Damages of patent infringement in China

There are four ways to calculate damages ofpatent infringement in China: 

1. Patentee’s actual losses caused by infringement

(Loss of the right holder = reduced sales of patented products (or sales of infringing products) * reasonable profit of patented products). Based on our experience, very few Plaintiffs used this approach for damages, because the Plaintiff has to disclose a lot of their own financial information, which Plaintiffs are unwilling to do.

2. Profit acquired by infringer from infringement

Profit of the infringer = sales of infringing products * reasonable profit of infringing products (operating profit or sales profit)*patent contribution rate. Among them, sales profit=sales revenue-sales cost-sales expenses-tax, and operating profit=sales profit-management fees-financial costs.) This method also has some difficulties, such as the need to preserve the financial account books of the infringer, conducting audits, etc., and the Plaintiff needs to pay a fee for auditing in advance. But if the audit results are not satisfactory, they will not get very much damages.

3. Reasonable multiples of royalties

This is also sometimes difficult to use, because the Plaintiff is not willing to disclose the amount of royalty. Meanwhile, if the plaintiff’s licensee is its affiliated company, usually the license will be questioned, such as, whether the license agreement has been actually fulfilled, and the tax has been paid. The Plaintiff has to provide tax clearance certificates and receipts of payments of royalties, etc.

4. Statutory damages

In the event that none of the above three items can be proved, the statutory compensation is applied. The statutory compensation is RMB30k (USD4,200) ~ RMB5 million (about USD700,000). 

In addition, the Plaintiff can ask the Defendant to bear the reasonable expenses of enforcing the IP right, such as attorney fees, notarization fees, appraisal fees, etc., as the cost of stopping the infringement.

Punitive damages can be up to five times of Approach 1 or 2. Since Approach 3 already includes the multiple of royalties And the statutory compensation is discretionary by the court, punitive damages are generally not applied.

Regarding the sequence of applying the four approaches, although the sequence is stipulated by the provisions, the sequence is not restricted in judicial practice. It mainly depends on the claim of the Plaintiff and whether there are legal and reasonable grounds for the claim.