China Supreme People’s Court Model Judgment: Significant Increase in Punitive Damages for Copyright Infringement
Published 18 March 2025
Yu Du
In the second-instance judgment of the copyright infringement dispute between Guangzhou Tuchang Computer Technology Co., Ltd. (Tuchang Technology) and Anhui City Light Book Co., Ltd. (City Light), the Supreme People’s Court (SPC) emphasized the significance of punitive damages in intellectual property protection. Instead of using the discounted transaction price from their normal business cooperation as the basis for calculating punitive damages, the court redefined the compensation base and multiplier. The SPC not only fully upheld the copyright owner’s claim for RMB800,000 in damages but also re-evaluated the method for determining punitive damages.
[Case Background]
Tuchang Technology is the copyright owner of the LIBNET Library Cluster Management System software (the Disputed Software, Registration No.: 2014SR126777). On 10 February 2015, Tuchang Technology and City Light signed an OEM Cooperation Agreement, under which City Light was authorized to act as an agent to sell the software. The agreement also allowed City Light to rename the software it sold as the City Light Library Management System. On 9 February 2020, the agency relationship between the two parties was terminated.
Subsequently, Tuchang Technology discovered that during and after the agency period, City Light had, without authorization, cracked the software’s registration and licensing modules and sold it to multiple users who had not obtained authorization from Tuchang Technology. The login page, user interface, usage method, and source code of the software sold by City Light were identical to those of the disputed software.
Tuchang Technology filed a lawsuit with the Anhui Provincial Hefei Municipal Intermediate People’s Court, requesting an injunction to stop City Light from infringing its software copyright and demanding economic damages and punitive compensation totaling RMB800,000.
[First-Instance Judgment]
On 7 December 2021, the Hefei Intermediate Court issued its first-instance judgment, recognizing that Tuchang Technology holds the copyright to the Disputed Software and that its software copyright is legally protected. The court found that City Light, without authorization from the copyright owner and for profit-making purposes, had copied, modified, and sold the software owned by Tuchang Technology, thereby infringing upon Tuchang Technology’s copyright.
The court noted that City Light, as a software sales company, possessed a certain level of technical and legal expertise. Given the prior contractual relationship between the parties, City Light had legally accessed the software through its role as an authorized distributor. However, its subsequent actions - copying, modifying, and distributing the software without permission - demonstrated a clear intent to infringe intellectual property rights. Even after the termination of the agreement, City Light continued to knowingly distribute the unauthorized software to 70 users, many of whom were schools and libraries, affecting public interests and youth education. Consequently, the court deemed the infringement to be particularly severe and ruled that punitive damages should apply.
Regarding the compensation amount, the agreement between the parties stipulated that the additional per-user license fee for the software was set at 30% of the market price of RMB5,000 per user. The court used this discounted price as the base for calculating damages and applied punitive damages at a multiplier ranging from one to five times this base amount. Taking into account the reasonable expenses incurred by Tuchang Technology to stop the infringement, the court determined that City Light should pay Tuchang Technology a total of RMB400,000 in economic losses and reasonable costs.
[Second-Instance Judgment]
Both parties appealed the first-instance judgment to the SPC. The key issues in the second-instance trial were: i) whether City Light had infringed on Tuchang Technology’s copyright in the disputed software, and ii) whether the calculation of punitive damages by the first-instance court was appropriate.
On 11 October 2023, the SPC issued its final judgment, affirming the first-instance court’s findings that City Light had indeed infringed on Tuchang Technology’s copyright, as these findings were supported by facts and legal grounds. The Supreme Court also upheld the application of punitive damages, agreeing that the infringement was intentional and severe.
However, the SPC corrected the lower court’s method of determining the punitive damages base. The first-instance court had used the discounted license price (30% of RMB 5,000 per user) from the parties’ prior cooperation as the basis for calculating damages. The SPC rejected this approach, reasoning that applying a preferential transaction price - one that was agreed upon under normal business conditions -effectively condoned City Light’s infringement and failed to achieve the intended deterrent effect of punitive damages. Further, this approach risked encouraging moral hazard by allowing infringers to exploit historical business arrangements to reduce their liability.
