China’s Supreme People’s Court released and effective on March 3, 2021 the Interpretation of the Supreme People’s Court on the Application of Punitive Damages to the Trial of Civil Cases of Infringement of Intellectual Property Rights (最高人民法院关于审理侵害知识产权民事案件适用惩罚性赔偿的解释) (法释〔2021〕4号). The Interpretation defines when a plaintiff may request punitive damages in civil intellectual property infringement cases; how People’s Courts should determine if punitive damages should be awarded; and how People’s Courts should calculate the amount of punitive damages. Note that no defenses are explicitly listed to exempt a defendant from punitive damages. For example, a non-infringement opinion or invalidity opinion from counsel that might be helpful in the US is not listed an option in this Interpretation.
The Interpretation in Article 1 requires that the infringement of intellectual property be both serious and intentional in order for a plaintiff to claim punitive damages. Intentional includes the defendant acting in bad faith as stipulated in the Trademark Law and Anti-Unfair Competition Law.
Per Article 2, a plaintiff can claim punitive damages any time before the end of the trial in the first instance. If requesting punitive damages on appeal, Courts need not approve the request and instead will conduct mediation.
Per Article 3, to determine intentional infringement, Courts “shall comprehensively consider factors such as the type of the infringed intellectual property rights, the status of rights and the popularity of related products, the relationship between the defendant and the plaintiff or interested parties.” Courts can make a presumption of intentionality under the following circumstances:
(1) The defendant continues to commit the infringing act after being notified or warned by the plaintiff or the interested party;
(2) The defendant or its legal representative or manager is the legal representative, manager or actual controller of the plaintiff or interested party;
(3) The defendant and the plaintiff or the interested parties have labor, labor cooperation, licensing, distribution, agency, representative, etc. relationships, and have been in contact with the infringed intellectual property rights;
(4) The defendant has business dealings with the plaintiff or interested parties or has negotiated for contracts, etc., and has been in contact with the infringed intellectual property rights;
(5) The defendant committed acts of pirating or counterfeiting registered trademarks;
(6) Other circumstances that can be determined as intentional.
Per Article 4, to determine if circumstances are serious, Courts “shall comprehensively consider the infringement methods and frequency, the duration, geographical scope, scale, and consequences of the infringement, and the infringer’s actions in the lawsuit.” Article 4 further lays out specific circumstances that can be considered serious:
(1) After being punished by an administrative penalty or a court decision for infringement, he commits the same or similar tort again;
(2) Taking the infringement of intellectual property rights as its business;
(3) Forging, destroying or concealing evidence of infringement;
(4) Refusal to perform the preservation ruling;
(5) The infringement gains or the right holder suffers huge losses;
(6) Infringements may endanger national security, public interests or personal health;
(7) Other circumstances that can be determined as serious.
To determine punitive damages, People’s Courts “shall use the actual loss of the plaintiff, the amount of the defendant’s illegal gains, or the benefits obtained due to infringement as the basis for calculation in accordance with relevant laws. This base figure does not include the reasonable expenses paid by the plaintiff to stop the infringement” per Article 5.
If it is difficult to determine the above, a multiple of license fee will be used as a basis for calculating the punitive damages.
Further, the People’s Courts will order defendants to provide access to accounting books and other material to determine damages. If the defendant refuses or provides false accounting books and materials without justifiable reason, the Courts can rely on plaintiff’s claims and evidence for calculating punitive damages.
Per Article 6, People’s Courts should determine a multiple of base damages for punitive damages based on “factors such as the degree of the defendant’s subjective fault and the severity of the infringement.”
Concurrent administrative fines or criminal fines will not exempt a defendant from punitive damages but may be considered in setting the multiple of base damages.
The full text of the Interpretation is available here (Chinese only).