Interpretation of the Supreme People’s Court on the Application of Punitive damages to the Trial of Civil Cases of Infringement of Intellectual Property Rights were promulgated on March 3rd. Typical Cases on the Application of Punitive Damages to Civil Cases of Infringement of Intellectual Property Rights are hereby published for the purpose of understanding and applying the Interpretation accurately, and ensuring correct implementation of the punitive damages system.
I. Case of Technical Secret Infringement Dispute of Guangzhou TINCI Materials Technology Co., Ltd. etc. v. Anhui Newman Fine Chemicals Co., Ltd. [Supreme People’s Court (2019) ZMZ No. 562]
II. Case of Trademark Infringement Dispute of ERDOS Group v. MIQI Industry [Beijing Intellectual Property Court (2015) JZMCZD No. 1677]
III. Case of Trademark Infringement and Unfair Competition Dispute of Xiaomi Technology Co., Ltd., etc. v. Zhongshan Povos Appliances Co., Ltd. [Jiangsu Higher People’s Court (2019) SMZ No. 1316]
IV. Case of Trademark Infringement Dispute of WULIANGYE Group v. XU Zhonghua, etc. [Hangzhou Railway Transportation Court (2019) Z 8601 MC No. 1364; Zhejiang Hangzhou Intermediate People’s Court (2020) Z 01 MZ No. 5872]
V. Case of Trademark Infringement Dispute of Adidas Corporation v. RUAN Guoqiang, etc. [Zhejiang Province Wenzhou City Intermediate People’s Court (20200 Z 03 MZ No. 161)]
VI. Case of Trademark Infringement Dispute of OPPLE Lighting Co., Ltd. v. Hunan Huasheng Group Co., Ltd. [Guangdong Province Higher People’s Court (2019) YMZ No. 147]
I. Case of Technical Secret Infringement Dispute of Guangzhou TINCI Materials Technology Co., Ltd., etc. v. Anhui Newman Fine Chemicals Co., Ltd.
The Guangzhou TINCI company and the Jiujiang TINIC company alleged that ZHANG Hua, LIU, Anhui Newman company, WU, HU, ZHU and PENG infringed their technical secret of “Kabo” manufacturing process, and filed a lawsuit in the Guangzhou Intellectual Property Court, requesting stopping infringing activities, compensating for losses and making an apology. The Guangzhou Intellectual Property Court found that the alleged act constituted an infringement of the technical secret involved in the case, and applied 2.5 times punitive damages, taking into account the intentional infringement and the circumstances of the infringement. The Guangzhou TINCI company and the Jiujiang TINIC company, Anhui Newman company, HUA and LIU were not satisfied with the judgment of first instance and appealed to the Supreme People’s Court. In the second instance, the Supreme People’s Court held that the alleged act constituted an infringement of the technical secret involved in the case, but the first instance did not fully consider the extent of the contribution of the technical secrets involved in determining the amount of compensation for infringement, and did not fully consider the degree of subjective malice of the infringer and the serious circumstances such as committing infringement as primary business, the large scale and long duration of the infringement, and the act of spoliation of evidence. Thus, on the basis of sustaining the first instance judgment in terms of stopping infringing activity, the Supreme People’s Court applied five times upper-limit punitive damages, and ruled that the Anhui Newman Company should compensate RMB 30 million for the economic losses of Guangzhou TINCI company and the Jiujiang TINIC company, and RMB 400,000 for reasonable expenses, and that Hua, Liu, Hu and Zhu should bear joint and several liabilities within the ranges of RMB 5 million, RMB 30 million, RMB 1 million and RMB 1 million, respectively for the aforementioned compensation amount.
This is the first civil case of infringement of intellectual property to which the Supreme People’s Court applied punitive damages. The judgment in this case fully considered about factors such as the subjective malice of the sued infringer, committing infringement as primary business, the act of spoliation of evidence, the long duration and the large scale of the infringement, applied the punitive damages and finally determined the statutory maximum folds of punitive damages (five folds), which explicitly conveys a strong signal to strengthen the judicial protection of intellectual property rights.
II. Case of Trademark Infringement Dispute of ERDOS Group v. MIQI Industry
ERDOS corporation obtained the exclusive right of the registered trademark on February 14, 2004, and the use of the trademark was approved for goods such as scarves, clothing, gloves, etc. in category 25. In June 2015, ERDOS corporation discovered that MIQI company’s cashmere products, sold in the Miqi Clothing Store on its Tmall website, used prominently the remarkable elements of the trademark involved in this case, i.e., the Chinese characters “鄂尔多斯”. The ERDOS corporation then filed an infringement lawsuit. The Beijing Intellectual Property Court held that Miqi company’s profit gained from the act charged with infringement could be determined by the multiplication product of the sales volume, the unit price and the reasonable profit margin of the alleged infringing products. Since that the ERDOS corporation’s series trademarks of “鄂尔多斯” enjoyed high popularity and that the profit margins of products in the “Tmall” store are relatively high, the alleged infringing activities have caused very serious damages to trademark owners. Considering that the MIQI company, as a trader of goods closely associated with clothing, such as “woolen yarns, scarf yarns, cashmere yarns,” etc., should know the popularity of the trademarks involved in this case, that MIQI’s self-operated online shop used prominently marks which are almost the same as the trademarks involved in this case, and that the infringement was long lasting with obvious maliciousness and serious circumstances, the damages were determined to be twice the amount of profit obtained by the MIQI company through the infringement.
