Min YAO, Jie CHEN
Attorney-at-Law
Wei Chixue Law Firm

Whether a trademark owner decides to initiate an infringement lawsuit or both parties decide whether to settle or appeal, the amount of compensation is a key factor. This article aims to summarize and answer the common questions about damages in trademark infringement litigation, providing reference for readers.

I. Selection of Calculation Methods

The existing Trademark Law of China (2019 Trademark Law) stipulates four methods for calculating infringement damages. According to the legal provisions, there is a sequential relationship between these four methods. First, the damages should be determined based on the actual losses of the right holder. If the actual losses are difficult to determine, the profits gained from the infringement by the infringer can be used as a basis. If both the right holder’s losses and the infringer’s profits are hard to ascertain, a reasonable multiple of the trademark licensing fee can be referred to for determination. When these three methods all fail to determine the compensation amount, the court may, based on the circumstances of the infringing act, order a compensation of up to five million yuan.

The “Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Civil Disputes over Trademarks” (2020 Amendment) (hereinafter referred to as the “Trademark Civil Judicial Interpretation”) Article 13 stipulates that when the People’s Court determines the compensation liability of the infringer in accordance with Article 63, Paragraph 1 of the Trademark Law, it may calculate the compensation amount based on the calculation method chosen by the right holder. That is to say, the right holder is given the autonomy to choose the method for calculating damages.

Therefore, in judicial practice, the court usually does not impose requirements on the sequence of calculation methods for compensation amounts, but directly considers whether the method chosen by the plaintiff has legal and factual basis and is reasonable. In other words, in trademark infringement cases, the right holder can choose the most suitable one among the four calculation methods stipulated by the Trademark Law according to the specific circumstances of the case.

II. Statutory Compensation

According to the empirical analysis of 3,085 trademark infringement cases adjudicated by Chinese Courts from 2012 to 2015 by Zhan Ying¹, 99.6% of the cases applied statutory compensation. Cao Xinming² analyzed 9,057 case samples from 2011 to 2016 and found that 8,666 samples applied statutory compensation, accounting for 95.68%, among which there were 1,206 trademark right samples, and 1,126 cases applied the statutory compensation standard, accounting for 93.37%. Hu Hairong and Wang Shigang³ analyzed 290 trademark infringement cases adjudicated by the Beijing Intellectual Property Court from 2015 to 2019 and found that 285 cases applied statutory compensation, with a high proportion of 98.3%. Wu Fanwen and Lv Song⁴ analyzed 200 typical trademark infringement cases from 2015 to 2024, and 156 cases (78%) applied statutory compensation.

The above data intuitively shows the widespread application of statutory compensation in the field of trademark infringement lawsuits. In fact, the situation is the same in other types of intellectual property infringement cases.

Moreover, although the upper limit of statutory compensation stipulated by the Trademark Law is five million yuan, the compensation amount usually applied in practice is not high, with the vast majority being within 500,000 yuan, and even below 100,000 yuan.

The main reason for this situation is the difficulty for the right holder to provide evidence of actual losses or infringer’s profits, and the lack of reference to licensing situations. The difficulties in providing evidence and the low compensation in intellectual property infringement cases have long been criticized. In recent years, to solve these pain points, corresponding measures have been taken both in legislation and judicial practice. For example, the introduction of the system stipulated in Article 63, Paragraph 2 of the Trademark Law, which orders the disclosure of books and materials related to the infringing act.

According to the Trademark Civil Judicial Interpretation, when the People's Court applies statutory compensation to determine the compensation amount, it should take into account the nature, duration, and consequences of the infringing act, the degree of subjective fault of the infringer, the reputation of the right holder’s trademark, and the reasonable expenses for stopping the infringing act, among other factors, to comprehensively determine the amount. Therefore, even when the statutory compensation calculation method is used, the right holder should not be negligent in providing evidence, but should actively provide evidence on the above factors to the greatest extent possible in order to obtain a higher compensation.

In addition, in judicial practice, if there is evidence proving that the actual losses of the right holder or the profits of the infringer are obviously above the statutory compensation limit, the court may reasonably determine the compensation amount above the statutory maximum limit. However, it is generally believed that such discretionary compensation does not belong to statutory compensation, but is a general calculation of the actual losses of the right holder or the profits of the infringer. For example, in the case of SIEMENS AKTIENGESELLSCHAFT and others vs. Ningbo Qishuai Electrical Appliance Co., Ltd. and others (first instance case number: (2019) Su Civil First2, second instance case number: (2022) SPC Civil Final 312), the plaintiff claimed that the profits obtained by the defendant from the infringing act should be used as the basis for calculating the compensation amount, with a claimed compensation amount of 100 million yuan. The court, after trial, found that the evidence for the defendant’s infringing profits was insufficient, but the defendant’s infringing profits were obviously above the statutory compensation maximum limit. Considering the specific circumstances of the case, it was determined that the compensation amount should be determined above the statutory maximum limit. In the case of the defendant's refusal to submit relevant financial evidence, the court discretionarily determined the compensation amount and fully supported the plaintiff's compensation claim.

