The Judicial Interpretation of the Supreme People’s Court on the Application of Punitive Damages in Hearing Civil Cases of Intellectual Property Infringement shall come into force on May 1, 2026.
The Judicial Interpretation of the Supreme People’s Court on the Application of Punitive Damages in Hearing Civil Cases of Intellectual Property Infringement ([2021] No. 4) prescribes the adjudicative elements for applying punitive damages in IPR civil cases and sets the benchmark for judicial discretion of judges. On April 17, 2026, the Supreme People’s Court issued the revised version of this judicial interpretation ([2026] No. 7), which shall take effect on May 1, 2026. Hereinafter is a brief overview of the key amendments of [2026] No. 7.
- Determination of Intent in IPR Infringement
Article 3 of [2021] No. 4 stipulates five specific circumstances plus a catch-all clause for determining intent. Article 6 of [2026] No. 7 adds two new circumstances: (1) Recommitting the same or similar infringing acts after reaching a settlement with the plaintiff and agreeing to cease the infringement; and (2) Concealing the actual control relationship by establishing affiliated companies, changing legal representatives or controlling shareholders, setting up companies under an anonymous identity, or signing exemption agreements to evade legal liabilities for infringing the intellectual property right involved in the case.
In addition, [2026] No. 7 makes minor adjustments to certain circumstances: (1) Where the plaintiff or an interested party notifies the defendant to stop the infringement, such notice is limited to an effective notice. The purpose is to prevent the plaintiff or interested parties from using “ineffective notices” to impose adverse consequences on the defendant. For example, a notice sent to the defendant’s registered address but not signed for by the defendant, where the defendant may not even be aware of the infringement; (2) Where the defendant or its legal representative/manager is identical to the legal representative, manager or actual controller of the plaintiff or interested party, a subjective element is added that such relevant persons knew or ought to have known about the infringed intellectual property right; and (3) In addition to piracy and counterfeiting registered trademarks, counterfeiting others’ patents is newly added.
- Determination of “Aggravating Circumstances”
Article 4 of [2021] No. 4 sets six specific circumstances plus a catch-all clause for determining aggravating circumstances. Article 7 of [2026] No. 7 largely retains the original provisions and refines certain specific circumstances: (1) A party engaging in IPR infringement as a profession is defined as taking infringing acts as the main business or deriving main profits from infringement gains; (2) Refusing to comply with preservation rulings shall be deemed an aggravating circumstance only without just cause; (3) Substantial losses suffered by the right holder includes severe damage to the right holder’s business reputation, market share and other interests; and (4) The provision on endangering personal health is deleted, while the circumstance of endangering national security or public interest is retained.
- Calculation Formula for Punitive Damages
[2021] No. 4 took actual losses, infringement gains and multiples of licensing fees as the calculation base; it did not distinguish between operating profit and sales profit, nor did it prohibit statutory damages from being used as the base. [2026] No. 7 stipulates: Infringement gains shall be calculated based on operating profit; For those engaging in infringement as a profession, calculation shall be based on sales profit; If the profit margin cannot be determined, reference may be made to the average industrial profit margin of the same industry for the same period released by statistical authorities or industry associations, or the profit margin of the right holder; In addition, statutory damages shall not be used as the calculation base for punitive damages.
[2021] No. 4 provided that where a fine or pecuniary penalty has been fully enforced for the same infringing act, the court may take it into account when determining the multiple of punitive damages upon the defendant’s application. [2026] No. 7 deletes the procedural requirement of the defendant’s application; the court shall take it into consideration ex officio.