In IP criminal proceedings, Chinese Courts tend not to accept a civil claim simultaneously filed by the victim (IP owner) (collateral to the criminal  proceeding). Therefore, it would be advisable for the victim and the infringer to reach through negotiations an agreement on damages in a criminal proceeding, since it will help the victims to obtain compensation and the infringer to get a commuted sentence.

In March 2014, a German trademark owner found that an individual surnamed Hwang was engaged in the sale of counterfeit machinery and equipment in Baiyun District of Guangzhou. The said trademark owner reported such findings to the police, which initiated a raid action against the alleged infringer. During the on-site investigation, the police found a large quantity of counterfeit products in Hwang’s warehouse and identified that the  infringer's illegal business transaction was more than RMB 590,000.

In June 2014, the police transferred the case to Baiyun District Procuratorate. In July 2014, the procuratorate initiated public prosecution on the ground of “selling commodities bearing counterfeit registered trademarks” with the Baiyun District Court of Guangzhou.

After the oral hearing, the German trademark owner learned from the court that Hwang wished to seek the victim’s understanding by indemnifying its damages in exchange for a suspended sentence. Through negotiations, Hwang apologized for his trademark infringement behavior, paid the victim compensation of RMB 380,000 and promised to pay RMB 1 million yuan as compensation in case of repeat infringement.

In August 2014, Hwang was sentenced to a 30- month suspended imprisonment, and was imposed a fine RMB 50,000.

Comments

Article 1 of “Regulations of the Supreme People's Court on the Scope of Civil Suit Collateral to Criminal Proceedings” (Fa Shi (2000) No.47) stipulates that "Where a victim suffers from economic damages caused by the criminal violation of the victim’s personal rights or suffered from economic damages caused by the fact that the victim’s legitimate properties are being destroyed by the criminal, such victim may file a civil action collateral to the criminal proceeding".

In practice, People's Courts tend to hold that the IPR-related criminal case does not fall under the circumstances provided in the aforementioned article, thus refuse the victim’s civil action collateral to the criminal proceeding. Furthermore, if the victim files a civil litigation after the criminal case is concluded, the Court may, when deciding the amount of damages, take into account the fact that the infringer has paid a fine or has been sentenced to imprisonment thus rendering a less satisfying judgment. And the execution of such judgment is subject to various uncertainties.

Article 9 of the Guiding Opinions of the Supreme People's Court on Sentencing for Common Crimes (Fa Fa (2013) No.14) provides that “Where the defendant actively compensates the victim for its economic losses and obtains the victims’ understanding, the Court by taking into consideration the nature of the offense, the amount of compensation, the defendant’s compensation capacity and confession, the extent of repentance and so on, may reduce the sentence up to 40%”.

In this case, it is advisable that the victim obtains a considerable amount of compensation through negotiation with the defendant, which meanwhile has no substantial impact on the sentence of the criminal cases.