On April 21, 2020, the Beijing High Court published the Guidelines on the Determination of Damages and Statutory Damages in Disputes over Intellectual Property and Unfair Competition (the Guidelines). These Guidelines, which entered into effect on the date of issuance, are detailed, precise, and even innovative.  Even if they only have binding force among all courts of Beijing, they should have an influence over the rest of the country.

In Chapter I, the Guidelines explain the basic rules for the determination of compensation. In the following five chapters, they provide specific rules for written works, musical works, fine art works, photographic works and video works. Chapter VII concerns the statutory compensation applying to trademark infringement and the last chapter VIII concerns unfair competition.

This article is a brief summary of Chapters I, VII and VIII.

Basic rules

According to article 1.5 of the Guidelines, it is not allowed to simply claim an amount of damages without explaining how it is calculated :  the losses, or the profits of the infringer, or a license fee, or where such calculation is difficult,  an amount within the maximum statutory limit of 5 million RMB. And, even where statutory damages are claimed, they need to be based on duly listed and explained factors (Art. 1.11). The defendant may challenge the claim by providing evidence of the actual loss of the right owner or of its own profit (art. 1.10).

If the evidence shows that the damage is obviously higher than the maximum statutory amount, the court is allowed to determine an amount beyond this limit (art. 1.8). This concept of “discretionary damages”, established by the Supreme People’s Court in a Judicial Interpretation dated April 21, 2000, has been used on several occasions by various courts in China.

Before the end of the first instance court debate (art. 1.14), the plaintiff may request the award of punitive damages in cases where the infringement is “malicious” and the circumstances are “serious” (explained in detail in articles 1.15 and 1.16). The court may increase the damages by multiplying, up to five times, the amount based on the losses, profits or license fee, the “reasonable expenses” of the right owner being excluded from this calculation (art.1.18).

The defendant may be ordered to provide his account books (art. 1.26 and 1.27). If he refuses, the court may determine the damages on the basis of the evidence provided by the plaintiff.  If the defendant wishes to overturn the first instance judgment that awarded the damages, by providing the account books, this late evidence will be inadmissible (art. 1.28).

Criteria for determining statutory compensation for trademark infringement

The Guidelines (art. 7.1) enumerate a list of factors that the court should take into consideration (sales volumes offline and online, comparison with third parties, average prices in the industry practice etc.).

What is new is the creation of “basic compensation standards” which are 200,000 RMB minimum for an infringer manufacturer (art. 7.3), between 2,000 and 30,000 RMB minimum, for an offline seller or an online seller (art. 7.4 and art. 7.5). These standards also apply to operators of supermarkets, shopping malls, or e-commerce platforms, depending of the degree of their involvement (art. 7.7).

These basic compensation standards may be increased up to 5 times in circumstances such as where the volumes are relatively large etc., or the infringed trademark has a high reputation, or the infringement had a long duration or wide geographical area (art.7.6). The increase can even reach up to 10 times if the infringed trademark is well-known (art.7.8).

The standard compensation may also be reduced. When the plaintiff files lawsuits against different distributors based on the same trademark, the court may find that the accumulation of the standard compensation is unreasonable and decide to reduce it by 70% or 60% of the lower limit of the standard compensation (art. 7.10). A discretionary reduction may also be decided where the standard amount would be considered obviously higher than the market value of the trademark involved (art.  7.11).

Criteria for determining statutory compensation of unfair competition acts

According to the Anti Unfair Competition Law (AUCL), statutory compensation may also apply where it is difficult to calculate the losses of the plaintiff or the profits of the defendant. The factors to be taken into consideration are listed: impact of the unfair competition acts on the plaintiff’s business, benefits for the defendant, industry characteristics (art. 8.2).

A basic compensation standard is stipulated for acts of passing off listed in article 6 of the AUCL: not less than 100,000 RMB. (art. 8.3). If the defendant commits multiple passing off acts in the same case, which causes different damage, the compensation is calculated separately (art. 8.4). Concerning the act of selling such goods, the standards are the same as in Chapter 7, art.7.4-5, but the defendant may claim that he was not aware and be exempted from compensation liability (art. 8.5).

Regarding trade secrets, the Guidelines do not  provide for compensation standards but give a  list of factors to be taken into consideration : market value of the trade secret, cost of research and development, level of innovation, time of maintaining a competitive advantage, actual profits or expected profits of transfer fee, license fee, etc. (art. 8.6).

The commercial defamation is subject to a compensation standard of not less than 10,000 RMB (art.8.9).

Unfair competition may also be committed via the Internet (art.12 of AUCL). In such case, the court will determine the compensation on the basis of loss of network traffic: reduction of advertisement clicks, loss of membership fees, loss of sales licenses of basic data of traffic and data products, reduction in traffic monetization ability etc. (art. 8.10).

First published by Asialaw Profiles

Contributed by: Dr. Hui Huang & Mr. Paul Ranjard