This civil patent dispute is a genuine typical case published by the Supreme People’s Court Intellectual Property Tribunal in 2025, reflecting a common infringement tactic in China’s hardware manufacturing sector: real manufacturers set up independent nominee‑held shell trading companies solely for product sales, in order to separate production subject from sales subject and avoid patent compensation enforcement risk The infringer hides production capacity and core assets inside the undisclosed manufacturing plant, while only using asset‑light shell entities to display business qualifications, receive online orders and issue sales invoices. Once facing litigation, the shell company claims independent liability; meanwhile, the real manufacturer tries to cut off legal connection and evade judgment execution.
The plaintiff, anonymized as Ocean Intelligent Equipment Co., Ltd., holds a valid Chinese utility‑model patent for an improved automated sorting machine widely applied in logistics warehouses. The company invested massive R&D costs and put the patented equipment into large‑scale domestic market promotion. In mid‑2024, the plaintiff’s market investigators found identical infringing sorting machines being sold on multiple domestic B2B e‑commerce platforms. All online store pages, sales contracts and formal invoices were issued under the name of Blue‑Ocean Trading Co., Ltd., a newly‑established trading enterprise with low registered capital. Its legal representative was a distant cousin of the actual factory controller, who received only fixed monthly agency remuneration and did not participate in technical research, production planning or profit distribution.
At the preliminary investigation stage, the patent holder assumed Blue‑Ocean Trading was the full responsible party and sent formal cease‑and‑desist legal letters. The shell trading company replied that it merely purchased finished products from external third‑party suppliers and fell under the legitimate source defence clause of Chinese Patent Law. According to its submission, the trading entity had no manufacturing workshop, processing equipment or technical R&D personnel, and should only bear limited sales‑related liabilities. When the plaintiff prepared to file a formal lawsuit, preliminary asset inquiry showed that Blue‑Ocean Trading possessed very limited bank capital and no fixed production site. If only suing this nominal shell entity, even winning the judgment would face serious difficulties in property enforcement, since all profitable production assets belonged to another hidden manufacturing entity.
Facing this obstacle, the plaintiff filed multiple applications for court‑ordered evidence preservation, requiring the court to obtain e‑commerce backend order logs, bank transfer records, delivery logistics manifests, supplier communication records and internal enterprise chat history. After judicial evidence collection, multiple critical facts were gradually uncovered. First, although Blue‑Ocean Trading signed sales contracts with end customers and issued invoices, almost all final sales payments were transferred to bank accounts controlled by Greenfield Machinery Manufacturing Co., Ltd., the hidden real factory; the shell trading company only drew fixed commission for each completed transaction. Second, delivery documents proved infringing sorting machines were directly shipped out from Greenfield Machinery’s factory warehouse to purchasers, without passing through any storage site managed by Blue‑Ocean Trading. Third, internal chat records demonstrated that product technical parameters, quotation standards, after‑sales maintenance schemes and delivery cycles were entirely determined by Greenfield Machinery’s engineering department. The shell trading company had no capacity to modify product structures or resolve technical complaints raised by buyers.
The defendant Greenfield Machinery Manufacturing further argued that it only provided ordinary spare‑parts components for Blue‑Ocean Trading and should not be identified as a manufacturer of complete infringing equipment. After reviewing technical appraisal reports, delivery records and cross‑examining witness statements, the intellectual‑property court rejected this defence. The court applied joint‑tort provisions of the Civil Code together with corporate personality denial rules. The judgment confirmed that Blue‑Ocean Trading was deliberately set up as a superficial sales tool, fully controlled and dominated by Greenfield Machinery. The two entities formed a coordinated division‑of‑labour infringement chain: the hidden factory completed copying, manufacturing and quality control, while the shell company undertook public sales, invoicing and platform store operation. Both parties knew and intended to implement patent infringement, therefore they should bear joint and several civil liabilities for stopping infringement and paying compensation.
When calculating compensation amount, the court took full account of multiple aggravating factors: deliberate use of shell‑company structure to dodge patent obligations, relatively large annual infringing sales volume, and intentional obstruction of right‑holder’s evidence collection during dispute procedure. The court comprehensively referred to patent licensing fee multiples, infringer’s profit scale and the plaintiff’s reasonable litigation expenditure including notarization, technical appraisal and lawyer fees, and rendered a substantial damage award. After the effective judgment, both defendants were ordered to cease manufacture, sale and offer‑for‑sale of the disputed sorting machine product, and destroy all remaining infringing finished products and special production moulds.
This case delivers highly practical guidance for domestic and foreign patent owners operating within China. Firstly, external business information such as invoice title and e‑commerce store subject cannot be directly equated with actual manufacturing infringer. Right holders must not limit litigation targets only to publicly‑displayed sales entities. Secondly, when encountering shell‑separated infringement patterns, claimants shall actively apply for court‑assisted evidence collection targeting capital flow, logistics documents and internal business communication data, rather than merely collecting public webpage notarization materials. Thirdly, early asset preservation application shall be submitted once clues show that infringers intend to transfer production‑related assets. For cross‑border enterprises holding Chinese patents, establishing complete market monitoring mechanism helps to discover such divided‑labour infringing chains at an early stage and improve the actual effect of patent relief.
1. Supreme People’s Court Intellectual Property Tribunal official website: https://ipc.court.gov.cn/
2. National Intellectual Property Administration of China official portal: https://www.cnipa.gov.cn/
3. China Judgments Online public judgment database: https://wenshu.court.gov.cn/
4. SPC published typical intellectual‑property case release page: https://www.court.gov.cn/zhuant/zhuant/zhsfyj/index.html
