[author: Qi Li]

With the deepening of the policy guidance on strengthening intellectual property rights protection, following the Trademark Law at the legislative level, the Civil Code introduced general provisions on punitive damages for infringement of intellectual property rights, and the subsequent fourth revision of the Patent Law also formally stipulated punitive damages for patent infringement. That is, punitive damages may be applied to intentional infringement and serious patent infringement. The Interpretation of the Supreme People's Court on the Application of Punitive Damages in the Trial of Civil Cases of Intellectual Property Infringement explains the two applicable elements of “intentional infringement” and “serious circumstances”, and lists the corresponding circumstances. It can be said that the applicable requirements for punitive damages are relatively clear, and in judicial practice, patent infringement disputes for which punitive damages are applied have gradually increased. Then, in cases where punitive damages can be applied, how the amount of punitive damages should be calculated has further become a topic of concern. In this article, the author will briefly analyze the specific calculation requirements and precautions for punitive damages in patent infringement disputes based on recent judicial precedents.

1. Determination of Calculation Basis

Pursuant to Article 71.1 of the Patent Law and Articles 5 and 6 of the Interpretation of the Supreme People's Court on the Application of Punitive Damages in the Trial of Civil Cases of Intellectual Property Infringement, when determining the amount of punitive damages in a patent infringement dispute, the actual losses suffered by the right holder as a result of the infringement or the benefits obtained by the infringer as a result of the infringement shall be used as the calculation basis, and this basis shall not include the reasonable expenses paid by the plaintiff to stop the infringement; Second, the calculation basis of the amount of punitive damages can be reasonably determined by reference to the multiple of the patent royalty. Then, on the basis of comprehensive consideration of factors such as the degree of subjective fault and the seriousness of the circumstances of the infringement, the amount of compensation is determined by one to five times the amount determined in accordance with the above method.

According to the above-mentioned laws and regulations, it can be clarified that when determining the amount of punitive damages in a patent infringement dispute, it is first necessary to determine a clear calculation basis for punitive damages, that is, it can be considered that when the basis is not clear, punitive damages cannot be applied.

For example, in the design patent infringement dispute case ((2020) Jing 73 Civil First Instance No. 816) decided by Beijing Intellectual Property Court, it is clearly pointed out that “in this case, Cate-Maker claimed punitive damages, but Cate-Maker did not submit evidence of its actual losses, and the specific amount of benefits obtained by Xiao Cai Ya Company due to infringement cannot be determined by the evidence in the case, nor did there be patent royalties to refer to, making it difficult to determine the specific amount of infringement of design patent rights in accordance with Article 71.1 of the Patent Law, to apply punitive damages”.

For another example, in the design patent infringement dispute case ((2022) Zhejiang Civil Final No. 1110) decided by the High People’s Court of Zhejiang Province, it is clearly pointed out that “in this case, Jun Feng Company claimed to use the infringement profits of Bo Fu Company as the calculation basis and demanded the application of punitive damages. Although Jun Feng Company submitted the material cost list of the patented product involved in the case in the first instance, due to the reason that the material cost list was submitted unilaterally and Bo Fu company did not recognize it, the material cost stated in the material cost list could not be confirmed. Further, the manufacturing and sales of the product also included other necessary costs, the infringement profit of Bo Fu Company in this case could not be calculated, and it was difficult to apply punitive damages to calculate the amount of compensation based on the infringement profit.”

It is worth noting that according to the specific provisions of the Patent Law and the above-mentioned judicial interpretations on punitive damages, it can be seen that punitive damages and statutory damages cannot be applied at the same time in patent infringement disputes. This is also supported by recent jurisprudence, for example, in the above both cases, the court determined at its discretion the amount of damages on the basis of stating that punitive damages could not be applied.

In addition, according to the Patent Law and relevant judicial interpretations on punitive damages, the first order of calculation of punitive damages in patent infringement cases is the loss of the right holder or the profit of the infringer, and the second order is the multiple of the multiple of royalties. In judicial practice, it is more common to take the profit of the infringer as the calculation base. However, the profit of the infringer should usually be proved by providing evidence of the sales quantity, unit price, profit margin, infringement period, patent contribution degree and other contents of the allegedly infringing product, which is also difficult to provide evidence.

