Source:|Author:Ice Tang|Publish time: 2021-09-26|45 Views
The Supreme People’s Court of China recently issued “Opinions on Fully Strengthening Intellectual Property Judicial Protection”, intended to effectively increase the monetary award granted to a patent owner. Subsequently on April 21, 2021, the Beijing Higher Court released “Guiding Opinions on Determining Monetary Award in Intellectual Property infringement Cases and Unfair Competition Cases and Ruling Standard for Statutory Award” (hereinafter referred to as “Guiding Opinions”). Based on these two official opinions as well as some guiding high-profile case opinions, the writer will hereunder summarize the key legal provisions related to damage award in an IP infringement lawsuit, as well as giving opinions on how to present related evidence based on more than ten years of experiences in IP law practice.
- Damage Award Calculation Method and Sequence in Applying the Same
Compensation for damages for infringement of intellectual property rights is mainly based on covering for the losses of the IP owner, and supplemented by punishment against the infringer. That is, the damage award is generally calculated to the extent that the loss of the owner can be covered.
According to the Patent Law, the right owner can choose one of the following methods in sequence to calculate the possible damages: the actual loss of the right holder, the profit earned by the infringer from the infringing act, a reasonable multiple of the license fee, and statutory compensation.
If the amount of compensation cannot be accurately calculated based on the actual losses of the right holder or the infringer’s infringement profits, the court can exert discretion on the amount of compensation if it can be generally determined based on the evidence in the case. The discretionary damage is not the statutory damage as stipulated in the law, but can be higher than the statutory damage as the Judge sees fit based on the evidence.
If the right holder chooses the subsequent compensation calculation method to calculate the damages, it can be presumed that the previous compensation calculation method is difficult to apply, unless there is evidence to the contrary.If there is a reasonable basis, the right holder can provide a variety of specific methods for calculating compensation to increase the probability of being supported. Also, it can be either an accurate amount or a rough range
- Actual Loss of the Right Owner
The actual loss of the right holder is often difficult to determine, because it is generally not possible to determine the reduced sales suffered by the right owner due to the infringement. According to Article 20, paragraph 1 of “Patent Disputes Regulations” issued by the Supreme People’s Court, where it is difficult to determine the total sales volume reduction suffered by the right holder, the actual loss of the right owner can be determined by multiplying the total number of products sold by the reasonable profit of each patented product.
- The Profit Earned by the Infringer
In legal practice, the infringer’s infringement profit is calculated as the number of sold infringing products * price * profit margin * intellectual property contribution rate of the patented part
The above data can be determined using the data released by the official taxation office, or a third commercial platform, such as the, e-commerce platform, or published in the industry reports issued by specialized entities, or the data released on the infringer websites, or annual reports of listed companies, so as to improve the authenticity of the evidence. The profit margin mentioned above is generally referred to as the operating profit, and in willful infringement circumstance, it can be sales profit.
- Reasonable License Fee
The right owner may choose to assert a license type comparable to the accused infringing act in terms of the rights granted, the type of license, the territory and term of the license, so as to claim a reasonable multiple of the licensed fees as the final damage award. Preferably, the right owner is advised to record the licensed agreement with the State Intellectual Property Office to assert it in the future litigation, and strongly recommended to prove the actual execution of the asserted license agreement by submitting, for example, the complete license agreement, invoice, and payment certificate.
However, under special circumstances, for example, where the parties to the contract are involved in litigation, mergers and acquisitions, liquidation, or where the parties to the contract are related as relatives, or investors and investees, the Judge is likely to find the license contract “abnormal” and unfair to assert it in court as basis for determining damage award.
- Statutory Damage
When other compensation calculation methods are unable to determine the damages, the right holder can claim to use statutory compensation. However, the right owner is encouraged to provide evidence on the market value of intellectual property rights, the subjective fault of the infringer, the duration of the infringement, the scope of influence, and the severity of the consequences, so as to increase the amount of statutory compensation.
- Punitive Damage
The new Patent Law and Copyright Law that took effect on June 1, 2021 are amended to introduce punitive damages. So far, we have stipulated punitive damages covering infringement of all types of intellectual property rights.
In case of willful infringement and serious circumstances, the damage award may be granted based on 1-5 times of the actual damage suffered by the right owner, or 1-5 times of the infringing profit earned by the infringer, or 1-5 times of the licensing fees.
According to Article 1.15 of the Guiding Opinions, the defendant may be determined to be in bad faith if one of the following is met:
(1) The defendant, its controlling shareholder, legal representative, etc., after the judgment is effective, repeatedly or in a disguised form repeat the same infringement or unfair competition;
(2) The defendant, its controlling shareholder, legal representative, etc. continue to carry out infringement or unfair competition after repeated warnings by the right holder or punishment by the administrative agency;
(3) Counterfeit the registered trademark of the plaintiff;
(4) Free-riding the reputation of the plaintiff’s well-known trademarks and preemptively registering the plaintiff’s well-known trademarks;
(5) The defendant used the plaintiff’s well-known trademark on the same or similar goods;
(6) There is an employment or labor relationship between the plaintiff and the defendant, or has an agency, license, distribution, or cooperation relationship, or has conducted consultations, and the defendant is aware of the existence of intellectual property rights of others;
(7) The defendant covered up the accused, forged or destroyed evidence of infringement, etc.;
(8) The defendant refused to perform the conduct preservation ruling;
(9) Other circumstances.
According to Article 1.16 of the Guiding Opinions, the trademark infringing act will be found to be seriously damaging if one of the following is met:
(1) The defendant makes living by infringement;
(2) The duration of the act being sued is long;
(3) The accused act involved a wide range of territory;
(4) The defendant makes great profit by infringement;
(5) The accused act violated laws and regulations related to food, medicine, medical treatment, hygiene, protection, etc., and may harm personal safety, damage environmental resources, or seriously harm public interests;
(6) Other circumstances.
According to Article 1.17of the Guiding Opinions, the commercial secret infringing act will be found to be seriously damaging if one of the following is met:
(1) The defendant makes living by infringement;
(2) The duration of the act being sued is long;
(3) The accused act makes the commercial secret known to the public;
(4) The defendant makes great profit by infringement;
(5) The defendant infringes others’ commercial secret for multiple times or infringes multiple commercial secrets of others;
(6) The accused act violated laws and regulations related to food, medicine, medical treatment, hygiene, protection, etc., and may harm personal safety, damage environmental resources, or seriously harm public interests;
(7) Other circumstances.
- Impediment of Proof
Having presented preliminary evidence on damages, the right holder is entitled to applying to the court to demand the infringer to submit financial account books and materials that can accurately calculate the damages. If the infringer refuses to submit without justified reasons, the judge may determine the actual damage in a way as claimed by the right holder.
- Reasonable Costs for Bringing a Lawsuit
According to the legal practice, the reasonable costs for bringing a lawsuit may include:
(1) Attorney’s fee;
(2) Notary fees and other investigation and evidence collection fees;
(3) Audit fee;
(4) Travel expenses;
(5) Fees for printing litigation materials;
(6) Other reasonable expenses paid by the plaintiff to stop the infringement.
When claiming reasonable expenses, the right owner is recommended to submit evidence such as contracts, invoices, payment vouchers, work bills, etc., to prove that these expenses are real in the case. The judge generally grants the attorney’s fee considering the complexity of the expertise, and also the complexity of the case itself, and the workload of the professionals.