Calculating Base Damages and Multipliers in Chinese Trademark Infringement
Base damages under PRC Trademark Law Article 63 follow strict evidentiary priority, with multipliers up to five times applied for willful infringement.
Gross Margin Deduction
Meaning
Accounting adjustments in Chinese commercial liability assessment reduce full retail revenue figures down to net economic gain by subtracting direct production costs. Calculating a gross margin deduction requires subtracting raw material purchases and factory electricity expenses from total sales turnover. Under judicial accounting rules promulgated by the Supreme People’s Court, this deduction isolates the operating profitability of infringing goods produced in domestic facilities.
The adjustment method stops applying if a defendant operates a purely fraudulent enterprise where statutory public policy denies all expense deductions.
Accounting Structure
Cost allocation rules distinguish between direct variable inputs and indirect corporate overhead when determining actionable damages. Factory owners must present verified procurement contracts and payroll logs to substantiate deducted line items. Performing a gross margin deduction ensures that judicial damage awards reflect real financial gains rather than total factory turnover.
When courts reject unverified administrative expenses, the resulting margin rises, increasing the civil monetary judgment levied against the manufacturing entity.
Evidentiary Burden
Defendants bear the initial burden of proving that claimed expenditures directly contributed to the manufacture of the specific goods in question. Failure to submit audited financial records leads judges to adopt industry standard cost ratios derived from tax filings. Litigants contesting expense claims frequently challenge general manager salaries and facility rental agreements as non-deductible overhead.
Rejection of generic overhead claims expands the net profit base, exposing the infringing supplier to heightened financial liability.
Statutory Treatment
Judicial guidelines strictly regulate which cost categories qualify for expense credit during financial calculations. Fixed plant depreciation expenses are excluded unless directly tied to specialized tooling created for the disputed production run.