On the Punitive Compensation System for Intellectual Property Infringement in China

2025-08-05
Author:
Yao Jianjun, National Expert in Trial Practice

Punitive compensation is a special form of civil liability, whose primary purpose is to punish the serious illegal acts of infringers through compensation exceeding actual damages, thereby exerting deterrent and educational effects. Since China first introduced the punitive compensation system into the field of intellectual property through the amendment of the Trademark Law in 2013, it has, after revisions and improvements, established a comprehensive punitive compensation system covering patents, trademarks, copyrights, trade secrets, and other areas through the Civil Code, the Interpretation of the Supreme People's Court on the Application of Punitive Compensation in Civil Cases Involving Infringement of Intellectual Property Rights, and multiple sectoral intellectual property laws. However, the system still faces multiple dilemmas in judicial application. Therefore, I will share insights combined with problems encountered in judicial practice.

I. Reasons for Applying Punitive Compensation for Intellectual Property Infringement in China

  1. Intellectual property constitutes a special object. China's civil compensation has long adhered to the principle of full compensation, also known as the "compensation-filling principle," which requires infringers to compensate an amount equal to the actual losses suffered by the victims, restoring the victims' economic interests to the state prior to the damage. As an important component of the civil legal system, the intellectual property system should have followed this principle. Nevertheless, the sole application of the compensation-filling principle in intellectual property infringement damages often fails to protect the legitimate rights and interests of right holders. To address this predicament, China's intellectual property laws have introduced punitive compensation as a special form of civil liability.
  2. Intellectual property infringement is characterized by ease of occurrence and significant harm. In terms of occurrence mechanism, intellectual property infringement mainly manifests as plagiarism, tampering, and imitation. The intangible nature of intellectual property frees it from the constraints of physical carriers, making infringement easier to occur compared to other types of torts. Additionally, intellectual property itself has strong public attributes, which provide convenience for infringers to carry out infringing acts. Infringers can easily access intellectual property, and right holders find it difficult to take pre-emptive preventive measures to eliminate infringement.
  3. In terms of damage consequences, the impact is highly diffusive. Intellectual property infringement may not only directly cause the loss of market share for right holders but also indirectly lead to the depreciation of goodwill. More seriously, the damage is long-term and irreversible: consumers' negative perception of infringing products will continuously affect brand choices, and some patented technologies lose their commercial value once disclosed. This nature of damage makes the cost of remedying intellectual property infringement extremely high.

Due to the above reasons, intellectual property disputes have increased year by year, and the number of cases has grown annually, placing considerable pressure on people's courts in terms of trial work. Against this practical background, China drew on the punitive compensation liability system in Anglo-American law and first introduced punitive compensation into the field of intellectual property in the third amendment to the Trademark Law in 2013.

II. Current Status of China's Punitive Compensation System for Intellectual Property Infringement

  1. Legislative status of China's punitive compensation system for intellectual property infringement
    Article 1185 of China's Civil Code stipulates: "Where a person intentionally infringes upon another's intellectual property rights and the circumstances are serious, the infringed person is entitled to claim corresponding punitive compensation." It can be inferred from this that the application of punitive compensation must satisfy the subjective element of "intent" and the objective element of "serious circumstances." Correspondingly, the conditions for applying punitive compensation stipulated in the Copyright Law and Patent Law are consistent with those in the Civil Code; however, the Trademark Law and Anti-Unfair Competition Law adopt the standard of "malice" for the subjective element of the infringer, with the objective element being "serious circumstances." The Interpretation on Punitive Compensation specifies that "intent" includes "malice." It can thus be seen that under China's current legal provisions, the application of punitive compensation for intellectual property infringement must simultaneously satisfy the subjective element of "intent" or "malice" and the objective element of "serious circumstances," which are both independent and complementary, jointly forming the foundation of the punitive compensation system.

The determination of the amount of punitive compensation is based on such bases for calculating the base as "the actual losses suffered by the right holder due to the infringement," "the profits obtained by the infringer from the infringement," and "licensing fees." The multiple for punitive compensation shall be "not less than one time and not more than five times."

  1. Judicial status of China's punitive compensation system for intellectual property infringement
    The punitive compensation system for intellectual property infringement has been implemented since May 1, 2014, and has now been in effect for over 11 years. The application of the system was initially sluggish. Statistics show that from 2014 to 2020, among 55,270 judgments recorded on the Pkulaw website with the cause of action "dispute over trademark infringement," 286 cases involved plaintiffs explicitly requesting the defendants to bear punitive compensation liability, but only 5 cases were ultimately supported by the courts, with an approval rate of less than 2%.

