On May 1, 2026, Judicial Interpretation No. 7 (2026) of the Supreme People’s Court of the People’s Republic of China on the Application of Punitive Damages for Infringement of Intellectual Property Rights (hereinafter referred to as the “Interpretation”) came into effect, repealing the previously applicable 2021 interpretation.
The Interpretation addresses the concept of punitive damages—an additional amount recoverable from the infringer beyond the actual damages incurred. Such damages are not awarded in all cases, but only when two conditions are met simultaneously: the infringement was committed intentionally and the circumstances of the infringement were serious.
The meaning of the terms “intent” and “serious nature of the circumstances” had not previously been defined in legislation and was determined by local courts at their own discretion, which led to significant differences in legal practice. This interpretation addresses this gap by listing specific circumstances under which a violation is deemed intentional or committed under serious circumstances.
Key changes:
- The grounds for deeming a violation to be intentional have been clarified. The court may find intent, in particular, where the same or a similar infringement is committed repeatedly after the infringer has settled a dispute with the rights holder and agreed to cease the infringement, as well as where actual control is concealed through affiliated companies or other schemes to evade liability.
- The grounds for recognizing circumstances as serious have been clarified. These include using intellectual property rights infringement as the primary business model, as well as deriving significant profits from the infringement.
- The procedure for calculating punitive damages has been clarified. The amount of punitive damages is determined as a base amount multiplied by a coefficient ranging from 1 to 5. The interpretation specifies both elements of the calculation.
The base amount was previously determined based on the rights holder’s financial losses or the infringer’s revenue. The method for calculating these amounts was not disclosed, which made it difficult to justify them in court. Now, when calculating based on the infringer’s revenue, the benchmark is the infringer’s operating profit or profit from sales. If the profit margin cannot be determined, the industry average or the rights holder’s profit margin is applied.
The multiplier is determined by the court based on the degree of the infringer’s fault and the severity of the infringement. In doing so, the court is required to take into account any fine that was previously imposed for the same act and actually paid. This prevents double punishment.
Thus, the Interpretation expands the options available to rights holders for protecting their intellectual property rights in China, particularly in cases of repeated infringements, where the infringer uses affiliated companies, or where the infringement is systematic in nature. At the same time, it increases the risks for companies operating in China through subsidiaries or by engaging local suppliers and partners: an infringement may be deemed intentional even with the indirect involvement of a foreign company, which results in punitive damages being imposed directly on the parent company.
