Assessing Damages in Copyright Infringement Cases: The Beijing Court Takes the Lead

The PRC Copyright Law (中华人民共和国著作权法)(Copyright Law) sets out the basic principles for determining damages in copyright infringement cases. The Supreme People's Court's judicial interpretation on copyright disputes (Several Questions on the Application of Law in Trial of Copyright Civil Dispute Cases Interpretation, the SPC Judicial Interpretation) issued in October 2002 provides certain details for calculating damages for copyright infringement.

Promulgated based on the framework established by the above two national laws, the Guiding Opinions issued by the Beijing Court provide further detailed guidelines for the assessment of damages. Consisting of 35 articles, the Guiding Opinions address four issues specifically related to damages assessment in copyright infringement cases: (1) determination of liabilities for damages; (2) principles and methods of compensation; (3) psychological damages; and (4) determination of compensatory amounts for common infringements.

In order to present a complete picture of damages determination for copyright infringement under PRC law, this article is divided into two parts. The first part introduces the framework established by the Copyright Law and the SPC Judicial Interpretation with respect to this issue. The second part explains the detailed clarifications that the Guiding Opinions provide.

DETERMINATION OF DAMAGES UNDER THE COPYRIGHT LAW AND SPC JUDICIAL INTERPRETATION

Actual Loss, Illegal Gains and Statutory Damages

According to Article 48 of the Copyright Law, damages for copyright infringement shall be determined by: (1) the actual loss suffered by the rights holder; (2) the illegal gains obtained by the infringer; or (3) statutory damages not exceeding Rmb500,000. The determination should be made in the above order; i.e., only when damages cannot be determined by a prior method can a subsequent method be used.

While the Copyright Law lays the legal foundation for the determination of damages for copyright infringement, it does not provide the practical means on how actual losses or illegal gains should be calculated.

The SPC Judicial Interpretation goes one step further in this regard. Article 24 of the Judicial Interpretation provides that actual losses or illegal gains can be determined by the amount of potential sales lost for the rights holder, or the amount of illegal sales made by the infringer, multiplied by the rights holder's profit for each unit.

For statutory damages, Article 25 of the SPC Judicial Interpretation provides that a comprehensive analysis should be conducted, which has taken into consideration the type of work infringed, reasonable royalties, and nature and consequences of infringement.

According to statistics, of cases concluded by the courts in Beijing, 57% were awarded damages based on the rights holders' actual loss, 7% were based on the infringers' illegal gains, and 36% were based on statutory damages.²

Reasonable Expenses

Article 48 of the Copyright Law provides that compensation shall also include such reasonable expenses that the rights holder has incurred in stopping the infringement.

Reasonable expenses are interpreted under Article 26 of the SPC Judicial Interpretation to include the reasonable costs of investigation and collection of evidence with respect to the infringement, as well as attorney's fees.

Psychological Damages

A rights holder's moral rights in his works are regarded as personal rights in China, and consist of the right of publication, right of authorship, right of modification and the right to protect the integrity of his works. For a violation of his personal rights in his works, a rights holder may seek psychological damage compensation. Articles 46 and 47 of the Copyright Law provide that legal remedies for infringement of copyright include compensation for losses. This is generally believed to be the legal basis for psychological damage claims in copyright infringement cases.

THE BEIJING COURT'S GUIDING OPINIONS

Full Compensation Principle

According to Article 45 of TRIPs, an infringer shall be ordered to pay damages to the rights holder adequate to compensate for the injury the rights holder has suffered, plus related expenses incurred, such as attorney's fees. The standard set by TRIPs is therefore one of "full compensation".

The full compensation standard is reflected in Article 48 of the PRC Copyright Law, and in Chinese civil law in general. However, although the Copyright Law goes one step further than TRIPs with respect to awarding damages to the plaintiff by providing for psychological damages, neither the Copyright Law nor the SPC Judicial Interpretation uses the descriptive words (such as "full" or "adequate") most indicative of this principle.

The Guiding Opinions clarify this issue by unequivocally stating in Article 5 that damages to a rights holder should "fully and adequately" compensate the plaintiff for the losses suffered as a result of the defendant's infringement.

The principle is also embodied in Article 12, which covers a case of continuing infringement. Article 12 provides that where an infringer continues its infringing activities during the trial and at appellate stages, the plaintiff's losses accrued therein may be added to the final assessment of damages. The purpose of the Article is to stop the infringer from reaping profits from his illegal activities while court proceedings have been instituted against him, and to fully compensate the rights holder for the entire duration in which his legitimate interests are being infringed.

Detailed Guidelines for Assessment of Damages

The Guiding Opinions provide detailed guidelines for the assessment of actual losses, illegal gains and statutory damages.

Actual Losses

Article 7 enumerates eight methods for calculating a rights holder's actual losses. Among these are some new methods not found in the SPC Judicial Interpretation, such as:

(1) For infringements in publications in newspapers and books, reference can be made to the remuneration fees prescribed by the state;

(2) Reasonable royalties set by the rights holder;

(3) Loss of expected profits as a result of the plaintiff's inability or difficulty in performing a licence agreement due to the infringement; or

(4) Loss from the drop in value of the plaintiff's original works as a result of the infringement.

Nominal Damages

Article 11 of the Guiding Opinions provides that the courts in Beijing shall support a plaintiff's request for nominal damages in cases where infringement is found and basic facts of actual losses have been proved.

