Supreme People’s Court’s six exemplary cases show how punitive damages will be assessed and applied

The first part of this article discussed the Supreme People’s Court’s judicial interpretation on the application of punitive damages in the trial of civil cases involving IP rights infringement. The second part focuses on the court’s exemplary cases and how these will inform damages assessments in the future.

Tianci v Newman

In Tianci v Newman (Supreme People’s Court, 24 December 2020) was the first Supreme People’s Court judgment to apply punitive damages. Here, the court ascertained that Anhui Newman Company had been engaged in the production of Kabo products since its establishment. The company did not submit any supporting evidence to prove that it was producing other items. In addition, all Kabo products, although they used different names, were processed by the same set of equipment. Anhui Newman Company was carrying out infringing activities and exporting relevant products to more than 20 countries, even after its former legal representative was found guilty by a criminal court of the same. The company refused to submit its accounting books without justifiable reasons, which constituted an act of obstruction of evidence.

The Supreme People’s Court considered that the original intention of the Anti-unfair Competition Law to establish a punitive damages system is to strengthen legal deterrence, crack down on malicious serious infringements, deter future or potential infringers and effectively protect innovative activities. In view of Anhui Newman Company’s bad faith and the seriousness of the infringement, the court raised the punitive damages to five times the illegal gain and ordered Rmb30 million in damages.

Erdos v Miqi

In Erdos v Miqi (Beijing IP Court, 25 April 2016) the Beijing IP Court doubled the damages on the grounds that the ERDOS mark is highly distinctive and enjoys a very high reputation for garments. Miqi used a logo almost identical to Erdos’s prominently on its products, packaging and online shop. Miqi’s online shop was operated on a Tmall platform and benefited from Tmall’s reputation and guarantee of quality. Consequently, Miqi's profit margin was higher and the harm caused to the ERDOS mark was more severe.

Xiaomi v Zhongshan Benteng

In Xiaomi v Zhongshan Benteng (Jiangsu High Court, 31 December 2019), on 8 August 2018 the China National IP Administration (CNIPA) invalidated the trademark XIAOMI LIFE, registered by Zhongshan Benteng. On 9 September 2019 the Beijing IP Court rejected Zhongshan’s appeal. On 12 June 2019 the first-instance court ruled that the evidence provided by Xiaomi showed that Zhongshan continued to promote and sell infringing products even during the second-instance hearing of the civil action. Zhongshan offered a variety of infringing products in many online shops through multiple e-commerce platforms, meaning that the scale of infringement was significant. Further, Xiaomi is a well-known trademark and enjoys a very high market reputation and influence. The infringing goods sold under XIAOMI LIFE (ie, the Mi001 induction cooker screws and connections and MW-806 handheld garment steamer) were identified as sub-standard by the Shanghai Market Supervision Administration in 2018 and 2019, respectively. In addition, it could be seen from the product evaluation of the online stores in question that some consumers had reported that there were issues with the quality of the infringing products.

It was decided that in order to determine damages, the amount of profits should be multiplied by three. Accordingly, the sales amount being Rmb61,158,213.3, with a profit rate of 33.35%, the infringement profit was estimated to be Rmb20,396,264.1, which, multiplied by a coefficient of three is Rmb61,188,792.4. Therefore, the first-instance judgment awarded Xiaomi Rmb50 million, which was the total amount of its claim, and was fully upheld by the Jiangsu High Court.

Wuliangye v Xu Zhonghua

In Wuliangye v Xu Zhonghua case (Hangzhou Intermediate Court, 9 October 2020) the first-instance court established that the defendant, Xu Zhonghua, sold counterfeit Wuliangye liquor on a large scale and obtained huge illegal gains. Xuzhonghua had been raided and fined several times by administrative law enforcement authorities until he was arrested by public security and eventually sentenced by a criminal court for trademark counterfeiting. Wuliangye’s trademark had been used on signboards and in shop decorations. Considering the high reputation and business value of the WULIANGYE mark, the low quality of the counterfeits not only harmed the public interest, but also had a negative impact on the business reputation of the Wuliangye brand, which had strengthened over many years.

The first-instance court multiplied the damages by two and awarded Wuliangye Rmb2 million; this amount awas upheld by the Hangzhou Intermediate People’s Court.

Adidas v Ruan Guoqiang

In Adidas v Ruan Guoqiang (Wenzhou Intermediate Court, 23 July 2020) the defendants were shareholders of Zhengbang Company which had been repeatedly punished by administrative law enforcement authorities for counterfeiting Adidas trademarks between 2015 and 2017, and then dissolved in 2018. Adidas sued the defendants and claimed punitive damages, which were supported by the court.

The court considered that the defendants were obviously acting in bad faith. The infringing activity was on a large scale and had lasted for a long time. The court therefore granted punitive damages of Rmb1.03 million, three times the illegal gain.

Opple v Guangzhou Huasheng

In Opple v Guangzhou Huasheng (Guangdong High Court, 22 April 2020) the court determined that Opple’s trademarks have been recognised as famous in Guangdong and as well known since as early as 2007. As an operator in the same industry and in the same region, Guangzhou Huasheng should have known that Opple’s trademarks enjoyed a high reputation; despite this it deliberately imitated and used many trademarks similar to Opple’s for the same goods. As early as October 2011, CNIPA rejected Guangzhou Huasheng’s trademark application in Class 11 on the ground of being similar to Opple’s prior marks. However, Guangzhou Huasheng still deliberately used the same mark registered in Class 21 for lamp products covered by Class 11. This showed Huasheng Company’s obvious intent to pass off on Opple’s goodwill.

The sales of infringing products, via multiple e-commerce platforms (eg, JD, Taobao and Tmall) were on a significant scale, with 63,935 items sold as of August 2016. Moreover, the infringement had never been stopped and continued during the retrial procedure; while the infringing products had been subject to administrative punishment for quality defects. Considering that a lamp is subject to compulsory certification process and that any quality defect may easily trigger security incidents and harm the interests of consumers, Huasheng Company’s infringement was considered to be serious.

Therefore, the court multiplied the amount of profits by three to fully support Opple’s Rmb3 million compensation claim.