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GUIDANCE FROM CHINA’S SUPREME COURT IN LIGHT OF PUNITIVE DAMAGES ON INTENTIONAL IPR INFRINGEMENT

The Supreme People's Court promulgated a new Judicial Interpretation (“JI”) on the Application of Punitive Damages to the Trial of Civil Cases of Infringement of Intellectual Property Right on March 3, 2021, which becomes effective on the same day. In line with Article 1185 of the Civil Code passed in May 2020, the new JI is applicable to intentional infringement, with serious circumstances, of IPRs, including not only the rights in terms of copyright, trademark and patent, but also those under anti-unfair competition law and seeds law.

Since the new Trademark Law and Anti-Unfair Competition Law implemented in 2019, when punitive damages were first introduced into the IP laws in China, extensive trial experience have been accumulated. For instance, the criteria for the determination of the intent and severity of the infringement of intellectual property rights, as stipulated in this new JI, all come from real typical cases.

  1. New rules to determine the intent in infringement of intellectual property rights

Article 3 of the new JI provides for some typical situations that could serve as indications of intentional infringement of IPR. The new JI is believed to have increased practicality, feasibility and operability. For example, the situations in the following clauses are not uncommon in practice, on which the courts can hold a presumption of intentionality:

  • the defendant continues to commit the infringing acts after being notified or warned by the plaintiff or the interested party;
  • the defendant and the plaintiff or the interested parties have relationships in terms of labor, service, cooperation, licensing, distribution, agency, representative etc., and have accessed to the infringed intellectual property rights;
  • the defendant has business with the plaintiff or interested parties or has negotiated for reaching a contract, etc., and has accessed to the infringed intellectual property rights;
  • The defendant committed acts of pirating, or counterfeiting registered trademarks.

Unlike some local regulations issued earlier, such as the “Guiding Opinions of Shenzhen Intermediate People’s Court on the Application of Punitive Damages in Civil Disputes of Infringement of Intellectual Property Rights” issued last year, the new JI does not explicitly count the situation, where the receiver of the warning letter has justified reasons to continue the relevant act, as an exemption. So at least literally, the defendant may not use non-infringement opinion or validity opinion as defense. Therefore, proactive invalidation may become more important as a measure to prevent infringement.

  1. New rules to determine the severity of the infringement of intellectual property rights

Article 4 of the new JI enumerates several typical situations of serious infringement of IPR, among which the following clauses are particularly noteworthy:

  • after being punished by an administrative penalty or a court decision for infringement, committing the same or similar infringement again;
  • committing the infringement of intellectual property rights as the whole business;
  • forging, destroying or concealing evidence of infringement;
  • refusal to abide by the preservation ruling.

This Article mainly considers the means and consequences of the infringement, instead of the subjective state of the infringers.

  1. New rules to determine the basis for computing punitive damages

According to the new JI, the following could serve as the basis for computing punitive damages:

  • the actual loss suffered by the plaintiff;
  • the amount of the defendant’s illegal gains, or
  • the profits obtained due to infringement

if the above is difficult to compute,  

  • the multiple of the license fee for the right in accordance with the law.

The reasonable expenses paid by the plaintiff to stop the infringement is excluded as the basis.

The new JI emphasizes that the plaintiff only assumes the burden of preliminary proof for the above-mentioned basis, while the defendant has the obligation to provide account books and information related to the infringement. If the defendant does not cooperate, the court may use the plaintiff’s preliminary evidence as the basis.

  1. Coordinating the applicable standards of punitive damages in different laws

In the Trademark Law and Anti-Unfair Competition Law promulgated in 2019, the prerequisite for punitive damages is with “bad faith (or malice)”, but in other intellectual property laws, the prerequisite for application is with “intent”. The difference between the two terms causes certain confusion in practice. The new JI clarifies that the meanings of "bad faith" and "intent" are consistent, so that they are in harmony with the provisions of the Civil Code.