Illegal Gains

Article 8 sets out three levels of the infringer's profits that may be deemed as illegal gains reaped by the defendant, depending on the circumstances of the infringement:

(1) Sales profit. This is the amount of sales revenue, minus the costs of production and sale, and sales tax. This is the highest figure of the three, and will be applied where circumstances or consequences of infringement are serious;

(2) Business profit. This is the amount of sales profit minus management costs. This figure is to be applied in circumstances of ordinary infringement; or

(3) Net profit. This is the amount of business profit minus income tax. This is the lowest figure of the three, and will be applied in less serious infringement cases, or where the infringer stops the infringement during the court proceedings.

In reality, it is possible that a defendant may obtain an "illegal gain" that is more than what a plaintiff may have "actually lost". Article 5 deals with such a situation by taking into account the full compensation principle. The Article provides that in such a situation, the courts in Beijing may award the defendant's illegal gains to the plaintiff as damages. This is a breakthrough in Chinese courts' general reluctance to grant more damages than what the plaintiff could have obtained had it not been for the infringement of the defendant.

Statutory Damages

Article 9 sets out the factors that the courts in Beijing shall consider when determining statutory damages. The factors include:

(1) The plaintiff's possible losses or the defendant's possible illegal gains, under normal circumstances;

(2) The nature, fame, market value and originality of the infringed work, the fame of the rights holder, the reasonable licence fees, etc; and

(3) The infringer's subjective fault, and the method, time and scope of infringement.

Reasonable Expenses

The Guiding Opinions allow recovery of reasonable expenses. In addition to those reasonable expenses set out in the SPC Judicial Interpretation, the Guiding Opinions have expanded the list to include notary fees, audit fees, transportation and food, and costs for printing materials related to the lawsuit. The Guiding Opinions also provide principles for determining attorney fees, notary fees and audit fees. Courts in Beijing are instructed to review the reasonableness and necessity of these costs.

In 85% of the cases in Beijing, the courts have entertained the plaintiff's requests for reasonable expenses, although rarely have the courts the full amount under request.³

Joint and Several Liability

The concept of joint and several liability under Chinese law has its roots in Article 130 of the PRC Civil Law General Principles, which generally provides that two or more persons who cause damages to other people through joint infringement shall bear joint and several liability. Article 170 of the SPC Opinion Regarding the Implementation of the General Principles of the Civil Law (Revised) further provides that the party that abets and aids other people in carrying out infringing activities is a co-infringer, and shall bear joint and several civil liability with respect thereto.

Neither the Copyright Law nor the SPC Judicial Interpretation has provisions specifically addressed to joint and several liability of co-infringers.

Article 4 of the Guiding Opinions addresses this issue. The Article imposes joint and several liabilities on those parties that clearly know or should have known about the infringement, but choose to ignore it.

Psychological Damages

Psychological damages are frequently sought in copyright infringement cases and have indeed been awarded in some high profile cases involving famous celebrities. In practice, however, courts in general are reluctant to award them. This is primarily because courts tend to believe that public apologies and elimination of influences are sufficient to console a plaintiff for the psychological damages suffered, although in some instances this may not be the case.

Article 21 of the Guiding Opinions provides that psychological damages shall be awarded in cases of copyright infringement of personal rights where the usual awards of termination of the infringing acts, elimination of influences and payment of damages are insufficient to compensate for a plaintiff's psychological trauma. Article 22 sets out some instances where such damages may be awarded. They include:

(1) Where the defendant seriously published the plaintiff's work against the plaintiff's will, and causes negative consequences for the plaintiff's reputation and social status;

(2) Where the defendant plagiarized a large amount of the plaintiff's work with widespread influence, thereby earning a high reputation to himself;

(3) Where the defendant seriously distorted and changed other people's work;

(4) Where the defendant acquired authorship through illegitimate means; or

(5) Where the defendant made or sold works using falsified signatures of the plaintiff, and which has significant influence.

The Guiding Opinions stipulate that the range of compensation for psychological damages should generally be between Rmb2,000 and Rmb50,000. The court will determine this by taking into consideration a range of factors, including the defendant's degree of fault, the method and circumstances of infringement, the scope of influence, the illegal gains obtained, and the ability to pay the damages. Psychological damages, however, shall only be awarded to individuals, and are not available to organizations.

CONCLUSION

The Beijing Higher People's Court, being a regional court, obviously cannot exceed the legal boundary set by the State Council and the Supreme People's Court in the Copyright Law and the SPC Judicial Interpretation, respectively. Therefore, the Guiding Opinions should not be viewed as adding new standards to the national framework, but rather as making clarifications to this framework. Nonetheless, with the detailed guidelines for the assessment of damages that are set out in the Guiding Opinions, the toolbox for IP practitioners, judges and lawyers alike has been greatly enriched, and has no doubt useful guidelines for strategy assessment purposes have been provided.

Considering the important role of the Beijing Higher People's Court in IPR cases, courts from all over the country are likely to take notice of and make reference to the Guiding Opinions. With time, the Guiding Opinions' influence may well extend beyond copyright to other IP fields.

Endnotes

1 Zhang Xuesong, Establishing Front Sight for Copyright Damages, Beijing Released New Opinion (in Chinese), March 14 2005, http://bjgy.chinacourt.org/public/detail.php?id=16686 (Beijing Higher People's Court's website).

2 Zhang Lumin and Zhang Xuesong, Determination of Damage Liabilities for Copyright Infringement (in Chinese), March 23 2005, http://www.civillaw.com.cn/weizhang/default.asp?id=21097 (Website of Civil and Business Law Research Center of China Renmin University).

3 Ibid, April 1 2005, http://www.civillaw.com.cn/weizhang/default.asp?id=21210.