On the Punitive Damages System of Intellectual Property Infringement

Published:

2021-12-31

Abstract: The system of punitive damages is an important system in China's intellectual property law system, which plays a positive role in making up for the loss of the victim, punishing and curbing the infringement. The "Civil Code" raises "punitive damages" to the height of the law. Under the objective conditions that it is difficult to prove the losses involved in intellectual property infringement litigation, it can be said to give the right holders a reassurance to protect their rights. Keywords: punitive damages intellectual property infringement damages On the Definition of Punitive Damages Punitive damages, usually also known as "exemplary compensation" or "retaliatory compensation", are generally used in intellectual property infringement litigation. Specifically, the amount of compensation made by the defendant according to the actual situation of the case during the trial of the case exceeds the plaintiff's actual loss, and the amount of compensation awarded to the defendant can be regarded as punitive damages. 2. Analysis of the Current Situation of Intellectual Property Infringement Compensation in China Before the implementation of the Civil Code, whether in the theoretical or practical circles, as far as intellectual property infringement compensation is concerned, the "fill-in system" compensation is often adopted, that is to say, when the right holder receives damage, the compensation obtained through litigation can at most make up for the losses he has suffered, and the right holder cannot and has no right to profit from infringement litigation. In intellectual property infringement litigation, the determination of the amount of loss has always been a difficult problem in front of the right holder. In the trial of such cases, the court is often unable to prove the actual amount of loss suffered by the right holder, and can only decide below the statutory compensation limit. Compared with other infringements, the amount of compensation for intellectual property infringement is obviously uncertain, and with the diversification of infringement means, the damage of infringement is getting higher and higher. The amount of compensation under the statutory amount of compensation has become increasingly unable to compensate for the loss of the right holder, especially the loss of market share and the adverse loss suffered by the brand, which cannot be calculated in a specific amount. The illegal cost is far lower than the illegal income, and the infringement of intellectual property rights will become more and more serious, which has gradually become an important factor that can not be ignored in China's economic development, and even an important excuse for some countries in the world to attack our country. The formal implementation of the Civil Code has brought a turning point to solve this difficult problem. First, it is clearly stated in the General Provisions that the way to bear civil liability is "punitive damages" [1]. Second, Article 1,185 [2] of the sub-rule makes it clear that punitive damages are applicable to intellectual property infringement. This is China's clear that the provision that "punitive damages" can be requested when assuming tort liability in the field of intellectual property has been raised to the legal level, it indicates that punitive damages have achieved "full coverage" in intellectual property cases ". It can be said that the establishment of intellectual property infringement compensation in China has entered a new era. 3. Analysis of the Necessity of Establishing Punitive Damages for Intellectual Property Infringement in China 1. Based on the need to combat infringement and purify the market environment With the rapid development of technology, the infringing party through the continuous compression of costs, its through the production and sale of counterfeit goods to obtain high profits is much higher than the amount of compensation awarded by the court, it can be said that the infringing party due to infringement will not only be damaged, but can be based on this profit, so as to repeatedly and repeatedly infringe. Through the application of punitive damages, can play a certain deterrent effect on the infringer, so that the infringer to pay a high cost of infringement, to avoid re-offending, so as to achieve the effect of purifying the market environment. Based on the need to encourage rights holders to safeguard their rights and build a good social order In practice, because the right holders often cannot get compensation or infringement compensation in time and in full, the cost of rights protection is getting higher and higher. Many right holders often feel that the rights protection behavior is not worth the loss, and even lose confidence in the entire judicial system of our country. The forced choice to tolerate or even let it happen has seriously damaged the social order of our country. By applying punitive damages and increasing the compensation obtained by the right holders for infringement, it can not only improve the enthusiasm of the right holders to protect their rights, but also promote the improvement of legal prestige and the formation of a good social order. The Specific Application of Punitive Damages System of 4. Intellectual Property Infringement in China's Judicial Practice (I) the relevant provisions of punitive damages in the current legal system of our country. In addition to the "punitive damages" system provided for in the Civil Code, there are similar provisions on "punitive damages" in the separate law on intellectual property rights, as detailed in Article 63 of the Trademark Law, Article 17 of the Anti-Unfair Competition Law, Article 71 of the Patent Law and Article 54 of the Copyright Law. Applicable Conditions of Punitive Damages for (II) Intellectual Property Infringement Different from the traditional compensatory damages, the main feature of punitive damages is its "punitive", that is, it is far from enough to compensate the obligee for the losses suffered. The key is to punish the infringer, and to a certain extent deter potential infringers and strangle the infringement in the cradle as soon as possible. Therefore, in the specific application of the punitive damages system of intellectual property infringement, the conditions of its application should be strictly limited, and the application should not be expanded at will, contrary to the original intention of establishing the system. The Interpretation on the Application of Punitive Damages in the Trial of Civil Cases Infringing Intellectual Property Rights (hereinafter referred to as the "Interpretation") issued by the Supreme People's Court on March 3, 2021 provides a more authoritative operational guideline on how to apply punitive damages in judicial trials. Combined with the relevant provisions of the judicial interpretation, the author believes that the applicable conditions of punitive damages should cover the following points: 1. There is an objective fact of damage. The author believes that the fact of damage has a dual meaning, one is that there is a tort, and the other is that the tort damages the legitimate rights and interests of the obligee, which includes not only personal rights and interests, but also property rights and other legitimate rights and interests. In other words, punitive damages may only be involved when there is an objective fact of damage, and punitive damages cannot be applied to the preparatory act of infringement that is about to be implemented. For the preparatory act of infringement, the right holder may seek additional relief, including applying to the court for an injunction or property preservation. 2. The infringer has the subjective malice of infringement, which is mainly manifested as intentional. From the perspective of the emergence and development of the punitive damages system and relevant foreign experience, punitive damages have the direct purpose of increasing the liability for compensation, and the ultimate goal is to punish the infringer and deter other potential infringers. Therefore, the application of the punitive damages system must be limited to intentional infringement, otherwise, it is very likely to impose excessive liability on the infringer, thus overcorrecting it. The infringer is subjectively intentional infringement, that is, the infringer knowingly does it intentionally knowing that his actions will infringe upon the intellectual property rights of others. 3. Punitive damages can only be applied if the circumstances are serious. The combination of the serious subjective malicious circumstances can make the punitive damages uniform play its due role, which will not improperly increase the infringer's liability for compensation, but also can achieve "punishment as its rule". According to relevant regulations, punitive damages are generally 1-5 times of damages for the infringer's infringement. If the infringement does not reach the serious standard, the amount of loss involved in the case is not high, even if the top five times of punitive damages are applied. The amount of damages can not serve as a deterrent to the infringer, nor can it play the ultimate goal of the system to curb infringement. As for the standard of "serious circumstances", Article 4 of the interpretation has been listed in detail and will not be repeated. (III) Criteria for Determining the Amount of Punitive Damages For the punitive damages system, the determination of the specific amount of compensation can be said to be the most important in the application of the system. If it is too high, it may excessively increase the liability of the infringer, and if it is too low, it may not be able to serve the purpose of punishment. Therefore, it is necessary to make corresponding legislative provisions on the criteria for determining the amount of punitive damages in order to avoid excessive discretion of judges and thus affect the fairness of judicial decisions. Although the current "Trademark Law", "Patent Law", "Copyright Law" and "Anti-Unfair Competition Law" all set punitive damages to more than one time and less than five times, there are still ambiguities in practice. There are disputes when the right holder requests punitive damages in intellectual property infringement litigation. Article 5 [3] of the "Interpretation" provides corresponding provisions on the calculation criteria for punitive damages, but the author believes that there are still the following points that need to be paid attention to in practical application: 1. On the basis of compensation According to the provisions of Article 5 of the interpretation, the compensation base shall comprehensively consider the actual loss of the obligee, the illegal income of the infringer and the license fee of the right. It should be noted that the reasonable cost of defending the rights of the right holder should be excluded when determining the compensation base. 2. About multiples According to the provisions of Article 6 of the "Interpretation", when determining the multiple of compensation, the severity of the infringement and the subjective malice of the infringer should be comprehensively considered, and the multiple limit under the law should be comprehensively determined. 3. Calculation method: "base * multiple reasonable rights costs" Application Effect of (IV) Punitive Damages System in Intellectual Property Litigation in China The "MOTR" trademark infringement dispute case, which was selected as one of the top 10 intellectual property cases in China's courts in 2019, is a typical case of punitive damages in intellectual property infringement litigation in China. The judgment reflects the firm confidence of the people's court to crack down on malicious infringement such as repeated infringement and continuous infringement, and to increase the punishment for infringement. After the judgment of the case, it has been highly praised by all walks of life. The Legal Daily even published an article on the front page with the headline "Reflecting China's'Great Power' in the context of the trade war", saying that the judgment of this case reflects China's crackdown. The determination of intellectual property crimes also reflects China's confidence in creating a good business environment. From this point of view, since the implementation of the "punitive damages" system in China, it has gained good legal and social effects, and has been well received by all walks of life at home and abroad. With the further clarification of relevant regulations, detailed rules and judicial interpretations, the increase in the number of applicable cases tried by the people's courts will inevitably curb the high incidence of intellectual property infringement cases and benefit the construction of the socialist rule of law in my country. Note:[1] Article 179 of the Civil Code "Where the law provides for punitive damages, follow its provisions." [2] Article 1,185 of the Civil Code "If the infringement of the intellectual property rights of others is intentional and the circumstances are serious, the infringed shall have the right to claim corresponding punitive damages." [3] Article 5 of the Interpretation of the Supreme People's Court on the Application of Punitive Damages in the Trial of Civil Cases Infringing Intellectual Property Rights states that "when determining the amount of punitive damages, the people's court shall, in accordance with relevant laws, take the actual amount of the plaintiff's loss, the amount of the defendant's illegal gains or the benefits obtained from infringement as the calculation base. The basis does not include the reasonable expenses paid by the plaintiff to stop the infringement. If it is difficult to calculate the actual amount of loss, the amount of illegal gains and the benefits obtained as a result of infringement as mentioned in the preceding paragraph, the people's court shall reasonably determine the amount of punitive damages by reference to the multiple of the license fee of the right in accordance with the law." References:[1] Baidu Encyclopedia: Punitive Damages Entry https://baike.baidu.com/item/惩罚性赔偿/10154579?fr=aladdin [2] Li Mingde, American Intellectual Property Law-2nd Edition Law Press 2014.4 ,P614-615 [3] Yang Lixin. Tort Law [M]. Beijing: People's Court Press, 2004:159. [4] Shanghai Pudong New Area People's Court (2018) Shanghai 0115 Minchu No. 53351 Civil Judgment [5] https://www.sohu.com/a/414310802_99895431 of "Shanghai's First Punitive Compensation Dispute for Intellectual Property Infringement" [6] Qian Yuwen, Luo Fulin, "On Punitive Damages in China's Intellectual Property Law", Journal of Law, 2009 [7] Shi Ling and Wang Yingjun, "Application of Punitive Damages System in the Field of Intellectual Property Law in China", in Tianjin Law, No. 1, 2012

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