June 2024
Lihui Jiang and Jane Tsai
China first established rules on punitive damages for trademark infringement in 2013 and subsequently expanded the compensation range. In March 2021, the Interpretation of the Supreme People’s Court on the Application of Punitive Damages in the Trial of Civil Cases of Intellectual Property Infringement (“Interpretation”) was enacted. The core provision of this system is Article 63 of the Trademark Law, which stipulates that in cases of malicious trademark infringement with serious circumstances, compensation may be determined at one to five times the determined amount.
We have introduced the relevant laws and regulations in the fourth article of the trademark protection series. This article mainly focuses on the application of the punitive damages system in judicial practice.
I. Determination of “Intentionally or Maliciously“ in Judicial Practice
The Supreme Court issued “Typical Cases of Applying Punitive Damages in Civil Cases Involving Intellectual Property Infringement” (“Typical Cases”) almost simultaneously with the Interpretation. Most of these cases involved trademark infringement[1]. The circumstances in which the defendant is deemed to have acted “intentionally” include: the defendant should have known about the infringed trademark but continued to use the relevant logo for a long period; after the rejection of a similar trademark registration, the defendant persisted in using the mark for an extended period; even after being held liable in civil judgments, the defendant continued infringing activities; and despite administrative or criminal penalties, the defendant continued to use the mark.
In April 2021, Zhejiang Province witnessed its first case applying the Interpretation, further clarifying the standards for determining “intentionally” and “serious circumstances” in applying punitive damages. In this case, the defendants were ultimately ordered to pay Wyeth 30.55 million yuan in damages[2].
The former Guangzhou Huishi Baby Maternal and Infant Products Co., Ltd., and other entities were engaged in the extensive and long-term production and sale of maternal and infant care products featuring the “Huishi” (the Chinese pronunciation of Wyeth), “Wyeth”, and “Huishi Little Lion” logos without the necessary licensing. Additionally, they overtly or subtly implied an association with Wyeth in their promotional campaigns. Consequently, Wyeth LLC and Wyeth Shanghai initiated legal action against them. Subsequent to the initial trial and the appellate review, the defendants were found guilty of infringement, and punitive damages were applied.
In this case, the court determined that the defendants were “intentional” based on the following reasons: The “Wyeth” trademark from the United States possesses strong originality, significant distinctiveness, and high recognition; some defendants are engaged in the production or sale of maternal and infant products and, as competitors in the same industry, should have been aware of this; nevertheless, they still established Huishi China Co., Ltd. with an identical name to Wyeth LLC in mainland China and Hong Kong; they also continued to use related logos on maternal and infant products for many years through preemptive trademark registration (all of which have been deemed invalid) and acquisition. These actions sufficiently demonstrate their reliance on the well-known reputation of Wyeth, and their subjective intention is very obvious, thus meeting the intentional criteria for the application of punitive damages[3].
II. Determination of “Serious Circumstances“ in Judicial Practice
In addition to meeting the subjective requirement of “intention,” the punitive damages system for trademark infringement also requires the existence of “serious circumstances” as an objective criterion.
Continuing with the “Wyeth” trademark infringement case as an example, factors leading to the determination of “serious circumstances” are the following motivations: firstly, regardless of whether it was in the production, sale of goods, or promotional activities, the defendants extensively used the infringing marks for a prolonged period and on a large scale; secondly, the establishment of companies such as former Guangzhou Huishi and Qingdao Huishi by the defendants was specifically for the purpose of producing and selling counterfeit products, indicating a deliberate intent to infringe intellectual property rights; additionally, the defendants preemptively registered and acquired multiple “Wyeth” related trademarks, authorizing over 900 dealers in more than 100 prefecture-level cities nationwide to use them, resulting in substantial profits over an extended period. Furthermore, even after the first-instance judgment, the defendants did not completely cease their infringement activities, continuing to extensively use the “Huishi little lion” mark. Considering these factors collectively, the court ultimately determined that the defendants’ behaviors constituted “serious circumstances”, warranting punitive damages[4].
In addition, according to the Typical Cases published by the Supreme Court, the following situations are often identified as serious circumstances: the prolonged duration of the infringement; the defendant engaging in the infringement of intellectual property as a primary business activity; the defendant being subject to civil, administrative, or criminal accountability; and obtaining substantial profits.