The case fully reflects the confidence and determination of the people's court to correctly implement the punitive damages system and severely impose sanctions on malicious infringement of trademark rights. The grounds portion of the judgment documents fully and clearly expounds the factors to be taken into account in determining “subjective malice” and determining the “base” and “fold” of punitive damages, so that the process of making the judgment is more transparent and the outcome of the judgment is more convincing. After sentencing the case, neither party appealed and good social results were achieved.
III. Case of Trademark Infringement and Unfair Competition Dispute of Xiaomi Technology Co. Ltd., etc. v. Zhongshan Povos Appliances Co., Ltd.
In April 2010, Xiaomi Technology Co., Ltd. registered the trademark “小米”, the use of which has been approved on goods including portable telephones, videophones, etc..Then a series of trademarks such as “”, “智米”, etc. were applied and registered successively. Since 2010, Xiaomi Technology company and Xiaomi Communication company have won multiple national honors in the industry. Major media have carried out continuous and extensive publicity and reports on the Xiaomi Technology company, Xiaomi Communication company and Xiaomi mobile phones.
In November 2011, Zhongshan Povos Appliances Co., Ltd. applied for registration of the trademark “小米生活” which had been approved in 2015 on goods including electric cookers, water heaters, electric pressure cookers, etc.. In 2018, the trademark “小米生活” was declared invalid on the ground that the registration was obtained by improper means. Besides, in more than 90 trademarks registered by the Zhongshan Povos Co., Ltd., there are not only trademarks similar to “小米”, “智米” but also trademarks that are the same as or similar to famous brands such as “百事可乐PAPSIPAPNE”, “盖乐世”, “威猛先生”, etc.
Jiangsu Higher People's Court held that the number of comments under the goods of online shops can be regarded as reference basis of sales volume of such goods. Sales volume of 23 shops involved in the case can be calculated into the amount of profits obtained as a result of the infringement. And Jiangsu Higher People's Court held that, 1. even during the second instance of this case, the Zhongshan Povos Appliances Co., Ltd. continued publicizing and selling the infringing products, showing an obvious subjective malice on infringement; 2. The Zhongshan Povos Appliances Co., Ltd. sold a wide range and large quantities of infringing products via a number of website platforms and online shops, which constitutes a large scale of infringement and should be regarded as factors into consideration of determining the punitive amount; 3. The trademark “小米” is a well-known trademark and has high popularity, reputation and market influence; 4. Goods charged with infringement had been identified by the Shanghai Market Monitoring Management Bureau as defective products and had some quality problems according to some users as well. The Zhongshan Povos Appliances Co., Ltd.’s acts charged with infringement resulted in damages of good reputation of the Xiaomi Technology company and the Xiaomi Communication company.
Punishment should be strengthened. The amount of profit obtained as a result of the infringement should be regarded as basis of compensation, and the damage amount should be three times of this profit. The total compensation amount of RMB 50 million alleged by the Xiaomi Technology company and the Xiaomi Communication company was fully supported.
The judgment comprehensively analyzes and states key elements for determining punitive damages i.e. “maliciousness” and “serious circumstances” as well as methods for determining the base and the fold, which not only considers the sales characteristics of infringing products, but also analyzes relevant factors influencing the punitive folds comprehensively. This judgment determines the fold appropriate to the subjective malice on infringement, seriousness of circumstances and severity of consequences caused by infringement, provides a practical sample for application of the punitive damage system and reflects the guide of severely punishing serious infringement of Intellectual Property Right.
IV. Case of Trademark Infringement Dispute of WULIANGYE Group v. XU Zhonghua, etc.
The Wuliangye corporation got license from the trademark right holder to exclusively use the registered trademark “”. The shops actually controlled by XU, Zhonghua had been administratively punished for selling counterfeit Wuliangye liquor and unauthorized using of the characters “五粮液” for the shop signs. XU Zhonghua, etc. were sentenced to penalties, such as fixed-term imprisonment, etc. for selling counterfeit liquor such as “五粮液”, which constituted the crime of selling goods with counterfeit registered trademarks. In the case that XU Zhonghua, etc. have been administratively and criminally punished for selling counterfeit “五粮液”, the courts of first and second instance, taking into account factors such as the mode and duration of the infringement being sued, determined that they committed infringement as primary business and ruled them to bear two folds punitive damages.
