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July 2026
An Analysis of the Interpretation of the Supreme People's Court on the Application of Punitive Damages in the Trial of Civil Dispute Cases Involving Infringement of Intellectual Property Rights
On April 17, 2026, the Supreme People's Court officially issued the Interpretation of the Supreme People's Court on the Application of Punitive Damages in the Trial of Civil Dispute Cases Involving Infringement of Intellectual Property Rights (hereinafter referred to as the New Interpretation), which shall come into force as of May 1, 2026. The 2021 version of the Interpretation (Fa Shi [2021] No.4), which has been in effect for five years, is repealed simultaneously. This revision expands and refines the rules on punitive damages, increasing the number of articles from 7 to 14. It sets out more specific application standards, significantly improving operability in judicial practice. This article will provide a detailed analysis focusing on the determination of intentional infringement, identification of the calculation base for damages, restrictions on litigation procedures, and quantification of punitive intensity.
First, the New Interpretation substantially expands the criteria for determining intentional infringement of intellectual property rights, lowering the burden of proving subjective malice. Compared with Article 3 of the 2021 version, Article 6 of the New Interpretation not only upgrades the wording from "may be preliminarily determined" under the old rule to the more definitive "may be determined", but also adds two highly deterrent specific circumstances. It explicitly lists "committing the same or similar infringing acts again after reaching a settlement with the plaintiff and agreeing to cease the infringing acts" as a circumstance constituting intentional infringement. Meanwhile, it brings acts of evading liability through the so-called "shell game" – specifically, "concealing the actual control relationship by setting up affiliated companies, changing the legal representative or controlling shareholder, or establishing a company as a nominal holder, or evading legal liability for infringement of the intellectual property right involved in the case by entering into an exemption agreement" – under regulation, effectively closing loopholes exploited by malicious infringers.
Second, the long-standing difficulty in judicial practice of "determining the calculation base for damages" has been refined and clarified in the New Interpretation. Article 5 of the 2021 version only generally provides that unlawful gains or benefits obtained from the infringement shall be taken as the calculation base, while Articles 8 and 9 of the New Interpretation establish a complete "profit reference system". The New Interpretation stipulates that where unlawful gains or benefits obtained from the infringement are used as the calculation base, business profits shall be taken as a reference under normal circumstances; where the defendant is engaged in infringement of intellectual property rights as a profession, sales profits shall be taken as a reference; if the profit rate cannot be determined, reference may be directly made to the average profit rate for the same period and the same industry published by statistics authorities or industry associations. This tiered determination standard significantly improves operability. More importantly, Paragraph 3 of Article 8 of the New Interpretation explicitly provides that the amount of statutory damages shall not be used as the calculation base for punitive damages, requiring right holders to submit solid evidence to prove their actual losses or the defendant's gains from the infringement.
Third, the New Interpretation imposes stricter restrictions on litigation procedures to prevent right holders from engaging in "strategic procedural arbitrage" by exploiting procedural rules. The 2021 version allowed right holders to file a separate lawsuit if mediation failed in the second instance, but Article 3 of the New Interpretation changes this practice, explicitly stipulating that where a plaintiff increases the claim for punitive damages in the second instance and mediation fails, the people's court shall not uphold such claim. More stringent is the "estoppel" clause newly added in Article 4 of the New Interpretation: where, in an intellectual property infringement lawsuit, the plaintiff requests compensation for losses but does not request punitive damages, and, after the people's court has given an explanation, still does not request punitive damages, then after the conclusion of the lawsuit, the plaintiff shall not file another lawsuit based on the same infringing facts to claim punitive damages. This change requires right holders to fully consider whether to claim punitive damages at the time of initiating the lawsuit, otherwise they will face the risk of losing such right.