However, according to the Work Reports of the Supreme People's Court for 2024 and 2025, the application of punitive compensation in the field of intellectual property has shown a significant upward trend. The shift from initial sluggishness to rapid growth in the application of the punitive compensation system for intellectual property infringement indicates the continuous improvement of China's rules on punitive compensation for intellectual property, the continuous enhancement of courts' experience in handling punitive compensation cases, and also reflects China's high attention to the remedy of intellectual property infringement.

III. Dilemmas in the Application of the Punitive Compensation System for Intellectual Property Infringement

  1. Dilemma in determining subjective elements. The ambiguity of subjective elements is first reflected in the divergence between the "intent" standard and the "malice" standard. According to Article 1185 of the Civil Code, "intent" is one of the elements for applying punitive compensation, while the Trademark Law and Anti-Unfair Competition Law adopt the "malice" standard.

Firstly, "malice" is not a legal term. Literally, it reflects a higher degree of subjective fault of the actor than "intent," but the boundary between these two concepts is not clear, leading to differences in the standards adopted by courts in different regions when defining "malice."

For example, in the patent infringement case of Gree Electric Appliances v. Aosheng Company, the court adopted the "malice theory," holding that Aosheng Company, as a competitor of Gree Electric Appliances, not only failed to abandon its original infringing technical solutions for air-conditioning products or substantially modify the infringing components after the effective judgment in the previous case but also mass-produced products infringing the same patent of Gree Electric Appliances, infringing the same patent of Gree Electric Appliances again, showing obvious subjective malice. In contrast, the Shanghai Higher People's Court adopted the "intent theory" in the case of Saiguan Company v. Yousheng Company.

Secondly, it is not clear whether "intent" includes "indirect intent." In judicial practice, the inconsistent standards for determining subjective elements in cases of punitive compensation for intellectual property infringement will lead to situations where similar cases are judged differently, which is not conducive to establishing the legal authority of the system.

  1. Dilemma in determining objective elements. China's law stipulates that the objective element for punitive compensation in intellectual property infringement is "serious circumstances," but no detailed interpretation of the specific standards for "serious circumstances" is provided. In practice, the circumstances of "seriousness" are complex and diverse. In most cases, the losses of right holders include not only tangible material losses but also important intangible property losses such as goodwill, which are difficult for the law to enumerate exhaustively. Therefore, judges need to determine whether the circumstances are serious based on the specific circumstances of each case. In addition, according to legal provisions, the application of the punitive compensation system must simultaneously satisfy the subjective element of "intent" or "malice" and the objective element of "serious circumstances," which are complementary and independent. However, some judges directly determine the existence of "serious circumstances" only by demonstrating "intent," seriously blurring the boundary between subjective and objective elements.
  2. Dilemma in determining the calculation base. The determination of the calculation base for punitive compensation mainly involves the following two major issues:

One is that the order of determining the calculation base needs to be unified. The ways to determine the compensation base in cases applying punitive compensation are the actual losses of the right holder, the infringing profits of the infringer, and the licensing fees for the rights. However, the provisions on the order of determining the base are different. Firstly, the Trademark Law and Anti-Unfair Competition Law have clear application orders for "the actual losses of the right holder" and "the infringing profits of the infringer," stipulating that the latter can only be applied when the former is difficult to determine. Moreover, the Trademark Law stipulates that when both of the first two bases are difficult to determine, the amount can be determined by referring to multiples of the trademark licensing fee.

Secondly, the Patent Law and Copyright Law do not set clear order requirements for "the actual losses of the right holder" and "the infringing profits of the infringer," while "the licensing fees for the rights" are clearly placed at the end and can only be applied when the first two are difficult to determine. It is thus not difficult to see that there is no consensus on the application order of "the actual losses of the right holder" and "the infringing profits of the infringer."

The second is that the determination of the calculation base is faced with the dilemma of difficult burden of proof, and judicial authorities often choose to apply statutory compensation due to insufficient evidence. Firstly, due to the characteristics of intellectual property infringement acts, right holders find it difficult to obtain relevant evidence to prove the calculation base. Key financial data related to infringement acts are mostly controlled by infringers, who usually do not take the initiative to disclose them. Therefore, right holders often face great difficulties in proving the specific profits of infringers. As for the amount of licensing fees, right holders often find it difficult to prove the specific amount. Secondly, considering the particularity of punitive compensation, courts in practice are also more cautious in admitting evidence used to prove the calculation base of punitive compensation, usually requiring detailed and accurate calculation of the base, which to a certain extent even exceeds the requirement of the so-called "preponderance of evidence" standard in civil litigation.

