Punitive damages introduced into the Draft of the Amended Copyright Law of China

On 26 April 2020, the Draft Amendment to the Copyright Law of the People's Republic of China ('CLC') was submitted to the 17th meeting of the standing committee of the 13th National People's Congress for deliberation. It was then published on 30 April 2020 to solicit opinions from the public (See here for an online-translatable version of the Draft Amendment's full context).

Since its enactment in 1991, the CLC has been amended approximately every decade (the first amendment occurred in 2001 and the second occurred in 2010). Of particular concern in the Draft Amendment this time is the proposal to significantly increase the cost of infringement by incorporating punitive damages.

🐈: "I see no one is doing damage."

The key provision

Article 53 of the Draft Amendment is the pivotal provision regarding punitive damages, which is proposed as a replacement to Article 49 of the current CLC (see the table below. For the sake of comparison, the provisions referred to are broken down into smaller sections, with added numbers and emphasis).

	Article 49 of the current CLC		Article 53 of the Draft Amendment
(1)	The infringer shall, when having infringed upon the copyright or the rights related to copyright, make a compensation on the basis of the copyright holder’s actual losses; where the actual losses are difficult to be calculated, the compensation may be made on the basis of the infringer’s illegal gains.	(A)	The infringer shall, when having infringed upon the copyright or the rights related to copyright, make a compensation on the basis of the copyright holder’s actual losses; where the actual losses are difficult to be calculated, the compensation may be made on the basis of the infringer’s illegal gains;
(2)	The amount of compensation shall also include the reasonable expenses paid by the copyright holder for stopping the act of infringement.	(B)	Where it is difficult to calculate the right holder’s losses or the illegal of the infringer, the amount of damages may be a reasonable multiple of the royalties. If the infringement is committed in bad faith with serious circumstances, damages shall be the amount, but not more than five times the amount, determined in the aforesaid method.
(3)	Where the copyright holder's actual losses or the infringer’s illegal gains cannot be determined, the people's court shall, on the basis of the seriousness of the act of infringing, adjudicate a compensation of CNY 500,000 or less.	(C)	Where the copyright holder's actual loss, the infringer’s illegal gains, and the royalties are difficult to calculate, the people’s court shall, on the basis of the seriousness of the act of infringing, adjudicate a compensation of CNY 5,000,000 or less.
		(D)	The amount of compensation shall also include the reasonable expenses paid by the copyright holder for stopping the act of infringement.
		(E)	Where the right holder has made its best efforts to adduce evidence but the account books and materials related to infringement are mainly in the possession of the infringer, in order to determine the amount of damages, a people's court may order the infringer to provide such account books and materials; and if the infringer refuses to provide the same or provide any false ones, the people’s court may determine the amount of damages by reference to the claims of and the evidence provided by the right holder.

As shown above, from (1) to (A) or from (2) to (D), there is no change in the wording.

Notably, from (3) to (C), the adjustment in the amount shows a sharp increase in the maximum statutory damages: from CNY 500,000 to CNY 5,000,000.

The proposals in (B) and (E) are key, making maximum quintuple punitive damages possible for intentional infringement and giving courts, in certain circumstances, a basis for determining a shift in the burden of proof from the plaintiff to the defendant. It shows a determination to provide greater protection than the one mandated by, eg, Article 45 of the TRIPS Agreement.

There are also some questions that arise. For instance, the 'multiple of the royalties' stipulated in (B)a) is already punitive, or is it not? So is (B)b), the 'up to quintuple amount'. Then, what is the rationality of such a 'punitive + punitive' design? Furthermore, the 'bad faith' and 'serious circumstances' mentioned in (B)b) may raise questions regarding the difference between 'intentional' and 'bad faith'.

Some may find that (B) and (E) look familiar, as they are significantly similar to the corresponding sections in Article 63 of the current Trademark Law of China (2019). Of the three primary IP laws in China, the Trademark Law in the 2013 Revision, first introduced punitive damages. However, in the 2013 Revision, the amounts prescribed were substantially lower, namely 'three times' and ' CNY three million' instead of 'five times' and ' CNY five million' as prescribed by the 2019 Revision.

Comments

In recent years, the issue of punitive damages has been widely discussed by Chinese leaders, for example, as reported in an INTA Bulletin in 2019,

For the first time, punitive damages were included in the Government Work Report, announced by Premier LI Keqiang during China’s Lianghui (National People’s Congress & Chinese Political Consultative Conference) last March […] At the China International Import Expo last November in Shanghai, President Xi reiterated and clarified the introduction of a punitive damages system to better safeguard the legitimate rights and interests of foreign enterprises.

Punitive damages are also considered effective in combating IP infringements. Specifically, in copyright infringements, the introduction of punitive damages in the Draft Amendment is deemed to have been prompted by practical needs:

Statistics show that, in the past for quite a long time, the cases of copyright infringement heard by courts accounted for 60% of the total intellectual property disputes. Problems such as high cost of rights protection and low amount of infringement compensation have been criticized.

                                                                          – Xinhua Net

If the copyright law is finally amended in this way, it will be good news for the publishing industry. In the future, fighting against infringements will be able to obtain fuller financial compensation, which will be more encouraging for rights defenders and greater deterring for infringers.

                                                                                  – Guangming Daily

Apparently, the concept of punitive damages is welcomed in China, since it is believed to contribute to solving the issue of unsatisfactory level of damages currently in place. Mostly, the awarded damages for copyright infringement in China are rather low. Yet, the causes are multi-faceted, including the often-insufficient evidence provided by parties and the factual difficulties in measuring the market value of intangible property.

To the unsatisfactory level of damages, one may answer by envisaging different solutions. For instance, efforts can be made to determine the actual damages in many ways, by employing, e.g., the value assessment and data modelling of IP. Or, even big data and blockchain technology might help. After all, if the actual damages suffered remain unclear, then how should ‘supra-compensatory’ be defined?

Accurate relevant calculations often entail a considerable amount of evidentiary costs and are challenging to achieve. To quote Xu Jun, President of the IP Division of the Shanghai Pudong New District People’s Court: ‘In fact, the expectation of high-precision in compensation for damages is contrary to reality, because this expectation stems from the insufficient understanding of the actual complexity’. 

Punitive damages per se can be an anathema to certain legal doctrines. Yet, given the intangibility and vulnerability features of intellectual property rights in estimating the damages, deterrence often becomes a valid concern.

Article 53 of the Draft Amendment is submitted mainly to address the long-standing problem of inadequate compensation. However, overcorrection should be treated with caution, as the possibility of surrendering to opportunism and extortion at this point, is not eliminated.

That being the case, although punitive damages only exist as an exception and supplement to the compensatory principle in the civil compensation system, they are part of a system which must be handled with care, fairness and due process.

I thank Linhua Lu and Xi Lin for the pointer.

Kat photo credit: Qiu Qiu Ma