What is the administrative penalty for trademark infringement and anti-unfair competition violations in China?

When an IP infringement has yet to constitute a criminal case , it is undoubtedly economical and efficient for the right holder to seek administrative protection from the market supervision departments. The departments determine whether infringement fulfils the criteria under the Standards for Trade Mark Examination and Trial and Criteria for Determining Trade Mark Infringement.

To understand the effectiveness of these penalties, it is important to realise how these administrative penalties may be imposed by the market supervision departments as stated in the Article 57 of the Trade Mark Law and Article 6 of the Anti-Unfair Competition Law. This article aims to highlight the overarching rationale behind these administrative penalties, so that right holders may use this as a reference point.

On 15 July 2021, "Administrative Penalty Law (2021 Revision)" came into full force. This new law improves the benchmark system in relation to administrative penalties (“the Benchmark”).

I. General principles governing the exercise of discretionary power

The market supervision departments rely on general principles when they exercise their discretionary powers: the principle of legality, the principle of proportional justice, the principle of combining punishment and education, and the principle of comprehensive discretion. Market supervision departments can further develop and refine the applicable rules in view of all relevant circumstances such as the facts of the case, the severity of infringement and the potential impacts. Specifically, this includes the consideration of the civil capacities of the parties, capacities for responsibilities, presence of subjective intention, degree of subjective malignancy, value of property involved, amount of income derived, length and scale of the unlawful acts, geographic regions involved, whether the wrongdoer is a repeated offender, existence of any deplorable tactics, harmful consequences of the unlawful acts, and degree of social impact.

II. 5 levels of administrative discretionary penalty

The administrative penalty can generally be divided into five levels: no administrative penalty, reduced administrative penalty, lenient administrative penalty, general administrative penalty, and enhanced administrative penalty. This is what they mean:

  1. No administrative penalty: no penalty imposed because of specific violations excused by the law
  2. Reduced administrative penalty: applicable when penalty type or penalty range is lower than the minimum level of the Benchmark
  3. Lenient administrative penalty: penalty falls within the lighter and lesser type of the Benchmark or the lower range of the Benchmark
  4. General Administrative penalty: penalty falls within the moderate type or range of the Benchmark
  5. Enhanced administrative penalty: penalty falls within the heavier or involving a high number of types of the Benchmark or the higher range of the Benchmark

III. Range of the administrative discretionary fine

Market supervision departments commonly used 3 types of administrative penalty:

  1. Warnings are given as a lighter type of administrative penalty.
  2. Fines, confiscation of unlawful income and confiscation of illegal property is of moderate type of administrative penalty.
  3. Ordering the suspension of production and business, suspension or revocation of licenses and permits are the heavier types of administrative penalty.

Most market supervision departments generally adopted the following formula in determining the range of fines:

  1. Heavier Fine:
    1. Upper Range: Maximum penalty in the Benchmark
    2. Lower Range: [Y+（X-Y）×70%]
  2. Moderate Fine:
    1. Upper Range: [Y+（X-Y）×70%]
    2. Lower Range: [Y+（X-Y）×30%]
    3. Note: the fine will fall within the two numbers but do not include the Upper Range and Lower Range themselves.
  3. Lighter Fine:
    1. Upper Range: [Y+（X-Y）×30%]
    2. Lower Range: Minimum penalty in the Benchmark

Where X is the maximum penalty in the Benchmark, Y is the minimum penalty in the Benchmark, and Y is taken to be zero when the minimum penalty is not stated.

Although the Benchmark is not the immovable legal basis that would be directly adopted by the market supervision departments, it is the basis when law enforcement takes action towards the grassroots.

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.