Written by Haoyu Zhou (Elliot) of Chofn IP
Following the advent of first Chinese Civil Code (民法典) in May of 2020, the public have been actively talking about this new law. IP practitioners, especially those who work on IP enforcement cases, are generally excited about Article 1185 of the Civil Code – the introduction of punitive damages. Basically, this Article stipulates that, “for those who willfully infringe other’s intellectual property, and when the circumstance is serious, the infringed has the right to claim for punitive damages.” Although the Article is short, it clearly shows the resolution of legislators and the government to reinforce the IP protection in China.
For a long time, the Chinese civil law essentially adhered to a principle of “compensatory damages”. It means that any damages awarded by the court would maximally correspond to the actual loss suffered by the infringed, and could hardly exceed that amount. As a result, quite commonly, even though some IP owners triumphed in IP litigations, they have unfortunately lost the market. Due to an unreasonably low price for copying, compensatory damages were usually not effective for suppressing IP infringement behaviors.
Among all IP-related laws, Chinese Trademark Law was the first one to have introduced a punitive damage system. Back to 2013, in order to effectively curb the rampant trademark infringement, the lawmakers adopted the punitive damage system, and further decided to increase the possible punitive damages to five-fold in maximum in 2019. The same five-fold punitive damages were also made possible under the new Anti-Unfair Competition Law.
By virtue of Article 1185 of the Civil Code, it is foreseeable that courts would now have a legitimate basis to grant more punitive damages in the near future against those malicious IP copycats. In addition, Article 1185 sets a cornerstone for other IP-related laws, such as Patent Law and Copyright Law, to set forth their respective standards on punitive damages.
From our perspective, “punitive damages” will be an effective weapon to create deterrence to IP infringers and copycats, and will have a great significance to strengthen the IP enforceability in China. We hope the punitive damages, collectively with other measures for safeguarding intellectual properties, will help to build up a harmonious society with a healthy and fair business environment in China.