How to Claim Punitive Damages in Trademark Infringement Cases in China
Interview with Mr. Minjian You, Founding Partner of Co-effort Law Firm
By Yuan Li, Secretary General of Shanghai IP Academy
Minjian You is the founding partner of Shanghai Co-effort Law Firm. With the idea of "Enrich IP", Co-effort has been focusing on intellectual property services for nearly 20 years, and enjoys an excellent reputation in the market of intellectual property. With the headquarter in Shanghai, Co-effort has opened domestic offices in Beijing, Suzhou, Changsha, Nantong, Wuxi, Xuzhou, Zhengzhou, Nanjing, Xiamen and Hangzhou, and has found representative offices in Osaka, Milan, Paris, Singapore and Berlin.
Minjian You is the founding partner of Shanghai Co-effort Law Firm. With the idea of "Enrich IP", Co-effort has been focusing on intellectual property services for nearly 20 years, and enjoys an excellent reputation in the market of intellectual property. Led by Mr.You, the "National Excellent Lawyer", "Lawyer of the Orient", and the "National Model Worker of China", combined with professional attorneys and technical experts and agencies, the Co-effort IP department could provide one full package IP services, including trademark registration, patent prosecution, copyright registration, IP litigation & arbitration, IP enforcement, IP fi nancing & transaction, IP licensing & assignment, IP management, and IP related academic researches, etc. In recent years, accompanied with the fast growth of the industries of entertainment, media, internet, and technology, Co-effort has expanded their services in the fi elds of software, media, mobile games, on-line video sharing, animation and comic, film and TV program, etc., and has accumulated mature comprehensive resolutions packages for the IP related issues in M&A, IPO, and FDI. Last year, Mr. You was invited to give a speech regarding trademark monetization at the forum of Brand Strategy China. As to the issue, how to enlarge trademark value, he mentioned that high damage fees in trademark litigation is important. So, with the questions about the punitive damage rule in China, we have an indepths interview with Mr. You.
Q: The Trademark Law (2013) adopted the rule of punitive damages. However, in the past four years, there was very few cases using this rule and the wining rate for claimer is also relatively low. In your opinion, what is the main cause of this dilemma?
A: Adopting punitive damage is a great improvement of trademark judicial protection in China. It is only applied in special cases, when the compensatory damages are deemed an inadequate remedy for the right holder. From the sight of comparative law, the trademark punitive damage rules in both common law and civil law countries usually provide strictly prerequisites of it.
As we can see, Article 63 of the amended Chinese Trademark Law (2013) has spelled out the three prerequisites of punitive damages. Firstly, the infringer is subjectively "malicious". Secondly, the infringement behavior is objectively "serious". Thirdly, the right holder is obliged to produce evidence to prove the actual losses that it has suffered as a result of the infringement, or the amount of interests that the infringer has gained from the infringement, or the reasonable licensing royalty, since the aforesaid three mounts will be used as the base to calculate the number of punitive damages. However, in legal practice, the phrases of "malicious" and "serious" are not clearly defi ned by further provisions in judicial interpretations or other relevant laws and regulations. Moreover, the hardest part lies in the third point, that it is very diffi cult in providing evidence to prove the "loss of the right holder" and the "interests of the infringer". For example, it is obviously very hard for the right holder to provide the true and complete fi nancial books or sales records of the infringer, for these documents were usually hold by the infringer. Even under the circumstances that the infringing defendant is a listed company, which has public information about its income and profi t, it is still not easy for the right holder to distinguish and prove which part of the profit has causality with the infringement. So the court rarely awards punitive damages, for in most of the cases the plaintiffs were unable to furnish adequate evidence on this point.
Q: As you have said, there are three kinds of calculation base for punitive damages, how about the third one? It seems using the "license royalty" is much more easier to prove.
