Supreme Court of China casted punitive damages upon post-settlement-agreement repeated patent infringement

In the fight against intellectual property rights (IPRs) infringements, China does not consider punitive damages as a taboo. On the contrary: it has embraced them as a useful tool. In that regard, punitive damages for IPRs infringements have found their places in, but not limited to, China’s Civil Code (CCC), Copyright Law, Trade Mark Law and Patent Law (see former IPKat posts here and here).

This post discusses a recent patent case in which the Supreme People’s Court of China (SPC) awarded punitive damages upon post-settlement-agreement repeated infringement.

Shelly: 'Oops!…You did it again 😒'

Case References

First instance: [No 211, first instance, civil, IP, (2022) Zhengzhou Intermediate People’s Court, Yu 01]; Second instance: [No 871, final, civil, IP, (2022) SPC]*

The law

Article 1185 of the CCC reads as the corner-stone provision for IPR punitive damages (source of translation here):

Where any harm caused intentionally by a tort to the intellectual property rights of another person has serious circumstances, the victim of the tort shall have the right to require corresponding punitive damages.

Notably, ‘intentionally’ and ‘serious circumstances’ are the two key elements.

The Patent Law of China, in Article 71(1), follows the CCC’s two-key-element structure (translated by WIPO):

The amount of compensation for patent right infringement shall be determined on the basis of the actual losses suffered by the right holder as a result of the infringement or the profits earned by the infringer as a result of the infringement. Where it is difficult to determine the losses suffered by the right holder or the profits earned by the infringer, the amount shall be reasonably determined by reference to the multiple of the amount of the royalties for the patent license. For intentional infringement of a patent right, if the circumstances are serious, the amount of compensation may be determined at not less than one time and not more than five times the amount determined in accordance with the above-mentioned method. (Emphasis added)

In addition, the SPC provides judicial guidance in the <Interpretation on the Application of Punitive Damages in the Trial of Intellectual Property> (PD Interpretation). Particularly, Articles 3 and 4 shed some more light on the two key elements:

Article 3

For the determination of intentional infringement of IPRs, the people’s court shall comprehensively consider the factors, including the type of the infringed IPRs, the IPRs status and the popularity of related products, the relationship between the defendant and the plaintiff or the interested party.

In the following situations, the people’s court can preliminarily determine that the defendant has the intention to infringe IPRs:

(1) The defendant continues to commit the infringement after being notified or warned by the plaintiff or the interested party;

(2) The defendant, its legal representative or manager is the legal representative, manager or actual controller of the plaintiff or interested party;

(3) The defendant is in a relationship of employment, labour, cooperation, licensing, distribution, agency, or representation with the plaintiff or the interested parties and has access to the infringed IPR;

(4) The defendant has a business relationship with the plaintiff or interested parties or has negotiated for reaching a contract and has access to the infringed IPR;

(5) The defendant committed acts of piracy and counterfeiting of registered trade marks;

(6) Other circumstances that can be considered as intentional.

Article 4

For the determination of serious circumstances of the IPRs infringement, the people’s court shall comprehensively consider factors like the infringement method, frequency, the duration of the infringement, the geographical scope, the scale, the consequences involved, and the infringer’s behaviour during the lawsuit.

If the defendant has any of the following circumstances, the people’s court may determine that the circumstances are serious:

(1) (If the defendant) After being given an administrative penalty or a court judgment finding responsibility for infringement if the same or a similar infringement is committed again;

(2) If the defendant has made infringing IPRs his profession;

(3) If the defendant fabricates, destroys or conceals evidence of infringement;

(4) If the defendant refuses to perform on a preservation ruling;

(5) If the gains from the infringement or the harm suffered by the rights holder are huge;

(6) If the infringing acts might endanger national security, the public interest or physical health;

(7) In case of other situations in which the circumstances may be considered as being serious.

