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Legal victory in U.S. energizes Chinese battery makers
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11:45, May 17, 2008

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For many reasons, especially the hefty legal fees and unfamiliar system, a lawsuit in the United States is the last thing that most Chinese companies want to be involved in.

And when they do go to court, Chinese companies rarely win cases in the United States.

So when the Chinese Battery Industry Association (BIA) announced last week that its seven major members had won a five-year legal battle against U.S.-based Energizer and its subsidiary Eveready, it made headlines in the Chinese media.

The verdict is seen as a victory not only for battery makers but also many other industries, since Chinese companies have been the most frequent targets of a U.S. trade complaint procedure that can result in a blanket ban on Chinese exports of a particular product to the United States.

Wang Jingzhong, the BIA's deputy secretary general, told reporters in Shanghai that the U.S. Court of Appeals for the Federal Circuit had on April 22 finally rejected an appeal on battery patents by Energizer, the second-largest battery maker in the United States.

Five years ago, citing Section 337 of the U.S. 1930 Tariff Act, Energizer filed a complaint with the Washington-based U.S. International Trade Commission (ITC), a quasi-judicial agency whose role is to determine import injury to American industries.

In its complaint, Energizer asked the ITC to issue a cease-and-desist order and bar 28 foreign companies from exporting and selling household-size mercury-free alkaline batteries in the United States, claiming that batteries from China and several other countries had infringed on its mercury-free alkaline battery patent.

Of the 28 companies cited by Energizer, seven are from Chinese mainland, including Fujian Nanping Nanfu Battery Co. Ltd., Zhongyin (Ningbo) Battery Co. Ltd., Guangzhou Tiger Head Battery Group Co. Ltd., and Sichuan Changhong Electric Co. Ltd.

Under Section 337, imported goods can't be sold in the United States if they have been determined to be violating American patent rights. This provision has affected many companies in developing countries that hope to export products to the United States.

The lawsuit caught the seven Chinese companies by surprise.

Wang Jianhao, general manager of Zhongyin, dismissed Energizer's claim.

"We had the technology to produce mercury-free alkaline batteries back in 1993," he said.

"The Hong Kong-based Jinshan Group, which owns my company, was able to produce alkaline batteries three years before Energizer had begun to apply for patents," Wang told Xinhua.

The mercury-free compound for the batteries is like wheels for a car, and everyone knows that a car needs four wheels, said Wang.

"We saw this technology as common knowledge, rather than an invention belonging to a single company," an unidentified BIA official told the English newspaper China Daily.

"In comparison with other trade measures such as anti-dumping, a Section 337 investigation could have more severe consequences since similar batteries made by all Chinese companies would never be allowed to enter the U.S. market," said Wang of the BIA.

Had it failed in this case, China's battery industry would have sustained a nearly devastating blow, since major Chinese battery companies have been relying on exports.

China is the world's largest maker and exporter of the mercury-free alkaline battery, with some 75 percent of production being exported, according to the China Daily.

Wang of Zhongyin, which was the largest Chinese battery exporter to the U.S. market, told Xinhua that Chinese battery exports to the United States were still at an early stage but had grown rapidly over the last few years.

The surge of Chinese batteries in the U.S. market had raised concerns among U.S. producers, said Wang. His company sold 350 million units of batteries in the U.S. market in 2003, the year the case began, accounting for 5 percent of total battery sales in the United States.

Recent comparable figures aren't available, but the U.S. battery market was valued at about 7 billion U.S. dollars last year, according to counsel for the defense.

The stakes were high enough that the BIA and the seven companies being accused of patent violations felt that they had no choice but to go to court.


The seven Chinese defendants, with the BIA's coordination, entered a group response to the suit. They retained some top U.S. lawyers and shared the high legal fees.

The BIA's Wang explained that China is short of legal professionals who are familiar with both the Chinese and American legal systems. Thus, the organization and the seven companies were forced to hire U.S. lawyers at a staggering cost.

"High legal fees have been the chief deterrent for Chinese companies when faced with Section 337 investigations, which on many occasions have forced them to accept undesirable terms or simply withdraw from the U.S. market," he said.