Finally, the New Interpretation makes adjustments to the quantification of punitive intensity that better conform to the principle of proportionality between punishment and fault. The 2021 version provided vague provisions on how to handle prior administrative or criminal penalties, while Article 13 of the New Interpretation explicitly stipulates that where a fine or criminal fine has already been imposed for the same infringing act and has been executed, the people's court shall take this into consideration when determining the multiple of punitive damages, regardless of whether the parties raise such a claim. Meanwhile, Article 11 of the New Interpretation explicitly provides that the multiple of punitive damages need not be an integer, and Article 12 reiterates the cap that the total amount of punitive damages shall be up to a maximum of five times the calculation base. This adjustment effectively prevents some courts from adopting a cumulative interpretation of the "multiple", eliminates misinterpretations that could lead to de facto six-fold damages, and ensures uniformity in adjudication standards.
First, the New Interpretation substantially expands the criteria for determining intentional infringement of intellectual property rights, lowering the burden of proving subjective malice. Compared with Article 3 of the 2021 version, Article 6 of the New Interpretation not only upgrades the wording from "may be preliminarily determined" under the old rule to the more definitive "may be determined", but also adds two highly deterrent specific circumstances. It explicitly lists "committing the same or similar infringing acts again after reaching a settlement with the plaintiff and agreeing to cease the infringing acts" as a circumstance constituting intentional infringement. Meanwhile, it brings acts of evading liability through the so-called "shell game" – specifically, "concealing the actual control relationship by setting up affiliated companies, changing the legal representative or controlling shareholder, or establishing a company as a nominal holder, or evading legal liability for infringement of the intellectual property right involved in the case by entering into an exemption agreement" – under regulation, effectively closing loopholes exploited by malicious infringers.
Second, the long-standing difficulty in judicial practice of "determining the calculation base for damages" has been refined and clarified in the New Interpretation. Article 5 of the 2021 version only generally provides that unlawful gains or benefits obtained from the infringement shall be taken as the calculation base, while Articles 8 and 9 of the New Interpretation establish a complete "profit reference system". The New Interpretation stipulates that where unlawful gains or benefits obtained from the infringement are used as the calculation base, business profits shall be taken as a reference under normal circumstances; where the defendant is engaged in infringement of intellectual property rights as a profession, sales profits shall be taken as a reference; if the profit rate cannot be determined, reference may be directly made to the average profit rate for the same period and the same industry published by statistics authorities or industry associations. This tiered determination standard significantly improves operability. More importantly, Paragraph 3 of Article 8 of the New Interpretation explicitly provides that the amount of statutory damages shall not be used as the calculation base for punitive damages, requiring right holders to submit solid evidence to prove their actual losses or the defendant's gains from the infringement.
Third, the New Interpretation imposes stricter restrictions on litigation procedures to prevent right holders from engaging in "strategic procedural arbitrage" by exploiting procedural rules. The 2021 version allowed right holders to file a separate lawsuit if mediation failed in the second instance, but Article 3 of the New Interpretation changes this practice, explicitly stipulating that where a plaintiff increases the claim for punitive damages in the second instance and mediation fails, the people's court shall not uphold such claim. More stringent is the "estoppel" clause newly added in Article 4 of the New Interpretation: where, in an intellectual property infringement lawsuit, the plaintiff requests compensation for losses but does not request punitive damages, and, after the people's court has given an explanation, still does not request punitive damages, then after the conclusion of the lawsuit, the plaintiff shall not file another lawsuit based on the same infringing facts to claim punitive damages. This change requires right holders to fully consider whether to claim punitive damages at the time of initiating the lawsuit, otherwise they will face the risk of losing such right.
Finally, the New Interpretation makes adjustments to the quantification of punitive intensity that better conform to the principle of proportionality between punishment and fault. The 2021 version provided vague provisions on how to handle prior administrative or criminal penalties, while Article 13 of the New Interpretation explicitly stipulates that where a fine or criminal fine has already been imposed for the same infringing act and has been executed, the people's court shall take this into consideration when determining the multiple of punitive damages, regardless of whether the parties raise such a claim. Meanwhile, Article 11 of the New Interpretation explicitly provides that the multiple of punitive damages need not be an integer, and Article 12 reiterates the cap that the total amount of punitive damages shall be up to a maximum of five times the calculation base. This adjustment effectively prevents some courts from adopting a cumulative interpretation of the "multiple", eliminates misinterpretations that could lead to de facto six-fold damages, and ensures uniformity in adjudication standards.
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