Shenzhen Dama was involved in a "copyright infringement" lawsuit and paid 200 million yuan in compensation

On the way to overseas, cross-border e-commerce sellers have more or less encountered copyright infringement disputes. When encountering copyright infringement disputes, even big sellers will suffer a lot.

Daotong Technology was sued for infringement and paid more than 200 million yuan in compensation

On December 18, Shenzhen auto parts giant Daotong Technology announced that it had reached a settlement with the other party in an infringement lawsuit and compensated the other party US $ 336.2 million (approximately RMB 240 million ).

In the first three quarters of this year, Daotong Technology achieved a revenue of 2.19 billion yuan and a net profit of 267 million yuan attributable to shareholders of the listed company. It can be seen that the amount of compensation has almost caught up with the net profit in the first three quarters, which means that the first nine months of this year were all in vain.

Not only that, the stock price also fell badly. At the close of December 19, Daotong Technology fell 8.74% to close at 22.88 yuan.

The root cause of all these results can be traced back to two years ago.

In July 2021 , Mitchell Repair Information Company, LLC and Snap-on filed a lawsuit in the United States, claiming that Datong Technology and its subsidiaries stole their proprietary information and data and used MaxiSys   Ultra uses their proprietary automotive diagnostic and repair information in its products. They are seeking compensation from Daotong Technology.

In September of the same year , Daotong Technology submitted a reply requesting arbitration and asking the court to suspend the current litigation based on the pending arbitration.

Before November this year , Daotong Technology had been going through arbitration procedures. However, it suddenly signed a "Settlement Agreement" on December 16 .

Daotong Technology stated that taking into account the current changes in the global political environment, the uncertainty of the final litigation results, and the protracted overseas litigation, in order to eliminate the risk of sanctions caused by the litigation, avoid causing greater losses to the company's business operations, and create a better business environment for the company in the North American market, the company took the initiative to reach a settlement with the plaintiff.

One of the conditions of the settlement is that Daotong Technology needs to pay Mitchell and Snap-on $33.62 million , including $25 million in damages and $8.62 million in legal fees .

In fact, Daotong Technology had previously evaluated the potential compensation it might bear. On the one hand, the statutory damages would not exceed $1.3 million, and on the other hand, the value of the illegally downloaded data claimed by Mitchell and Snap-on would be less than $1 million, given that they did not actually use the data . Adding the two together, the total compensation would not exceed $2.3 million.

As a result, Daotong Technology has set aside an estimated liability of US $ 2.3 million in 2021. However, the compensation negotiated in the settlement is now US$22.7 million more than predicted at the time.

After the two parties reached a settlement, the estimated impact on Daotong Technology's 2023 profit and loss is approximately US$31.32 million (approximately RMB 222 million ).

In addition to the trade secret infringement disputes with Mitchell and Snap-on , Daotong Technology is also involved in a patent infringement dispute with Orange Electronics Co. Ltd.

Also in 2021, Orange sued Daotong Technology in the U.S. District Court for the Eastern District of Texas , claiming that the company's TPMS series products infringed claims 23 and 26-29 of its U.S. Patent No. 8031064C3 ( "A Tire Pressure Monitoring System (TPMS) and a Method for Identifying and Replicating Its Tire Pressure Detector", hereinafter referred to as "Patent No. 064" ) and sought damages .

On June 8 this year , the jury made a ruling, determining that Daotong Technology 's products did infringe the " 26th and 27th rights of the 064 patent" and ordered it to pay a total of US$6,616,397 in damages.

After the verdict was made , Daotong Technology filed a post-trial motion and decided to appeal the jury's verdict. According to the evaluation of the third-party experts it hired, if it lost the case, the reasonable compensation should not exceed US$2 million.

This year has been a turbulent year for Daotong Technology. In addition to having to deal with various infringement disputes, its drone business has also been targeted.

The U.S. is making trouble, and the drone business is pushed to the forefront

Not long ago, Reuters reported that a bipartisan group of 11 U.S. House of Representatives members wrote a letter asking the U.S. Departments of Commerce, Defense, and Treasury to investigate Chinese drone manufacturer Autel Robotics and decide whether to sanction the company on the grounds of national security.

The report pointed out that the parent company of Autel Robotics is Autel Intelligent Technology (Shenzhen Daotong Technology Co., Ltd.).

The letter claims that Autel Robotics has ties to the Chinese military and that local law enforcement, state and local governments in the United States are purchasing and using the company's drones, which could expose sensitive data nationwide and pose a direct threat to U.S. national security.

In the cross-border circle, Cross-Border Communication is better known for its auto parts business, but in fact, the drone business was also its development focus.

Since its establishment in 2004, Daotong Technology has been mainly engaged in the intelligent diagnosis and testing of automobiles. In May 2014, it established a wholly-owned subsidiary, Shenzhen Daotong Intelligent Aviation Technology Co., Ltd. , which is responsible for expanding its drone business . In July 2015, in the application materials for IPO on the SME Board to the China Securities Regulatory Commission, Daotong Technology stated that 185 million yuan of the raised funds would be invested in the drone business company.

However, the wind direction changed after only two years. In August 2017, Daotong Technology divested its drone business and focused on developing automotive intelligent diagnosis, detection and analysis systems and automotive electronic parts businesses, and no longer engaged in drone-related businesses .

Regarding the reason for the divestiture, Daotong Technology stated in its prospectus that the market response to the first-generation drone products did not meet expectations, and the global drone market has changed rapidly in recent years. The amount of continuous investment in drone research and development is large, so the company's development prospects for this business are subject to great uncertainty.

At the same time, considering that the company's drone business and automotive intelligent diagnosis and testing business belong to two completely different business areas and maintain independent operation and accounting, there is no sharing or cross-use of R&D, production and sales channels. After the separation, it has the ability to operate independently.

For the sake of steady development, Daotong Technology will transfer all of its 100.00% equity in Smart Aviation to Shenzhen Tongyuan Hechuang Investment Co., Ltd. (a company established in June 2017 by all original shareholders of Daotong Technology according to their shareholding ratio in the company at that time to undertake the drone business) at a price of RMB 1, thereby separating the drone business from the company's business and developing it independently.

According to the prospectus, the drone business caused Daotong Technology to lose about 331 million yuan in profits in 2016 and 2017. During this period, the total revenue of its drone products was less than 100 million yuan (about 80.24 million yuan).

The global civilian drone industry market size is estimated to be US$30.4 billion in 2022 and is expected to reach US$41.3 billion by 2026, with a compound annual growth rate of 8.0%. DJI is the leader in this field. In the United States, half of the commercial drones flying in the sky come from DJI.

For Daotong Technology, it is already very difficult to develop in such a competitive environment. If it is sanctioned again, it will be even more difficult.

Daotong Technology