Introduction

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

In Chapter I, the guidelines explain the basic rules for determining compensation. In the following five chapters, they provide specific rules for written, musical, fine art, photographic and video works. Chapter VII concerns the statutory compensation applying to trademark infringement and 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, damages up to the maximum statutory limit of Rmb5 million cannot be claimed without explaining how they have been calculated (factors to be considered include the claimant’s losses, the infringer’s profits and licence fees). Further, even where statutory damages are claimed, they must be based on duly listed and explained factors (Article 1.11). The defendant may challenge the claim by providing evidence of the actual loss of the rights owner or of its own profit (Article 1.10).

If the evidence shows that the damage is clearly higher than the maximum statutory amount, the court can determine an amount beyond this limit (Article. 1.8). This concept of ‘discretionary damages’, established by the Supreme People’s Court in a judicial interpretation dated 21 April 2000, has been used on several occasions by various courts in China.

Before the end of the first-instance court debate (Article 1.14), the plaintiff may request the award of punitive damages 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 licence fee – the rights holder’s ‘reasonable expenses’ are excluded from this calculation (Article 1.18).

[huge_it_slider id=”15″]The defendant may be ordered to provide their account books (Articles 1.26 and 1.27). If they refuse, the court may determine the damages on the basis of the evidence that the plaintiff provides. 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 (Article 1.28).

Criteria for determining statutory compensation for trademark infringement

Article 7.1 of the guidelines enumerate a list of factors that the court should consider (eg, sales volumes offline and online, comparison with third parties and average industry prices).

What is new is the creation of basic compensation standards, which are set at:

• an Rmb200,000 minimum for an infringer manufacturer (Art. 7.3); and
• between an Rmb2,000 and Rmb30,000 minimum for offline or online sellers (Articles 7.4 and 7.5).

These standards also apply to operators of supermarkets, shopping malls or e-commerce platforms, depending on the degree of their involvement (Article 7.7).

These basic compensation standards may be increased up to five times where:

• the volumes are relatively large;
• the infringed trademark has a well-known reputation; or
• the infringement occurred for a long time or covered a wide geographical area (Article 7.6).

Standard compensation can be increased up to 10 times if the infringed trademark is well known (Article 7.8).

Standard compensation may also be reduced. Where the plaintiff files lawsuits against different distributors based on the same trademark, the court may find that the accumulation of standard compensation is unreasonable and decide to reduce it by 70% or 60% of the lower limit of standard compensation (Article 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 (Article 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 a plaintiff’s losses or the defendant’s profits. The factors to be considered include:

• the impact of the unfair competition acts on the plaintiff’s business;
• benefits for the defendant; and
• any relevant industry characteristics (Article 8.2).

A basic compensation standard is stipulated for acts of passing off listed in Article 6 of the AUCL: not less than Rmb100,000 (Article 8.3). If a defendant commits multiple passing-off acts in the same case, which cause different damage, compensation will be calculated separately (Article 8.4). Concerning the act of selling such goods, the standards are the same as in Chapter 7, Article 7.4-5, but the defendant may claim that they were unaware and be exempt from compensation liability (Article 8.5).

Regarding trade secrets, the guidelines provide no compensation standards, but rather give a list of factors to be considered:

• the trade secret’s market value;
• the cost of research and development;
• the level of innovation;
• the duration of competitive advantage; and
• the actual or expected profits of the transfer or licence fee (Article 8.6).

Commercial defamation is subject to standard compensation of not less than Rmb10,000 (Article 8.9).

Unfair competition may also be committed via the Internet (Article 12 of the AUCL). In such cases, the court will determine the compensation on the basis of the loss of network traffic (ie, the reduction of ad clicks, the loss of membership fees, the loss of sales licences for basic traffic data and data products and the reduction in traffic monetisation ability) (Article 8.10).

For further information on this topic please contact Hui Huang or Paul Ranjard at Wanhuida Intellectual Property by telephone (+86 10 6892 1000) or email ([email protected] or [email protected]). The Wanhuida Intellectual Property website can be accessed at www.wanhuida.com.