A trend of awarding higher punitive damages by Chinese courts reminds IP owners to revisit their IP enforcement portfolio

November 23, 2022

By Donnie Dong & Bowen Dai

The PRC Supreme People’s Court released its codified judicial interpretations on punitive damages in March 2021 (the 2021 JI). Since then, Chinese courts are more aggressive in awarding punitive damages against intellectual property infringement.

1. raumplus v. Delu

Cite: raumplus Besitz-und Entwicklungs-GmbH & Co. KG and raumplus GmbH v. Delu Furniture (Nantong) Co., Ltd. and Delu Furniture (Shanghai) Co., Ltd. ((2021)苏民终2636)

The defendants had been subsidiaries of a joint venture where the plaintiffs had involved, but the corporation did not go well. After the expiration of the trademark license, the plaintiffs required the defendants to stop using the trademark, but their requests did not comply. The plaintiffs sued, claiming trademark infringement and unfair competition. The case was trialed before Suzhou Intermediate People’s Court (“Suzhou Court”).

The Suzhou Court found that the defendant had intended to infringe on the plaintiffs’ trademark right. The “intended infringement” is set to be a condition of awarding punitive damages by the 2021 JI. As to what constitutes “intent”, the 2021 JI enlisted certain factors to be considered presumption of intent, such as the neglect of warning letters. Also, the previous business relationship, like employment, franchising, dealership, and agency, will help find the presumption of intent. In this case, the Suzhou Court ruled that the previous relationship of joint venture qualifies the presumption of intent. The court also found that the defendant failed to stop using the plaintiff’s trademarks despite multiple cease & desist letters.

The Suzhou Court then considered another condition for awarding punitive damages – the infringement should be in “a gravity of the circumstances”. The court found the gravity by referring to the following factors: (a) the defendants committed the act of trademark infringement for almost 10 years; (b) infringement has caused huge benefit to the infringer, and (c) consumer confusion was made. Accordingly, the court ruled that the defendants, in this case, shall be imposed punitive damages.

As for the calculation of punitive damages, the court first found that the defendant’s earnings derived from infringement reached RMB 28 million. The 2021 JI has allowed courts to award multiplies of the infringing earnings. Therefore, the court fully supported the plaintiffs’ claim of compensation – RMB 50 million (or approximately US$6.8 million). The defendants appealed the case, but the appeal wasn’t successful. The Suzhou Court’s decision has been in effect.

2. Tencent v. Microlive

Cite: Shenzhen Tencent Computer System Co., Ltd. and Tencent Cloud Computing (Xi’an) Co., Ltd. v. Beijing Microlive Vision Technology Co., Ltd. ((2021)01知民初3078)

The hit TV series “The Worm Valley” (云南虫谷in Chinese, the Series) was broadcast exclusively on Tencent Video since August 31, 2021. Then the Plaintiffs (collectively, Tencent) found many unauthorized video clips of the Series were spread over Douyin (TikTok’s counterpart in China). Failing to redress the situation after sending multiple letters to Microlive Vision (MV) which operates Douyin, Tencent lodged the lawsuit with the Xi’an Intermediate People’s Court (Xi’An Court) and requested the court to award punitive damages.

MV argued that it shall not be found the “intended infringer” because Douyin’s user agreement has explicitly prohibited users from posting video clips containing infringing content. However, the court ruled that a user agreement, on its own, is not sufficient to relieve the platform operator’s obligations. Given the fact that MV received 108 take-down notice letters from Tencent for the Series, the court find that MV failed to “take necessary measures” to prevent further infringement of copyright, citing a clause of China’s civil code.

As to the calculation of damages, the court found that Tencent’s evidence wasn’t sufficient to support its alleged number of damages. However, the court ruled that Tencent’s damages can be calculated by considering the cost of producing the TV series in question. Finally, the court awarded discretional damage of RMB 32 million (approximately 4.3 million in USD), which covered the infringement of 16 episodes of the Series.

Assess your case

A trend of awarding higher monetary compensations to IP owners, based either on the doctrine of punitive damages or on the court’s overall discretions, has been formed. We suggest IP rights owners revisit their files of existing infringers and consider a more aggressive approach to enforce their IP rights in China.

FuJae Partners has a team of seasoned contentious IP attorneys, litigators, and investigators, who have served clients in Tier-1 international and national firms for decades. IP owners interested in assessing their cases may contact Donnie Dong at donnie.dong@fujae.com.

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This communication is intended for informational purposes only and is not intended to create an attorney-client relationship or to constitute any form of advertisement.

Author: Donnie Dong. Admitted to practice in China and New York State, the author is a seasoned lawyer focusing his practice on intellectual property and data privacy.