  1. Dilemma in the application of compensation multiples. Relevant separate laws and judicial interpretations in China's intellectual property field all stipulate that the compensation multiple for punitive compensation is between one time and five times. However, in terms of determining the specific multiple, there are only qualitative expressions such as "comprehensively considering factors such as the degree of subjective fault of the defendant and the seriousness of the infringement act," lacking quantitative standards. The amount of punitive compensation is determined by both the calculation base and the compensation multiple. The lack of quantitative standards for the compensation multiple will make the application of punitive compensation for intellectual property infringement highly dependent on the discretion of judges, greatly increasing the risk of different judgments in similar cases, or over-punishment for minor cases and under-punishment for serious cases.

Secondly, there is a divergence in calculation rules, which is specifically manifested in the fact that courts at all levels adopt two calculation methods, namely "base × multiple" and "base × (1 + multiple)," when calculating the compensation amount.

IV. Paths to Improve China's Punitive Compensation System for Intellectual Property Infringement

(I) Clarify the subjective elements for applying punitive compensation

  1. The subjective element should be unified as "intent"
    Firstly, in terms of the principle of punitive compensation, intent is the legitimate basis for punishment and sanction. The punitive compensation system achieves the disciplinary effect by increasing the liability of infringers. To prevent the abuse of the system or the imposition of excessive burdens on infringers, the system has taken "intent" as the precondition for its application from the very beginning.

Secondly, observing judicial practice, it can be found that since right holders often find it difficult to prove the "malice" behind infringement acts, some courts tend to interpret "malice" more broadly in case trials, that is, equating it with "intent."

In addition, retaining "malice" in the relevant provisions of the Trademark Law and Anti-Unfair Competition Law is not conducive to the consistency of the legal system. The Civil Code clearly stipulates that the subjective constituent element of punitive compensation is "intent," while the Trademark Law and Anti-Unfair Competition Law as lower-level laws have different provisions, which runs counter to our expectation for the increasingly improved rule system in the field of intellectual property. Considering that the requirement of the objective element of "serious circumstances" can already cover the part where "malice" is higher than "intent," if the Trademark Law and Anti-Unfair Competition Law continue to use "malice," it may not only disrupt the consistent understanding of the standards for determining subjective elements in judicial practice but also weaken the unity and systematicness of the punitive compensation system under the intellectual property law framework.

  1. "Intent" includes "direct intent" and "indirect intent"

Firstly, in the civil legal system, tort acts are divided into "intent" and "negligence" according to the subjective state of the actor, and this distinction directly affects the extent of tort liability and the amount of compensation. From the perspective of systematic interpretation, the stipulation of "intent" in punitive compensation is mainly to distinguish it from "negligence," and there is little significance in further distinguishing between direct intent and indirect intent.

Secondly, both direct intent and indirect intent are consistent in the cognitive element, that is, both are aware that damage may occur; the main difference between them lies in the volitional element: one is an attitude of active pursuit, and the other is an attitude of laissez-faire, but neither excludes the occurrence of the result. Therefore, the two forms of intent have similar culpability, and cracking down on both forms of intent is in line with the legislative purpose of the punitive compensation system to curb serious acts of intellectual property infringement.

Thirdly, at the practical operational level, there is little difference in the external manifestations between infringers with indirect intent and those with direct intent, making it difficult for judges to distinguish between these two states. Restricting intent to direct intent will undoubtedly increase the complexity of the application of the punitive compensation system.

(II) Clarify the objective elements for applying punitive compensation
"Serious circumstances" involve an examination of the external forms such as the infringement acts committed by the infringer and the consequences and impacts caused thereby, which are complementary and jointly form the basis for a comprehensive evaluation of intellectual property infringement acts, with neither being dispensable. Therefore, in judicial practice, judges should clearly distinguish between objective elements and subjective elements and determine them separately, and cannot presume that one element is constituted only by determining one of them. Otherwise, on the one hand, it will lead to unnecessary repeated emphasis; on the other hand, it may result in an incomplete evaluation of the infringement act, expand the scope of application of punitive compensation, and cause the abuse of judicial power.

For the distinction and determination of subjective elements and objective elements, particular attention should be paid to the distinction between "repeat infringement," "continuous infringement," "multiple infringements," and "taking infringement as a business."

"Repeat infringement" refers to the situation where the same infringer commits the same or similar infringement acts against the same subject of rights again after the effective judgment in the previous lawsuit. It is a factor explicitly stipulated in the Interpretation on Punitive Compensation for determining "serious circumstances." However, since repeat infringement can clearly reflect the cognitive and volitional elements of the infringer, it is reasonable in practice to include it in the consideration factors for determining subjective elements, but judges should separately reason about the determination of subjective elements and objective elements and cannot gloss over them.

