SPC Promulgated Opinions on Intensifying the Punishment for Intellectual Property Rights Infringement

On 14 September 2020 the Supreme People’s Court (“SPC”) promulgated the Opinions of the Supreme People's Court on Intensifying the Punishment for Intellectual Property Rights Infringement According to the Law (“Opinions”).

1. Introduction

The Opinions are formulated in order to guide the People’s Courts to hear cases in a fair manner, intensify the punishment of intellectual property (“IP”) rights infringement according to the law, effectively deter IP rights infringement, and create a good business environment. The Opinions consist of 16 Articles which are divided into four parts and provide guidance on:

(1) strengthening the application of preservation measures;

(2) ordering the cessation of infringement;

(3) intensifying compensation; and

(4) intensifying criminal crackdowns.

Please find below an overview on the key provisions of the Opinions.

2. Key Provisions of the Opinions

a) Strengthening the Application of Preservation Measures

In this part, the SPC emphasizes that the People’s Court shall review in a timely manner the right holder’s application for prohibitory injunction and evidence preservation in an IP civil litigation in the following circumstances:

(1) If a right holder applies for prohibitory injunction for the infringement or imminent infringement involving the IP rights of the following four subjects frequently vulnerable to IP rights infringement in recent years and such infringement will cause irreparable damage:

• core technologies;
• well-known brands;
• popular programs; and
• IP rights at exhibitions.

(2) If a right holder applies for an advance judgment about the cessation of infringement and for prohibitory injunction at the same time, the People’s Court shall make timely examinations of both requests from the right holder;

(3) If a right holder has preliminary evidence to prove the existence of IP rights infringement and the evidence may be lost or difficult to obtain in the future, and the right holder applies for evidence preservation, the People’s Court shall carry out an examination in a timely manner and make a ruling. To improve the efficiency of handling cases, the Opinions provide that evidence preservation involving a high level of professional technical issues may be participated in by a technical investigator.

Further, the Opinions provide how the People’s Court can deal with cases in which the infringer obstructs the evidence that has been preserved. Where an accused infringer arbitrarily damages or transfers any alleged infringing product for which any preservation measure has been taken or any other evidence, making any infringement fact impossible to be ascertained, the People’s Court may presume that the claim of the right holder about proof issues under the said evidence is tenable.

b) Ordering the Cessation of Infringement

In this part, the SPC emphasizes the application of advance judgement system and the support on right holders’ requests on destruction of materials and tools of infringement in IP civil litigations:

(1) Advance judgement on the cessation of infringement

If the facts of infringement are clear to determine that the infringement is tenable, the People’s Court may first order an advance judgement on the cessation of infringement. The advance judgement system has already been provided for in Article 153 of the PRC Civil Procedure Law effective as of 1 July 2017, i.e. if some of the facts of a case being tried are evident already, the People’s Court may make a judgment on those facts first. Since in disputes on IP rights infringement it often takes a long time to render a judgement, pending civil cases will not only expand the losses of right holders, but also not be conducive in improving the efficiency of the trial of cases and judicial credibility. Currently, the application of advance judgment in the field of IP rights is not common. The emphasis in the Opinions on this advance judgment system would facilitate the more frequent application of the advance judgment system in the field of IP rights so as to timely stop the infringement, safeguard the legitimate rights and interests of right holders.

(2) Destruction of materials and tools of infringement

In order to minimize the risk of further infringement, the People’s Court shall grant support to right holders’ requests on rapid destruction of materials and tools primarily used to produce counterfeit and pirated commodities in addition to destruction of the counterfeit and pirated commodities, as long as the right holders can present evidence proving the evidence of existence of these materials, tools and commodities. Under special circumstances, the People’s Court may order the disposal of materials and tools of such materials and tools which have not even entered into the market for circulation. Previously, in the PRC Trademark Law effective as of 1 November 2019, Article 63 only stipulates that the People’s Court shall prohibit the said materials and tools from entering into the market for circulation.

c) Intensifying Compensations

In this part, the SPC elaborates on the measures to intensify compensation mainly from the perspectives of the calculation of compensations, punitive compensations and statutory compensations, etc.