For example, in a design patent infringement dispute case in which our firm recently won the first instance, because it was difficult to obtain evidence due to the reason that the infringing product involved was a product in the B to B field, our firm, as the agent of the patentee, made efforts to preserve the evidence that the accused infringer continued to infringe after the prior judgment took effect. However, after trying various methods to collect evidence, we could not obtain the complete sales quantity of the infringing product and the exact profit margin and other relevant evidence, so we proved each year’s annual sales volume of the product category of the allegedly infringing product that defendant produced and sold by providing the relevant industry report as evidence. Then we proved the number of types of products produced and sold by the defendant through the defendant's publicity information. We also presented the data of the National Bureau of Statistics to prove the profit margin of the product in this category as preliminary evidence to specifically calculate the profit of infringement, and in the meanwhile, we applied to the court to order the defendant to disclose the relevant books and materials of the allegedly infringing product to calculate the exact profit. Since the defendant refused to submit the relevant account books and materials, the court calculated the infringement profits based on our claims and evidence in accordance with Article 71.4 of the Patent Law, and used the infringement profits as the basis for calculating punitive damages.

In conclusion, the means of calculation and proof for basis of punitive damages is the same as the filling compensation, and in cases where punitive damages can be applied, more attention should be paid to the damage calculation and proof including profits from infringement.

2. Determination of Multiples

According to the law, punitive damages are between one and five times of the basis amount. The specific multiple is claimed by the claimant, while some courts determine it according to the specific circumstances of the case, i.e. the degree of “intentional” and “seriousness of circumstances”.

For example, in the design patent infringement dispute case ((2021) Yue 03 Civil First Instance No. 6065) decided by the Shenzhen Intermediate People’s Court of Guangdong Province, the court comprehensively considered “1. The popularity and validity period of the patent involved in the case; 2. The plaintiff repeatedly filed complaints online about the infringement of the allegedly infringing product, and the two defendants knew that the plaintiff owns the intellectual property rights involved in the case, but still changed the link to continue the infringement in the circumstances that their appeal was not supported; 3. The infringement lasted more than 3 years; 4. The two defendants opened multiple stores on multiple websites, and the scope of infringement was relatively broad” and thus determined the multiple to be doubled. In the above case our firm represented, the multiple determined by the court was also doubled.

3. Other Notable Points

(1) The starting date of calculation for punitive damages and whether they should be calculated in segments. The Civil Code of the People’s Republic of China, which can be used as the legal basis for punitive damages in patent infringement disputes, came into force on January 1, 2021, and the effective time is still short, and the possibility of infringement spanning around January 1, 2021 is very high. According to the third paragraph of Article 1 of the Several Provisions of the Supreme People's Court on the Application of Time Effect of the Civil Code of P. R. C. (Fa Shi [2020] No. 15) (hereinafter referred to as the "Judicial Interpretation on Time Effect"), "the provisions of the Civil Code shall apply to civil dispute cases arising from such legal facts existing until after the implementation of the Civil Code, unless otherwise provided by laws and judicial interpretations." Article 2 stipulates that "in civil dispute cases arising from legal facts existing before the implementation of the Civil Code, the provisions of the laws and judicial interpretations at that time shall apply, except where the provisions of the Civil Code are more conducive to protecting the legitimate rights and interests of civil subjects, maintaining social and economic order, and promoting the core socialist values." Article 3 stipulates that "in civil dispute cases arising from legal facts before the implementation of the Civil Code, where the laws or judicial interpretations at that time do not provide for it but the Civil Code does, the provisions of the Civil Code may apply, except where the legitimate rights and interests of the parties are significantly reduced, the legal obligations of the parties are increased, or the reasonable expectations of the parties are deviated." Therefore, when the infringing act continues until after the implementation of the Civil Code, the provisions on punitive damages of the Civil Code may also be applied to the infringement before its implementation.

(2) Punitive damages shall be expressly requested by the plaintiff, and the amount of damages, the method of calculation and the facts and reasons on which it is based shall be clarified. For example, in the invention patent infringement dispute case ((2021) Yue 73 IP Civil First Instance No. 559), the plaintiff claimed compensation of CNY 100,000 (approx. USD 14,087) for economic losses when filing the lawsuit, but claimed 5 times punitive damages taking CNY 600,000 (approx. USD 84,524) as calculation basis, while they still insisted the total amount of damages to be limited to CNY 100,000 (approx. USD 14,087). In this regard, Guangzhou Intellectual Property Court clearly pointed out that “in such a situation where the amount of damages claimed by the plaintiff is much lower than the calculation basis, if the application of discretionary compensatory damages according to the principle of filling is sufficient to achieve relief for the plaintiff, there is no need to apply punitive damages”.

Based on the above, in a patent infringement dispute, the right holder may appropriately claim punitive damages according to the circumstances of the case, and while making claims, it should pay attention to actively presenting evidence to prove the rights holder's losses, infringement profits or royalties as well as the degree of defendant's subjective fault, the severity of the circumstances of the infringement, and other relevant evidence, so as to effectively determine the basis of punitive damages and the factors to be considered in multiples thereof. While the right holder could obtain corresponding remedies such as losses of the right holder or profits from the infringement, the infringer will also be punished by means of punitive damages, so as to curb repeated and malicious infringement.