Legislation & Policy

Translation: Explanations of Several Issues Concerning the Specific Application of Laws in Deciding Criminal Cases Involving Infringement of IP Rights

SIPSKnowledge, Legislation and Policy

Supreme People’s Court and Supreme People’s Procuratorate – Explanations of Several Issues Concerning the Specific Application of Laws in Deciding Criminal Cases Involving Infringement of Intellectual Property Rights (III)

Fa Shi (2020) No.10

To penalize criminal infringement of intellectual property rights in accordance with the law and to safeguard the socialist market economic order, and in accordance with the relevant provisions of the Criminal Law of the People’s Republic of China and the Criminal Procedure Law of the People’s Republic of China and other regulations, the following explanations of some of the issues concerning the specific application of the law in deciding criminal cases involving infringements of intellectual property rights are provided:

Article 1: Any of the following circumstances may be determined as a “trademark identical to the proprietor’s registered trademark” as stipulated in Article 213 of the Criminal Law:

  1. Where the text, capitalization or horizontal or vertical alignment of the text of the registered trademark have been altered but this is basically indistinguishable from the registered trademark;
  2. Where the spacing between text, letters, numbers, etc., of the registered trademark have been altered but this is basically indistinguishable from the registered trademark;
  3. Where the color of the registered trademark has been altered but this does not affect the distinctive features of the registered trademark;
  4. Where a generic name, model number or other word lacking distinctive features has merely been added to the registered trademark but this does not affect the expression of the distinctive features of the registered trademark;
  5. [Where the trademark] is basically indistinguishable from the three-dimensional shape and surface elements of the registered three-dimensional trademark;
  6. Other trademarks that are basically indistinguishable from the registered trademark, where this is sufficient to mislead the public.

Article 2: In the absence of evidence to the contrary, where a natural person, legal person or unincorporated organization signs in the usual manner a work or a sound recording specified in Article 217 of the Criminal Law, it shall be presumed to be the copyright owner or sound recording author, and corresponding rights shall exist in the work or sound recording.

In a case where there are many types of works or sound recordings and where right holders are dispersed, then if there is evidence to show that the copies in question were illegally published, copied or distributed and if the publisher, the copier or the distributor is unable to produce relevant evidentiary materials showing authorization from the copyright owners or the author of the sound recording, then the case may be determined as falling under “without the authorization of the copyright owner” or “without the authorization of the author of the sound recording” as stipulated under Article 217 of the Criminal Law. However, this shall not apply where there is evidence to show that the rights holder has given up its rights, or that copyright in the relevant work or rights in the relevant sound recording are not protected by China’s Copyright Law, or that the duration of protection has already expired.

Article 3: Where means such as illegal copying, using computer information systems without authorization or in excess of authorization, etc., are used to steal trade secrets, this should be determined as “theft”, as stipulated in Article 219 (1)(i) of the Criminal Law.

Where a rights holder’s trade secrets are obtained by methods such as bribery, fraud, electronic intrusion, etc., this should be determined as “other improper means”, as stipulated in Article 219 (1)(i) of the Criminal Law.

Article 4: If an act stipulated in Article 219 of the Criminal Law is committed with any of the following circumstances being present, it should be determined as “causing significant damage to the rights holder of the trade secret”:

  1. Where the amount of damage caused to the rights holder of the trade secret or the amount of illegal gain resulting from the infringement of the trade secret is more than 300,000 Yuan;
  2. Where the rights holder of the trade secret is directly caused to go bankrupt or to close its business due to significant business difficulties;
  3. Where other significant losses are caused to the rights holder of the trade secret.

Where the amount of damage caused to the right holder of the trade secret or the amount of illegal gain resulting from infringement of the trade secret is more than 2,500,000 Yuan, the act should be determined as “causing particularly serious consequences” as stipulated in Article 219 of the Criminal Law.

Article 5: The amount of damage or illegal gain resulting from acts stipulated in Article 219 of the Criminal Law may be determined in the following ways:

  1. Where a rights holder’s trade secret has been obtained by improper means but has not yet been disclosed, used or been permitted for use by third parties, then the amount of loss may be fixed on the basis of a reasonable licensing fee for the trade secret;
  2. Where a right holder’s trade secret has been obtained through improper means and it has thereafter been disclosed, used or permitted for use by third parties, then the amount of loss may be fixed on the basis of the rights holder’s loss of sales profit resulting from the infringement, but where the amount of loss is lower than a reasonable licensing fee, the loss shall be fixed on the basis of a reasonable licensing fee;
  3. Where a trade secret in a party’s possession is disclosed, used or permitted for use by third parties in violation of an agreement or requirements by the rights holder for protecting its trade secrets, then the amount of the loss may be fixed on the basis of the rights holder’s loss of sales profit resulting from the infringement;
  4. Where it is clearly known that a trade secret has been obtained through improper means or where it is still obtained, used or disclosed when it is clearly known that was disclosed, used or permitted for use in violation of an agreement or requirements of the rights holder for protecting its trade secret, then the amount of damage may be fixed on the basis of the right holder’s loss of sales profit resulting from the infringement;
  5. Where the violation of a trade secret results in the trade secret becoming known to the public or in its secrecy being lost, then the amount of loss may be fixed on the basis of the commercial value of the trade secret. The commercial value of the trade secret may be based comprehensively on the cost of the research and development for the trade secret and the income from implementing the trade secret;
  6. Property or other property interests obtained from disclosing or permitting third parties to use a trade secret should be determined as illegal gain.