(1) Calculation of compensations

The Opinions provide that the People’s Court shall make full use of systems and methods such as excluding obstruction regarding burden of proof, investigation and evidence collection, evidence preservation, professional evaluation, and economic analysis to instruct the parties to provide comprehensive evidence to make the calculation of compensations more scientific and rational to fully cover the losses of the right holders.

The People’s Court shall actively use the relevant data provided by the parties from Market Supervision Administrations and tax authorities, infringers’ websites, publicity materials or other legally disclosed documents and industry average profit margins to determine the illegal profits. In this regard, in practices, the right holders are usually not able to retrieve precise financial information of the infringers from the Market Supervision Administrations and tax authorities, and there is a lack of authoritative third-party sources for providing data such as the average profits of the industry. It remains to be seen whether there will be more practical measures.

The Opinions further provide that, if a right holder has provided evidence to prove the amount of the illegal profits, the People’s Court may order the infringer to provide evidence of its illegal profits in its possession. If the infringer refuses or fails to provide the evidence as required, the People’s Court may determine the amount of compensations based on the claim of the right holder.

(2) Punitive compensations

There are no specific measures provided in this regard, but the Opinions emphasize that the People’s Court shall support the request for punitive compensations from the right holders against infringers who intentionally infringe the right holders’ IP rights with serious circumstances. In this regard, as the draft for comments versions of the PRC Patent Law and the PRC Copyright Law also provide corresponding punitive compensations, the emphasis on the application of punitive compensations in the Opinions should promote the application of the provisions relating to punitive compensations of the forthcoming updated IP laws.

(3) Statutory compensations

Under the condition that the infringement has caused material losses to the right holders or the infringer has made huge profits, the People’s Court may determine a highest possible amount of compensation within the scope of statutory compensations, i.e. close to or equivalent to the maximum amount of the statutory compensations in an amount of RMB 5 million.

However, the People’s Court still has the discretion to determine the specific amount of the statutory compensations. The Opinions further provide that the factors that a People’s Court shall take into account when determining the amount of statutory compensations are as follows:

• Whether the infringer committed intentional infringement;
• Whether the infringer is primarily engaged in IP rights infringement;
• Whether there is repeated infringement;
• Whether the infringement lasted for a long time;
• Whether the infringement involved a wide geographic area; and
• Whether the infringement may harm personal safety, destroy environmental resources or damage public interests.

In any event, the factors listed above help guide the right holders to gather evidence in an IP civil litigation in order to obtain the highest compensations.

d) Intensifying Criminal Crackdowns

In this part, the SPC has given considerations to frequently occurred IP rights infringement committed through online sales and IP rights infringement in special circumstances, such as during the COVID-19 epidemic, and has stipulated provisions for intensifying criminal crackdowns.

(1) Evidence proving illegal profits in IP rights infringement committed through online sales

In view of frequently occurred IP rights infringement committed through online sales, the Opinions provide that the People’s Court shall take into comprehensive consideration the electronic data on online sales, current accounts, delivery notes, records in the computer system of logistics companies, witnesses’ testimony, defendants’ confessions, and other evidence, to determine the amount of illegal business operations and the amount of illegal income from the crime of IP rights infringement.

(2) Cases where probation is not applicable

The People’s Court shall order heavier punishment and will generally not grant probation to the following criminals:

• Criminals who primarily engaged in IP rights infringement;
• Criminals who counterfeited any registered trademark of commodities such as epidemic prevention supplies in a specific period;
• Criminals who conducted repeated infringement after receiving an administrative penalty for the IP rights infringement.

(3) Application of fines

The Opinions further provide that the application of fines shall be strengthened to deprive criminals of the ability and conditions to infringe IP rights again.

3. Conclusion

The Opinions summarize and emphasize the outstanding problems in practice. On the one hand, the Opinions help the right holders to take appropriate measures in a timely manner to defend their rights. On the other hand, the Opinions also provide guidance and a legal basis for the People’s Courts to hear cases more comprehensively. In general, the Opinions emphasize some of the provisions of existing IP laws and regulations, while adding a few clarifications and more detailed stipulations. It is expected that the SPC will provide additional guidance and clarification, or that some standard practices will be developed in the judicial practices in due course.