China: Measures for Calculation of Illegal Business Revenue in Trademark Infringement Cases
Published 5 November 2024
Sarah Xuan
In order to standardize the handling of trademark infringement cases, protect the legitimate rights and interests of trademark holders, and create a fair competitive market environment, on October 30, 2024, the National Intellectual Property Administration and the State Administration for Market Regulation jointly formulated and issued the “Measures for Calculating Illegal Business Revenue in Trademark Infringement Cases” (hereinafter referred to as the “Measures”). This document provides clear calculation standards and methods for administrative law enforcement departments dealing with trademark infringement cases, ensuring that trademark holders can receive reasonable compensation in infringement events, thereby effectively combating trademark infringement and maintaining a sound market competitive environment. This article will interpret the key contents and provisions of the Measures.
1. Scope of Application
The Measures apply to administrative law enforcement departments when handling cases that have been determined to involve trademark infringement, particularly those concerning the calculation of illegal business revenue. Their scope covers all cases related to trademark infringement, ensuring consistency and transparency in the application of the law.
2. Definition of Illegal Business Revenue
According to Article 4, illegal business revenue includes the operating income generated from the infringement and the total value of the infringing goods involved. This definition provides a foundation for subsequent calculations. Specifically, illegal business revenue is not limited to the sales revenue of infringing goods, but also includes all relevant economic benefits resulting from the infringement.
For example, if a brand’s athletic shoes are sold by counterfeiters, and if the counterfeiters sold 1,000 pairs at a price of RMB 500 each, the sales revenue would amount to RMB 500,000. However, if the trademark holder can demonstrate that their sales decreased by RMB 300,000 due to the presence of the counterfeit products, this loss can be included in the calculation of illegal business revenue.
3. Calculation of Sold Goods
Article 5 of the Measures clarifies the calculation methods for sold and unsold goods:
1) For sold goods: calculated based on the actual selling price.2) For unsold goods: calculated based on the verified actual average selling price, marked price, or market median price.
For instance, if an infringing seller sold 500 infringing T-shirts at an actual price of RMB 200 each, the illegal business revenue from sold goods would be RMB 100,000. If there are 1,000 unsold infringing T-shirts and their verified average selling price is RMB 150 each, then the illegal business revenue from unsold goods would be RMB 150,000. Thus, the total illegal business revenue would be RMB 250,000. This provision ensures reasonable valuation of unsold goods, preventing businesses from evading responsibility.
4. Determination of Market Median Price
Article 6 of the Measures stipulates the calculation method for market median price, which includes sampling surveys of market prices for similar products. This clause emphasizes the importance of actual market conditions in calculating illegal business revenue, helping to enhance the fairness of the calculation.
For example, if three businesses sell the same genuine product at prices of RMB 300, RMB 320, and RMB 310 respectively, then the market median price for the infringing goods should be the average of these three prices, which is RMB 310. This price can be used as a reference for calculating the illegal business revenue of the infringing goods, even if the actual selling price of the infringing seller is lower.
If there are no similar infringing products on the market, relevant departments may refer to the previously established market median price for similar products or use the market median price of similar products based on functionality, purpose, main materials, design, etc. If it is difficult to determine the market median price by these methods, price recognition institutions may be called upon for determination. This approach effectively prevents infringing businesses from reducing their liability through low pricing strategies, thereby protecting the legitimate rights and interests of the infringed parties.
5. Calculation of Illegal Business Revenue in Processing and Contracting Activities
Article 7 of the Measures states that in processing and contracting activities involving contracted materials, if registered trademark-infringing goods are used, the illegal business revenue must be calculated based on the actual selling price.
