In criminal IP proceedings, the Chinese courts tend not to accept a civil claim collateral to criminal proceedings filed simultaneously by the victim IP owner. Therefore, in criminal proceedings the victim and the infringer should seek to reach an agreement on damages through negotiations, since it will help the victim to obtain compensation and the infringer to obtain a commuted sentence.

Case

In March 2014 a German trademark owner discovered that Mr Hwang was engaged in the sale of counterfeit machinery and equipment in Baiyun District, Guangzhou. The trademark owner reported its findings to the police, which initiated a raid against the alleged infringer. During the onsite investigation, the police found a large quantity of counterfeit products in Hwang's warehouse and determined that the infringer's illegal business transactions amounted to more than Rmb590,000.

In June 2014 the police transferred the case to the Baiyun District Procuratorate. In July 2014 the procuratorate initiated a public prosecution for "selling commodities bearing counterfeit registered trademarks" with the Baiyun District Court.

After the oral hearing, the court informed the trademark owner that Hwang wished to indemnify it for the damage suffered in exchange for a suspended sentence. Through negotiations, Hwang apologised for his behaviour, paid compensation in the amount of Rmb380,000 and promised to pay Rmb1 million as compensation in case of repeat infringement.

In August 2014 Hwang was sentenced to a 30-month suspended prison term and was ordered to pay a fine of Rmb50,000.

Court practice

Article 1 of the Supreme People's Court Regulations on the Scope of Civil Suits Collateral to Criminal Proceedings (Fa Shi (2000) 47) stipulates:

"where a victim suffers economic damages caused by the criminal violation of its personal rights or suffers from economic damages caused by the fact that its legitimate properties are being destroyed by the criminal, such victim may file a civil action collateral to the criminal proceedings."

In practice, the people's courts tend to hold that IP-related criminal cases do not fall within the circumstances set out in Article 1 and thus refuse the victim's civil action collateral to the criminal proceedings. Further, if the victim files a civil action after the criminal case has concluded, the court may, when deciding on the amount of damages, take into account the fact that the infringer has paid a fine or been sentenced to imprisonment, thus rendering a less satisfying judgment for the victim. Moreover, the execution of such judgments is subject to various uncertainties.

Article 9 of the Supreme People's Court Guiding Opinions on Sentencing for Common Crimes (Fa Fa (2013) 14) provides:

"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 offence, the amount of compensation, the defendant's compensation capacity, his confession and extent of repentance etc, may reduce the sentence by up to 40%."

In such cases, it is advisable that the victim seek a considerable amount of compensation through negotiation, which has no substantial impact on the sentence in the criminal case.

For further information on this topic please contact Shuhua Zhang or Yi Luo at Wan Hui Da Law Firm & Intellectual Property Agency by telephone (+86 10 6892 1000), fax (+86 10 6894 8030) or email (zhangshuhua@wanhuida.com or luoyi@wanhuida.com). The Wan Hu Da Law Firm & Intellectual Property Agency website can be accessed at www.wanhuida.com.

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