March 2024
Lihui Jiang and Jane Tsai
China’s Trademark Law first established rules for punitive damages for trademark infringement in 2013. According to the law, in cases of malicious infringement of trademark exclusive rights with serious circumstances, punitive damages can be determined at “one to three times the amount determined for compensation.” In 2019, this range was expanded to “one to five times the determined compensation amount.” Furthermore, the Civil Code of 2020 also specifies that in cases of intentional infringement of others’ intellectual property rights with serious circumstances, the right holder has the right to request corresponding punitive damages.
I. Determination of Compensation Amount
Civil liability for infringing intellectual property mainly includes ceasing infringement, eliminating influences, offering apologies, and indemnifying for damages. The traditional compensation system aims to compensate the actual losses suffered by the intellectual property rights holder, known as compensatory damages. Punitive damages serve not only to compensate for losses but also to “punish” the infringer’s behavior[1]. Additionally, the Trademark Law also specifies statutory damages.
Regarding compensatory damages, Article 63 of the Trademark Law stipulates that the compensation amount should be determined based on the actual losses suffered by the rights holder due to the infringement. When actual losses are difficult to determine, the compensation can be based on the benefits obtained by the infringer through the infringement. If the losses of the rights holder or the benefits obtained by the infringer are difficult to determine, a reasonable multiple of the trademark licensing fee may be used for determination. Statutory damages are applicable when it is difficult to determine the amount using these methods, and the court may award compensation of up to five million.
Furthermore, Article 63 of the Trademark Law also states that in cases of malicious infringement with serious circumstances, the compensation amount can be determined at one to five times the determined amount. Interpretation of Supreme People’s Court on the Application of Punitive Damages in the Trial of Civil Cases of Intellectual Property Infringement (Interpretation) further clarify that the base for calculating punitive damages includes the actual losses of the plaintiff, the illegal gains of the defendant, or the benefits obtained through infringement. If these three factors are difficult to calculate, the court may reasonably determine such amounts by referring to multiples of the licensing fee, excluding reasonable expenses paid by the plaintiff to stop the infringement unless otherwise provided by law.
II. Application of Punitive Damages
Since the establishment of punitive damages system in China, there have been few cases where the courts have applied it, and there has been some controversy. However, the Interpretation issued in March 2021 addressed the difficulties encountered in the judicial practice of applying this system, particularly providing detailed provision on the determination of “intentional” and “serious circumstances.”
The Trademark Law stipulates that the subjective requirement for punitive damages is “malice,” while the Civil Code uses “intent.” In practice, it is difficult to distinguish between these two and prove them. The Interpretation clarifies that the meanings of the two are consistent. When the court determines them, it should comprehensively consider the type of intellectual property object being infringed, the status of rights, the fame of relevant products, the relationship between the defendant and the plaintiff or interested parties, etc. It also lists six situations that can be recognized as “intentional.”
A. Where the defendant continues to commit infringement after being notified or warned by the plaintiff or interested parties.
B. Where the defendant or its legal representative, administrator, is the legal representative, administrator, or actual controller of the plaintiff or interested parties.
C. Where there are labor, service, cooperation, licensing, distribution, agency, representation, or other relationships between the defendant and the plaintiff or interested parties, and they have been in contact with the infringed intellectual property.
D. Where the defendant has business with the plaintiff or interested parties, or has held negotiations for the conclusion of a contract, etc., and they have been in contact with the infringed intellectual property.
E. Where the defendant engages in piracy or counterfeiting registered trademarks.
F. Other circumstances that can be recognized as intentional.
Another requirement for applying punitive damages is the “serious circumstances.” Regarding its determination, Article 4 of the Interpretation clearly states that the court should comprehensively consider factors such as the means, frequency, duration, territorial scope, scale, consequences of infringement, and the defendant’s behavior in the litigation. It also lists seven circumstances that can be recognized as serious.
A. Where the defendant commits the same or similar infringement again after being administratively punished or judicially sentenced for infringing intellectual property.
B. Where the defendant’s business relies on infringing intellectual property.
C. Where the defendant forges, destroys, or hides evidence of infringement.
D. Where the defendant refuses to comply with preservation rulings.
E. Where the defendant gains significant profits from infringement or causes significant damage to the rights holder.
F. Where the infringement may endanger national security, public interests, or personal health.
G. Other circumstances that can be recognized as serious.
III. Cases Applied Punitive Damages
Plaintiff Company A is the owner of a series registered trademarks such as “华为” and “HUAWEI”. Defendants Company B and Company C, along with their actual controller, Mr. Li, operated a store named “Kubalo Flagship Store” on the Tmall platform without authorization, selling various products containing the word “Huawei” on a large scale. In March 2023, Company A filed a lawsuit, requesting the defendants to cease infringement, compensate for economic losses, and apply punitive damages, totaling 10 million yuan, as well as bear litigation costs. After trial, the court supported most of the plaintiff’s claims, including the 10 million compensation[2].
In this case, the defendant’s conduct involves “intentional” and “serious circumstances” mainly as follows: In September 2022, the defendant was administratively penalized for infringing the plaintiff’s trademark exclusive rights; In November 2022, the court also ruled that its behavior constituted infringement and ordered it to cease infringement and compensate for economic losses and rights protection expenses amounting to 2,000,000 yuan, however, the defendant has not fulfilled its compensation obligations. Furthermore, after receiving administrative penalties and civil judgments, the defendant not only failed to cease infringing activities but also showed a worsening trend. Therefore, in December 2023, the court determined that Defendant Company B and Company C had deep subjective malice, a long duration of infringement, and a large scale of infringement, which constituted serious circumstances. Punitive damages should be applied to them, ultimately supporting the plaintiff’s claim for compensation of 10 million yuan.
Conclusion
China has implemented a punitive damages system for trademark infringement for more than ten years, but there have been relatively few relevant cases in the past. However, the Interpretation issued in March 2021 provides clearer guidance for courts in applying punitive damages, enabling enterprises to better protect their intellectual property rights.
[1] The Tutorial of Intellectual Property Law, Seventh Edition, Qian Wang
[2] Shanghai Jinshan District People’s Court: (2023) Hu 0116 Min Chu N.4729
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