Instead, the SPC ruled that the appropriate base for punitive damages should be Tuchang Technology’s actual financial loss due to City Light’s unauthorized sales. During the first-instance trial, Tuchang Technology confirmed that City Light had illegally sold the software to 70 unauthorized users, and the original agreement stipulated that each additional authorized user in the “cluster mode” required a RMB5,000 licensing fee. Thus, the SPC determined that Tuchang Technology’s actual losses amounted to RMB350,000 (RMB 5,000 × 70 users).
Given City Light’s deliberate intent and the severity of its infringement, the SPC applied a punitive damages multiplier of four times. As a result, Tuchang Technology was entitled to RMB1.4 million (RMB350,000 × 4) in punitive damages, even without considering additional reasonable expenses incurred in stopping the infringement. Since Tuchang Technology had only claimed RMB800,000 (including reasonable expenses), the SPC fully upheld its compensation request.
[SPC’s Judicial Determination of Punitive Damages Base and Multiplier]
Article 25 of the Regulations on the Protection of Computer Software stipulates:“The amount of compensation for software copyright infringement shall be determined in accordance with Article 49 of the PRC Copyright Law (Note: Corresponding to Article 54 of the 2020 amended Copyright Law).”
Article 54, Paragraph 1 of the 2020 amended Copyright Law states:“For infringements of copyright or related rights, the infringer shall compensate the rights holder based on the actual losses suffered or the illegal gains obtained by the infringer. If actual losses or illegal gains are difficult to calculate, compensation may be determined with reference to the licensing fee of the right. In cases of intentional copyright infringement with severe circumstances, punitive damages of one to five times the above-determined amount may be applied.”
Regarding the determination of punitive damages base and multiplier, Article 5, Paragraph 1 of the Interpretation of the Supreme People’s Court on the Application of Punitive Damages in Intellectual Property Civil Cases provides:“When determining the amount of punitive damages, the People’s Court shall follow relevant laws and take the plaintiff’s actual losses, the defendant’s illegal gains, or the benefits obtained from the infringement as the calculation base. This base does not include reasonable expenses incurred by the plaintiff in stopping the infringement, unless otherwise provided by law.”
Additionally, Article 6, Paragraph 1 of the same interpretation states:“When determining the multiplier for punitive damages, the People’s Court shall comprehensively consider the defendant’s level of intent and the severity of the infringement.”
In its second-instance judgment, the SPC emphasized that when determining the base for punitive damages, it is crucial to avoid directly applying the transaction price agreed upon in a normal contractual context - which was based on the parties’ autonomous intent and genuine consent - as the standard for calculating damages in an infringement scenario. When the infringing party knowingly and willfully continues to infringe upon the copyright owner’s rights, leading to a breakdown of mutual trust, it is unreasonable to still use the previously agreed discounted price as the basis for compensation. Doing so not only lacks contractual justification but also contradicts the original intent behind the copyright owner’s provision of preferential pricing in a legitimate business arrangement.
On the other hand, the determination of the punitive damages base must ensure that the punitive damages system in intellectual property law effectively fulfills its intended functions by providing adequate relief to intellectual property rights holders, imposing strict penalties on infringers to deter willful violations, and serving as a strong deterrent against potential infringers to prevent similar misconduct in the future. By upholding these principles, the punitive damages mechanism reinforces the protection of intellectual property rights and strengthens the legal consequences for intentional and severe infringements.
[Comment]
By designating this case as a “Model Judgment” and publishing it on its official website, the SPC has not only reaffirmed the crucial role of punitive damages in copyright infringement cases but also established a precedent for handling copyright disputes arising from long-term business relationships. The ruling explicitly states that once a cooperation agreement has ended, the infringing party cannot use previously agreed “discounted prices” as the basis for calculating infringement damages.