III. Determination of Damages in Judicial Practice
As for the calculation, Article 5 of the Interpretation stipulates that when determining the amount of punitive damages, the people’s court shall use the actual loss suffered by the plaintiff, the illegal gains obtained by the defendant, or the benefits obtained from the infringement as the calculation base. When it is difficult to calculate using the aforementioned methods, a multiple of the licensing fee can be used as a reference.
From a practical standpoint, it is often challenging for the plaintiff to provide evidence of actual loss. For instance, claiming a decrease in sales makes it difficult to establish a causal relationship. Additionally, the illegal gains acquired by the defendant or the benefits obtained from the infringement are typically within the defendant’s possession, making it challenging for the plaintiff to obtain such information.
In judicial practice, the plaintiff can approach the issue from three perspectives. Firstly, they can refer to the sales data obtained from third-party online platforms such as Taobao, Tmall, and JD.com. It is essential to promptly notarize the evidence to ensure its validity when using these as evidence. Secondly, they can try to find clues from the evidence submitted by the defendant. In the “Wyeth” case, the number of distributors submitted by the defendant in the trademark administrative proceedings and the sales figures specified in the distribution contracts were used. Additionally, sometimes the court may order the defendant to provide their accounting books and relevant documents related to the infringement. In summary, the plaintiff can try to provide as many different calculation methods as possible to corroborate each other, thereby increasing the authenticity and reliability of the claim amount.
Furthermore, although the multiplier range for punitive damages is set at one to five times the calculation base, specific circumstances determining the exact multiplier currently lack detailed regulations and are generally left to the discretion of judges. Moreover, in court judgments, there are rarely detailed explanations regarding the rationale for the multiplier. Based on most cases found so far, it is usually two or three times the calculation base, occasionally reaching four times.
Another crucial point to consider is whether the total compensation includes the calculation base, which lacks unified regulations and varies among different courts. For example, in the “Wyeth” case, the court established a calculation range of 7.8908 million yuan to 51.9319 million yuan and applied a 3 times multiplier for punitive damages. This resulted in a compensation range from 31.5632 million yuan (7.8908 million × 4) to 207.7276 million yuan (51.9319 million × 4). The lower limit of this range already exceeds the amount claimed by the plaintiffs, fully supporting their claim of 30.55 million yuan in compensation. In this case, the court concluded that the total compensation to be paid by the defendants for the infringement should be the sum of the calculation base amount and the punitive damages amount.
In a case in Shanghai in December 2023, the plaintiff was the rights holder of the “Huawei” series trademarks. The court ruled that the defendants had infringed the trademarks and applied a fourfold multiplier for punitive damages.
The court found that the defendants had gained profits of 5,995,177.16 yuan from the infringement. Thus, the applicable compensation is 23,980,708.64 yuan (calculation base × 4), which exceeded the plaintiff’s claim. Therefore, the court fully supports the plaintiff’s claim of 10 million yuan. In this case, the court did not include the calculation base when calculating the compensation[5].
Lastly, it is important to note that the application of punitive damages is based on the principle of application upon request. The plaintiff should submit the claim when filing the lawsuit or before the conclusion of the first-instance debate.
[1] The Supreme People’s Court of the People’s Republic of China: Typical Cases of Applying Punitive Damages in Civil Cases Involving Intellectual Property Infringement
https://www.court.gov.cn/zixun/xiangqing/290651.html
[2] Chinacourt: Zhejiang Province Applies the Interpretation of Punitive Damages in First Case, Wyeth was awarded 30.55 million yuan
https://www.chinacourt.org/article/detail/2021/04/id/6006357.shtml
[3] Zhejiang Provincial High People’s Court: (2021) Zhejiang Civil Final No. 294
[4] Idem
[5] Shanghai Jinshan District People’s Court: (2023) Hu 0116 Min Chu 4729
Related Articles
- Trademark Protection (1) – Brand Protection and Trademark Registration (Mainland China)
- Trademark Protection (2) – Recourses for Preemptive Trademark Registration (Mainland China)
- Trademark Protection (3) – Outlook on Metaverse Trademark Protection (Mainland China)
- Trademark Protection (4) – Punitive Damages for Trademark Infringement (Mainland China)
- Trademark Protection (6) – Key Points of Trademark Assignment (Mainland China)
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