On April 25, Beijing High People's Court issued Guidelines on the Application of Punitive Damages in the Trial of Intellectual Property Infringement Civil Cases (Guidelines). The Guidelines specify the methods of calculating punitive damages, the applicable circumstances of punitive damages and Internet service providers’ liabilities for punitive damages. Together with the Guidelines, the court also introduced a few typical cases to illustrate how punitive damages were awarded in real cases on the same day.
Under the laws, a Chinese court may impose punitive damages when an infringement is found to be both “serious” and “intentional.” The Supreme People’s Court of China also released the Judicial Interpretation on Application of Punitive Damages in the Trial of Civil Intellectual Property Infringement Cases (SPC Interpretation), effective on March 3, 2021, to clarify the factors that should be considered when finding seriousness and intention. However, there is still a lack of clarity of many issues in courts’ application of punitive damages in practice. The Guidelines aim at setting standards to fill in these gaps.
Notably, the Guidelines cover the following issues.
Proving intention and seriousness
Generally speaking, punitive damages may be applied in intentional and serious IP infringement cases. The SPC Interpretation sets out the detailed factors Chinese courts must consider when determining if an infringement is intentional and serious. The Guidelines, taking a step forward, sets out eight situations in which an infringement could be considered both intentional and serious. In addition, the Guidelines further clarify the tests of malicious intention (Article 2.2), consideration of seriousness (Article 2.3) and determination of seriousness of IP infringement (Article 2.5).
Specifically, under Article 2.5 of the Guidelines, intellectually property infringement may be deemed both intentional and serious where the infringer:
- is mainly engaged in infringing intellectual property rights (IPRs);
- disseminates the infringing works without permission before the film, TV series, variety show, sports event program or online game at issue is released or launched in public or at the early stage of release or launch;
- provides goods or services as related to the IPRs under legal authorization, but at the same time, provides other goods or services as infringement of the same IPRs;
- provides genuine goods or services as related to the IPRs in advertising, negotiating, contracts signing, samples display and customer experience and other activities, while providing or mainly providing infringing goods or services of the same IPRs in actual trades;
- re-commits or continues such infringement by the same infringer as has been determined as infringement in an administrative penalty or administrative decision;
- re-commits or continues such infringement by the same infringer as has been determined as infringement in a settlement agreement reached voluntarily by the relevant parties;
- re-commits or continues such infringement by the same infringer as has been determined as infringement in an effective judgment, conciliation statement, arbitral award; or
- re-commits or continues such infringement by setting up a new company, changing the name of the company, replacing the legal representative, using the name of an affiliate.
Calculation of punitive damages
Consistent with the relevant IP legislations, the Guidelines clarify that the total amount of damages will be the sum of the base amount and the product of the base amount & its multiple. Generally, the base amount of damages is calculated using verifiable data relating to the infringer’s actual profits, the rightsholder’s actual losses or a deemed licensing fee.
The Guidelines further clarify applicable sequences of such verifiable data under specific IP legislations (Article 3.3 and 3.4). For example, under Trademark Law, the base amount should be calculated in the sequence of the rightsholder’s actual losses, the infringer’s actual profits, and the deemed licensing fees. Where it is difficult to determine the base amount with the one type of these data, the rightsholder is entitled to choose the following data in the queue to determine the base amount.
In the meantime, the Guidelines also list the detailed factors for calculating the rightsholder’s actual loss, the infringer’s illegal gains, or a deemed royalty, and specify the common factors for calculating the multiple of punitive damages as well as the specific factors for calculating the multiple under different IP legislations.
Internet service providers liabilities for punitive damages
As a step to regulate online services and sale, the Guidelines stipulate that where an Internet service provider knows its user is taking advantage of its network service to commit infringement, yet it fails to take or delays in taking necessary measures, such as removing, blocking, disconnecting a link, without justifiable reasons, which results in serious infringement of IPRs, the Internet service provider will be held jointly liable for punitive damages.
Notably, the Guidelines respond to the increasing IP infringements by livestream shopping and Daigou (or purchasing agents) in China. If live-streamers or purchasing agents know the goods and services sold infringe upon the others’ IPRs but are still engaged in the trade, which lead to serious consequences, or live-streamers or purchasing agents take advantage of its network service to commit infringement as described above, punitive damages may be awarded in favor of rightsholders.
Clarifying application procedure
The Guidelines also provide details on procedural requirements on the request for punitive damages, such as the content and timing of such request, and the applicable sequence among punitive damages and other damages.
Meanwhile, the Guidelines also clarify the applicability of request to other co-owners who do not lodge such request, the circumstances where the punitive damages could be partially or separately applied to different infringers in the same case. For example, different bases or multiples of punitive damages to different infringers could separately be applied at rightsholder’s request (Article 5.7).
In conclusion, the Guidelines generally follow the rules and regulations as already set out in the major IP legislations and SPC Interpretations but further clarify a few prominent outstanding issues in the application of punitive damage in legal practice. While theoretically the Guidelines will only be binding to the courts in Beijing, it is anticipated that courts throughout the country may reference the Guidelines when there is a need to consider and award punitive damages, so this indeed lays a significant ground for rightsholders to combat bad faith infringements nationwide.