This judgment provides stronger legal support for copyright holders, enabling them to more effectively claim actual losses in litigation and, when applicable, seek higher punitive damage multipliers, thereby increasing the likelihood of successful enforcement. Beyond reshaping the calculation of damages, the ruling reinforces the judiciary’s firm stance on deterring and punishing willful copyright infringement, reflecting a broader trend toward stricter copyright protection in China’s legal system.
[Case Background]
Tuchang Technology is the copyright owner of the LIBNET Library Cluster Management System software (the Disputed Software, Registration No.: 2014SR126777). On 10 February 2015, Tuchang Technology and City Light signed an OEM Cooperation Agreement, under which City Light was authorized to act as an agent to sell the software. The agreement also allowed City Light to rename the software it sold as the City Light Library Management System. On 9 February 2020, the agency relationship between the two parties was terminated.
Subsequently, Tuchang Technology discovered that during and after the agency period, City Light had, without authorization, cracked the software’s registration and licensing modules and sold it to multiple users who had not obtained authorization from Tuchang Technology. The login page, user interface, usage method, and source code of the software sold by City Light were identical to those of the disputed software.
Tuchang Technology filed a lawsuit with the Anhui Provincial Hefei Municipal Intermediate People’s Court, requesting an injunction to stop City Light from infringing its software copyright and demanding economic damages and punitive compensation totaling RMB800,000.
[First-Instance Judgment]
On 7 December 2021, the Hefei Intermediate Court issued its first-instance judgment, recognizing that Tuchang Technology holds the copyright to the Disputed Software and that its software copyright is legally protected. The court found that City Light, without authorization from the copyright owner and for profit-making purposes, had copied, modified, and sold the software owned by Tuchang Technology, thereby infringing upon Tuchang Technology’s copyright.
The court noted that City Light, as a software sales company, possessed a certain level of technical and legal expertise. Given the prior contractual relationship between the parties, City Light had legally accessed the software through its role as an authorized distributor. However, its subsequent actions - copying, modifying, and distributing the software without permission - demonstrated a clear intent to infringe intellectual property rights. Even after the termination of the agreement, City Light continued to knowingly distribute the unauthorized software to 70 users, many of whom were schools and libraries, affecting public interests and youth education. Consequently, the court deemed the infringement to be particularly severe and ruled that punitive damages should apply.
Regarding the compensation amount, the agreement between the parties stipulated that the additional per-user license fee for the software was set at 30% of the market price of RMB5,000 per user. The court used this discounted price as the base for calculating damages and applied punitive damages at a multiplier ranging from one to five times this base amount. Taking into account the reasonable expenses incurred by Tuchang Technology to stop the infringement, the court determined that City Light should pay Tuchang Technology a total of RMB400,000 in economic losses and reasonable costs.
[Second-Instance Judgment]
Both parties appealed the first-instance judgment to the SPC. The key issues in the second-instance trial were: i) whether City Light had infringed on Tuchang Technology’s copyright in the disputed software, and ii) whether the calculation of punitive damages by the first-instance court was appropriate.
On 11 October 2023, the SPC issued its final judgment, affirming the first-instance court’s findings that City Light had indeed infringed on Tuchang Technology’s copyright, as these findings were supported by facts and legal grounds. The Supreme Court also upheld the application of punitive damages, agreeing that the infringement was intentional and severe.
However, the SPC corrected the lower court’s method of determining the punitive damages base. The first-instance court had used the discounted license price (30% of RMB 5,000 per user) from the parties’ prior cooperation as the basis for calculating damages. The SPC rejected this approach, reasoning that applying a preferential transaction price - one that was agreed upon under normal business conditions -effectively condoned City Light’s infringement and failed to achieve the intended deterrent effect of punitive damages. Further, this approach risked encouraging moral hazard by allowing infringers to exploit historical business arrangements to reduce their liability.