The case

Jin is the patentee of ‘Reverse ground roughening machine’ (no. 01125315.0). During the validity period of the patent, one of the two defendants,** ‘Baijia store’, sold Jin’s patented products without permission.

In April 2021, Jin sued Baijia store for patent infringement. One month later, a settlement was reached. Jin thus dropped the suit.

The settlement agreement stated that Baijia store must (1) immediately stop infringing Jin’s patent right and (2) pay Jin a total of 30,000 CNY for economic losses and reasonable expenses spent in stopping infringements.

However, on 1 July 2021, an evidence-preservation notarization applied by Jin proved that Baijia store’s infringement activities were continuing. Jin thus sued Baijia store again, this time with a request of imposing punitive damages due to repeated infringements.

The punitive damages request was not upheld by the court of first instance, which ruled that “although the intention to infringe was confirmed, the circumstances were not serious enough to reach punitive damages.”

Noticeably, on appeal, the SPC ruled reversely on that part:***

After experiencing the previous lawsuit, Baijia store knew that Jin was the patentee involved in the case, and also knew that its sale of the accused infringing product infringed the patent right at issue. Yet, after making a commitment to stop the infringement and paying compensation in the previous case, Baijia store still continued selling the accused infringing products. The intentional repeated infringement falls under ‘Other situations where the circumstances may be found to be serious’ as stipulated in Article 4 of the PD Interpretation.

To sum up, Baijia store’s intentional infringement is serious, so it should bear the liability for punitive damages. The court of first instance found that the alleged infringement of Baijia store was not serious enough to meet the conditions for applying punitive damages, which was inconsistent with the facts of the case and the legal provisions. (Emphasis added)

The SPC overturned the first-instance judgment and ruled that Baijia store was to pay Jin a compensation for economic losses and reasonable expenses totalled 60,000 CNY.

Comment

By far, neither straightforward legal provisions nor SPC judicial interpretations fully corresponded to the infringing acts featured in this case. A relatively closer one seems to be Article 4.2(1) of the afore-mentioned PD Interpretation, which, however, is premised on the fact that the repeated infringer bore an administrative penalty or legal liability.

This time, the SPC, by invoking the miscellaneous provision, i.e., Article 4.2(7) of the PD Interpretation, condemned a type of act that was not enumerated in Article 4.2(1)-(6) of the PD Interpretation.

In this Kat’s perception, this ruling is noteworthy for at least four reasons.

First, it shows that the enumerated infringing acts are typical, yet the list is, as a list usually would be, not exhaustive;

Second, punitive damages do not necessarily involve money. The assessment is a comprehensive one that considers multiple factors, e.g., the ones mentioned in Article 4.1 of the PD Interpretation.

Third, the SPC’s ruling is not a result of an arbitrary analogy, but rests within the lawful scope that is covered by, again, the range marked by the two key elements of punitive damages in China.

Finally, returning to the origin of punitive damages, we see terms like ‘exemplary’ and ‘deterrence’, targeting similar conducts in the future. Per the SPC’s press on its website, this case bears similarities:

‘(This judgment) demonstrates the judicial attitude of Chinese courts to severely punish deliberate and repeated infringements, and helps to stimulate social innovation through strict protection of IPRs.’

This SPC's comment certainly raises the alarm for repeated infringers.

PS: Happy to have written a chapter titled <Punitive damages for intellectual property rights infringement in China> in the upcoming book <Developments and Directions in Intellectual Property Law – 20 Years of The IPKat>. For those who are interested in this topic, the chapter might be a fun read. (And, heartedly thanks to the editors, Kats Eleonora and Hayleigh, for organizing such an amazing book!)

*The judgment is not published at the official source. You can find the full judgment published by a third party here (in Chinese).

**There are two defendants in this case. However, the plaintiff failed to prove that the 2nd defendant had committed the alleged infringement. For the sake of conciseness, this post has omitted covering the 2nd defendant.

***Translated by Tian

Photo: Shelly, Tian's kitten