XU Zhonghua committed the same or similar infringement again after having been administratively punished for infringement and was later ruled by the people's court to bear criminal liability. Under such circumstances, the courts of first instance and second instance, taking full account of factors such as the duration of the infringement, reasonably determines the base and fold of punitive damages, accurately defines the “serious circumstances” such as "committing infringement as primary business", punishes serious infringement of intellectual property rights according to law, and effectively protects the legitimate rights and interests of intellectual property rights holders, which is of exemplary significance.
V. Case of Trademark Infringement Dispute of Adidas Corporation v. RUAN Guoqiang etc.
The Adidas corporation owns the trademark rights of the “adidas” series and enjoys high popularity. The Zhengbang Company, which was invested, registered and established by RUAN, Guoqiang, etc., bad been seized three times from 2015 to 2017 by the administrative departments for shoe upper products violating the “adidas” series trademark rights of Adidas corporation, and was subjected to administrative penalties, with an accumulated number of more than 17,000 pairs of infringing products. The Adidas corporation filed a civil suit, requesting for punitive damages and RUAN Guoqiang, etc. to compensate the Adidas corporation for economic losses of RMB 2641695.89.
The Wenzhou Intermediate People's Court of Zhejiang Province held that subjective malice of Zhengbang was very obvious, and that the sued infringement was long lasting with severe consequences, which belonged to the case of serious circumstances. The Court set the unit price at RMB 189/ pair for certified shoes as the basis for calculation, took the evidence of the gross profit margin of 50.4% shown in the accounting report of the year 2017 provided by the Adidas corporation, and took the Zhengbang company’s 6050 pairs of shoe upper products tracked down at the third time as the sales volume. It has been further considered that all of the infringing product were shoe upper part, not finished shoes, and thus could not be directly consumed, so a deduction of 40% was applied. Finally, the damages were determined to be RMB 1037337.84, which is three times of the Adidas corporation’s economic losses of RMB 345779.28.
Accurate calculation of the base for punitive damages is an important prerequisite for the application of punitive damages system. To the evidence provided by the right holder at its best effort, the court of second instance did not deny rashly, but adhere to the standard of superior evidence and reasonably determined the base of punitive damages. At the same time, this case is also of exemplary significance in applying the “principle of upon-request” and determining “serious circumstances”.
VI. Case of Trademark Infringement Dispute of OPPLE Lighting Co., Ltd. v. Hunan Huasheng Group Co., Ltd.
The Opple company is the owner of the registered trademarks “” and “欧普”, and the use of the trademarks was approved for the goods of lamps, fluorescent lamps, etc., wherein the registered trademark “” had been recognized as a well-known trademark in Guangdong Province, and in 2007, it was recognized as a well-known trademark in China. The Huasheng company used the marks “”, “”, “”, “” etc., on its lamp products, such as lamp, night lamp, etc., produced thereby and on relevant publicity websites, which were sold or offered to sell in various offline supermarkets and websites such as Tmall, etc.. The Huasheng company was punished by the administrative department due to unqualification of its lamp products.
The Opple company filed a lawsuit to the court, asking for affirming infringement by Huasheng company, applying of punitive damages and compensating for its economic losses and reasonable expenses of RMB 3 million. Both the court of first instance and the court of second instance held that the Huasheng company did not constitute trademark infringement and did not support Opple’s request. In retrial, the Guangdong Higher People’s Court held that the claimed trademarks of the Opple company were prominent and well-known, that the sued marks used by the Huasheng company on the lamp products constitute similar marks to and hence could be confused easily with the Opple company’s registered trademarks involved in this case, and that Huasheng company constituted trademark infringement. The Huasheng Company, as an operator of the same industry, knowing that the Opple company and its trademarks enjoyed high popularity and reputation, and knowing that the application of registration of trademark “欧普特” on the light goods was rejected, still deliberately registered the trademark “欧普特” in other categories, used it on lamp goods, largely produced and sold unqualified infringing product, which demonstrated its obvious subjective malice in infringing the Opple company’s trademark and serious circumstances. In this case, punitive damage should be applied. Therefore, according to the licensing fees of the trademarks involved in the case and the duration of the infringement, the compensation base was determined to be RMB 1.2775 million, and comprehensively considering about factors such as the degree of subjective malice of the Huasheng company and the nature, circumstances and consequences of the infringement, the damages amount was determined to be three times the compensation base.
The retried judgment in this case clarified the rules boundary and proof criteria of “principle of upon-request”, “subjective malice” and “serious circumstances” in the application of punitive damages for intellectual property rights, and put forward the method and path of accurate calculation to determine the “base” and “fold” of the volume of damages, which has important guiding significance in the application of law. The case won the first prize of the "National Court System 2020 Outstanding Case Analysis Award” and the second prize of the “Fourth National Intellectual Property Outstanding Adjudicative Documents”.