CHINA Trends and Developments Contributed by: James Luo and Angie Guo, Lawjay Partners
names or domain names, imitating influential product names and packaging designs, and may involve deceptive promotional practices, culminating in a complex and all-encompass- ing scheme of infringement. • Persistent infringement despite legal action: The infringer continues the infringement even after the rights-holder initiates litigation, persisting in their wrongful conduct up to and including the appellate stage. • Product quality issues and consumer harm: The infringement results in products with severe quality defects, posing a direct threat to consumer health or leading to other irre- versible serious consequences. Such actions not only infringe upon the rights-holder’s legitimate rights and interests but also seri- ously harm the public interest. Calculating the base amount for punitive damages Determining punitive damages necessitates identifying a quantifiable base amount, which typically includes the rights-holder’s actual loss- es, the infringer’s unlawful gains, or a reasonable multiple of licensing fees. In judicial practice, the infringer’s unlawful gains often serve as the base amount. These unlawful gains are conventionally ascertained by exam- ining the defendant’s financial records, where operating expenses and business-related taxes are deducted from operating income to calcu- late the gains derived from the infringement. Given that this financial information is often in the defendant’s possession, claimants may encounter difficulties in obtaining it. To facilitate disclosure, courts are empowered to issue a lawyer’s investigation order, enabling the claim- ant’s lawyer to secure the necessary financial data from relevant sources or by ordering the defendant to present such information to the
court. In the event the defendant refuses to fur- nish this data without valid reason, the court may resort to estimating damages by multiplying the sales volume of the infringing products by their respective unit profits. In calculating the sales volume and per-unit prof- it of the infringing products, sales volume data may be obtained through the infringer’s admis- sions, statistics from online sales platforms (eg, JD.com, Taobao, 1688), tax records, or public reports. When it comes to per-unit profit mar- gins, these are often determined by reference to the profit margins publicly declared by the infringer on their official website or in their annu- al reports. Additionally, industry median profit margins published by national administrative authorities, industry associations, or third-party commercial platforms can provide a bench- mark. Alternatively, comparable profit margins for similar products can be taken into account. Such data is generally accessible to the claim- ant through public channels, ensuring a fair and transparent process in the assessment of dam- ages in intellectual property disputes. However, using the rights-holder’s actual loss- es or a multiple of licensing fees as the base amount is less common, as rights-holders often face challenges in substantiating actual loss- es or providing credible evidence of licensing fees. It is important to note that a decline in the rights-holder’s performance does not automati- cally equate to infringement losses and cannot directly serve as the basis for compensation. The focus remains on assessing and quantifying the actual damages incurred due to the infringement itself, which may involve a detailed analysis of market impact, loss of profits, and other quan- tifiable harms resulting from the unlawful acts. This approach ensures that the compensation awarded is directly linked to the proven negative
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