It is hoped this move will  deter ever increasing violations of intellectual property rights in China. The amendment is still under revision and enactment is expected in the course of this year.

Increasing penalties

Between July and December 2012, The National Copyright Administration, the State Intellectual Property Office (SIPO) and the Standing Committee of the National People’s Congress respectively published draft revisions to the Copyright, Patent and Trademark Laws to solicit public opinion on planned amendments. The drafts propose to improve the damage provisions of the respective laws by increasing penalties against infringers. In order to effectively curb deliberate infringements of intellectual property rights (IPR), the drafts propose the adoption of punitive damages. This is the not the first example of punitive damages in China, as such damages had already been introduced by the Tort Law of 2010. However, these draft provisions are the first attempt to introduce the concept of “civil” punishment in the IP arena in China.

The newly proposed norms on punitive damages will complement the current principle of “compensatory damages” under the Patent, Trademark and Copyright Laws. At present, the amount of compensation for all infringed IP rights is determined by the actual losses suffered by the patentees, the illegal profit of the infringer, or most commonly on predetermined statutory damages. The maximum cap for compensatory damages in patent infringement disputes is for instance 1,000,000 RMB (approximately 160,000 USD). In practice, the majority of damage awards in IPR infringement lawsuits in China is based on statutory damages due to the difficulty inherent to the Chinese civil procedure to obtain evidence to prove real losses or illegal profit and is very low for fear of civil courts to damage local economies.

Compensatory damages

The new articles on punitive damages introduced by the above-mentioned draft amendments to the IP laws will allow for higher damages if the defendant has committed deliberate or repeated acts of IPR infringements. The competent administrative enforcement agencies (i.e. Department of Administration of Patent-related Work, Administration for Industry and Commerce for Trademarks and the National Copyright Administration) or a competent People’s Court may increase the damages by up to three times the amount of compensatory damages. The amount of the increase depends on factors, such as the circumstances (“malicious and intentional inveiglement”) and extent (“serious circumstances”) of the infringement and the resulting damage.

It is important to note that a Plaintiff has no direct claim to punitive damages. The award of punitive damages will be in the discretion of the court. However, it is the Plaintiff that in practice will provide evidence and arguments to encourage and support a court decision to award punitive damages. In sum, punitive damages are awarded to the plaintiff as part of compensatory damages in and do not constitute a fine to be paid the State.

Stronger deterrent

These provisions are new and the legislator hopes that they will deter infringers from pursuing their illegal plans, by increasing their risk exposure in case of infringement lawsuits. It remains to be seen how this rule will be utilized in practice. The draft provides parameters in determining the type of cases suitable for punitive damages that seem to allow a great deal of flexibility in implementation depending on the specifics of each case. This may result in inconsistent case law among different jurisdictions within China.

Nonetheless, in a country were foreign plaintiffs are rarely awarded adequate compensatory damages, it is hoped that punitive damages will constitute a stronger deterrent on IPR infringement in China.

Dr Paolo Beconcini is the Managing Partner of Carroll Burdick & McDonough's Beijing Office