SPC Issues Judicial Interpretation on Punitive Damages in Intellectual Property Infringement Cases

On 7 February 2021, the Judicial Committee of the PRC Supreme People’s Court adopted the Judicial Interpretation on Punitive Damages in Intellectual Property Infringement Cases (“Interpretation”). The Interpretation took effect on 3 March 2021.

1. Introduction

Punitive damages in intellectual property (“IP”) infringement cases were initially established in the PRC Trademark Law (2013 Revision). Following the trend of accelerating the construction of legislative system for punitive damages in IP infringement cases, the corresponding punitive damages provisions were incorporated in the PRC Seed Law (2015 Revision), the PRC Trademark Law (2019 Revision), the PRC Unfair Competition Law (2019 Revision), the PRC Patent Law (2020 Revision, effective as of 1 June 2021) and the PRC Copyright Law (2020 Revision, effective as of 1 June 2021). Further, the PRC Civil Code (promulgated in 2020, effective as of 1 January 2021) finally provided that the punitive damages remedy is applicable for all IP cases, which marked the application of punitive damages in all IP infringement cases. Following the legislative introduction of punitive damages, the Interpretation intends to provide practical guidance on the application of punitive damages in order to enhance monetary compensation for IP right holders and deter severe IP infringements.

2. Key Aspects

The Interpretation provides practical guidance on the following four aspects:

• Unifying the legal requirements for application of punitive damages;
• Introducing procedural requirements for claiming punitive damages;
• Providing practical references for recognition of the legal requirements for punitive damages;
• Clarifying the calculation base and multiples of punitive damages.

3. Unifying the Legal Requirements for Application of Punitive Damages

Article 1 of the Interpretation provides that the People’s Courts should review the plaintiff’s claim for punitive damages where the defendant intentionally infringes upon IP rights and the consequences are serious. This is consistent with Article 1185 of the PRC Civil Code. With regard to the application scope for punitive damages, the Interpretation clarifies that two legal requirements for punitive damages must be satisfied, i.e. the subjective requirement of “intention” and the objective requirement of “serious consequences”.

In addition, the Interpretation resolves inconsistencies concerning the subjective requirement for punitive damages between specific IP laws and unifies the legal terminology of “intention”. According to Article 63 of the PRC Trademark Law and Article 17 of the PRC Unfair Competition Law, the subjective requirement for punitive damages is defined as “malicious”. However, the corresponding terminology used in Article 71 of the PRC Patent Law (2020 Revision), Article 54 of the PRC Copyright Law (2020 Revision) and Article 1185 of the PRC Civil Code is “intention”. Therefore, Article 1 of the Interpretation specifically declares that the “intention” requirement includes both the “malicious” as stipulated in the PRC Trademark Law and the PRC Unfair Competition Law, i.e. under the circumstances that constitute “malicious behavior” under the PRC Trademark Law and the PRC Unfair Competition Law, the provisions of the Interpretation concerning circumstances that constitute “intentional behavior” shall also apply.

4. Introducing Procedural Requirements for Claiming Punitive Damages

Article 2 of the Interpretation clarifies the procedural requirements for raising the claim of punitive damages in IP infringement cases. It provides that the People’s Courts shall review a claim for punitive damages if it is raised prior to the conclusion of the court debates in the first instance. If a claim for punitive damages is raised in the second instance, the People’s Courts may conduct mediation based on the parties’ willingness. If the mediation fails, the parties shall be notified to file a separate lawsuit for the punitive damages claim.

5. Providing Practical Reference for Recognition of the Legal Requirements for Punitive Damages

The Interpretation addresses the relevant factors for recognizing the subjective requirement and the objective requirement for punitive damages claims respectively by providing unexhaustive lists of practical circumstances for reference.

a) Practical reference for recognition of the subjective requirement “intentional”

Article 3 of the Interpretation provides that the People’s Courts shall comprehensively consider the types of the infringed IP, the status of the IP right, fame of the relevant products and the relationship between the defendant and the plaintiff or other interested parties when ascertaining whether the defendant was acting “intentionally”. It further provides the following circumstances where the People’s Courts can preliminarily recognize the defendant to have acted “intentionally”:

