Study On Intellectual Property Damages

It is always a key and difficulty of judicial practice as to how to calculate the sum of compensation in case of intellectual property infringement and damages. The reason for the difficulty of calculation mainly lies in the non-materialistic nature of the object of intellectual property right protection. Traditional rules for infringement damages are oriented toward things, and the infringement of things usually takes place in the form of physical damage or loss which can be calculated by reducing the real value of damage or loss from the value of the things infringed. As time goes by, infringement may not cause physical damage or loss when the thing infringed is intangible, especially when it comes to intellectual property rights. In this case, the traditional damages model and the traditional damage calculation methodology become irrelevant and it is necessary to find and establish a new theoretical model. However, theories on damages related to intellectual property infringement are far from prevalent in China. Centered on damage, this article is laid out along the course of “perception of the damage of intellectual property infringement—principles for damages —methodology of damages calculation—rules for damage verification” to initially construct a framework for studying theories on intellectual property infringement damages. It also elaborates on specific issues related to the confirmation of damages liabilities and compensation sum in judicial practice, providing legal advices and guidance for practice for the optimization of the intellectual property infringement damages system in China. Without the exordium and the conclusion,the article consists of five chapters:Chapter I:Damage.Damage is a core concept in the entire damages system. Therefore, there should be a clear concept about damage at the beginning. This chapter has three sections: what is defined as damage? What kinds of damage are eligible for remedy? First, the article clarifies the dimensions for studying damage in legal theories. In this article, the discussion on the concept of damage is confined in the arena of tort liability law for it has great significance in this arena. Second, the chapter introduces historical evolution and different schools of the perception of damage, and makes comparison and analysis of these schools. The school of standardization is adopted in this article regarding the perception of damage in the arena of intellectual property, which means damage is constituted as long as a right or a benefit protected by law is infringed on, thus solving the awkwardness of the traditional school of gap in dealing with intangible damage. Third, the components and types of damage are stated in this chapter. Based on the school of standardization, this chapter compares two groups of concepts: infringement and damage, and damage and loss. In judging whether damage is eligible for remedy, the following factors should be considered:(1) damage is the result of infringement on legal rights,(2) the verifiability of damage,(3) the remediability of damage,(4) comprehensive consideration of multiple factors such as the causal relationship, fault, illegality, etc. In addition, the classification of damage is conducive to the perception of the essence of damage so as to find more appropriate ways of civil liability to offer remedy. In theory, there are mainly the following types of damage: property damage and non-property damage, active damage and passive damage, statutory damage and marginal damage, plus direct damage and indirect damage.Chapter II:Damage of intellectual property infringement.According to the perception of damage based on the school of standardization, infringement on intellectual property right protected by law will result in factual damage and unfavorable conditions. This chapter has four sections: what is the value of intellectual property right? What is the essence of intellectual property right damage caused by infringement? First, this chapter offers perception of acts that infringe on intellectual property rights and their features. Infringement on intellectual property rights is essentially a civil tort action having the same components as ordinary tort actions: not the fact of damage and the fault but the illegality constitutes a sufficient and necessary condition. Compared to ordinary tort actions, actions infringing on intellectual property rights have their distinctive features. Second, the unification of value determination with value realization should be preserved when it comes to the perception of the value of intellectual property right. The labor theory of value, the productive factor theory of value, the efficacy theory of value, etc, all analyze value from different angles. Their relationships with each other is not either A or B. Third, damage of intellectual property infringement should be perceived on the basis of value perception. Compared to damage caused by ordinary civil infringements, damage of intellectual property infringement is special in that it is essentially damage to expectable benefits. Usually, it is reduction or loss of benefits for the obligee deriving from intellectual property rights should the infringement does not occur, which means property benefits which are supposed but fail to increase. For the obligee, there are two expressions of infringement on intellectual property rights: profit loss resulting from infringed market share, and the loyalty fee payable which is not paid by the infringer. Finally, this chapter examines the concept of “imminent tort” which is a temporary measure prior to litigation, a generalization of the concept of “tort action”. The concept of “imminent tort” should be abandoned in the arena of intellectual property and should be replaced with “danger of tort”. Correspondingly, the dangerous action should be restrained and avoided using the “danger elimination” liability method in the civil liability system so as to avoid inappropriate expansion of infringement on intellectual property rights.Chapter III:Principles of intellectual property infringement damages. This chapter has four sections. It briefly introduces four non-property liability methods before discussing the principles for damages. Monetary compensation is one of the main ways of assuming the liability for infringing on intellectual property rights in light of the non-materialistic nature of the object of intellectual property right protection. It subsequently discusses the principle of full compensation, the principle of equitable compensation, and the principle of punitive compensation.(1) The principle of full compensation should be upheld, which is expressed specifically as the regulations on compensation for reasonable expenses stipulated by the intellectual property right protection authority.