Legal Recognition Of The Damages Of Infringing Goodwill

In recent years, as the cases about infringing goodwill continuing to occur, theissue about the compensation of infringing goodwill has been paid more attention. Injudicial practice, a judge usually faces with various problems, especially how toconsider the amount of money of compensation. But legislative requirements are tooprinciple, lack of maneuverability, to meet the needs of the reality. So the author triesto discuss the problem based on the nature of infringing goodwill. By analyzing themethods of determining the damages of infringing goodwill, the author wants toreveal the defects of the related system, and put forward some feasible suggestions.Specifically, this article is made up with four parts:The first part is about the theoretical basis of determining the damages ofinfringing goodwill. The goodwill can be seen as an integration of quality andevaluation of the enterprise, and also as a unity of personal interests and socialinterests. Its nature of time and space can’t be defined clearly. Because of thecharacters above, the goodwill isn’t easy to be quantified as the traditional property. Inorder to pursue the practical calculating standard for determining the value of thegoodwill, this paper analyses the elements and the manifestation of it. The elements ofthe goodwill are too complicated to be used to calculate the value of the goodwill, sowe choose to measure the value of the goodwill from the angle of transformation,which is considered as the ability of the enterprise to earn the excessive profits. Toconfirm the amount of the excessive profits, we can use the cumulative abnormalreturn method in accounting. The damages of infringing goodwill are the loss of thevalue of the goodwill. It mainly represents the loss of expectation benefit, so a studyof the calculation of the loss of expectation benefit is good to understand the methodsof determining the damages of infringing goodwill.The second part analyses the legal methods of determining the damages ofinfringing goodwill. Recently, there are three kinds of legal methods to determine thedamages of infringing goodwill including calculating the losses that the infringed hassuffered, calculating the profits that the infringer has earned and awarding thedamages up to a certain amount which depends on the facts of the case. No matter in legislation or judicial practice, there are a series of problems about these methods. Theauthor tries to make the defects clearly through a deep exploration.In the third part, the author introduces the relevant legislation and judicial trial ondetermining the damages of infringing goodwill in our country. The relevant legalprovision can be found in “Law for Countering Unfair Competition of the People’sRepublic of China”,“Trademark Law of the People’s Republic of China” and“Interpretation of the Supreme People’s Court on Some Issues Concerning theApplication of Law in the Trial of Civil Cases Involving Unfair Competition”. Butthese regulations are so principle that not easy to implement. To make sure a smoothprocess of determining the damages of infringing goodwill, enrich the relevant theory,many other methods such as determining by the expense removing the influence ofthe infringement as a basis, determining by the loyalities as a basis, comparison, andvaluation of intangible assets have been applied.The fourth part basically gives some advice about our country’s existing systemof determining the damages of infringing goodwill. Firstly, we must clarify theapplicable order of three legal methods. The infringed has a right to get the damageswhich are calculated by the losses that he has suffered, or the profits that the infringerhas earned. If the application of these methods can’t conclude a reasonable amount,the court can award the damages up to a certain amount which depends onthe facts of the case. Secondly, we must confirm the scope of losses of abnormalprofit. It’s composed of the losses of operating profit, net investment income and netnon-operating income. Accounting knowledge can be applied to calculate the amountof each loss. Thirdly, we must regard the increasing interests due to infringement, notother market factors, as the amount of the profits that the infringer has earned. Therange of increasing interests includes not only the increment of income from mainoperation, but also the increment of income from other operation, the decrease ofthree kinds of costs and the increment of net non-operating income. Fourthly, we mustbe sure what influencing factors would be considered when the court determines thedamages of infringing goodwill according to the facts. The author thinks that thefactors on tort, the factors on consequence of the infringement and the litigation costs should be concerned. Fifthly, the rules of punitive damages should be established. Itcan be used in a serious case with widespread impact and bad consequences to makeup the deficiency of the rules of entire indemnity so that the losses of the victim canbe compensated totally. It can also deter the potential lawbreaker. The amount ofpunitive damages should be kept within doubleness of the victim’s losses. At last, weshould set up a system of goodwill evaluation. By means of the report of goodwillevaluation that made by the professional institutions, the court can make a rationaldetermination of the damages. It is beneficial to improve the public confidence for thejudicial decision.