Interview with KANG: Punitive Damages in China IP cases
Kang and I were having lunch together this week and very accidentally we talked about damages awarded by Chinese court (especially Shandong courts). Here below is a record of what we had talked about and hopefully it is insightful and helpful.
Me: Which types of intellectual property cases tend to yield the highest compensation? Are these primarily related to unfair competition?
Kang: Not quite. I would argue that cases involving intentional infringement of trademarks or patents typically result in higher compensation.
Me: Understood. I am aware that, in some instances, the trademark in question may still be in the application phase. How does this impact the case?
Kang: The court will take this into account when determining damages. For example, they may reduce the damages to twice the base amount rather than five times.
Me: However, it remains a case of intentional infringement, correct?
Kang: Indeed, it is still classified as intentional or malicious infringement. In such circumstances, I would recommend that we concentrate our efforts on establishing the intentional (or malicious) nature of the infringement.
Me: What implications does intentional (malicious) infringement carry?
Kang: The Supreme People's Court has issued a regulation stating that if the plaintiff believes the defendant has intentionally infringed on their intellectual property rights and the case is severe, they can request punitive damages. The court will then review this request according to the law. In April 2022, the High Court in Shandong released a guideline which elaborates on punitive damages. Basically, if the infringement was deliberate and significant, the infringer could be liable to pay the intellectual property owner for their losses, along with additional punitive damages of up to five times the original compensation amount.
Me: Five times additional in punitive damages is substantial. Are there specific requirements that must be met for a person to claim these damages under the guideline?
Kang: Yes, indeed. The "Guidelines for Adjudicating Civil Cases Involving Infringement of Intellectual Property Rights and the Application of Punitive Damages," as issued by Shandong Provincial High People's Court, delineate specific scenarios under which the court might preemptively determine that the defendant intentionally infringed. These scenarios include:
The defendant continued to infringe after receiving a notification or warning.
There exists a direct relationship between the defendant and the plaintiff.
The defendant has business connections with the plaintiff and has had access to the related intellectual property.
The defendant has engaged in piracy or counterfeiting activities.
The defendant persists in using a trademark that has been declared invalid or rejected.
The defendant has a history of previous infringing activities and has repeated them.
Other circumstances that could preliminarily indicate intent to infringe.
Me: To finalize, how do we calculate the base amount for damages? If the calculation method differs, it could lead to significant discrepancies in the total damages awarded.
Kang: In cases of punitive damages determination, the court shall refer to relevant laws to derive the calculation base from the actual losses incurred by the plaintiff, illegal profits made by the defendant, or benefits attained through the infringement. If it’s challenging to determine these amounts, the court may refer to a reasonable multiple of the licensing fee for the IP rights as the calculation base for punitive damages. Moreover, any reasonable expenses incurred to cease the infringing activities should be assessed separately after determining the total compensation, including punitive damages.
