China: How To Increase Damage Awards When Litigating In China For Intellectual Property Infringement

Last Updated: 17 June 2019
Article by Jian Xu

The meager damages awarded in infringement cases in China have long been a headache for intellectual property right holders. This is especially true for foreign clients used to the far higher awards in common law countries, such as the US and UK. Consequently, injunction relief is almost always the primary reason for litigating in China.

Although one of the central themes of China's IP law reform over the past decade has been to drive up the size of damage awards, it still remains a challenging issue today. This article explores the reasons behind China's low awards, and recommends tactics you can employ to increase them.

What are the principles of damage calculation in China?

The principles of damage calculation in China are essentially harmonised with international standards. In short, damages in China are calculated based on four criteria:

  1. The financial loss of the right holder
  2. The financial gains of the infringer
  3. Reasonable multipliers of IP licence fees (if there is such a reference)
  4. Statutory damages

It is worth noting that the fourth method, statutory damages, is by far the most common, with the vast majority of damages decided purely at the discretion of the judge. So much so that many plaintiffs do not even bother to provide evidence of alleged damages, but rather simply request or agree for the judge to make that determination. This brings us to the next question.

Why does the damage award tend to be lower in China?

The major reason that damages remain comparably low in China is that it is very difficult for plaintiffs to prove them (i.e. financial loss of the plaintiff or gain of the defendant). This can be attributed to two factors: (a) the difficulty of collecting evidence in China, and (b) China's high, not to mention inflexible, standard of proof for damages.

In order to prove the loss, the plaintiff must show both the loss itself and how the loss is correlated with the infringement. While neither is easy, establishing a correlation between a loss and infringement is especially complex. Indeed, since Chinese courts are reluctant to presume or infer based on the facts, proving a loss can be an extremely difficult proposition.

To ascertain the gain of an infringer, the right holder usually has to provide evidence such as the accounting books, sales contracts, manufacturing records, etc. — all of which is generally withheld and highly protected by the infringer. Without a US type of discovery procedure, it is very difficult for the right holder to obtain this sort of evidence. What's more, without the "contempt of court" sanction in civil proceedings, even if ordered by a judge to surrender such evidence the infringer might provide false evidence, or simply no evidence at all.

In view of the above difficulties regarding evidence or proof, it is not surprising that statutory damages, which are usually regarded as a last resort in other jurisdictions, have become the norm. Although China has increased the upper limit of statutory damages in almost every major IP law reform — with the current upper limit around RMB 3 million (USD $440,000) depending on the type of rights — damages still remain low when compared with US and European practices.

Are there any ways to increase damage awards when litigating in China for intellectual property infringement?

Despite the challenges outlined above, right holders can still find ways to increase damage awards. While it would be nice to be able to prove loss or gain, or find a reference of license fee levels recognised by the court, the majority of damage awards are still statutory. As such, most of the tactics below focus on ways to influence the judge's discretion so a higher damage award — nearer the upper limit — can be obtained:

  1. Comb public information thoroughly to collect information that speaks to the extent of the infringement. Such information could include the scale of the infringer's business, the level of marketing and promotion, the unit price, the period of sales, the number of stores, the territory of sales, and written statements detailing the amount of sales and marketing materials, etc. With dedicated effort, a good quantity of information can be gathered through public channels, and can paint a better picture of the seriousness of the infringement.
  2. Gather information to show the infringement is blatant, such as the fact that the defendant knowingly infringes, or takes a free ride on the reputation of the right holder.
  3. Provide enough information about the use and reputation of the right holder and the product in question. Such evidence is within the control of the right holder and should be easy to gather to show the potential financial loss of the right holder.
  4. Always ask the court to conduct an evidence preservation order or asset preservation order if possible. If accounting information is seized during a court-organised raid of the infringer, it is admissible and the judge will be happy to calculate damages based on the seized accounting information.
  5. Ask the court to order the defendant to provide the relevant accounting books and information about the infringing product. If the infringer does not cooperate, which is common in China, it is another factor of bad faith, and the court will be more amenable to increase damages as a result.
  6. Request that the court award a large part of, or full, legal fees as incurred. Traditionally Chinese courts only grant nominal cost recovery for legal fees. However, this trend is changing;in a 2016 patent infringement case, the Beijing IP court granted full legal fees of RMB 1 million (USD $150,000).

The meager damages awarded in infringement cases in China have long been a headache for intellectual property right holders. This is especially true for foreign clients used to the far higher awards in common law countries, such as the US and UK. Consequently, injunction relief is almost always the primary reason for litigating in China.

