Introduction

In China, decisions in which punitive damages are claimed and supported by the court are becoming increasingly frequent. The Supreme People's Court (SPC) recently released a Judicial Interpretation on the Application of Punitive Damages in the Trial of Civil Cases Involving Infringement of Intellectual Property Rights with immediate effect (for further details please see "SPC releases judicial interpretation relating to punitive damages in IP cases"). This article discusses the six exemplary cases that the SPC published alongside the judicial interpretation to illustrate how punitive damages are assessed and applied.

Kabo

In Kabo, a trade secret infringement case (SPC, 24 December 2020), the SPC ascertained the following:

  • Since its establishment, Anhui Newman Company had been engaged in the production of Kabo products. Anhui Newman Company had submitted no supporting evidence to prove that it produced other products. Further, all of the Kabo products had been processed by the same set of equipment, although they had used different names.
  • Anhui Newman Company had continued infringing and exporting relevant products to more than 20 countries even after its former legal representative was found guilty by a criminal court of committing the same trade secret infringement.
  • Anhui Newman Company had refused to submit its accounting book without a justifiable reason, which constituted an act of obstruction of evidence.

The SPC considered that the original intentions of the Anti-unfair Competition Law in establishing a punitive damages system were to:

  • strengthen legal deterrence;
  • crack down on malicious serious infringement;
  • deter future or potential infringers; and
  • effectively protect innovative activities.

In view of Anhui Newman Company's bad faith and the severity of the infringement, the SPC raised the punitive damages to five times the illegal gain and ordered it to pay Rmb30 million in damages.

This was the first SPC judgment to apply punitive damages.

Erdos v Miqi

In Erdos v Miqi (Beijing IP Court, 25 April 2016), the Beijing IP Court applied a punitive damages coefficient of two on the following grounds:

  • The ERDOS trademark was distinctive and enjoyed a high reputation for garments.
  • Miqi had prominently used a logo almost identical to the ERDOS trademark on its products and packaging, and in its online shop.
  • The Miqi online shop had operated on a Tmall platform and had benefited from Tmall's high reputation and guarantee of quality. Consequently, Miqi's profit margin was higher and the harm caused to the ERDOS trademark was more severe.

Xiaomi v Zhongshan Benteng

In Xiaomi v Zhongshan Benteng (Jiangsu High Court, 31 December 2019), the court analysed the following facts:

  • On 8 August 2018 the China National Intellectual Property Administration had invalidated the trademark XIAOMI LIFE, which had been registered by Zhongshan Benteng. On 9 September 2019 the Beijing IP Court had rejected Zhongshan Benteng's appeal. On 12 June 2019 the first-instance court had ruled that the evidence provided by Xiaomi showed that Zhongshan Benteng had continued to promote and sell infringing products even during the second-instance hearing of the civil action.
  • Zhongshan Benteng had offered a variety of infringing products in many online shops through multiple e-commerce platforms and the scale of infringement had been significant.
  • XIAOMI was a well-known trademark and enjoyed a high market reputation and influence.
  • The infringing goods sold under the trademark XIAOMI LIFE – namely, Mi001 induction cooker screws and connections and the MW-806 handheld garment steamer – had been identified as substandard products by the Shanghai Market Supervision Administration in 2018 and 2019, respectively. Further, it could be seen from the product evaluation of the online stores in question that some consumers had reported that the infringing products had had quality problems.

Considering the above factors, the court decided that the amount of profit made should be multiplied by three. The sales amounted to approximately Rmb61 million and, with a profit rate of 33.35%, the infringement profit was estimated to be approximately Rmb20 million. Multiplied by a coefficient of three, the total amount was approximately Rmb61 million. Therefore, the Jiangsu High Court fully upheld the first-instance judgment, which awarded Xiaomi an amount of Rmb50 million – the total amount of its claim.

Wuliangye v Xu Zhonghua

In Wuliangye v Xu Zhonghua (Hangzhou Intermediate Court, 9 October 2020), the first-instance court ascertained that:

  • The defendant, Xu Zhonghua, had sold counterfeiting Wuliangye liquor on a large scale and had obtained significant illegal gains.
  • The administrative law enforcement authorities had raided and fined Xu Zhonghua several times. He had then been arrested by public security and had eventually been sentenced by the criminal court for trademark counterfeiting.
  • The WULIANGYE trademark had been used on signboards and in shop decoration.
  • Considering the high reputation and business value of the WULIANGYE trademark, the low quality of the counterfeits not only harmed the public interest but also negatively affected the business reputation of the Wuliangye brand, which had been accumulated through long-term effort.

In view of the above, the first-instance court applied a punitive damages coefficient of two and awarded Rmb2 million. The Hangzhou Intermediate People's Court upheld this decision.

Adidas v Ruan Guoqiang and Ruan Yongyi

In Adidas v Ruan Guoqiang and Ruan Yongyi (Wenzhou Intermediate Court, 23 July 2020), the defendants were shareholders of Zhengbang Company. Between 2015 and 2017 the administrative law enforcement authorities had repeatedly penalised Zhengbang Company for counterfeiting Adidas trademarks. In 2018 the company was dissolved. Adidas sued the defendants and claimed punitive damages, which was supported by the court.

The court considered that the defendants had obviously acted in bad faith. The infringing activity had been on a large scale and had lasted for a long time. Further, the circumstances had been serious. The court therefore granted punitive damages of Rmb1.03 million, which was three times the illegal gain.

Opple v Guangzhou Huasheng

In Opple v Guangzhou Huasheng (Guangdong High Court, 22 April 2020), the court ascertained that:

  • Opple's trademarks had been recognised as famous trademarks in Guangdong and well-known trademarks from as early as 2007. As an operator in the same industry and region as Opple, Guangzhou Huasheng should have known that Opple's trademarks enjoyed a high reputation but had deliberately imitated and used many trademarks similar to Opple's well-known trademarks on the same goods.
  • As early as October 2011, the Trademark Office had rejected Guangzhou Huasheng's trademark application in Class 11 on the ground of being similar to Opple's prior trademarks. However, Guangzhou Huasheng had still deliberately used the mark, registered in Class 21, on lamp products covered by Class 11. This showed Guangzhou Huasheng's obvious intent to pass off Opple's goodwill.
  • The sales of infringing products via multiple e-commerce platforms (eg, JD, Taobao and Tmall) had been on a large scale – namely, 63,935 pieces, as of August 2016. Further, the infringement had continued during the retrial procedure.
  • The infringing products had been subject to administrative punishment for quality defects. Considering that lamp products are subject to a compulsory certification process and that any quality defect may easily trigger security incidents and harm the interests of consumers, Guangzhou Huasheng's infringement was considered to be serious.

Therefore, the court applied a punitive damages coefficient of three and fully supported Opple's Rmb3 million compensation claim.