China Released Interpretation on the Application of Punitive Damages in Intellectual Property Infringement Disputes
On 20 April 2026, the PRC Supreme People's Court issued the Interpretation of the Supreme People's Court on the Application of Punitive Damages in the Trial of Civil Cases Involving Intellectual Property Infringement Disputes (Fa Shi [2026] No. 7, "Interpretation"). The Interpretation came into effect on 1 May 2026 and replaced the previous interpretation (Fa Shi [2021] No. 4, "Previous Interpretation").
Background
According to the statistics from the Supreme People's Court, since the Previous Interpretation took effect in 2021, courts across China have concluded a total of 1,471 intellectual property cases in which punitive damages were applied. Among these cases, punitive damages were applied in 505 cases, with total compensation reaching RMB 1.8 billion in 2025. These figures demonstrate that over recent years, the Previous Interpretation has not only contributed to deter intellectual property infringement, but also to safeguard the legitimate rights and interests of rights holders.
To further enhance the effectiveness of the punitive damages system and to address emerging infringement issues, the Supreme People's Court has issued this new Interpretation.
Key Revisions
- Timing for claiming punitive damages
Generally, the People's Courts shall allow a right holder to add punitive damages claim before the close of first-instance oral arguments. If such claim is raised for the first time in the second instance, Article 3 of the Interpretation clarifies that the People's Courts may conduct mediation on the basis of the parties’ voluntary consent. If mediation fails, the People's Courts shall dismiss such claim, and the right holder shall not be permitted to institute a separate lawsuit. Further, Article 4 of the Interpretation specifies the procedural rules for claiming punitive damages. A claim for punitive damages based on the same act of intellectual property infringement may not be brought in a separate lawsuit, if it was not raised simultaneously in the original case.
On the one hand, these two articles encourage rights holders to proactively utilize the punitive damages system to protect their legitimate rights and interests. On the other hand, they aim to promote efficient use of judicial resources.
- Scope of applying punitive damages
Article 5 of the Interpretation corresponds to Article 22 of the PRC Anti-Unfair Competition Law. It explicitly stipulates that punitive damages shall not apply to unfair competition acts other than trade secret infringement. For other types of unfair competition, including confusion, false advertising, commercial defamation, etc., punitive damages cannot be applied unless otherwise provided by laws. It remains uncertain whether future legislation will extend punitive damages to other acts of unfair competition.
- Determination of subjective intent and serious circumstances
According to Article 1 of the Interpretation, the application of punitive damages is subject to two statutory conditions: the infringer must have acted with subjective intent, and the infringement must objectively reach a level of seriousness. The Interpretation has refined both conditions.
As to subjective intent, the Previous Interpretation listed five scenarios, i.e. continued infringement after receiving a warning, infringement by interested parties, infringement by business partners, infringement by negotiating parties, and infringement involving piracy or counterfeiting. Article 6 of the Interpretation adds two new scenarios. The first one is repeating the same or similar infringement after reaching a settlement with right holders and undertaking to cease infringing activities. This will help crack down on repeated infringement following a settlement. The second one is evading legal liabilities arising from intellectual property infringement by concealing actual control through establishing affiliated entities, changing legal representatives or controlling shareholders, setting up anonymous companies, etc. This article incorporates the "piercing the corporate veil" doctrine from corporate law, aiming to crack down on infringers who attempt to conduct infringing activities under the guise of other names.
As to serious circumstances, the Previous Interpretation listed six types, i.e. repeat infringement, refusal to comply with preservation rulings, obstruction of evidence collection, engaging in infringement as a principal business, causing substantial damages, and harming public interests. Article 7 of the Interpretation further clarifies the definition of "engaging in infringement as a principal business" from operational and revenue perspectives, i.e. treating infringement as the main business or deriving profits from infringing activities as the main source of profit. Further, if the circumstances set out in Article 7 are satisfied, the People's Courts "shall" determine that the case involves serious circumstances. This shifts from the discretionary "may" standard in the Previous Interpretation, which unifies judgment criteria and strengthens sanctions against infringers.
- Calculation method for damages base
When determining the amount of punitive damages, the People's Courts shall use a plaintiff's actual losses, a defendant's illegal gains, or the profit derived from the infringement as the basis for calculation.
Article 8 of the Interpretation adds a new provision that statutory damages shall not serve as the calculation base for punitive damages. The rationale behind this article is that statutory damages are awarded at judicial discretion, using them as the base would blur the boundary between two distinct compensation regimes, i.e. actual loss-based compensatory damages and punitive damages. It may also result in unreasonably high compensation amounts. This article also encourages judges to make greater efforts to determine the basis for calculation based on the evidence.
Further, Article 9 of the Interpretation provides clear guidance on the calculation basis. Where punitive damages are based on the defendant's illegal gains or infringing profit, such amounts may be determined by reference to operating profit. For infringers engaging in infringement as a principal business, sales profit, i.e. gross profit, shall be adopted. This article aligns the financial definitions of "operating profit" and "sales profit". Operating profit is generally lower than sales profit because it deducts not only the cost of distributed products but also other operating expenses, including selling expenses, administrative expenses, etc. Therefore, for infringers engaging in infringement as a principal business, their illegal profit should be calculated to the greatest extent, i.e. by using the higher amount of sales profit.
- Determination of punitive damages multipliers
Article 11 of the Interpretation stipulates that the punitive damages multiplier is not limited to an exact whole number. For instance, the People's Courts previously tended to award whole-number multiples such as 3 times or 5 times, now they can also award punitive damages of 2.1 times, 4.8 times, etc., of the calculation base. In past judicial practice, the People's Courts often adopted whole multiples in a mechanical manner. Based on the Interpretation, the People's Courts may exercise flexible discretion by adjusting the multiplier by considering the defendant's subjective fault, the severity of the infringement and other case-specific factors to ensure fairness.
Article 12 further clarifies that the total compensation amount shall not exceed five times the calculation base. Further, the calculation base shall not include the plaintiff's reasonable expenses, such as attorney fees and notarization fees.
Conclusion
Overall, the Interpretation has made systematic improvements to the system of intellectual property punitive damages from both procedural and substantive perspectives. The criteria for applying punitive damages in intellectual property cases will become more standardized and fairer. It also provides clear litigation guidance for right holders and aims to serve as a deterrent to potential infringers. It is highly advisable for rights holders to accurately understand the applicability and scope of the Interpretation, as well as to use the punitive damages system to comprehensively protect their intellectual property rights.