• Where the defendant continues to commit infringement after being notified or warned by the plaintiff or the interested parties;
• Where the defendant or its legal representative or its manager is the legal representative, manager or actual controller of the plaintiff or interested parties;
• Where the defendant and the plaintiff or the interested parties have relationships such as employment, labor service, cooperation, licensing, distribution, agency, representative, etc., and have had access to the infringed IP;
• Where the defendant and the plaintiff or the interested parties have business dealings or negotiations for the conclusion of a contract, and have had access to the infringed IP;
• Where the defendant commits acts of piracy and counterfeiting of registered trademarks, etc.

b) Practical reference for recognition of the objective requirement “serious consequences”

Article 4 of the Interpretation specifically clarifies the relevant factors for recognizing the objective requirement “serious consequences”. It provides that the People’s Courts shall comprehensively consider the infringing manners, numbers of infringement, duration of infringement, geographical scope of infringement, significance of infringement, infringement results and the infringing party’s behavior during the litigation, etc. The Interpretation further provides the following circumstances which may satisfy the objective requirement of “serious consequences”.

• Where the infringing party commits the same or similar infringement again after being imposed with an administrative penalty or being held liable by a court judgement for its infringement;
• Where the infringing party conducts IP infringement as its main business;
• Where the infringing party forges, destroys or conceals evidence of infringement;
• Where the infringing party refuses to comply with preservation orders;
• Where the infringing party obtains huge illegal gains or the right holder suffers huge losses;
• Where infringement may endanger national security, public interest or personal health, etc.

6. Clarifying the Calculation Base and Multiples of Punitive Damages

a) Calculation base for punitive damages

As to the calculation base for punitive damages, different specific IP laws have different methods and the PRC Civil Code does not unify the calculation base for the practice. Article 63 of the PRC Trademark Law, Article 17 of the PRC Unfair Competition Law and Article 73 of the PRC Seed Law stipulate the specific order of calculation base for punitive damages, i.e. the right holder’s actual loss, the infringing party’s illegal gains, and license fees for the IP. Only if the previous base is difficult to ascertain, the next base for calculation can be applied. However, Article 71 of the PRC Patent Law (2020 Revision) and Article 54 of the PRC Copyright Law (2020 Revision) provide that firstly either the right holder’s actual loss or the infringing party’s illegal gains can be chosen as the basis for calculation of punitive damages, and if the actual gains and illegal gains are difficult to ascertain, license fees can be considered. Therefore, Article 5 of the Interpretation clearly states that the calculation base for punitive damages shall be in accordance with the relevant specific IP laws regarding different types of IP rights in order to avoid any uncertainty in practice.

In addition, Article 5 of the Interpretation clarifies that the calculation base for punitive damages shall not include the reasonable expenses spent by the plaintiff for stopping infringement, but provides that special rules in relevant laws shall prevail. By contrast, Article 73 of the PRC Seed Law is the only specific IP law which provides that reasonable expenses shall be included into the calculation base for punitive damages, while the other IP laws (i.e. PRC Trademark Law, PRC Patent Law, PRC Copyright Law and PRC Unfair Competition Law) exclude reasonable expenses from the calculation base.

b) Multiples of punitive damages

After ascertaining the calculation base for punitive damages, the People’s Courts shall determine the appropriate multiples in order to calculate the final amount of punitive damages. Article 6 of the Interpretation provides that the People’s Courts shall take the infringing party’s subjective fault and the serious consequences caused by the infringement into consideration as well as other relevant factors.

In particular, in the event where an administrative fine or criminal fine has been imposed for the infringement and the execution has been completed, Article 6 of the Interpretation provides that the People’s Courts will not support the defendant’s claim for reducing or exempting punitive damages for such infringement, but can take the execution of fines into consideration when determining the multiples.

7. Conclusion

The Interpretation provides relatively clear and practical guidance. We, thus, believe that the application of punitive damages in the future will provide better compensations for IP right holders and meanwhile have stronger deterrence effects on infringing parties. In addition, we expect that the PRC Supreme People’s Court will in due course publish typical cases regarding punitive damages for IP infringements, which would provide further guidance on the implementation of the Interpretation.