In recent years, China has continuously strengthened intellectual property protection to optimize the legal business environment. In the practice of intellectual property infringement litigation, accurately determining the amount of damages has gradually become one of the focuses of the trial of infringement cases.
According to the author's search, the average awarded damages amount and support rate of Intellectual property civil litigations in China from Jan. 2022 to Dec. of 2022 are as follows:
It can be seen from the table that the support rate and average damages amount of Chinese courts for IPR (intellectual property right) holders' claim for damages in trademark and copyright infringement cases are not high. It is obvious that obtaining an award of high damages is one of goals of a IPR holder to initiate a civil litigation. The crucial task for achieving the goal is collect and utilize evidence, because the facts, which can be recognized by Chinese courts, are mainly those proven by evidence.
This article will introduce three categories of damages evidence, an overview of the calculation of damages for IPR infringement in China, as well as three steps and related practical advice for obtaining high damages from the perspective of evidence.
1. Three categories of damages evidence Article 31 of the Several Provisions on Evidence in Civil Litigation of Intellectual Property Rights in China, implemented by the Supreme People's Court of China on November 18, 2021, provides evidence that can be used to prove the amount of compensation for intellectual property infringement. The specified evidence can be classified into three categories, namely the evidence filed by an IPR holder, the evidence collected by applying for court investigation, the evidence filed by the alleged infringer.
- The evidence filed by an IPR holder
In practice, an IPR holder usually can submit damages evidence, which is not confidential or has been disclosed in earlier relevant proceedings involved by him. The non-confidential evidence may include annual reports of listed companies, prospectuses, advertisements on website or online e-commerce platforms, the alleged infringer's business income shown in public courts' judgements, profit margin evidence issued by relevant industry associations or government agencies, field investigation report, notarized evidence of purchase, etc. The earlier proceedings in which damages evidence may be disclosed to IPR holders may include oppositions or invalidations against the alleged infringer's IPR, or raid actions or criminal litigations against IPR infringement, etc.
- The evidence collected by applying for court
A considerable amount of damages evidence is controlled by parties other than an IPR holder and the IPR holder, based on his own ability, is not able to get access to them. According to relevant laws in China, IPR holders may actively apply for court investigation to collect the evidence on the grounds that the evidence is not able to be obtained by him or his lawyers for objective reasons. For instance, with a lawyer investigator order issued by a competent court, an IPR holder's agent can obtain the alleged infringed products transaction record from e-commerce platforms. Normally in computer software infringement lawsuits, with the assistance of a competent court, an IPR holder is able to conduct evidence preservation at the workplace of the alleged infringer.
- The evidence filed by the alleged infringer
According to the principle of who claims and who proves, an IPR holder shall be liable for the accused infringer's infringement as well as damages. In most cases, the alleged infringer is unwilling to submit damages evidence.
In China, an IPR holder may utilize two ways to push the accused infringer to submit relevant damages evidence. First is to apply to the court for evidence disclosure. In the case of Baidu vs. Jingbaidu, the IPR holder applies to Beijing IP court for evidence disclosure of the alleged infringer's store property information, lease contract information of leased premises, sales revenue books, financial statements and tax information, on the grounds that the relevant evidence cannot be obtained by him for objective reasons and the evidence is likely to be lost or difficult to be obtained later. The said application is justified by the court and the accused infringer has to submit relevant materials. Fortunately, these materials are later used by the court as a reference for calculating damages. Second is to pursue a shift of the burden of proof. If an IPR holder has made every effort to prove the damages, the burden of proof has been shifted to the alleged infringer, who shall be liable for submitting damages evidence.
2. An overview of the calculation of damages for IPR infringement in China
In China, damages for IPR infringement can be calculated with reference to one of the following:
- Losses of the IPR holder;
- Profits of the infringer;
- A reasonable multiple of the IPR license fees, when it is difficult to determine losses of the IPR holder, profits of the infringer;
- Statutory damages of less than 5 million yuan, when it is difficult to determine losses of the IPR holder, profits of the infringer or IPR license fees;
- Punitive damages of one to five times of the base amount determined by losses of the IPR holder, profits of the infringer or IPR license fees, when the IPR infringement is committed intentionally with serious circumstance.
The first three can be called as "evidence proved damages".
In determining the amount of damages, a Chinese court will first check whether it can establish the losses of the IPR holder, profits of the infringer or IPR license fees by evidence on record. If so, the evidence proven damages will prevail. If so, and the IPR infringement is intentional and serious, punitive damages will apply. If it is difficult to determine losses of the IPR holder, profits of the infringer or IPR license fees, the statutory damages will apply.
In practice, over 90% civil IPR litigation in China uses statutory damages of less than 5 million yuan due to the difficulty of determining the IPR's losses, infringer's profits or IPR licensing fees.
3. Evidence needed to obtain high damages and related practical advice
First, in order to be awarded high damages, an IPR holder shall do every effort to assist court in determining losses of the IPR holder, profits of the infringers or IPR license fees.
For trademark civil litigation, according to judicial interpretation, the losses of the IPR holder may be calculated according to the reduction in the sales of goods caused by the infringement or the sales volume of the infringing goods multiplied by the unit profit of the registered trademark goods.
For patent civil litigation, according to judicial interpretation, the losses of the IPR holder may be calculated according to the reduction in the sales of patented product caused by the infringement or the sales volume on the market of the infringing product multiplied by the reasonable unit profit of patented product.
For copyright civil litigation, according to judicial interpretation, the losses of the IPR holder may be calculated according to the reduction in the distribution of the copies caused by the infringement or the sales volume of the infringing copies multiplied by the unit profit of the right holder's distribution of the copies.
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.