Factors influencing compensation in IP property infringement cases

By Frank Liu, Shanghai Pacific Legal
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With the reform of a succession of IP laws in recent years, the statutory maximum compensation for trademark, patent and copyright infringement, and unfair competition cases, has been increased to RMB5 million (USD720,000) . Several typical cases in which the court upholds hefty compensation of tens of millions of renminbi, and a lawyer’s fee reaches millions, have garnered significant attention. Strengthening intellectual property rights (IPR) protection and increasing efforts to combat infringement have emerged as evident trends in China.

IP property infringement cases
Frank Liu
Partner
Shanghai Pacific Legal

However, in practice, except for typical individual cases of high compensation, the compensation amounts for ordinary IP infringement cases have not increased significantly since the legislation was amended.

In some cases, where the compensation amount is only a few thousand renminbi, the rights holders cannot be fully compensated for their losses and legal expenses caused by the infringement.

Correspondingly, in cases where the compensation for infringement was low and difficult to pursue, the infringer may profit from the infringement. Therefore, it is still worth exploring how to ensure that the amount of compensation in ordinary IPR cases can adequately cover the losses of the rights holder and serve to combat infringement and deter potential infringement.

THE ROLE OF INFRINGEMENT AWARDS

In practice, most IPR infringement cases use statutory damages. However, the amount of discretionary damages awarded can vary depending on different perspectives. Some may argue for lower awards to prevent rights holders from profiting from litigation or engaging in bulk litigation, which can waste judicial resources. On the other hand, a reasonable and relatively high award may be more effective in deterring potential infringers and encouraging rights holders to innovate, especially if the legislative trend is to strengthen IP protection.

In practice, the act of professional rights defender organisations defending the IPR of a large number of images and fonts may result in non-malicious businesses being sued, creating a negative perception of such behaviour. In addition, litigation for profit by assignees of patents without an actual business entity may also consume litigation resources and affect the operations of other enterprises.

Apart from the above-mentioned special circumstances, a rights holder who is operating a normal business, and whose rights have been objectively infringed in a large number, may also be able to defend their rights through single or batches of litigation.

If the two types of defending acts are confused at this time, it will create a negative impression of batches of defending rights cases brought by a single rights holder, thereby reducing the amount of compensation awarded and possibly undermining the confidence of the rights holder in defending its IPR.

In this context, the author believes that the amount of compensation determined by statutory damages must be at least sufficient to cover the normal losses of the rights holder, as well as the relatively genuine and reasonable costs of defending the rights, in order to prevent the rights holder from incurring financial losses due to defending its IPR.

However, to prevent infringement, the damages imposed must make it unprofitable for the infringer, or else additional infringement is likely to occur.

FACTORS DETERMINING DAMAGES

The purpose of litigation. In addition to the litigation for profit, where batches of lawsuits are filed by the commercial operators owning IPR due to actual needs, the court must reasonably consider the rights holders’ actual losses when determining the amount of compensation, and render the infringer unprofitable.

It is not right to judge rights holders to profit from litigation based only on a large number of lawsuits, and to guide them to no longer litigate through lower compensation, because it may harm normal defending rights behaviour.

The costs of litigation. When faced with batches of lawsuits by rights holders, damages awarded must be weighed against the expenses of both batches and single lawsuits. While legislative revisions have continually raised the maximum statutory damages in recent years, and there have been typical cases of substantial awards, the pattern of damages consideration in these typical cases is not truly universally applicable in general.

Furthermore, there are currently no uniform provisions on the proportion of damages for batches and single infringement lawsuits, resulting in a wide gap in damages awarded in similar cases, and the cumulative damages in batches of lawsuits is still difficult to cover the actual losses of the rights holder, let alone the inability to prevent infringers from profiting from infringing products repeatedly.

LEGAL BASIS FOR DAMAGES

In practice, some local judicial interpretations, such as the Beijing High People’s Court’s Guidance Opinions on Determining Damages in Cases of Infringement of Intellectual Property Rights and Unfair Competition and Judgment Standards for Statutory Damages, have agreed on the minimum amount of damages for different types of infringement cases, as well as on the relevant provisions on trademark infringement, for plaintiffs filing multiple lawsuits based on the same trademark, even if the number of cases is high and the cumulative damages are clearly unreasonable, when damages shall be decided by referring to 60-70% of the lower limit of the above-mentioned opinions’ basic damages standard.

As the majority of IPR infringement cases continue to be based on statutory damages, the opinions provide a very practical discussion on the consideration of damages in individual cases and batches of cases, as well as the criteria for the minimum amount of damages for various forms of infringement for various types of rights.

This will, to some degree, avoid large discrepancies in damages for identical cases, as well as for batches of cases that are either cumulative damages of all cases, or 10% of it.

With regard to IPR infringement cases in regular circumstances, it is of great practicality and significance to consider the level of support for the rights holder’s investigation, notary and lawyer’s fees, the conditions for the application of punitive damages to the infringer, and the sharing of litigation costs between the two parties in cases where infringement is confirmed, as well as the possibility of following practices in typical cases, to truly implement the trend of IPR protection in legislation and policy, and effectively combat infringement.

Frank Liu is a partner at Shanghai Pacific Legal

Room 2709, 27/F, Plaza 66 II
1266 Nanjing Road West
Shanghai 200040, China
Tel: +86 21 6086 0199
Fax: +86 21 6086 0111
Email:
frank.liu@shanghaipacificlegal.com

www.shanghaipacificlegal.com

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