An Interpretation of Article 63, Trademark Law 2013

By Zhang Yazhou, Partner of Unitalen Law Office in Beijing,[Trademark]

Article 63 of the Trademark Law was revised for the third time in August 2013 by the Standing Committee of the National People’s Congress. The Revisions add three new points in the principles of determining infringement compensation when compared to Article 56 of the 2001 Trademark Law: 1) the compensation amount shall be determined reasonably with reference to the multiples of the licensing fee of the trademark concerned; 2) the burden of proof shall be redistributed more reasonably; 3) the ceiling of compensation provided by law is lifted to 3 million yuan. It is fair to say that the aforesaid revision is quite powerful, as it can better address the problem of unreasonably low compensation and inadequate protection of right holders, and it of course has a stronger deterrent effect on infringing parties.


I. Article 63 (1) of Trademark Law 2013 provides: “…where it is difficult to determine the loss of the right holder or the gains derived by the infringer, the compensation amount shall be determined reasonably with reference to the multiples of the licensing fee of the said trademark. For malicious infringement of exclusive rights to use trademarks, in serious cases, the compensation amount shall be determined in accordance with the aforesaid method based on one to three times of the determined amount. The compensation amount shall include reasonable expenses incurred by the right holder to curb the infringement.” As a matter of fact, this revision borrowed from provisions of Article 65 (1) of Patent Law 2008, which reads: “The amount of compensation for patent right infringement shall be determined according to the patentee’s actual loss caused by the infringement. If it is hard to determine the actual loss, the amount of compensation may be determined according to the benefits acquired by the infringer through the infringement. If it is hard to determine the losses of the patentee or the benefits acquired by the infringer, the amount of compensation may be determined according to the reasonably multiplied amount of the royalties of that patent. The amount of compensation shall include the reasonable expenses paid by the patentee for putting an end to the infringement.”


Why did the Revision add a consideration of “multiples of the licensing fee of the said trademark” when the “loss of right holder (‘loss’)” and “gains of the infringer (‘gains’)” have been both specified? This revision, in fact, is highly necessary. The reason is because in judicial practice the chances are very slim for one to adequately determine the amount of damages by calculating “gains,” and even slimmer based on "loss." This is because it is nearly impossible to determine the sales volume and unit profit of goods upon which infringement is claimed, so as to figure out the “loss” or “gains.” It was therefore very necessary to provide in this revision that “…where it is difficult to determine the loss of the right holder or the gains derived by the infringer, the compensation amount shall be determined reasonably with reference to the multiples of the licensing fee of the said trademark.”


In comparison, if we consider as a reference the application of Article 65 (1) of Patent Law 2008, attention must be paid to the following questions in applying Article 63 (1) of Trademark Law 2013: 1) How to establish the veracity of the licensed use of a trademark? There are indeed some right holders who sign a trademark licensing contract with a third party in which a relatively high fee is agreed upon in order to seek higher-level compensation. But in fact the contract is never actually performed or fully performed. In that case the licensing fee should not be fully taken as a reference for damages. In the principle of “burden of proof borne by the claimant,” such a right holder shall present the contract and evidence that the licensee has in fact been paid up the fee. 2) If the licensing fee is extremely high, the compensation shall be calculated by considering additional factors such as the alleged infringer’s intention, infringement period, scale and consequences caused to the right holder, instead of simply settling on the licensing fee.  


II. Article 63 (2) of Trademark Law 2013 defines how to reasonably distribute the burden of proof in determining the damages. As mentioned above, the major difficulty in doing so, whether by calculating gains or loss, is to obtain the sales volume of the infringed goods. The volume can only be based on valid accounting or sales reports and books. However, such reports and books, except those normally disclosed by listed companies, are totally inaccessible by regular means because they are routinely withheld by enterprises as trade secrets. In some cases, even if a party manages to preserve evidence from an alleged infringer, obstacles remain in enforcement. The infringer may well refuse to submit accounting and sales reports, or may submit a set of false reports. This has made it impossible to conduct normal auditing on the sales volume and unit profit of goods concerned, not to mention determine the precise amount of damages.


To address this problem, in 2009 the Supreme People’s Court released the Opinions of the Supreme People’s Court on Matters Relating to IPR Trial under Current Economic Conditions to Serve the General Situation. Its Article 16 prescribed efforts to strengthen the function of compensation, punishment and deterrence of damages, lower the cost of rights defending and raise the cost of infringement. It says that in determining the amount of damages, we need to make good use of evidence rules, examine evidence in a comprehensive and objective manner, make full use of logic reasoning and daily life experience, conduct overall review on the veracity, legality and force of related evidence and determine the facts by relying on advantageous evidence standards. We need to guide the parties concerned to determine the damages by calculating loss or gains, and avoid the simplified adoption of compensation amount provided by law. Where it is difficult to establish the loss or gains, but there is evidence showing that such loss or gains is in obvious excess of the ceiling provided by law, we should examine all evidence and determine the damages at above the ceiling. These guiding opinions, though well intended, are not legally binding as judicial interpretations are. Since this revision, in a case where the right holder has tried his best to present evidence, but related evidence is withheld by the alleged infringer, the court may determine the damages by directly referring to the right holder’s claim and preliminary evidence. Such a provision is to make the alleged infringer bear the adverse legal liability, thus better addressing the difficulty in determining the amount of damages.


III. Article 63 (3) of Trademark Law 2013 raises the compensation ceiling from 500,000 yuan as set out in Article 56 (2) of Trademark Law 2001 to 3 million yuan. This marks the newest height in IPR compensation since the changes to the Patent Law in 2008 raised its ceiling to 2 million yuan. This revision, objectively speaking, has practical considerations in mind. Trademark infringement is a wide-spread offence and the right holders must commit significant time, money and manpower in defending themselves. In reality very few of them can obtain a compensation amount sufficient to cover their reasonable expenses thus incurred. There remain many natural obstacles to the smooth application of the compensation system, and these obstacles have remained in place for a long time. This, combined with the legal insistence that right holders produce intact and the strict evidence rules, will continue to block their path to complete compensation. This result will be highly detrimental to the protection of rights. Against the background of significantly boosted compensation standards in this latest revision, the final result is fair when viewed as a larger picture of legal application. Although it may seem unfair in a very small number of cases in which the alleged infringer is ordered to pay a relatively high compensation for perhaps a rather small amount of gains, the revision is expected to be very beneficial for the protection of right holders.      


(Translated by Li Heng)

 

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