China: Securing substantial damages in intellectual property infringement lawsuits

Cases in which significant damages have been awarded in intellectual property infringement lawsuits have grown very common in recent years, as China’s efforts to protect intellectual property have intensified. According to statistics, the measure of damages awarded by courts in incidents involving at least one foreign business grew by over 300 percent between 2016 and 2019. Many instances in the fields of intellectual property, such as patents, trade secrets, trademarks, and so on, have been awarded damages in excess of RMB10 million (USD1.5 million) since the beginning of 2021.

In situations where the rights holder was able to secure high damages, the common denominator was that the rights holder supplied the court with as much thorough and precise evidence as possible showing the losses. A rights holder may present proof of the damage it suffered as a result of the infringement, the profit obtained by the alleged infringer in connection with the infringement, or a fair multiple of the royalties, according to the legislation.

In terms of the loss caused by the rights holder as a result of the infringement, regardless of whether the rights holder and its attorneys attempted to provide the court with a variety of evidence in many cases, the loss caused as a result of the infringement is difficult to substantiate in general. Because the rights holder’s loss may be affected by a multitude of circumstances. Seasonal variation, an increase in competitors, a change in industry technology, and other factors might all contribute to a drop in sales. An experienced opposing lawyer can easily raise enough questions in the judge’s mind as to whether the infringement was the only cause of the loss.

In many situations where large damages were successfully obtained, the plaintiff received the support of the court by substantiating the advantages acquired by the alleged infringer as a result of the infringement. There are several options accessible to copyright holders in this area. Using sales volume as an example, the claimed infringer will frequently provide pertinent information on its own website, electronic or print ads, and other promotional materials.  for listed companies or companies on the verge of listing, each quarterly or annual financial report and the information submitted to the China Securities Regulatory Commission (CSRC) for listing purposes may disclose the specific sales volume of the alleged infringing product.

Because the original sales vouchers, profit margin, and other such data are usually in the possession of the alleged infringer and are not accessible to the patent holder, another increasingly popular method is to petition the court for the taking of evidence. This is because the original sales vouchers, profit margin, and other such data are usually in the possession of the alleged infringer and are not accessible to the patent holder. It can be observed from many recent instances that the purpose of requesting the court to collect evidence is more like a litigation strategy used to support in securing large damages than just obtaining the defendant’s financial data.

In practice, only a small percentage of defendants choose to provide financial information to the court. This has resulted in fairly favorable outcomes for plaintiffs in court. When a defendant refuses to give financial data without good reason, for example, the court may assume that the plaintiff’s damages claim is valid. The explanation for this is that participants in a legal action are expected to carefully consider the ramifications of their conduct over the course of the lawsuit. 

Litigation strategy used to assist in securing large damages

In the instance of a refusal to disclose financial data, the court would assume that the accused infringer determined that the damages outcome that would follow from the submission of its financial data would be larger than the amount of damages sought by the plaintiff after balancing the implications. As a result, the alleged infringer would choose to refuse to give the data only for this reason. As a result, if the alleged infringer refuses to submit evidence, the court will very certainly assume that the plaintiff’s demand for damages is reasonable.

Furthermore, the aforementioned strategy may cause the court to reject the claimed infringer’s damages defense. In a recent example case published by the Supreme People’s Court of China, the rights holder petitioned the court to obtain financial data from the alleged infringement after meeting its preliminary burden of evidence. The alleged infringer declined to provide it and instead chose to contest the damages proof presented by the rights holder in court. The alleged infringer contended that the rights holder’s determination that its intellectual property contributed 30% of the profit on the infringing goods was excessively high in this case, resulting in a mistake in the ultimate computation of damages. However, because the claimed infringer failed to disclose financial data as required by the court, the Supreme People’s Court ruled that the court was unable to determine the precise technological contribution because the alleged infringer refused to produce the evidence. As a result, the Supreme People’s Court rejected the defendant’s multiple claims that the damages were excessively high.

In short, as China strengthens its intellectual property protection, holders of intellectual property rights in China will have a better chance of using their intellectual property in China to secure large damages in legal actions if they can collect evidence on damages in a thorough manner and use appropriate litigation strategies.