Although one of the central themes of China's IP law reform over the past decade has been to drive up the size of damage awards, it still remains a challenging issue today. This article explores the reasons behind China's low awards, and recommends tactics you can employ to increase them.

What are the principles of damage calculation in China?

The principles of damage calculation in China are essentially harmonised with international standards. In short, damages in China are calculated based on four criteria:

  1. The financial loss of the right holder
  2. The financial gains of the infringer
  3. Reasonable multipliers of IP licence fees (if there is such a reference)
  4. Statutory damages

It is worth noting that the fourth method, statutory damages, is by far the most common, with the vast majority of damages decided purely at the discretion of the judge. So much so that many plaintiffs do not even bother to provide evidence of alleged damages, but rather simply request or agree for the judge to make that determination. This brings us to the next question.

Why does the damage award tend to be lower in China?

The major reason that damages remain comparably low in China is that it is very difficult for plaintiffs to prove them (i.e. financial loss of the plaintiff or gain of the defendant). This can be attributed to two factors: (a) the difficulty of collecting evidence in China, and (b) China's high, not to mention inflexible, standard of proof for damages.

In order to prove the loss, the plaintiff must show both the loss itself and how the loss is correlated with the infringement. While neither is easy, establishing a correlation between a loss and infringement is especially complex. Indeed, since Chinese courts are reluctant to presume or infer based on the facts, proving a loss can be an extremely difficult proposition.

To ascertain the gain of an infringer, the right holder usually has to provide evidence such as the accounting books, sales contracts, manufacturing records, etc. — all of which is generally withheld and highly protected by the infringer. Without a US type of discovery procedure, it is very difficult for the right holder to obtain this sort of evidence. What's more, without the "contempt of court" sanction in civil proceedings, even if ordered by a judge to surrender such evidence the infringer might provide false evidence, or simply no evidence at all.

In view of the above difficulties regarding evidence or proof, it is not surprising that statutory damages, which are usually regarded as a last resort in other jurisdictions, have become the norm. Although China has increased the upper limit of statutory damages in almost every major IP law reform — with the current upper limit around RMB 3 million (USD $440,000) depending on the type of rights — damages still remain low when compared with US and European practices.

Are there any ways to increase damage awards when litigating in China for intellectual property infringement?

Despite the challenges outlined above, right holders can still find ways to increase damage awards. While it would be nice to be able to prove loss or gain, or find a reference of license fee levels recognised by the court, the majority of damage awards are still statutory. As such, most of the tactics below focus on ways to influence the judge's discretion so a higher damage award — nearer the upper limit — can be obtained:

  1. Comb public information thoroughly to collect information that speaks to the extent of the infringement. Such information could include the scale of the infringer's business, the level of marketing and promotion, the unit price, the period of sales, the number of stores, the territory of sales, and written statements detailing the amount of sales and marketing materials, etc. With dedicated effort, a good quantity of information can be gathered through public channels, and can paint a better picture of the seriousness of the infringement.
  2. Gather information to show the infringement is blatant, such as the fact that the defendant knowingly infringes, or takes a free ride on the reputation of the right holder.
  3. Provide enough information about the use and reputation of the right holder and the product in question. Such evidence is within the control of the right holder and should be easy to gather to show the potential financial loss of the right holder.
  4. Always ask the court to conduct an evidence preservation order or asset preservation order if possible. If accounting information is seized during a court-organised raid of the infringer, it is admissible and the judge will be happy to calculate damages based on the seized accounting information.
  5. Ask the court to order the defendant to provide the relevant accounting books and information about the infringing product. If the infringer does not cooperate, which is common in China, it is another factor of bad faith, and the court will be more amenable to increase damages as a result.
  6. Request that the court award a large part of, or full, legal fees as incurred. Traditionally Chinese courts only grant nominal cost recovery for legal fees. However, this trend is changing;in a 2016 patent infringement case, the Beijing IP court granted full legal fees of RMB 1 million (USD $150,000).

Read the original article on GowlingWLG.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
19 Sep 2019, Seminar, Birmingham, UK

Providing GCs, Heads of Legal and senior in-house lawyers with timely, topical and practical legal advice on a variety of topics.

26 Sep 2019, Seminar, London, UK

Providing GCs, Heads of Legal and senior in-house lawyers with timely, topical and practical legal advice on a variety of topics.

8 Oct 2019, Seminar, Birmingham, UK

Supporting the development of paralegals, trainees and lawyers of up to five years' PQE by providing valuable knowledge and guidance together with practical tips.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions