China Releases Draft Measures for Calculating Illicit Business Revenue in Trademark Infringement Cases - Administrative Actions
Published 19 April 2024
Xia Yu
According to Article 60 of the Trademark Law of the People’s Republic of China (“Trademark Law”), calculation of the infringer’s illicit business revenue is an important basis for administrative authorities to impose penalties in trademark infringement cases. Regarding the calculation method of the illicit business revenue, it is mentioned only in Article 78 of the Regulation on the Implementation of the Trademark Law (“Regulations”) by listing several relevant considerations. To unify the law enforcement standards, the China National Intellectual Property Administration (“CNIPA”) published draft Measures for Calculating the Illicit Business Revenue of Trademark Infringement Cases (“Draft Measures”) for public comment on 11 April 2024. This article will introduce the methods for determining the illicit business revenue as per the Draft Measures which mainly provide guidance for Chinese administrative authorities in handling trademark infringement cases.
Following Article 4 of the Draft Measures, illicit business revenue refers to the value of the infringing goods or the total revenue from the infringing services involved in the trademark infringement committed by the parties. The infringing goods are divided into two categories: sold and unsold. For the sold infringing goods, their value is their actual sales price. For the unsold infringing goods, their value can be their actual average sales price, the marked price, or the mid-market price. The mid-market price can be determined based on the official guidance retail price of the same product published by the infringed party, the average retail price of the same infringing product sold by multiple merchants in the same market, or the middle price of the same or similar infringing products. Meanwhile, the determining party can be the price determination authorities or law enforcement authorities.
The total revenue from the infringing services should be the entire business income generated by the party due to the infringement during the infringement period. If there are only bills for providing services but no evidence of corresponding services being performed, the amount of the illicit business revenue shall be calculated based on the amount of the bills.
For trademark infringement cases involving the following special circumstances, the Draft Measures makes special provisions on the calculation of the illicit business revenue: 1. For contractors who use infringing goods in the process of contracting work and materials, their illicit business revenue is the actual sales price of the infringing goods. When the infringing goods are not independently priced, the calculation shall be based on the proportion of their value in the labor and material processing contracting activities. If the value ratio cannot be distinguished, the calculation shall be based on the mid-market price of the infringed goods.2. For infringing gifts, the illicit business revenue is the actual purchase price or manufacturing cost of the gifts. If none of them can be determined, or the gifts are non-standard goods, the revenue shall be calculated based on the mid-market price of the infringed goods.3. For infringing refurbished goods, the illicit business revenue is the overall value of the infringing goods. If the parts or accessories of refurbished goods infringe the trademark rights of others, the revenue shall be calculated based on the value of the infringing parts or accessories.4. For someone who forges or manufactures representations of others’ trademarks without authorization or sells such representations, the illicit business revenue is the actual sales price of the representations.5. For someone who intentionally facilitates the infringement of others, the illicit business revenue is the income obtained from assisting the infringement. 6. For renting infringing goods, the illicit business revenue is the rental income. 7. For anyone who infringes on the trademark rights of others during publicity, the illicit business revenue is regarded as nil.8. For cases of joint trademark infringement between the licensor and the licensee, the illicit business revenue is the value of the infringing goods. If the licensor is assisting the licensee in infringing, the revenue is the licensing income. If the license is used free of charge, the revenue is nil.9. If the actual illicit business revenue cannot be verified according to the Draft Measures, the illicit business revenue is zero.10. For repeated infringements without administrative processing, the illicit business revenue shall be calculated cumulatively.11. If there is sufficient evidence to prove that the amount of sales of infringing goods increased through false sales methods such as fraudulent sales, this amount will not be included in the illicit business revenue.
The Draft Measures clarifies that its application scope is limited to the process of handling trademark infringement cases by trademark administrative law enforcement departments, and the behavior of the parties has been identified as trademark infringement; and the calculation of illicit business revenue shall follow the principles of legality, reasonableness, objectivity, and fairness. The deadline for soliciting public comments is 15 May 2024.