III. Infringer’s Profits

According to the research mentioned above on 200 typical trademark infringement cases across the country, 31 cases applied the method of calculating damages based on the infringer’s profits, accounting for 15.5%. Although this proportion is significantly lower than that of statutory compensation, it is much higher than the application rate of actual losses at 0.5% and the application rate of reasonable multiples of licensing fees at 1.5%. Therefore, relatively speaking, calculating damages based on the infringer's profits is a method with higher feasibility for the right holder to provide evidence in judicial practice.

According to the Trademark Civil Judicial Interpretation, the profits obtained from the infringement can be calculated based on the sales volume of the infringing goods and the unit profit of that product; if the unit profit of that product cannot be ascertained, the unit profit of the registered trademark goods shall be used for calculation. The profit is generally based on the operating profit. If the defendant is entirely engaged in infringing activities, the sales profit can be used as the basis.

The main difficulty in applying the method of calculating the infringer’s illegal gains in judicial practice lies in the evidence of sales volume. For the allegedly infringing products mainly sold online through e-commerce platforms, the product sales volume, total sales volume, or total number of reviews displayed on the e-commerce platform can all serve as important references for the sales volume of the product. However, for products sold offline, it is not so easy to provide evidence of sales volume. For some special industries that keep statistics on relevant quantities, such as automobiles, motorcycles, or their corresponding parts, the quantities published in industry associations or statistical yearbooks can be used as references. In the absence of such association statistics or yearbook statistics, the right holder often claims the sales volume based on the sales scale that the infringer publicizes externally. This then involves the issue of how to determine the sales volume in cases of “brushing orders” (artificially inflated sales) or “exaggerated publicity.” At present, the mainstream view in judicial practice is that if the infringer cannot provide evidence to prove its actual sales volume, the sales volume it publicizes can be used for determination. The exaggeration in the infringer’s publicity has created a strong corporate strength for it, and it has obtained a corresponding trading position and benefits in market competition. Therefore, the infringer should also bear the responsibility for infringement based on the sales volume it has exaggeratedly publicized. 

For example, in the case of Xiaomi Inc. and others v. Zhongshan Povos Appliances Co., Ltd. for trademark infringement (first instance case number: (2018) Su 01 Civil First 3207, second instance case number: (2019) Su Civil Final 1316), the plaintiff used the number of comments on the allegedly infringing products in the defendant's online store to estimate the sales volume of the infringing products. The court considered it reasonable to use the number of comments as a reference for sales volume and accepted the plaintiff's claim.

In determining the unit profit, there are often many disputes between the two parties on whether to apply sales profit or operating profit, whether it is reasonable to refer to the industry profit margin, and whether it is reasonable to apply the unit profit of the registered trademark goods.

For example, in the case of Opple Lighting Co., Ltd. v. Liang Juanmei (an individual) (first instance case number: (2021) Yue 15 Civil First 219, second instance case number: (2022) Yue Civil Final 139), the plaintiff submitted financial analyses of several listed companies over the years to prove that the main business profit margin of lighting companies in the past five years was between 13.02% and 36.92%, and thus claimed the median profit margin of 24% for calculating the defendant's infringing profits. The defendant did not recognize this, and both the first and second instance courts also believed that there were significant differences between the nature, scale, costs, and profitability of the listed companies and the defendant as an individual seller on Taobao. Therefore, the main business profit margin of the aforementioned companies was not comparable to the profit margin of the allegedly infringing products in this case, and the court did not confirm its relevance.

IV. Actual Losses of the Right Holder

Regarding the actual losses of the right holder, according to the Trademark Civil Judicial Interpretation, the losses suffered due to the infringement can be calculated based on the product of the reduction in the sales volume of the right holder’s goods due to the infringement or the sales volume of the infringing goods and the unit profit of the registered trademark goods.

In practice, there are very few cases where the losses are calculated based on the reduction in the sales volume of the right holder’s goods. This is because even if the infringing act has caused actual losses to the right holder, due to the expansion of the overall market demand, the sales volume of the right holder’s goods may not have decreased. Moreover, even if the right holder can provide some evidence of sales volume losses, it is difficult to prove that the reduction in sales volume is due to the infringing act, as there may be many factors affecting the sales volume, including market downturns, competitive products, etc., and it is difficult to quantify the impact of the infringing act. Therefore, even if the right holder chooses to use this method to calculate the compensation, it will often be based on the total number of infringing products sold in the market.

However, as mentioned above, the right holder usually also has difficulties in providing evidence for the total number of infringing products sold in the market. Moreover, the legal basis for calculating the losses based on the product of the total number of infringing products sold and the unit profit of the registered trademark goods is that the infringing products have replaced the right holder’s goods, and the sales volume of the infringing products is equivalent to the reduction in the sales volume of the right holder’s goods. When there are many competing products in the market, or when there is a significant difference in price between the infringing products and the right holder’s goods, it is actually unfair to use this method of calculation, and the court usually will not recognize this method of calculation in such cases.