6. Handling Special Situations
Articles 7 to 14 of the Measures provide specific guidance for various special circumstances of infringement, ensuring that different types of infringement can be legally evaluated accordingly. Here is an overview of several important provisions:
1) Calculation of illegal business revenue in contracted processing activities: In processing and contracting activities using registered trademark-infringing goods, the illegal business revenue must be calculated based on the actual selling price; if the infringing goods are not priced independently, their value ratio in the overall processing activity shall be used; if the value ratio cannot be distinguished, the market median price of the infringed goods shall be applied.2) Calculation of promotional gifts: For goods that infringe on others’ trademark rights and are given away for free, illegal business revenue should be calculated based on the actual purchase price or manufacturing cost; if this cannot be determined, then the marked price or the market median price of the infringed goods shall be used.3) Handling of refurbished goods: The illegal business revenue for refurbished goods should be calculated based on the overall value; if only parts or components infringe on others’ trademark rights, their value should be used for calculation.4) Handling of infringements specified in Article 57, Item 4 of the Trademark Law: For infringements specified in Article 57, Item 4 of the Trademark Law, such as a) using a trademark that is identical or similar to a registered trademark without the permission of the trademark holder, resulting in confusion; b) selling, exhibiting, storing, or transporting goods that infringe on others’ trademark rights; c) labeling goods with marks identical or similar to others’ registered trademarks, illegal business revenue should be calculated based on the actual selling price of the infringing marks.5) Actions providing conditions for infringement: If someone deliberately provides convenience for infringement, illegal business revenue should be calculated based on the income obtained from aiding the infringement; if there is no income, it shall be treated as having no illegal business revenue.6) Illegal business revenue from renting goods: If renting goods infringes on others’ trademark rights, the illegal business revenue shall be calculated based on the rental income.7) Infringement in advertising: If there is an infringement on others’ trademark rights in advertising and the infringing goods cannot be verified, it will be treated as having no illegal business revenue.8) Joint infringement of trademark licenses: If both the trademark licensor and licensee jointly infringe on others’ trademark rights, illegal business revenue will be calculated according to the market median price provided in provisions of Article 6; if the trademark licensor is found to have aided the infringement by the licensee, the revenue from the license shall be calculated; for free licenses, it shall be treated as having no illegal business revenue.
7. Connection Between Administrative and Criminal Cases
Article 17 provides for coordination between administrative agencies and public security authorities in cases involving the connection between administrative and criminal proceedings, providing a legal basis for cooperation among different law enforcement agencies.
[Comments]
The Measures have significant implications for protecting trademark rights and maintaining fair market competition. First, the Measures reduce arbitrariness in the enforcement process and enhance transparency in case handling through clear calculation methods and principles. Second, they emphasize the principles of legality, reasonableness, objectivity, and fairness, ensuring a balance of interests among all parties and helping to strengthen the confidence of trademark holders. Overall, the introduction of these Measures provides important legal grounds for handling trademark infringement cases, promotes the institutionalization and standardization of trademark protection, and contributes to improving the legal environment of the entire market.
1. Scope of Application
The Measures apply to administrative law enforcement departments when handling cases that have been determined to involve trademark infringement, particularly those concerning the calculation of illegal business revenue. Their scope covers all cases related to trademark infringement, ensuring consistency and transparency in the application of the law.
2. Definition of Illegal Business Revenue
According to Article 4, illegal business revenue includes the operating income generated from the infringement and the total value of the infringing goods involved. This definition provides a foundation for subsequent calculations. Specifically, illegal business revenue is not limited to the sales revenue of infringing goods, but also includes all relevant economic benefits resulting from the infringement.
For example, if a brand’s athletic shoes are sold by counterfeiters, and if the counterfeiters sold 1,000 pairs at a price of RMB 500 each, the sales revenue would amount to RMB 500,000. However, if the trademark holder can demonstrate that their sales decreased by RMB 300,000 due to the presence of the counterfeit products, this loss can be included in the calculation of illegal business revenue.
3. Calculation of Sold Goods
Article 5 of the Measures clarifies the calculation methods for sold and unsold goods:
1) For sold goods: calculated based on the actual selling price.2) For unsold goods: calculated based on the verified actual average selling price, marked price, or market median price.
For instance, if an infringing seller sold 500 infringing T-shirts at an actual price of RMB 200 each, the illegal business revenue from sold goods would be RMB 100,000. If there are 1,000 unsold infringing T-shirts and their verified average selling price is RMB 150 each, then the illegal business revenue from unsold goods would be RMB 150,000. Thus, the total illegal business revenue would be RMB 250,000. This provision ensures reasonable valuation of unsold goods, preventing businesses from evading responsibility.
