The Interpretation of the Supreme Court on the Application of Punitive Damages to the Trial of Civil Cases of Infringement of Intellectual Property Rights (hereafter referred to as “the Interpretation”) was released and took effective on March 3, 2021 There are seven articles in the Interpretation, which specifically stipulate the scope of application of punitive damages in civil cases of intellectual property rights, the content and time for claiming punitive damages, the determination of intentionality and serious circumstances, the determination of calculation base and multiple. The following are the relevant articles.

[Conditions for claiming punitive damages]

Article 1, paragraph 1

If the plaintiff claims that the defendant intentionally infringes upon the intellectual property rights he enjoys according to law and the circumstances are serious, and requests the defendant to bear punitive damages, the court shall review and handle the case according to law.

The Interpretation is applicable to the provisions of punitive damages in Copyright law, Trademark law, Patent law, Anti-Unfair Competition Law, Seed Law and other laws. According to Article 1185 of the Civil Code, the infringed person has the right to claim corresponding punitive damages if it’s intentional and the circumstances are serious. The application of punitive damages in intellectual property cases requires the infringer to be intentional subjectively and the circumstances to be serious objectively. This article has fundamentally laid the legal foundation for punitive damages in intellectual property cases.

[Determination of “Intentionality”]

In practice, it is difficult to strictly distinguish between “intentionality” and “bad faith”. The Interpretation makes consistent interpretation of " “intentionality” and “bad faith” to prevent misunderstanding that “bad faith” is applicable to trademark and unfair competition, while “intentionality” is applicable to other intellectual property fields.

Article 1, paragraph 2 Intentional in the Interpretation includes the defendant acting in bad faith as stipulated in the Trademark Law and Anti-Unfair Competition Law.

Article 3 To determine intentional infringement, the court shall comprehensively consider factors such as the type of the infringed intellectual property rights, the status of rights and the popularity of related products, the relationship between the defendant and the plaintiff or interested parties.

The court can make a presumption of intentionality under the following circumstances:

(1) The defendant continues to commit the infringing act after being notified or warned by the plaintiff or the interested party;

(2) The defendant or its legal representative or manager is the legal representative, manager or actual controller of the plaintiff or interested party;

(3) The defendant and the plaintiff or the interested parties have relationships of labor, labor cooperation, licensing, distribution, agency, representative, etc., and have been in contact with the infringed intellectual property rights;

(4) The defendant has business dealings with the plaintiff or interested parties or has negotiated for contracts, etc., and has been in contact with the infringed intellectual property rights;

(5) The defendant committed acts of pirating or counterfeiting registered trademarks;

(6) Other circumstances that can be determined as intentional.

[Contents and time for claiming punitive damages]

The Interpretation clarifies the relevant contents to be provided when claiming punitive damages, and improves the operability. In addition, the punitive damages claimed by the plaintiff has a time limit, that is, before the end of the trial in the first instance.

Article 2

If the plaintiff claims punitive damages, he shall specify the amount of damages, the calculation method, the facts and reasons on which the damages are based at the time of prosecution.

If the plaintiff claims punitive damages before the end of the trial in the first instance, the court shall allow it; if the plaintiff claims punitive damages in the second instance, the court may mediate according to the principle of the parties' voluntariness. If the mediation fails, the parties shall be informed to sue separately.

[Determination of “serious circumstances”]

Article 4 To determine if circumstances are serious, the court shall comprehensively consider the infringement methods and frequency, the duration, geographical scope, scale, and consequences of the infringement, and the infringer’s actions in the lawsuit, etc.

The court can make a determination of intentionality under the following circumstances:

(1) After being punished by an administrative penalty or a court decision for infringement, he commits the same or similar tort again;

(2) Taking the infringement of intellectual property rights as its business;

(3) Forging, destroying or concealing evidence of infringement;

(4) Refusal to perform the preservation ruling;

(5) The infringement gains or the right holder losses are huge;

(6) Infringements may endanger national security, public interests or personal health;

(7) Other circumstances that can be determined as serious.

The Interpretation clarifies the criteria for determining serious circumstances. Serious circumstances is one of the elements of punitive damages, which mainly aims at the means used and consequences caused by the infringer, and generally does not involve the subjective state of the doer.

[Determination of calculation base]

Article 5

To determine punitive damages, the court shall use the actual loss of the plaintiff, the amount of the defendant’s illegal gains, or the benefits obtained due to infringement as calculation base in accordance with relevant laws. This base does not include the reasonable expenses paid by the plaintiff to stop the infringement.

If there are other provisions in the law, such provisions shall prevail.

If it is difficult to determine the above, a multiple of license fee will be used as a base for calculating the punitive damages.

Further, the court will order defendants to provide accounting books and other material to determine damages. If the defendant refuses or provides false accounting books and materials without justifiable reason, the court can rely on plaintiff’s claims and evidence to determine the base for calculating punitive damages. If the circumstances specified in Article 111 of the Civil Procedure Law are constituted, the legal liability shall be investigated according to law.

Article 71 of the Patent Law, Article 54 of the Copyright Law, Article 63 of the Trademark Law, Article 17 of the Anti-Unfair Competition Law, and Article 73 of the Seed Law all clearly stipulate the calculation method of the base of punitive damages. The Copyright Law and Patent Law do not stipulate the order of calculation base, but the Trademark Law, the Anti-Unfair Competition Law and the Seed Law do. In addition, different laws have different provisions on whether punitive damages include reasonable expenses. Therefore, Article 5 of the Interpretation stipulates that "if there are other provisions in the law, such provisions shall prevail", which means that the corresponding law shall be applied to different types of cases.

[Determination of the multiple]

The Interpretation gives the factors to consider in calculating the multiple, that is, comprehensively considering factors such as the degree of the defendant’s subjective fault and the severity of the infringement. In essence, it belongs to the discretion of the judge.

Article 6

The court shall determine a multiple for punitive damages based on factors such as the degree of the defendant’s subjective fault and the severity of the infringement.

The court will not support the defendant's claim for relief of punitive damages because the same infringement has been imposed administrative or criminal fines and the execution has been completed. However, the court may consider comprehensively when determining the multiple mentioned in the preceding paragraph.

Although there are only seven articles in the Interpretations, it further clarifies key issues involved in punitive damages, such as the determination of calculation base and calculation multiple for compensation, etc. It brings more clear guidelines for future judicial decisions.