Two were sent to jail in China’s first patent extortion case

On September 30, Shanghai Pudong New Area People's Court heard China’s first "patent extortion" case. In the first trial, Li Mouwen was sentenced to fixed-term imprisonment of four years and six months, with a fine of 50,000 yuan; Li Mouwu was sentenced to fixed-term imprisonment of two years, with a fine of 20,000 yuan; the illegal incomes were recovered and returned to the victim company; and the criminal tools seized in the case were confiscated.

According to the content of the judgment, the actual controllers of Shanghai Kedou Electronic Technology Co., Ltd. (hereinafter referred to as Kedou) and Shanghai Budao Industrial Co., Ltd. (hereinafter referred to as Budao) are Li Mouwen, or Li Mouwu and his wife Gao. From March to July 2017, during management of Kedou, Li Mouwen was informed that Ireader Technology Co., Ltd. (hereinafter referred to as Ireader) was in the stage of IPO. Taking Kedou as the plaintiff, he sued Ireader for patent infringement of Patent No.: ZL201010523284.4 many times in Beijing Intellectual Property Court and Shanghai Intellectual Property Court. In August 2017, Budao sued Ireader in Beijing Intellectual Property Court for patent infringement of the patent involved. After negotiation, Ireader accepted the mediation agreement and promised to pay Budao 800,000 yuan. In September 2017, Ireader got listed on the A-share market. In fact, although the record date of the contract in which Kedou exclusively licensed the patent to Budao is December 29, 2016, the registration information from the State Intellectual Property Office shows, the start date of Kedou’s permission for Budao is September 20, 2017, while the license filing effective date is November 30, 2017. Nevertheless, the suspects admitted that the exclusive license contract between Kedou and Budao was signed in July 2017.

In January 2018, Li Mouwu and Li Mouwen were arrested. In August of the same year, Shanghai Pudong Procuratorate filed a public prosecution against them. The court held that, for the purpose of illegal possession, Li Mouwu and Li Mouwen conspired maliciously to make up the inverted exclusive license contract, to create the illusion that the exclusive license between Kedou and Budao occurred first, and then the simple license between Kedou and Ireader occurred later, and there was a fact of extorting Ireader with this contract. By suing and reporting to obstruct Ireader's listing, they caused fears of the relevant personnels of the Ireader, and then asked for 800,000 yuan from Ireader, which is in line with the constituent elements of the crime of extortion.

In this case, the judge used a special term "patent pengci", which is not a legal term, but vividly describes the illegality of this case. The key fact of conviction in this case is the inverted contract, which is a kind of fictitious fact. When the patent infringement claimed by Budao occurred, it did not have the relevant rights. By the false contract, it created the illusion of qualified litigation subject. For the business operation of patents, it's easy to think of another term "patent troll". Although its behavior has been criticized, it's still legal. Companies can use their own resources to screen and integrate valuable patents in potential fields, and through patent litigation and patent layout, many dormant patents can be activated to operating funds can be obtained, which also awakens the patent awareness of society and the public. It is beneficial to the development of the patent system, but such operational behavior must be established within the legal scope.