China: The Application Of "Punitive Damages" In The Practice Of IP Infringement Cases

Provisions pertaining to punitive damages

It is provided in Article 63 of Trademark Law of the People's Republic of China (hereinafter referred to as "Trademark Law") that:

The amount of damages for infringement upon the right to exclusively use a registered trademark shall be determined according to the actual losses suffered by the right holder from the infringement; where it is difficult to determine the amount of actual losses, the amount of damages may be determined according to the benefits acquired by the infringer from the infringement; where it is difficult to determine neither the right holder's losses nor the benefits acquired by the infringer, the amount of damages may be a reasonable multiple of the royalties. If the infringement is committed in bad faith under serious circumstances, the amount of damages shall be more than the amount, but less than three times the amoun that is determined by the aforesaid methods. The amount of damages shall include reasonable expenses of the right holder for stopping the infringement.

The "punitive damages" provision therein, namely, "If the infringement is committed in bad faith under serious circumstances, the amount of damages shall be more than the amount, but less than three times the amount that is determined by the aforesaid methods", was newly added when the Trademark Law was amended in 2013. As compared with the compensatory damages, which aims to compensate for the loss suffered by the right holder, the establishment of the punitive damages system helps to solve the problem in practice that the IP right is often infringed at very low cost while the protection thereof needs higher expenses. It is able to motivate the right holders to be more active in right protection and deter infringers or potential infringers as well.

Besides, similar provisions of "punitive damages" are proposed in the amendment drafts of both the Patent Law of the People's Republic of China and the Copyright Law of the People's Republic of China. It is expected that the foregoing law drafts, once adopted, will boost the intellectual property protection all-roundly.

A typical case

On March 5, 2018, Beijing Intellectual Property Court made a judgment of second instance over the case of infringement of trademark right and unfair competition dispute between Fila Sports Co., Ltd. (hereinafter referred to as "Fila Company") and Zhejiang Zhongyuan Shoes Co., Ltd. (hereinafter referred to as "Zhongyuan Company"), and Wenzhou Dute E-Business Co., Ltd. (hereinafter referred to as "Dute Company"), etc., and upheld the judgment of first instance made by People's Court of Xicheng District (hereinafter referred to as "court of first instance") .

The court of first instance held that financial data provided by the defendants can be regarded as a reference basis for calculating the profits gained by the defendants from infringement, which are calculated to be 2,638,322 RMB (around US$ 420,000). Besides, the court of first instance affirmed that being business operators of commodities of the same kind, the defendants should be aware of the popularity of the registered trademarks of Fila Company, but still used the accused logos. The above behaviors of the defendants are in bad faith under serious circumstances and therefore the amount of damages shall be determined as three times of the profits gained by the defendants from the infringement. Besides, upon comprehensive consideration regarding the workload of the attorney representing the plaintiff and the notary fee, the court of first instance granted the Fila Company's claim for reasonable expenses (including the attorney fee and the notary fee) of 410,000 RMB (around US$ 65,000) in full. The court of first instance delivered a judgment as follows: the defendants are ordered to stop the trademark infringement against Fila Company, to publish a statement on the designated media and the official website of Zhongyuan Company for eliminating the impact of the involved infringing acts on Fila Company, and to compensate Fila Company for an economic loss of 7,910,000 RMB (around US$ 1,260,000) plus reasonable expenses of 410,000 RMB (around US$ 65,000), while other claims of Fila Company are overruled.

The defendants refused to accept the judgment of first instance, and appealed to Beijing Intellectual Property Court. Upon hearing, Beijing Intellectual Property Court held that the facts were found clearly and laws were applied correctly by the court of first instance, the original court judgment shall be upheld.

The court's judgment effectively protects the legitimate rights and interests of Fila Company. This case is a typical trademark infringement case which applied the provision of punitive damages, showcasing that China is making a great effort to strengthen the intellectual property protection and actively creating a fair commercial environment. It is believed that provisions of punitive damages for malicious infringement will motivate more IP right holders to take legal actions for safeguarding their commercial interests in China.

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