A Look at China’s Proposed Introduction of Punitive Damages Against Intellectual Property Infringement

On January 4, as part of the Chinese government’s ongoing efforts to protect intellectual property rights (IPR), the National People’s Congress (NPC) launched public comment on a proposed legislative amendment that clamps down on IPR infringers. The draft mandates that the infringed will have the right to claim corresponding punitive damages when IPR is intentionally infringed upon and the circumstances are serious.

While punitive damages are well established in the Chinese legal system, this marks the first time that punitive damages for intellectual property (IP) infringement are noted specifically in Civil Code, tier 1 legislation in China-a declaration of war against IP infringers and counterfeiters.

Last year commemorated the 40th anniversary of China’s reform and opening-up, which kicked off a major movement to rejuvenate China through economic growth and modernization. President Xi Jinping has reiterated the protection of IPR on many occasions as one of the four pillars to deepen reform and further open up the Chinese economy.

Importance of Punitive Damages System

To that end, with the legislative amendment, China would introduce punitive damages against IP infringement, incentivizing a more level playing field and fair treatment of foreign brand owners.

The amendment and other actions send a strong signal to the world of the Chinese government’s commitment toward stemming the rampant IP infringement that exists currently. By fostering more innovation and creating a fair and favorable trade and investment climate in China, consumers and global brands will benefit ultimately.

Global brand owners in China are increasingly concerned about IP infringement. While China is not alone in having this issue, the country-as a major industrial manufacturing center that exports products across the globe-is at the epicenter of the fight against the production and distribution of infringing goods.

Top Chinese leaders have been speaking out on this issue. For example,

• For the first time, punitive damages were included in the Government Work Report, announced by Premier LI Keqiang during China’s Lianghui (National People’s Congress & Chinese Political Consultative Conference) last March.
• At the Boao Forum for Asia last April, President Xi stressed the protection of IPR by stepping up efforts of capacity building in enforcement.
• At the China International Import Expo last November in Shanghai, President Xi reiterated and clarified the introduction of a punitive damages system to better safeguard the legitimate rights and interests of foreign enterprises.

Maneuvers to Implement Punitive Damages

Chinese government officials continue to employ various channels to further imbed the leadership’s directives with legislative and administrative measures to crack down on IP infringers.

• In a press release last April during World IP Day, Shen Changyu, Deputy Commissioner of the China National Intellectual Property Administration (CNIPA), announced that China would speed up the establishment of punitive damages into the legal system. According to the CNIPA, in 2018, there were approximately 77,000 administrative patent cases, an increase of 15.9 percent from the previous year. There were also approximately 31,000 cases involving trademark infringements and counterfeits, worth RMB 550 million.
• Last December, the National Development and Reform Commission, China’s powerful state planning agency, announced a special Memorandum of Understanding involving 38 government agencies to address six types of “dishonest behaviors” in the patent field.
• The 2018 National IP Action Plan reiterates the proposed introduction of punitive damages in the revised Copyright Law and Patent Law, including raising the ceiling of the statutory damages against IP infringement.
• In January, following a first round of comments last December, the NPC launched the second round of consultation for public comments on the Tort Law under the Civil Code in China, which would allow the infringed to claim corresponding punitive damages. Comments were due February 3.
• Also in January, the Standing Committee of NPC released a draft of the Patent Law Amendment, which would significantly increase the punitive damages by five times and the statutory limit to RMB 5 million.
• Similarly, a Copyright Law Amendment calls for punitive damages, which would double the award to RMB1million.

What Has INTA Done?
In the fight against IPR infringement, INTA has contributed comments from an international and cross-industry perspective on the amendment of IP legislations and regulations, including on matters concerning trademark law, e-commerce law, patent law, and tort law, under the Civil Code. The consolidated comments shed light on considerations of the scope, calculation methods, and limit of punitive damages.

INTA has built a sound relationship with Chinese enforcement authorities over the years and has engaged through different channels on behalf of brand owners globally. At INTA’s 140th Annual Meeting last year, senior officials from the Ministry of Public Security (MPS), China’s criminal enforcement agency, participated in and spoke at a joint session on how to tackle online counterfeiting with brand owners.

Last July, INTA leadership visited China to continue the strong collaboration with MPS and the General Administration of Customs in China to discuss how to facilitate a seamless coordination between administrative and criminal enforcement endeavors.

What Will INTA Do?

In the coming months, INTA will expand the collaborative relationship to the new Department of Enforcement Inspection under the State Administration of Market Regulation at the national level. Founded last August, the department is tasked with a wide range of enforcement, including IPR (trademarks, geographical indications, and patents), food, smuggling, measurement and standardization, and unfair competition that violates consumers’ rights. It is extremely powerful in the remit of market regulation and IP administrative enforcement, and has far-reaching connections and implications on local enforcement.

INTA will also develop collaborative programs with MPS and customs to advocate for a more effective and efficient enforcement regime through a series of policy dialogues and trainings with officials at major ports across China.

INTA’s China Representative Office based in Shanghai represents the Association’s 235 members in China. Working in collaboration with staff at INTA’s headquarters in New York City, the China Representative Office leads the Association’s policy, membership, marketing, and communications initiatives in these jurisdictions. To learn more about INTA’s activities in China, please contact INTA’s China Representative, Monica Su, at [email protected] or Vicky Dai at [email protected].

Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.

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