A: Yes, it is. As I mentioned, there are three ways to provide the calculation base for punitive damage. Compared with the loss of rights holders and the profi t of the infringer caused by infringement, "reasonable license royalty" is a much easier way for the plaintiff to meet the burden of proof. However, it is still not easy to justify what is "reasonable" in trail. As we all know, not every trademark do has an actual external license in real life. Even if it has, many of the licenses may be subject to some commercial considerations other than profits, such as using alternative assets or cooperation opportunities as the consideration of the trademark license. In addition, the licensed territory and the term of license also infl uence the license royalty. These reasons may cause that many licenses cannot objectively reflect the actual value of the trademark. Therefore, although this route is relatively "convenient", it is not applied to every case.
One more point, although the Trademark Law provides the three ways in sequence, in legal practice, the court usually will accept and consider evidences from the three latitudes in one case simultaneously. So, if possible, it is a good choice for the plaintiff to try their best to provide evidences of their losses, the other party's interest, together with the reasonable royalties in every trademark infringement case.
Q: As the leader of Co-effort, one of the top Chinese IP law firms, do you have any suggestions for the right holders who need to claim punitive damages for trademark infringement in China? Particularly, do you have any successful experiences in carrying out the burden of prove in punitive damage claim?
A: Although there are various obstacles in claiming for punitive damages, there are still some successful winning cases in practice. Legislatively, the Trademark Law has also provided the rule of evidence adverse presumption under the same article of punitive damage, where the account books and information related to the infringement are held by the infringer; and where the right holder has presented as much proofs of its claims as is practically possible, the court may order the infringer to submit such account books and information; and if the infringer refuses to submit such evidence, or submit a false version whereof, the court may determine the amount of damages with reference to the right holder's claims and proofs in the claimant's favor. To some certain extent, the active application of this rule of adverse presumption can relieve the heavy burden of prove of the claimant.
On the other hand, we do have some skills in providing evidences of "losses of the right holder suffered from infringement" and "interests of the infringer from the infringement". For example, referring to the average sales growth rate of the relevant industry during the infringement period is a commonly used approach for proving the losses of right holder, since the sales growth of the right holder is obviously lower than the average rate, it is easy to infer that it has suffered loss from the infringement. In addition, price erosion is also a proper evidence in proving losses, since the price of infringing products is usually lower than the authorized/authentic edition, the cruel competition will usually force the right holder to reduce the prices or failed to maintain the quantity of sale using the normal price. Compared with the two approaches, I am very pleased to notice that there is a typical case (maybe more) in 2017, Baroque woodworking Co., Ltd, vs. Zhejiang Elegantliving Baroque Co., Ltd1., which I believe it could be honored as a landmark case in trademark punitive damages, in which the Suzhou Intermediate Court consider the right holder's loss of future profits and derogation of business reputation in determining the calculation basis of punitive damages. In this case, the plaintiff used the losses of potential franchisers and the impact of existing commercial relationships with current franchisers and consumers to prove there should be losses of future profi ts. The court has considered these factors in making the judgment, in which they finally make the decision to triple the original amount of damages as the awarded punitive damages. Also in this case, the court has invented a computational formula to calculate the base number of punitive damages, and this could be followed by future right holders and judges who come across similar cases.
Q: Besides punitive damages, the traditional statutory damage is still the most common way for claim for compensations. Do you have any suggestions for these right holders who can only claim for statutory damages?
A: Where the actual losses suffered by the right owner, the profi ts earned by the infringer, or the licensing royalties of trademark infringement cannot be determined, the People's Court shall award a statutory compensation amount within in the scope of up to RMB 3,000,000, depending on the facts of the case. Although statutory damages is aimed at compensating the losses of the rights owner, it is also considered as having a punitive nature. In the trademark infringement case regarding "DARUNFA"2, the plaintiff gained a damage of 3 million RMB, which is the cap amount of statutory damage. The Shanghai Intellectual Property Court ruled that "as the calculation base of punitive damage, the statutory damage shall integrate both of compensatory and punitive functions, in determine the amount of damages, and the subjective intention of defendant shall be considered as one of the factors." So, even if the plaintiff cannot provide the evidences of "loss of the right holder" or the "interests of the infringer", the "malicious" and "serious" evidences are still very helpful in claiming for high amount of statutory damage.