Instead, the SPC ruled that the appropriate base for punitive damages should be Tuchang Technology’s actual financial loss due to City Light’s unauthorized sales. During the first-instance trial, Tuchang Technology confirmed that City Light had illegally sold the software to 70 unauthorized users, and the original agreement stipulated that each additional authorized user in the “cluster mode” required a RMB5,000 licensing fee. Thus, the SPC determined that Tuchang Technology’s actual losses amounted to RMB350,000 (RMB 5,000 × 70 users).
Given City Light’s deliberate intent and the severity of its infringement, the SPC applied a punitive damages multiplier of four times. As a result, Tuchang Technology was entitled to RMB1.4 million (RMB350,000 × 4) in punitive damages, even without considering additional reasonable expenses incurred in stopping the infringement. Since Tuchang Technology had only claimed RMB800,000 (including reasonable expenses), the SPC fully upheld its compensation request.
[SPC’s Judicial Determination of Punitive Damages Base and Multiplier]
Article 25 of the Regulations on the Protection of Computer Software stipulates:“The amount of compensation for software copyright infringement shall be determined in accordance with Article 49 of the PRC Copyright Law (Note: Corresponding to Article 54 of the 2020 amended Copyright Law).”
Article 54, Paragraph 1 of the 2020 amended Copyright Law states:“For infringements of copyright or related rights, the infringer shall compensate the rights holder based on the actual losses suffered or the illegal gains obtained by the infringer. If actual losses or illegal gains are difficult to calculate, compensation may be determined with reference to the licensing fee of the right. In cases of intentional copyright infringement with severe circumstances, punitive damages of one to five times the above-determined amount may be applied.”
Regarding the determination of punitive damages base and multiplier, Article 5, Paragraph 1 of the Interpretation of the Supreme People’s Court on the Application of Punitive Damages in Intellectual Property Civil Cases provides:“When determining the amount of punitive damages, the People’s Court shall follow relevant laws and take the plaintiff’s actual losses, the defendant’s illegal gains, or the benefits obtained from the infringement as the calculation base. This base does not include reasonable expenses incurred by the plaintiff in stopping the infringement, unless otherwise provided by law.”
Additionally, Article 6, Paragraph 1 of the same interpretation states:“When determining the multiplier for punitive damages, the People’s Court shall comprehensively consider the defendant’s level of intent and the severity of the infringement.”
In its second-instance judgment, the SPC emphasized that when determining the base for punitive damages, it is crucial to avoid directly applying the transaction price agreed upon in a normal contractual context - which was based on the parties’ autonomous intent and genuine consent - as the standard for calculating damages in an infringement scenario. When the infringing party knowingly and willfully continues to infringe upon the copyright owner’s rights, leading to a breakdown of mutual trust, it is unreasonable to still use the previously agreed discounted price as the basis for compensation. Doing so not only lacks contractual justification but also contradicts the original intent behind the copyright owner’s provision of preferential pricing in a legitimate business arrangement.
On the other hand, the determination of the punitive damages base must ensure that the punitive damages system in intellectual property law effectively fulfills its intended functions by providing adequate relief to intellectual property rights holders, imposing strict penalties on infringers to deter willful violations, and serving as a strong deterrent against potential infringers to prevent similar misconduct in the future. By upholding these principles, the punitive damages mechanism reinforces the protection of intellectual property rights and strengthens the legal consequences for intentional and severe infringements.
[Comment]
By designating this case as a “Model Judgment” and publishing it on its official website, the SPC has not only reaffirmed the crucial role of punitive damages in copyright infringement cases but also established a precedent for handling copyright disputes arising from long-term business relationships. The ruling explicitly states that once a cooperation agreement has ended, the infringing party cannot use previously agreed “discounted prices” as the basis for calculating infringement damages.
This judgment provides stronger legal support for copyright holders, enabling them to more effectively claim actual losses in litigation and, when applicable, seek higher punitive damage multipliers, thereby increasing the likelihood of successful enforcement. Beyond reshaping the calculation of damages, the ruling reinforces the judiciary’s firm stance on deterring and punishing willful copyright infringement, reflecting a broader trend toward stricter copyright protection in China’s legal system.