202103.31

China: the commencements of the case law on punitive damages for infringement of intellectual property

Protecting foreign investors’ intellectual property rights has been one of the priority objectives of Chinese leaders since the accession of the People’s Republic of China to the World Trade Organization in 2001. Over the years, the legislation relating to intellectual property has never ceased to evolve, always in a direction favorable to the protection of intellectual property. Lawyers and government officials (including judges and customs officials) now receive quality training, and awareness programs spread the idea of ​​intellectual property into the Chinese collective consciousness. In other words, the administration and the legal community strive to shape a climate of trust that meets foreign investors’ and Chinese companies’ expectations. Among the hopes nurtured by intellectual property rights holders, deterrence through effective judicial sentence has long remained a central interest and concern.

The foundations of punitive damages

Traditionally, Chinese laws and regulations regarding damages have been based on the compensatory system. However, in 2013, the legislature initiated a paradigm shift by incorporating punitive damages into its range of sanctions against trademark infringement. Article 63 of the Trademark Law empowers judges to multiply the monetary damages: initially, up to three times and, since 2019, up to five times. This provision’s implementation is based on two cumulative criteria: a subjective criterion (bad faith) and an objective criterion (serious circumstances). Finally, Article 1185 of the Chinese Civil Code (resulting from the law of May 28, 2020) provides for punitive damages in the event of an infringement of intellectual property rights.

Interpretation and guidelines

Intending to ensure consistency and harmonization of the application of these new provisions, the Beijing High Court published on April 21, 2020, guidelines relating to the determination of damages in intellectual property infringements and in cases of unfair competition ( Guiding Opinions on Damage Determination in IP Infringements and Unfair Competition Cases and the Standards for Determining Statutory Damages (Beijing Higher Court Guiding Opinions). Most recently, on March 3, 2021, the Supreme Court (SPC) published its interpretation on the application of punitive damages in civil cases concerning infringements of intellectual property rights (Interpretation of the Supreme People’s Court on the Application of Punitive Damages in the Trial of Civil Cases involving Intellectual Property Rights Infringements ); it is worth recalling that this document has a quasi-legislative value. Finally, on March 15, 2021, the SPC released a selection of case summaries in which punitive damages were awarded.

The subjective criterion: bad faith

It emerges from the interpretation of the SCP and the selected cases that punitive damages can be inflicted on the infringer only when the latter’s malicious intention is proven. This is particularly when the defendant, given his position or relationship with the plaintiff or the reputation of the trademark, could not ignore the latter’s intellectual property rights. This is also the case when the defendant has continued to commit acts of infringement after having received a formal notice from the plaintiff.

The objective test: serious circumstances

As for the seriousness of the circumstances, the SCP notably retains the frequency, duration, extent (for example, counterfeits on online market platforms), the volume of the profits made, or the goods’ dangerousness. Besides, the Supreme Court urges the Chinese judges to consider the degree of cooperation of the infringer: the pursuance of acts of infringement despite an administrative or judicial decision; the falsification or concealment of evidence; non-compliance with a decision imposing preservation of goods.

In doing so, the supreme court lays the foundations for consistent implementation of the provisions relating to punitive damages in cases concerning infringements of intellectual property rights.

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