China to Increase Damages for Patent Infringement

By Han-Mei Tso



Following the third revision of the Patent Law of the People’s Republic of China (hereinafter “Patent Law”) in 2008, China is expected to proceed with a fourth revision of the Patent Law this year.  The Chinese government is now soliciting opinions from the public for a Proposed Amendment to the Patent Law of the People’s Republic of China (hereinafter “Proposed Amendment”).

Among various amendments being considered in the Proposed Amendment, one such amendment involves increasing damages for patent infringement.  For example, the Proposed Amendment introduces the concept of “willful infringement” and corresponding enhanced damages for the first time in China.  Additionally, the amount of statutory damages is significantly increased in this proposal.

Specifically, the Proposed Amendment moves the damages provision found in Article 65 of the current Patent Law to Article 72.  In particular, the Proposed Amendment adds the following text: “where the patent right is willfully infringed in aggravating circumstances, the amount of damages may be increased between one time and five times of the damage amount determined according to the above methods.”  Here, “the above methods” refers to three types of damage calculations in sequence depending on feasibility: a) actual losses suffered by the patent holder, b) profit gained by the infringer, or c) the reasonable multiplication of the royalty obtained from patent licensing.  In other words, once infringement is established and the amount of damages is determined in accordance with one of the above three methods, the patent holder may further assert willful infringement.  If willful infringement can be proved, the patent holder may be awarded up to five times the calculated damages.  This degree of the enhanced damages is higher than the maximum amount of treble damages awarded in the United States.

Since willful infringement is being introduced into China for the first time, several questions remain regarding its implementation.  For example, courts would need to determine how patentees prove willfulness, what evidence rebuts willfulness, and what legal standards to apply for finding willful infringement.  Meanwhile, the courts will also need criteria regarding what enhanced damages are reasonable.  To answer these questions, the United States’ patent system may provide a worthy reference for Chinese courts and legal professionals.

Moreover, the Proposed Amendment adjusts the amount of statutory damages available for patent infringement.   For example, current Article 65 of the Patent Law stipulates that “where the loss of the right holder, the profit gained by the infringer and the royalty of patent licensing are difficult to determine, the people’s court may, based on the type of patent right, the nature and circumstances of the infringement, and other factors, award the damages in an amount no less than 10,000 yuan [RMB] but no more than one million yuan [RMB].”  In the Proposed Amendment, the lowest amount and the highest amount of the statutory damages is increased to 100,000 RMB and five million RMB, respectively.  Moreover, enhanced damages for willful infringement may only be applied to cases where the base amount of damages can be determined by actual losses to the patent holder, profit gained by the infringer, or a royalty from patent licensing.  When actual damages are speculative and the statutory damages are the only available form of compensation, courts will need to consider various factors, including whether the infringement is willful, to determine a single final judgment between 100,000 RMB and five million RMB.

Evidently, the Proposed Amendment reflects Chinese government’s intention to strengthen patent protections.  As stated by the President of China, Mr. Jinping Xin, in his speech at the opening ceremony of the first China International Import Expo held in Shanghai last November, “China will introduce a punitive damages system to significantly increase the cost of illegal conduct.”

Osha Liang LLP will follow closely the progress of the Proposed Amendment and provide a timely report of its development.