China Plans to Impose Punitive Compensation Upon Patent Infringement

The Prime Minister of P.R.C., Li Keqiang, proposed in the Report on the Work of the Government 2018 to "strengthen the protection for intellection property rights by enforcing punitive compensation system against IP infringement". This is the first time for the content of "enforcing punitive compensation system against IP infringement" to enter the Report on the Work of the Government of P.R.C. It was also proposed in the Report on the Work of the Supreme People's Court reviewed and passed in the first session of the 13th National People's Congress ("NPC") to "explore the application of punitive compensation measures in the trial of IPR-related cases to make an effort to solve issues such as low infringement cost and expensive maintenance costs".

In the Consumer Protection Law promulgated in mainland China in 1993, the punitive compensation system was established for the first time in the form of a special law, which was a major breakthrough in the legislation for civil liabilities in the mainland China. In August, 2013, the Standing Committee of the 12th NPC reviewed and passed an amendment to the Trademark Law, introducing the punitive compensation mechanism for the first time in the field of intellectual properties and significantly lifting the statutory limit for compensation.

Currently, although many infringement matters resolved via litigation, the amounts of compensation were significantly lower than what were claimed by the plaintiffs due to imperfect legislation in the aspect of protection for intellectual properties such as patents. For the infringers, the severity of sanction is too weak to deter the reoccurrence of such act of infringement. And the acts of the infringers are often not serious enough to be criminally convicted, there is no other means to severely punish the infringer to achieve the effect of prevention. Even some administrative means such as fines are also not enough punishment upon the infringers.

The recently initiated amendment to the Patent Law was a special revision targeting at protection for patent rights. The legislative authorities recognized that by the "doctrine of damage compensation" alone is already insufficient to restrain malicious infringement and remedy the damages caused thereby. In the amendment to the Patent Law, it is planned to further raise the amount of damages owing to patent infringement by referring to punitive damages systems in response to the increasingly rampant patent infringement.

The damage compensation currently practiced in mainland China is mainly based on the principle of compensating the losses. Except the Consumer Protection Law and the Trademark Law, no punitive damages system has been set forth in any other law. However, the Consumer Protection Law and the Trademark Law are special laws. It is urgent to extend the punitive damages to other fields, especially in the field of patent law. On the other hand, setting up such a system to impose punitive compensation upon a patent infringer who subjectively has a rash and ignorant attitude will facilitate the imposition of penalty upon the tortfeasor and the conciliation with the injured person so as to realize fair and justice in the society.

On the other hand, the establishment of punitive damages may effectively punish acts of patent infringement and reduce the occurrences of willful infringement. It will not only compensate the losses of the infringed person, but also inflict greater economic pressure upon the infringer, so as to achieve the effect of sanctions and stop the reoccurrence of such wrongful acts.

Punitive damages encompass two meanings: a.) to prevent a specific infringer in a case related to IP infringement from continuing or repeating his such illicit act, which is called "special prevention"; b.) to prevent the occurrence of other potential acts of infringement, which is called "general prevention". In addition, it also functions to encourage transaction because punitive damages would enable the potential infringers to realize that transaction is more beneficial than infringement so that they are incentivized to trade.

Mainland China plans to incorporate the punitive compensation system as an integral part of compensation liabilities for patent infringement. When formulating a special civil law, rules on application of punitive damages can be explicitly stipulated in it by referring to legislative experiences of laws such as the Consumer Protection Law. Pursuant to the amended Patent Law, the court may increase the compensation amount for an intentional patent infringement up to three times of the damages depending on the circumstance, scale, and damage consequences. As long as the patentee can prove that the counterpart intentionally committed the infringement (for example, the infringer has infringed once before and lost the case), the court may award a punitive compensation against the infringer.

It will be a critical breakthrough in civil legislation for mainland China to institute a punitive damages system for patent infringement. This will not only encourage the patentee to confront with infringement, but also encourage the whole society to participate actively in actions against counterfeiting, which is also the urgent need for intellectual property protection under market economy, and an urgent demand for the social development and the market economy.

In addition, it was also mentioned in the first session of the 13th NPC of P.R.C. that: more flexible salary system and incentive measures will be adopted for researchers undertake tasks related to key technologies to give them ownership and right of long term use of their technical achievements.