Due to the lack of clear legal provisions on the calculation method of the illicit business revenue, for the same or similar trademark infringement cases, the illegal business amounts vary greatly due to the use of different calculation methods. The Draft Measure stipulates not only a general calculation method of the illicit business revenue but also lists its calculation methods for complex trademark infringement cases. It is conducive to unifying the enforcement standards of administrative law enforcement authorities and improving the transparency and predictability of the basis for punishment in trademark infringement cases.
Following Article 4 of the Draft Measures, illicit business revenue refers to the value of the infringing goods or the total revenue from the infringing services involved in the trademark infringement committed by the parties. The infringing goods are divided into two categories: sold and unsold. For the sold infringing goods, their value is their actual sales price. For the unsold infringing goods, their value can be their actual average sales price, the marked price, or the mid-market price. The mid-market price can be determined based on the official guidance retail price of the same product published by the infringed party, the average retail price of the same infringing product sold by multiple merchants in the same market, or the middle price of the same or similar infringing products. Meanwhile, the determining party can be the price determination authorities or law enforcement authorities.
The total revenue from the infringing services should be the entire business income generated by the party due to the infringement during the infringement period. If there are only bills for providing services but no evidence of corresponding services being performed, the amount of the illicit business revenue shall be calculated based on the amount of the bills.
For trademark infringement cases involving the following special circumstances, the Draft Measures makes special provisions on the calculation of the illicit business revenue: 1. For contractors who use infringing goods in the process of contracting work and materials, their illicit business revenue is the actual sales price of the infringing goods. When the infringing goods are not independently priced, the calculation shall be based on the proportion of their value in the labor and material processing contracting activities. If the value ratio cannot be distinguished, the calculation shall be based on the mid-market price of the infringed goods.2. For infringing gifts, the illicit business revenue is the actual purchase price or manufacturing cost of the gifts. If none of them can be determined, or the gifts are non-standard goods, the revenue shall be calculated based on the mid-market price of the infringed goods.3. For infringing refurbished goods, the illicit business revenue is the overall value of the infringing goods. If the parts or accessories of refurbished goods infringe the trademark rights of others, the revenue shall be calculated based on the value of the infringing parts or accessories.4. For someone who forges or manufactures representations of others’ trademarks without authorization or sells such representations, the illicit business revenue is the actual sales price of the representations.5. For someone who intentionally facilitates the infringement of others, the illicit business revenue is the income obtained from assisting the infringement. 6. For renting infringing goods, the illicit business revenue is the rental income. 7. For anyone who infringes on the trademark rights of others during publicity, the illicit business revenue is regarded as nil.8. For cases of joint trademark infringement between the licensor and the licensee, the illicit business revenue is the value of the infringing goods. If the licensor is assisting the licensee in infringing, the revenue is the licensing income. If the license is used free of charge, the revenue is nil.9. If the actual illicit business revenue cannot be verified according to the Draft Measures, the illicit business revenue is zero.10. For repeated infringements without administrative processing, the illicit business revenue shall be calculated cumulatively.11. If there is sufficient evidence to prove that the amount of sales of infringing goods increased through false sales methods such as fraudulent sales, this amount will not be included in the illicit business revenue.
The Draft Measures clarifies that its application scope is limited to the process of handling trademark infringement cases by trademark administrative law enforcement departments, and the behavior of the parties has been identified as trademark infringement; and the calculation of illicit business revenue shall follow the principles of legality, reasonableness, objectivity, and fairness. The deadline for soliciting public comments is 15 May 2024.
Due to the lack of clear legal provisions on the calculation method of the illicit business revenue, for the same or similar trademark infringement cases, the illegal business amounts vary greatly due to the use of different calculation methods. The Draft Measure stipulates not only a general calculation method of the illicit business revenue but also lists its calculation methods for complex trademark infringement cases. It is conducive to unifying the enforcement standards of administrative law enforcement authorities and improving the transparency and predictability of the basis for punishment in trademark infringement cases.