To Determine the Statutory Compensation in Trademark InfringementCases in China

China’s current “Trademark Law” stipulates 4methods on calculating the compensation for infringement: theplaintiff’s loss, the defendant’s benefits, the reasonablemultiples of the royalties of a registered trademark, and thestatutory compensation. However, the data [1] shows that thestatutory compensation has been applied in more than 90% of thetrademark infringement cases, in which the courts are in favor ofthe plaintiff, in practice.

According to paragraph 2, Article 16 of the“Interpretation of the Supreme People’s Court on Certain IssuesConcerning the Application of Law in the Trial of Civil CasesInvolving Trademark Disputes” (hereinafter referred to as to the“Interpretation”), when determining the amount of compensation,many factors shall be taken into consideration, such as the nature,duration and aftermaths of infringing acts, the reputation of thetrademark, the amount of royalties for licensing the trademark, thetype, duration and scope of the license of the trademark, as wellas the reasonable expenses for stopping infringing acts, etc. But,it is still uncertain on whether the other factors could be takeninto consideration, such as the promotion costs, the actual use ofthe relevant trademark and etc., and how to balance differentfactors.

Therefore, different courts may determine thestatutory compensation randomly, and the phenomena that a case withdifferent judgements is not rare. For example, in the“新百伦”trademark infringement case, the statutory compensation wasdetermined amount to RMB 98 million in the first instance, but inthe second instance, it was decreased to RMB 5million. In theZiyuVilla v. Ziyu Mansion trademark infringement case, thestatutory compensation was determined amount to RMB 1 million inthe first instance, but in the second instance, it was increased toRMB 3 million. To some instance, this phenomenon reflects the lackof specified judgement criteria. In recent years, the ceiling ofthe statutory compensation RMB 3million has been broken for severaltimes, which becomes a tendency. Such tendency could deter theinfringer. But it is difficult for right-holders to determine theamount of compensation and prepare the relevant evidence. It isworth mentioning that Beijing High People’s Court has proposed aconcept named “discretionary compensation” in the “Several LegalIssues Shall be Noticed in the Current Trial of IntellectualProperty”. The “discretionary compensation” shall not belong to thestatutory compensation and shall not be limited within the ceilingof the statutory compensation. This concept might be an action indealing with the inconsistent between the legislation and judicialpractice, or a judicial tendency in strength the protection toright-holders.

If a right-holder could not provide sufficientevidence on the loss caused by infringing acts, since it is highlypossible to apply the statutory compensation, the right-holdershall pay special attention to the factors and evidence which mightbe considered by the judicial departments. Based on the currentlegislation and judicial practice, it is pragmatically to find outthe determination rules and factors in the judicialpractice.

After sorting out through more than 1300trademark infringement cases with the statutory compensationpublished in PKULAW, the court might analyze those factors: (1) thedegree of popularity and reputation of a trademark; (2) thesubjective fault of the infringer; (3) the degree of bad faith ofinfringing acts, the mode of operation of the infringer and thebusiness size of the infringer；(4)the price of the infringing product, the duration of infringementand its consequences; (5) reasonableexpense.

It is interesting to note that in many casesapplied with the statutory compensation, the court may not analyze“the amount of the royalties of trademarks, the type, duration, andscope of the trademark license” as prescribed in the“Interpretation”.

Although the “Interpretation” has not listed theintention of the infringer in the factors, in fact, the intentionof the infringer might affect the amount of compensation to a largeextent. For example, in the “MONCLER” trademark infringement case,(2014) Jing Zhi Min Chu Zi No.52, the court determined thestatutory compensation amount to RMB 3 million, and the courtmentioned 6 factors, among which the intention of the infringer wasmentioned as “4. The defendant deliberately failed to mark theproducer on its own clothes, which was in bad faith obviously, andthe consequence was serious;”.

Regarding the “reasonable expenses”, it isrelatively easier to be determined, which generally includes “thecost of infringing products bought by the right-holder”, “lawyerfees”, “notary fees” and other expenses paid by the right-holder inprotecting its own right. Normally, as long as the right-holdercould provide the relevant receipts or invoices, the court mightsupport partial or the whole of those expenses. However, there is acommon situation that the “reasonable expenses” is not listedseparately in many cases, instead, it is calculated in the totalamount of the compensation, such as the “新百伦”trademark infringement case, “墙锢”trademark infringement case, “MONCLER” trademark infringement case,and so on. But some judges, especially some judges in Zhejiang andJiangsu, tend to list the “reasonable expenses” separately, andthey have already made some judgements with the “reasonableexpenses” listed separately.

In addition, the degree of popularity of aregistered trademark, the scale and duration of infringing actsmight affect the statutory compensation to a large extent. So, theright-holder shall pay special attention in collecting the relevantevidence.

In practice, it is noticed that the ratio of thecontribution of a trademark to the profits of the infringingproducts tends to be a factor in determining the statutorycompensation. Thus, the right-holder shall be fully aware of thistendency.

Last but not least, some local courts haveissued relatively refined rules on determining the statutorycompensation. For example, “Opinions on Certain Issues Concerningthe Determination of the Amount of the Compensation of theApplication of Statutory Compensation in the Intellectual PropertyInfringement Disputes (for Trial Purpose) “ issued by Shanghai HighPeople’s Court puts forward some other factors, such as “thedistinctiveness of the trademark”, “trademark valuation, designcosts, advertising investment, the value of investment, marketdevelopment costs “, ” the actual use of trademarks and benefits”and so on. “Several Issues which Shall Be Taken into Considerationin Current Intellectual Property Trial” issued by Beijing HighPeople’s Court clearly pointed out that “the determination of theamount of statutory compensation should fully reflect and realizethe real market value of intellectual property rights, which isrelated to the distinctiveness and the degree of the popularity ofthe trademark, the nature of infringement, the scale of theinfringer’s operation, tax payment and bad faith and so on. Therelevant right-holders could take these local judicial opinionsinto consideration while preparing evidence.

Note: [1] Datasource: “Status of the Statutory Compensation Amount in theIntellectual Property Civil Cases Ruled by Changsha IntermediatePeople’s Court (2011-2015)”, “Report on Analyzing the Compensationcased in the Intellectual Property Infringement Cases “by ResearchCenter Of Intellectual Property Rights of Zhongnan University ofEconomics and Law, “Report on the Civil Judicial Protection ofIntellectual Property Rights in Zhejiang Province (2015)”.