(2) The principle of equitable compensation is no denial of the principle of full compensation but complementary to it. In order to realize equitable compensation, the compensation sum should be confirmed lawfully in the commercialized litigation to protect equitable interests of both parties involved, and a system complementary to limitation of action should be established to prevent slackness of rights and standardize the plaintiff’s action of selecting the best time for litigation.(3) The principle of punitive compensation is not regarded as a general principle. There is controversy regarding whether it should be introduced into the laws on intellectual property right protection. I am personally against such introduction. Since the law is already there, we should practice great caution in the use of punitive compensation which should be applicable in highly restrictive conditions only. Regarding confirmation of the sum of punitive compensation, the basis should be the actual damage or loss inflicted or the illegal benefits or profits acquired, and the ratio of punitive compensation relative to complementary compensation should be confirmed. Only in so doing is the true spirit of the principle of punitive compensation honored.Chapter IV:Calculation of intellectual property infringement damages.To specify the principles for infringement damages is essentially to define the scope of damages. How to calculate damages covered in the compensation scope? This chapter has five sections discussing this question. Both the Angolan-American legal system and the continental legal system has special regulations in various departments of law about the ways of calculating infringement damages related to intellectual property rights, and the regulations are very similar among various countries. This chapter first makes a brief introduction and evaluation of relevant laws in various countries, and then discusses the ways of calculating damages recognized in Chinese laws.(1) Loss of profits. In Chinese judicial interpretation, there are clear regulations about how to calculate loss of profits. However, the regulations are still too general, deficient of emphasis on the causal relationship between the tort action and the value of damage. I think China may learn from the Panduit-Test from USA and the emphasis on the causal relationship in the Japanese law system.(2) Licence fees. It is fair to say that the calculation method best reflects the notion of damages includes the actual loss of obligee and the licence fees only. The method of virtual negotiation guarantees that the licence fees reflects the essential value of the patent technology. The 15 Georgia-Pacific elements are used to assist the evaluation of relevant quantitative and qualitative factors in negotiations about the licence fees. The aim of the ratios applicable for the licence fees is to make the calculation result closest to the actual loss, not to penalize the infringer.(3) Tort gains. To incorporate tort gains into the way of calculating damages does not comply with the basic principle of the laws on damages. Theoretical analysis of unjust enrichment indicates that the obligee has full right to demand the infringer to return unjustified benefits so as to realize just distribution of interests and benefits. In case tort gains are greater than damage inflicted to the obligee due to the tort, the regulations on voluntary service in the form of “unlawful service” shall be applied. Besides, the profits from tort gains shall also be partitioned.(4) Statutory compensation. This is the last resort in verifying the sum of damages. The alienation of statutory compensation should be avoided, and the ways of verifying damage for statutory compensation should be used in a normative manner.Chapter V:Verification of intellectual property infringement damages.To solve the difficult issue of intellectual property infringement damages, we need to consummate substantial systems and think about the application of these systems in judicial procedures. This chapter has four sections discussing how to scientifically establish the evidence rules system for litigations regarding intellectual property infringement damages, and how to fully use these evidence rules to reasonably verify the sum of damages. First, the chapter offers a summarization of evidences related to litigations regarding intellectual property infringement damages,and the relevant evidence system, and then discusses the evidence verification process in civil procedures.(1) Evidence collection and preservation. When a party involved collects evidences on its own, it should comply with relevant legal requirements. Evidences acquired using the trap method should be examined dialectically in litigations of intellectual property rights infringement. The parties involved applying for court to investigat evidence or the court investigat evidences ex officio are also one efficient ways to collect evidences. Of course court investiga evidence is different from evidence preservation and there are different standards for examination regarding the two which shall not be mixed up.(2) Assignment of testification liabilities and standards for testification. In regard to assignment of testification liabilities, the general rule is “who affirms shall testify”. Although it is difficult for the plaintiff to testify in cases of intellectual property rights infringement, it is unadvisable to be cautious with the use of the rule of testification liability inversion. In the phase of verifying the sum of damages, it is advisable to use the testification encumbrance rule to speculate that the sum of damages affirmed by the obligee is justified, which is beneficial for expanding the ways of verifying the sum of damages. As for standards for testification, the civil procedure law has the standard of “high probability”, but judicial polices on intellectual property use the standard of “advantageous evidences”. The two standards are not in conflict when it comes to verifying the sum of intellectual property infringement damages.(3) Examination and authentication of evidences. Judges have basic rules for authentication to comply with in examining and authenticating evidences. Notarization have greater force than ordinary evidences, but notarization should be practiced dialectically in judging the force of flawed notarization. Compared to ordinary civil and commercial cases, cases of intellectual property rights infringement are more professional and new versions emerge frequently. A result of this is that factual truth is hard to find because of specialized issues. To tackle this problem, the civil procedure law of China incorporates the authentication system and the expert aider system. When dealing with cases of intellectual property rights infringement damages, it will be beneficial for judges to make just and reasonable verdicts when the authentication system and the expert aider system are used effectively. What is worth attention is that all evidence rules mentioned above are judicial technologies adopted to verify the sum of damages, not an independent way of verifying compensation.