403 Forbidden

To strictly punish severe intellectual property (IP) infringement and rigorously implement the punitive damages system for IP rights, the Supreme People’s Court (SPC) officially released the new Interpretation on the Application of Punitive Damages in the Trial of Civil Disputes over Infringement of Intellectual Property Rights (Fashi [2026] No. 7) on April 20, 2026¹ , effective on May 1, 2026. Targeting key and challenging issues in judicial practice regarding the application of punitive damages, this new Interpretation further refines the standards for legal application, aiming to enhance judicial operability, unify adjudication criteria, and provide clear behavioral expectations for the market.

1. Refining the Criteria for “Intentional Infringement” and “Serious Circumstances”

The new Interpretation addresses the difficulties in determining subjective malice and objective infringement consequences by further specifying the conditions for application:

1. Expanding Circumstances for “Intentional Infringement”: The Interpretation explicitly adds situations such as “committing the same or similar infringing acts again after reaching a settlement with the plaintiff and agreeing to cease infringement.” It also clarifies the connotation of “making a living by infringing intellectual property rights,” listing eight specific scenarios—including continuing infringement after effective notice, specific relationships involving access to the infringed IP, acts of piracy or counterfeiting, and evading liability through affiliated companies. In the absence of sufficient rebuttal evidence, these circumstances may be deemed intentional.
2. Clarifying Standards for “Serious Circumstances”: The Interpretation mandates a comprehensive assessment of infringement methods, frequency, duration, scale, and consequences. It explicitly identifies seven categories as “serious circumstances,” including: repeated infringement after administrative penalties or court rulings; unjustified refusal to comply with preservation orders; forging, destroying, or concealing evidence; making a business of infringement; generating huge illicit profits or causing severe damage to the rights holder’s goodwill or market share; and endangering or potentially endangering national interests or the public interest.
3. Resolving the “Difficulty in Determining the Base” and Improving Calculation Methods

To address the long-standing challenge of determining the compensation base in judicial practice, the Interpretation introduces highly operational provisions:

1. Clarifying Profit Reference Standards: When using the defendant’s illegal income or infringement profits as the base, the court may refer to operating profits. If the defendant makes a living by IP infringement, sales profits may be used. When profit margins cannot be determined, the court may refer to the average profit margin of the same industry in the same period published by statistical departments or industry associations, or the rights holder’s profit margin.
2. Excluding Statutory Damages as a Base: The Interpretation explicitly stipulates that statutory damages cannot serve as the calculation base for punitive damages, ensuring that punitive damages are grounded in confirmed actual losses or infringement profits.
3. Strengthening Consequences for Obstruction of Evidence: If the court orders the defendant to provide relevant account books or materials and the defendant refuses without justifiable reasons or provides false information, the court may determine the calculation base based on the plaintiff’s claims and existing evidence, and pursue legal liability accordingly.

III. Perfecting the Rules for Determining Multipliers and Implementing the Principle of Proportionality

When determining the multiplier for punitive damages, the Interpretation emphasizes a comprehensive consideration of the defendant’s degree of subjective fault and the severity of the infringement, with the following improvements:

1. Non-Integer Multipliers: The Interpretation clarifies that the multiplier for punitive damages, determined within the statutory range, need not be an integer, allowing for more precise discretion.
2. Offset of Administrative/Criminal Penalties: Adhering to the principle of proportionality, the Interpretation stipulates that if a fine or criminal fine has been imposed and executed for the same infringement, the court shall take this into account when determining the punitive damages multiplier, without requiring a request from the parties.
3. Cap on Total Amount and Separation of Reasonable Expenses: The total amount of compensation determined by applying punitive damages shall not exceed five times the calculation base. Reasonable expenses incurred by the rights holder to stop the infringement shall be calculated separately outside this cap.
4. Regulating Litigation Procedures and Clarifying the Boundaries of Rights Claims

The Interpretation imposes strict regulations on the litigation procedures for punitive damages to prevent abuse of rights and ensure procedural fairness:

1. Time Limit for Claims: Plaintiffs must submit or increase claims for punitive damages before the conclusion of court debates in the first instance. If added during the second instance, the court may conduct mediation; if mediation fails, the claim will not be supported.
2. Prohibition on Repeated Litigation: If a plaintiff claims compensation for losses but fails to claim punitive damages in an infringement lawsuit, and still fails to do so after the court’s clarification, the court will not accept a subsequent lawsuit for punitive damages based on the same facts after the conclusion of the litigation.
3. Scope Limitations: Claims for punitive damages against defendants who intentionally commit unfair competition acts other than trade secret infringement will not be supported by the court, unless otherwise provided by law.

Conclusion

The release of the Interpretation on the Application of Punitive Damages in the Trial of Civil Disputes over Infringement of Intellectual Property Rights marks a significant improvement to China’s IP punitive damages system. By refining the standards for determining subjective intent and objective circumstances, unblocking practical bottlenecks in calculating compensation bases, and establishing proportionality-based rules for multiplier discretion, the new regulation provides clearer adjudication guidelines for courts at all levels to strictly punish severe IP infringement in accordance with the law. This will not only ensure that infringers pay a heavy price but also foster a superior legal environment that incentivizes and protects innovation, thereby promoting high-quality development.

[1] https://ipc.court.gov.cn/zh-cn/news/view-5627.html