Punitive Damages in China | Linda Liu & Partners

Punitive damages refer to compensation determined by a court that exceeds the actual loss of the right holder.

In China, in infringement cases, the principle of compensatory damages has always been retained, intended to cover the “actual damage” suffered as a result of the infringement. However, in recent years, in order to strengthen the protection of intellectual property rights and deter infringers, a system of punitive damages has been gradually introduced.

The Trademarks Act 2013 is the first to introduce a system of punitive damages in which Section 63 states: “Where the exclusive right to use a registered trade mark is maliciously infringed and the circumstance is serious , the amount of damage may be greater than 1 time but less than greater than 3 times the amount determined by referring to the above calculation.

Then the Fourth Amendment to the Trademark Act in 2019 and the Third Amendment to the Anti-Unfair Competition Act increased the multiple of punitive damages from “more than once but less than 3 times” to “more than ‘once but less than 5 times’. time.”

The Infringement Liability section of the Civil Code, which came into force on January 1, 2021, also specifically provides for punitive damages in the event of intellectual property infringement, i.e. Article 1185 provides: “ When the intellectual property right is intentionally violated and the circumstances are serious, the injured right holder has the right to claim the corresponding punitive damages.”

In addition, the amended Patent Law and Copyright Law, which will come into force on June 1, 2021, also introduce punitive damages, which specify that punitive damages must be greater than 1 times but less than 5 times. The applicable conditions are the same as those stipulated in the Civil Code.

The aforementioned legal provisions have established a system of punitive damages for cases of intellectual property infringement, from the basic law to the special law. The appeal of this system lies in, first, by establishing punitive damages, the infringer’s cost of infringement is effectively increased, making infringement unprofitable; second, in some cases, malicious infringement and recidivism are often more hidden and difficult to find, so the application of punitive compensation can also compensate the right holder’s loss.

According to the aforementioned legal provisions, the conditions applicable to punitive damages mainly include, 1, the intentional in subjective condition, 2, the circumstance of serious infringement in objective condition. When the right holder asks for punitive damages, it is necessary to prove that the activities of the infringer comply with the two aforementioned conditions of “intentional infringement” and “grave circumstances”.

On March 3, 2021, the Supreme People’s Court issued an interpretation on the application of punitive damages in the trial of civil intellectual property rights infringement cases. The Interpretation provides specific provisions on the scope of punitive damages and the determination of intentional breach and aggravated circumstances.

With regard to subjective conditions, the term used in the Trademark Law and the Anti-Unfair Competition Law is “malicious”, while the term used in the Civil Code, the Amended Patent Law and the copyright is “intentionally”. To be clear, the interpretation provides that the term “intentional” referred to in this interpretation includes the “malicious” stipulated in the Trademark Law and the Anti-Unfair Competition Law, effectively equating “malicious” and “intentional” here.

For the determination of intentional infringement, according to the interpretation, the factors include the type of intellectual property rights infringed, the status of the rights and the popularity of the products, the relationship between the defendant and the plaintiff or the interested party must be examined in depth.

The interpretation also provides for the following situations where “intentional” must be determined on a preliminary basis.

1. The defendant continues to commit the act of infringement after being advised or warned by the plaintiff or the interested party;
2. The defendant or his legal representative or manager is the legal representative, manager or effective controller of the plaintiff or the interested party;
3. Defendant has employment, labor, cooperative, licensing, distribution, agency, agency, etc. relationships. with the claimant or interested parties, and has access to the infringed intellectual property rights;
4. The defendant has business relationships with the plaintiff or interested parties or has negotiated to enter into a contract, and has access to the intellectual property rights infringed;
5. The defendant has committed acts of piracy and trademark infringement;

For the determination of serious circumstances, according to the interpretation, factors include method of infringement, frequency, duration of infringement, geographical scope, scale, consequences and behavior of the infringer in the lawsuit must be examined in depth.

The interpretation also provides for the following situations in which the “serious circumstances” must be determined beforehand.

1. Commit the same or similar act of offense again after having been sanctioned by an administrative sanction or a court decision enjoining him to assume responsibility for it;
2. Treat intellectual property rights infringement as a business;
3. Tampering, destroying or concealing evidence of infringement
4. Refuse to comply with the retention rules;
5. Make huge profits from infringement or cause huge losses to the right holder;
6. The offense may endanger national security, the public interest or personal health;

Currently, the newly amended Patent Law and Copyright Law have not yet entered into force, but the Trademark Law of 2013 entered into force on May 1, 2014, and has been in force for several years. However, there are not many trademark infringement cases in which punitive damages are applied. One reason is that the conditions of application are strict, and another is that punitive damages equal to several times the amount of the profit of the infringer or the loss of the rights holders, which, however, as a basis for calculation , is often difficult to determine because of the difficulty of the proof. Thus, in practice, the cases where the courts have recourse to legal compensation are in the majority. In such cases, the malice and gravity of the circumstances of the offense are also important factors to consider.

Recently, legislation and courts have engaged in solving the problems of “difficulty of proving” and “low compensation” in intellectual property infringement cases, trying to reduce the burden of proof borne by owners of rights and tougher penalties for violators, fueling the growth of cases where punitive damages are applied. With the publication of the interpretation, the standard of judgment has been further clarified. It can be expected that the system of punitive damages will be further implemented.

I hope the above information will be helpful. Additionally, this content can also be found in our podcast (https://podcasts.apple.com/cn/podcast/linda-liu-partners/id1512707257?i=1000516254263) and Youtube (https://youtu.be/_5700z4xsTE)

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