Chinese people traditionally receive red envelopes full of money during the Spring Festival, and major Chinese battery makers received a big one from the United States this year. Three days before Chinese Lunar New Year's Day, Fujian Nanping Nanfu Battery Co Ltd and six other battery manufacturers in China won a three-year legal battle against US battery producer Energizer.

The US Court of Appeals for the Federal Circuit rejected an appeal on battery patents by Energizer Holdings Inc against the US International Trade Commission (ITC). The ITC ruled in favour of nine battery makers from the Chinese mainland and Hong Kong over one of Energizer's patents in the United States in June 2004.

The dispute dates back to April 2003, when Energizer and its subsidiary Eveready filed a lawsuit with the ITC. It claimed that zero-mercury-added alkaline batteries exported to the United States by 24 manufacturers had infringed on its US patent. Energizer requested an investigation under Section 337 of the US Tariff Act.

Chinese battery manufacturers say the lawsuit caught them by surprise.

"We saw this technology as common knowledge, rather than an invention belonging to a single company. Just like everyone knows people need four wheels to build a car, but none of the auto manufacturers actually have to pay for that knowledge," says an official with China Battery Industry Association who declined to be named.

An official at Nanfu Battery expressed similar surprise.

"We had dealt with many lawsuits, but had never been involved in any patent infringement suits before."

Nanfu Battery is the biggest battery manufacturer in China. Its profits had also been eroded by piracy, and it began applying for trademark protection in foreign countries years ago.

The seven Chinese manufacturers realized the complexity of the case when they made the decision to fight Energizer's claims. Defendants rarely win patent cases, but a loss would have been catastrophic, and have meant being barred from the market forever. About 80 per cent of defendants choose some form of reconciliation in order to keep themselves in the market and avoid what are usually astronomical legal costs.

Just two months before the Energizer case went to court in March 2004, a number of other major foreign manufacturers, including Golden Power, Fuji and Hitachi, paid millions of dollars to end similar disputes with Energizer. 

This placed a lot more pressure on the Chinese manufacturers. They sought some kind of compromise with Energizer, but the price Energizer offered was unacceptable. Chinese battery makers have to pay patent fees for every single battery they sell in the US market. They are also restricted to selling batteries through dealers authorized by Energizer.

"It was unfair," says Wang Jingzhong, deputy secretary general of the China Battery Industry Association. "The fees they would charge even surpassed our profits. It was like announcing our withdrawal from the US market." 

The cost of retreating from the United States would have also been unaffordable.

Statistics from the China Battery Industry Association show annual battery production in China has reached more than 20 billion units, with output value at over US$4 billion, or one-third of global battery output. Of all the batteries produced, 90 per cent are products involved in the case, and 70 per cent are exported to countries throughout the world. The United States is one of the most important markets, with huge potential for Chinese battery manufacturers.

There seemed to be no other choice. In June 2004, the ITC ruled that nine manufacturers from China and Hong Kong had infringed on the legitimate and valid patents of Energizer. It recommended a ban on imports of the companies involved. Wang and his colleagues thought they were finished.

"We never thought we had violated Energizer's patents," Wang says. "The techniques we use in production were all developed on our own."

Nanfu Battery even provided original research records and statistics, and sent their former president and an engineer to Washington.

"It had little effect. The main issue was that infringement had taken place, whether it was intentional or not," says Yang Weining, a lawyer with Hogan & Hartson LLP who defended the Chinese manufacturers.

Nanfu Battery and the other companies did not give up, however. They decided to appeal to a higher court following the preliminary ruling. This time they shifted their focus to doubts over the validity of the patent.

The new strategy worked. In October 2004, the ITC ruled that Energizer's patent was invalid, and terminated the investigation into the Chinese manufacturers. 

The victory was also unexpected.

"We managed to point out the ambiguities in the patent descriptions and convinced the judge that a valid patent should not be described in such a vague manner," says an official with the China Battery Industry Association.

Energizer appealed to the US Court of Appeals for the Federal Circuit six days later, listing the ITC as the defendant. It was the last chance for Energizer to win the case.  On January 25, 2006, three days before New Year's Day, the US Court of Appeals for Federal Circuit rejected Energizer's appeal.

The victory was encouraging to Chinese exporters, who have been besieged by a range of trade barriers, says Zhou Zhenxiang of the China Battery Industry Association.

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