By Jiao Hongbin King & Wood’s Intellectual Property Group

In December 2011, the Deputy Director of the State Intellectual Property Office of the P.R.C. expressed that China would in the near future promote amendments to the Patent Law, the Trademark Law and the Copyright Law of the P.R.C. as well as associated regulations, increase the amount of fines, and conduct research on applying punitive damage awards to profit-generating intentional infringement and counterfeiting acts.  This suggests that punitive damage awards may be adopted into China’s intellectual property (IP) protection framework.

Liability for infringement can be compensatory or punitive, depending on the purpose of the compensation to be granted.  According to the current Patent Law, Trademark Law and Copyright Law of the P.R.C., the amount of compensation is determined by the basis of compensation and is calculated in accordance with the actual losses suffered by the rights owner or the benefits obtained by the infringer (and by reference to the reasonable multiples of the royalties in a patent infringement case), and while neither of the two elements could be determined, a People’s Court can award a statutory compensation amount within the scope provided by the law.

In judicial practice, it is difficult to prevent IP infringements conclusively and to effectively protect the interests of the rights owner due to the intangible and public characteristics of IP rights.  Therefore, it is proposed that punitive liability is necessary to protect IP rights in addition to compensatory liability.  However, as the protection of IP rights is by its very nature the protection of a limited monopoly, a balance should be struck between the interests of the rights owner and those of the public.  Therefore, conditional punitive damage awards, such as those against the infringers who intentionally and seriously infringe the rights owners’ IP rights, are best suited to establish this balance.

The statutory damages provided in China’s current system of IP protection, though mainly aimed at compensating the losses of the rights owner, is also considered as having a punitive nature.  However, such punitive damages are limited to some extent. For example, the laws stipulate that the amount of statutory damages shall be given subject to a certain amount or multiples and the People’s Court shall consider elements such as the subjective intention of the infringers when granting statutory damages.

Undoubtedly, the application of punitive damages awards will be good for fighting against IP infringement and safeguarding the rights and interests of IP rights owners.  However, it will take some time to have this new measure applied in consideration of the consistency of the legal system, determination of a reasonable scope of application as well as the balance between rights of the IP owners and the public interest.