"Continuous infringement" refers to the situation where the infringer continues to commit infringement acts after being notified or warned by the right holder or an interested party. "Continuous infringement" is a factor stipulated in the Interpretation on Punitive Compensation for determining "intent," which can reflect the cognitive and volitional elements of the infringer. However, continuous infringement itself cannot reflect the objective consequences and impacts of the infringement act, so judges cannot determine that the infringement act meets the objective elements of punitive compensation only based on "continuous infringement."

"Multiple infringements" refer to multiple infringement acts that have not been handled administratively or judicially, which can be taken as a consideration factor when judges determine objective elements.

"Taking infringement as a business" is a situation stipulated in the Interpretation on Punitive Compensation, which should be separately used as a reference for objective elements; however, since "taking infringement as a business" cannot reflect the cognitive and volitional elements of the infringer, it cannot be used as a factor for determining subjective intent.

In addition, in the trial of individual cases, courts should base the determination of "serious circumstances" on the specific provisions of the Interpretation on Punitive Compensation, and punitive compensation can only be applied when the infringement act reaches a seriousness similar to the six types of acts specified therein. At the same time, in cases where punitive compensation is applied, judges should reasonably explain the specific determination of "serious circumstances," which will help legal practitioners gradually reach a unified understanding of the standard of "serious circumstances."

(III) Optimize the rules for determining the calculation base

  1. Cancel the progressive order setting for determining the calculation base

Place the three calculation bases on the same level, without setting the provision that the latter can only be applied when the former is "difficult to calculate," so that right holders can reasonably choose the calculation basis according to the circumstances of individual cases. Canceling the progressive order setting has the following advantages: Firstly, canceling the progressive order setting endows right holders with a certain degree of autonomy, which is in line with the principle of autonomy in civil law. Secondly, canceling the progressive order setting reduces the difficulty of burden of proof for right holders to a certain extent, which can play a role in encouraging right holders to actively provide evidence, not only promoting the protection of intellectual property but also reducing the burden of judicial adjudication.


2. Improving the Evidence System for Determining the Calculation Base of Punitive Compensation

First, it is suggested to appropriately reduce the burden of proof on right holders, allowing them to only provide preliminary evidence regarding the infringement act, the fact of damage, the causal relationship, actual losses, and infringing profits. As for the specific amount of infringing profits and the proportion of the infringement act’s contribution to such profits, the accused infringer shall be responsible for submitting relevant evidence.

(IV) Improving Rules for Determining and Calculating Compensation Multiples

1. Refining Rules for Determining Compensation Multiples

Although China’s laws in the field of intellectual property clearly stipulate that punitive compensation shall be within the range of “not less than one time and not more than five times” the base, there is no detailed guidance on how to specifically determine the multiple within this range. Judicial authorities have overly broad discretion when handling individual cases, and due to differences in judges’ personal capabilities and judgment standards, situations such as inconsistent rulings in similar cases, over-punishment for minor cases, or under-punishment for serious cases often occur. Given the vast diversity of specific circumstances in intellectual property infringement cases, it is impossible for laws to exhaustively list compensation multiples for all possible scenarios. Therefore, it is necessary to refine the rules for determining punitive compensation multiples based on past judicial experience within the existing legal framework, so as to maintain consistency and predictability in the application of the law.

2. Clarifying Rules for Applying Compensation Multiples

If punitive compensation is deemed to include compensatory compensation (to “fill the gap”), the calculation method of “base × multiple” should be applied; if punitive compensation is not deemed to include compensatory compensation, the method of “base × (1 + multiple)” should be adopted. Given that China’s laws stipulate the multiple for punitive compensation as “not less than one time and not more than five times,” the interpretation that “punitive compensation includes compensatory compensation” is more reasonable.

Since its introduction through the amendment of the Trademark Law in 2013, China’s punitive compensation system for intellectual property infringement has fully covered patents, trademarks, copyrights, and other fields. This system aims to punish malicious infringement and deter illegal acts through compensation exceeding actual damages. However, in judicial practice, the system still faces multiple application dilemmas, which are concentrated in four aspects:

  1. Inconsistent standards for determining subjective elements: There are divergences between “intent” and “malice” in theoretical research and judicial practice, and the understanding of “intent” is also inconsistent;
  2. Ambiguity in determining objective elements: Judges have excessively broad discretion, and in practice, the determination of subjective and objective elements is easily confused;
  3. Dilemmas in determining the calculation base: On the one hand, there is no unified order for determining the base as stipulated in various intellectual property laws; on the other hand, the determination of the base is systematically constrained by difficulties in burden of proof;
  4. Dilemmas in understanding and applying compensation multiples: There is a lack of quantitative standards for determining multiples, and judicial practice sees divergences between the two application rules of “base × multiple” and “base × (1 + multiple),” which affects the uniformity of rulings.

The paths to improve the above issues are as follows:


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