On May 28 this year, the National People’s Congress in China adopted the country’s new Civil Code. The new law is naturally very extensive (1,260 articles), but particularly relevant from an IP perspective is Article 1185, regarding the possibility of seeking punitive damages in the event of intentional infringements of intellectual property rights.
Punitive damages are a form of damages with a purpose to punish, paid by the infringing party in addition to the compensatory damages. In China, it will soon be possible for right holders to invoke the right to punitive damages in cases of infringement stipulated by the article in the new Civil Code, namely that the infringement has been intentional and the circumstances at hand are considered “serious”. It should be noted that the incorporation of the right to punitive damages has been going on in more specific IP legal areas, such as trademark law, for some time but the new changes establishes this right in relation to IP rights in general, the patent law included, which has not earlier provided these types of damages.
The new Civil Code does not provide a clear indication of the amounts of the punitive damages, but China’s trademark law currently stipulates that an amount of one to five times the actual damages may be awarded. The Draft Amendment to the Copyright Law of the People’s Republic of China, submitted earlier this year, also contains a provision with the same range of measurement regarding the amount of the punitive damages. This range of measurement can be compared to the EU Court of Justice’s statement that member states may include in their national IP legislation a provision which in some cases gives the right holder the right to claim damages that are twice the amount the infringer would have had to pay if he would have used the right with authorization from the holder. A comparison can also be made with the US IP legislation, which in certain infringement cases provides the right holder the right to claim treble damages.
Factors which should be taken into account when determining the amount of the punitive damages in the individual case are, for example, whether it has been a recurring infringement, bad faith on the part of the infringer, whether there was a business relationship between the right holder and the infringer, etc. These are factors that presumably also may be taken into account when applying Article 1185 of the new Civil Code. A more clarifying and guiding interpretation of the application of punitive damages in Chinese IP law are expected to be provided next year by China’s Supreme People’s Court in “Interpretation of Several Issues Concerning the Application of Law on Punitive Compensation for Intellectual Property Infringement”.
The outcome of the introduction of punitive damages may obviously be viewed differently depending on which side of the infringement dispute you are on, with the potential outcome of increased damages. Regardless, the new provision may be deemed as a new step in the battle against intentional infringements of IP rights in China, with the aspiration that the respect for intellectual property rights in the country will increase.
The new Civil Code, with the new provision on punitive damages included, will come into force on January 1, 2021.
If you have any questions reach out to Aliona Saalo and Cecilia Arestad.