In this case, the seven accused Chinese companies and some unrelated Chinese manufacturers jointly raised the legal fees, which amounted to some 3 million U.S. dollars, according to Wang.

Their case suffered a severe setback about one year after Energizer lodged the complaint.

In June 2004, the ITC issued a preliminary ruling that the seven Chinese battery makers, and two from the Hong Kong Special Administrative Region, had infringed the legitimate and valid patent of Energizer. The agency recommended a ban on imports of mercury-free alkaline batteries.

The result was what the companies had expected, since defendants rarely won patent cases in the United States and about 80 percent of defendants opted for conciliation proceedings with the plaintiffs in Section 337 investigations, according to Wang.

Following the preliminary ruling, Energizer offered a harsh compromise: an initial payment of 1 million U.S. dollars and 3 U.S. cents in patent fees for every battery that Chinese companies would henceforth sell in the U.S. market.

"It was unacceptable and unfair. Our profit on exports was just about one cent per battery. The terms were tantamount to asking us to leave the U.S. market," Wang said.

So the BIA and most of the Chinese companies carried on their joint fight.

Their perseverance paid off four months later when the ITC ended its investigation and ruled that Energizer's patent was invalid, because it was "indefinite as a matter of law."

Six days later, Energizer appealed the ITC's action to the U.S. Court of Appeals for the Federal Circuit, naming the ITC as defendants. In early 2006, the court reversed the ITC ruling and asked the commission to review the case.

The ITC upheld its original judgment in February 2007 and declared Energizer's patent invalid.

Energizer again appealed to the court.

Last month, the court voted 2-1 to dismiss Energizer's second appeal. The court only allows a plaintiff to appeal twice.

Energizer didn't respond to Xinhua's e-mail requests this week for comment on the result or whether it would take further legal action.

But according to Zou Guorong, the Beijing-based attorney for the U.S. law firm Hogan and Hartson, which helped the Chinese companies with this suit, Energizer is technically entitled to request an en banc trial at the Court of Appeals (involving the full bench, rather than the panel that has already heard the case) or petition the U.S. Supreme Court.

Zou said he believed that neither course would change the outcome.


So, with what appears to be a final decision, the Chinese companies won the lengthy legal case.

The outcome was greatly encouraging for Chinese battery companies and protects the industry's export interests, the BIA's Wang said.

With Section 337 cases increasing, the legal victory was a good example for other disputes involving Chinese companies, Wang added.

BIA officials said that the win hadn't solved all of the industry's problems. The lengthy suit had led to a slowdown of exports to the U.S. market in the first two years of the case.

"But exports to the United States have been recovering gradually," Wang said.

Zou warned that China's exports to the U.S. battery market, which he said was valued at more than 7 billion U.S. dollars in 2007, face a tougher path amid increasing exports.

Since 2002, China has been the largest target of lawsuits concerning Section 337. In 2007 alone, the United States trade agency initiated 17 cases of Section 337 investigations against Chinese enterprises. The products mainly included recorders, digital TVs, memory cards and media players, according to China's Commerce Ministry.

The Section 337 investigation has been a hot issue in Chinese legal and trade circles because of the severe penalties involved. An adverse ruling means that it isn't just the accused companies whose exports are affected: it also applies to other enterprises in the same sector, even though they might not have engaged in any violations.

Ding Liang, a Beijing-based lawyer, attributed the increase of actions involving Chinese companies to the restructuring of Chinese industry and the rapid growth of high-tech Chinese exports to the United States.

Some in China have described the Section 337 investigation process as a trade barrier in the United States.

Gong Bohua, a law professor at the Shanghai-based Fudan University, told Xinhua that there were signs of Section 337 investigations being abused by American companies in recent years.

"In lawsuits concerning Section 337, the time for investigation is relatively short and the cost to institute the investigation is low but the punishment against companies ruled to be violating patent rights is very severe. So American companies make easy use of it," Gong said.

Legal experts have also urged Chinese companies to raise their consciousness of patent rights and to draw up their strategies regarding intellectual property rights.


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