The rights holder’s loss of sales profit resulting from infringement, as set out in (ii), (iii) and (iv) above, may be calculated on the basis of the total reduction in sales of the rights holder as a result of the infringement, multiplied by a reasonable profit per product of the rights holder; where the total reduction in sales cannot be determined, the sales volume of the infringing product may be multiplied by a reasonable profit per product of the rights holder; where the total reduction in sales and the reasonable profit per product of the rights holder cannot be determined, the sales volume of the infringing product may be multiplied by the reasonable profit per product of the infringing product. Where a trade secret is used for other business activities such as services, etc., the amount of losses can be fixed on the basis of the drop in reasonable profit suffered by the rights holder as the result of the infringement.

The remedial expenses associated with a trade secret rights holder’s mitigation of  losses to business operations and business plans, or with restoring the security of computer information systems and other systems should be calculated into the loss suffered by the rights holder of the trade secret.

Article 6: In criminal proceedings, where a party, defendant, agent ad litem or third party applies in writing for measures to maintain the secrecy of evidence and materials relating to a trade secret or other business information that needs to be kept confidential, necessary confidentiality measures should be taken in accordance with the circumstances of the case, such as arranging for the parties to the case to sign confidentiality undertakings, etc.

Where the requirements of the confidentiality measures in the preceding paragraph are violated or the duties of confidentiality stipulated in laws and regulations are violated, corresponding liability shall be borne in accordance with the law. Where a trade secret accessed or obtained during the course of criminal proceedings is, without authorization, disclosed, used or permitted for use by third parties and this meets the stipulations of Article 219 of the Criminal law, criminal liability shall be pursued according to law.

Article 7: Except in special circumstances, counterfeit goods, illegally manufactured representations of registered trademarks, reproductions that infringe copyright, materials and tools  primarily used for the manufacture of counterfeit goods, registered trademark representations or infringing reproductions should be confiscated and destroyed in accordance with the law.

If the above-mentioned items are needed for use as evidence in civil or administrative cases, then upon an application by the rights holder, they may be destroyed after the conclusion of the civil or administrative case or after the evidence has been preserved through means such as taking samples, taking photographs, etc.

Article 8: Where any of the following circumstances are present, a more severe punishment may be imposed as appropriate, and a probation will generally not apply:

  1. Engaging in intellectual property rights infringement as a main business;
  2. After administrative punishment for intellectual property rights infringement, where a further intellectual property rights infringement constitutes a crime;
  3. During times of major natural disasters, accidents, or public health crises, counterfeiting registered trademarks for goods such as disaster relief and epidemic prevention materials, etc.;
  4. Refusal to hand over the illegal gains.

Article 9: Where any of the following circumstances are present, a more lenient punishment may be imposed as appropriate:

  1. A guilty plea is entered;
  2. An understanding has been reached with the rights holder;
  3. Repentance has been shown;
  4. The rights holder’s trade secret obtained by improper means has not yet been disclosed, used or permitted for use by others.

Article 10: In cases of criminal infringement of intellectual property rights, there should be a comprehensive consideration of the circumstances, such as the amount of criminal proceeds, the amount of illegal business revenue, the amount of damage caused to the rights holder, the quantity of the counterfeit goods, the harm to society, etc., and a fine shall be imposed in accordance with the law.

The amount of the fine is generally determined at a level not less than one and not more than five times the amount of the illegal gain. If the amount of illegal gain cannot be verified, the amount of fine shall be generally be determined at a rate of not less than fifty percent and not more than one times the amount of illegal business revenue. Where neither the amount of illegal gain nor the amount of illegal business revenue can be ascertained and a sentence is imposed of fixed-term imprisonment of not more than three years, or criminal detention, or public surveillance or just a fine, then the amount of the fine shall generally be determined between 30,000 Yuan and 1,000,000 Yuan; if sentenced to a term of not less than three years, the amount of the fine shall generally be not less than 150,000 Yuan and not more than 5,000,000 Yuan.

Article 11: If judicial interpretations and normative documents issued before this Explanation takes effect are inconsistent with this Explanation, this Explanation shall prevail.

Article 12: This Explanation shall take effect on September 14, 2020.

Translation by SIPS.

Original text in Chinese available at: https://www.spp.gov.cn/spp/xwfbh/wsfbt/202009/t20200913_479686.shtml#1