On February 7, 2021, the Supreme People’s Court of China (“SPC”) issued Interpretations on the Application of Punitive Damages in Adjudicating Civil Intellectual Property Rights Infringement Cases (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)” (“SPC Interpretation”). The SPC Interpretation took effect on March 3, 2021, and it clarifies the conditions under which courts may impose punitive damages under all major IP legislation in China, including the Trademark Law and Anti-Unfair Competition Law.
Under applicable legislation, punitive damages may be awarded if a Chinese court finds that an infringement was both “intentional” and “serious”. The SPC Interpretation sets out the detailed factors Chinese courts must consider when determining if these conditions exist.
Actual v. Statutory Damages
In China, punitive damages may only be applied where the base amount of damages is calculated using verifiable data relating to the infringer’s actual profits, the victim’s actual losses or a deemed licensing fee. Chinese IP laws do not allow plaintiffs access to punitive damages where the plaintiff has requested an award of statutory damages. The SPC Interpretation confirms the status quo in this regard. However, Chinese laws do allow courts to consider intentionality and seriousness when determining statutory damages.[i] As such, plaintiffs will be well-served to cite the provisions of the SPC Interpretation as a reference when pursuing statutory damages.[ii]
Chinese IP legislation sometimes refers alternatively to “intention” (故意) or “bad faith” (恶意) (malice) for the purpose of determining an infringer’s state of mind and the fixing the level of penalty or compensation. For example, the Civil Code, the Patent Law and the Copyright Law refer to “intentionality”, while the Trademark Law and the Anti-Unfair Competition Law refer to “bad faith”. Chinese courts, scholars and practitioners have generally viewed these terms as having different meanings. But the SPC Interpretation clarifies that, for the purpose of determining punitive damages, “bad faith” and “intentionality” should be deemed as having the same meaning.
The SPC Interpretation makes clear that intent may be deemed established where the infringer has previously been notified or warned by the plaintiff but continues the infringe.
The interpretation also states that any case involving the counterfeiting of registered trademarks or pirating of copyright can be deemed to fulfil the intentionality requirement.
The SPC Interpretations sets out a wide range of broad as well as specific factors that courts may consider when determining whether an infringement is “serious”, including:
- recidivism, as evidenced by the fact an administrative or judicial decision has previously been imposed on the defendant;
- the methods, frequency, geographic scope, scale and consequence of the infringement;
- how the infringer has behaved during or after a (previous) litigation;
- whether the infringer has forged, destroyed or concealed evidence; and
- whether the infringer has refused to comply with an injunction.
Level of Punitive Damages
Consistent with relevant IP legislation, the SPC Interpretation gives courts discretion, based on the circumstances, to impose punitive damages from 100% to 500% of the base amount, i.e., the amount of the plaintiff’s actual losses, the infringer’s illegal gains, or a deemed royalty. The interpretation confirms that enforcement-related expenses (such as legal fees, notarial charges for sample purchases and other investigation costs) must be awarded separately from punitive damages and may not be the subject of multiplication.
Deadline for Claiming Punitive Damages
In cases of first instance, the SPC Interpretation allows plaintiffs to assert demands for punitive damages up to the time when the court has completed its examination of the case, typically the period shortly after hearings.
By contrast, in appeal proceedings, the interpretation requires that new requests for punitive damages be asserted with the appeal, failing which the plaintiff will be allowed to file a fresh complaint to secure punitive damages. However, in any appeals, the plaintiff may request the court to mediate with the possibility of punitive damages in mind.
[i] See Article 63, paragraph 3 of the Trademark Law (2019); Article 16, paragraph 2 of the Interpretations of the Supreme People’s Court on Several Issues Concerning the Application of Law in Trial of Trademark Civil Dispute Cases (2020) (最高人民法院关于审理商标民事纠纷案件适用法律若干问题的解释(2020修正)).
[ii] See (2019) Zhe 8601 Min Chu No. 1611.