4. Determination of Market Median Price
Article 6 of the Measures stipulates the calculation method for market median price, which includes sampling surveys of market prices for similar products. This clause emphasizes the importance of actual market conditions in calculating illegal business revenue, helping to enhance the fairness of the calculation.
For example, if three businesses sell the same genuine product at prices of RMB 300, RMB 320, and RMB 310 respectively, then the market median price for the infringing goods should be the average of these three prices, which is RMB 310. This price can be used as a reference for calculating the illegal business revenue of the infringing goods, even if the actual selling price of the infringing seller is lower.
If there are no similar infringing products on the market, relevant departments may refer to the previously established market median price for similar products or use the market median price of similar products based on functionality, purpose, main materials, design, etc. If it is difficult to determine the market median price by these methods, price recognition institutions may be called upon for determination. This approach effectively prevents infringing businesses from reducing their liability through low pricing strategies, thereby protecting the legitimate rights and interests of the infringed parties.
5. Calculation of Illegal Business Revenue in Processing and Contracting Activities
Article 7 of the Measures states that in processing and contracting activities involving contracted materials, if registered trademark-infringing goods are used, the illegal business revenue must be calculated based on the actual selling price.
6. Handling Special Situations
Articles 7 to 14 of the Measures provide specific guidance for various special circumstances of infringement, ensuring that different types of infringement can be legally evaluated accordingly. Here is an overview of several important provisions:
1) Calculation of illegal business revenue in contracted processing activities: In processing and contracting activities using registered trademark-infringing goods, the illegal business revenue must be calculated based on the actual selling price; if the infringing goods are not priced independently, their value ratio in the overall processing activity shall be used; if the value ratio cannot be distinguished, the market median price of the infringed goods shall be applied.2) Calculation of promotional gifts: For goods that infringe on others’ trademark rights and are given away for free, illegal business revenue should be calculated based on the actual purchase price or manufacturing cost; if this cannot be determined, then the marked price or the market median price of the infringed goods shall be used.3) Handling of refurbished goods: The illegal business revenue for refurbished goods should be calculated based on the overall value; if only parts or components infringe on others’ trademark rights, their value should be used for calculation.4) Handling of infringements specified in Article 57, Item 4 of the Trademark Law: For infringements specified in Article 57, Item 4 of the Trademark Law, such as a) using a trademark that is identical or similar to a registered trademark without the permission of the trademark holder, resulting in confusion; b) selling, exhibiting, storing, or transporting goods that infringe on others’ trademark rights; c) labeling goods with marks identical or similar to others’ registered trademarks, illegal business revenue should be calculated based on the actual selling price of the infringing marks.5) Actions providing conditions for infringement: If someone deliberately provides convenience for infringement, illegal business revenue should be calculated based on the income obtained from aiding the infringement; if there is no income, it shall be treated as having no illegal business revenue.6) Illegal business revenue from renting goods: If renting goods infringes on others’ trademark rights, the illegal business revenue shall be calculated based on the rental income.7) Infringement in advertising: If there is an infringement on others’ trademark rights in advertising and the infringing goods cannot be verified, it will be treated as having no illegal business revenue.8) Joint infringement of trademark licenses: If both the trademark licensor and licensee jointly infringe on others’ trademark rights, illegal business revenue will be calculated according to the market median price provided in provisions of Article 6; if the trademark licensor is found to have aided the infringement by the licensee, the revenue from the license shall be calculated; for free licenses, it shall be treated as having no illegal business revenue.
7. Connection Between Administrative and Criminal Cases
Article 17 provides for coordination between administrative agencies and public security authorities in cases involving the connection between administrative and criminal proceedings, providing a legal basis for cooperation among different law enforcement agencies.
[Comments]
The Measures have significant implications for protecting trademark rights and maintaining fair market competition. First, the Measures reduce arbitrariness in the enforcement process and enhance transparency in case handling through clear calculation methods and principles. Second, they emphasize the principles of legality, reasonableness, objectivity, and fairness, ensuring a balance of interests among all parties and helping to strengthen the confidence of trademark holders. Overall, the introduction of these Measures provides important legal grounds for handling trademark infringement cases, promotes the institutionalization and standardization of trademark protection, and contributes to improving the legal environment of the entire market.