decision‑making actors. Simply suing visible sales‑side shells often results in low or uncollectible compensation, failing to realise real patent‑right relief.
https://ipc.court.gov.cn/zh‑cn/news/view‑4653.html
https://www.court.gov.cn/zixun/xiangqing/490631.html
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