Regarding the reasonable profit of the right holder’s products, since the relevant evidence is usually held by the right holder, it is not difficult to determine the profit if the right holder is willing to provide it. However, if the right holder only puts forward a number without providing specific basis, this claim is hard to be recognized. Under normal circumstances, the right holder needs to provide financial statements of the relevant products, and a professional auditing organization should audit the reasonable profit of the products to reach an accurate conclusion. But this information involves the right holder’s trade secrets, and the right holder is often unwilling to disclose it.

For the above reasons, in judicial practice, there are very few cases where the damages are calculated based on the actual losses of the right holder. In the research on the 200 typical cases mentioned above, only in the case of Baroque Timber Industries (Zhongshan) Limited v. Zhejiang Life Home Baroque Flooring Co., Ltd. and others (first instance case number: (2016) Su 05 Civil First 41, second instance case number: (2017) Su  Civil Final 1297), the court determined the damages based on the actual losses of the right holder. In that case, there were very special circumstances. The defendant was originally the plaintiff’s contract manufacturer, which secretly shipped products to the plaintiff’s dealers at a price lower than that of the plaintiff’s products. The plaintiff took significant price reduction measures to cope with the defendant’s low-price sales, resulting in a decrease in sales revenue. Moreover, the right holder provided sufficient evidence to make the court have sufficient reasons to believe that there was no evidence of other major factors causing serious damage to the right holder’s sales volume except for the alleged infringing act.

V. Reasonable Multiple of Licensing Fees

Regarding the reasonable multiple of licensing fees, the Trademark Civil Judicial Interpretation does not provide more detailed standards for application. At present, in judicial practice, it is usually necessary for the right holder to provide evidence of trademark licensing practices before the infringing act occurred, and the licensed content should be comparable.

For example, the “Guiding Opinions of the Beijing Higher People’s Court on Determining Compensation for Damages in Cases of Infringement of Intellectual Property Rights and Unfair Competition and the Judgment Standards for Statutory Compensation” (2020) stipulates that when determining the compensation amount by referring to the licensing fee, it should generally not be lower than the comparable reasonable licensing fee. To determine a reasonable licensing fee, the following factors can be comprehensively considered: (1) whether the licensing contract has been actually performed; (2) whether there is recordal of licensing contract; (3) whether the licensed rights, methods, scopes, and terms have comparability with the alleged infringing act; (4) whether the licensing fee is a normal commercial licensing fee and has not been affected by external factors such as litigation, mergers and acquisitions, bankruptcy, liquidation, etc., and whether there is a kinship, investment, or affiliated company relationship between the licensor and the licensee.

The difficulty in applying the method of reasonable multiple of licensing fees lies in providing evidence of comparable trademark licensing practices. For example, in the case of Beijing Tongrentang Co., Ltd. vs. Huang Weidong (an individual) (first instance case number: (2016) Yue 0104 Min Chu 1506), the plaintiff claimed to determine the amount of trademark infringement damages in this case by referring to the trademark licensing contract signed between it and China Beijing Tongrentang Group Co., Ltd.. The court held that the licensing contract between the plaintiff and China Beijing Tongrentang Group Co., Ltd. involved nine trademarks and thirty kinds of medicines, while this case only involved one trademark and one kind of medicine. Therefore, the compensation amount could not be calculated by referring to the trademark licensing fee.

VI. Summary

Due to the length, this article only briefly introduces part of the content of the calculation methods for trademark infringement damages. Issues such as the contribution rate of the trademark to the profits of the infringing products, reasonable expenses, compensation amounts agreed upon by the parties, and punitive damages have not been covered. The specific issues and points to note for each calculation method have also not been fully elaborated.

To maximize the protection of legitimate rights and interests, the right holder should provide comprehensive evidence as much as possible and actively seek suitable calculation methods to more accurately obtain compensation. Even if these calculation methods are not adopted, evidence of right holder’s losses suffered due to infringing act and profits obtained by the infringer due to infringing act will be considered by the court when applying statutory compensation to determine the amount of damages.
 
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¹Zhan Ying, “Re-investigation and Re-thinking of the Judicial Status of Compensation for Intellectual Property Infringement Damages in China--- Based on an In-depth Analysis of 11,984 Judicial Precedents on Intellectual Property Infringement in China”, Legal Science, No. 1, 2020, p. 193.

²Cao Xinming, “New Design of Calculation Standard for Damages for Intellectual Property Infringement in China”, Modern Legal Science, January 2019, No. 41.

³Hu Hairong and Wang Shigang, “New Thinking on the Application of Statutory Compensation for Trademark Infringement in China: An Analysis Based on the Judgment of Beijing Intellectual Property Court from 2015 to 2019”, Intellectual Property, No. 5, 2020.

⁴Wu Fanwen and Lv Song, “Application of the Calculation Method of Actual Loss of Trademark Infringement Damages”, China Trademark, December 2024.