Judicial Apportionment Models for Trade Secret Damages in PRC Intermediate IP Courts
PRC Intermediate IP Courts limit trade secret damages to net profits directly driven by proprietary secrets, deducting market, capital, and non-infringing inputs.
Indirect Cost Allocations
Meaning
Financial accounting procedure for distributing shared organizational expenses across multiple business units or product lines. Standard indirect cost allocations allow a firm to assign a portion of its general overhead, such as utility bills or executive salaries, to the cost of a specific infringing product. This process is heavily scrutinized during the calculation of illegal gains in Chinese administrative and judicial proceedings.
Apportionment Logic
Managers use specific drivers like labor hours or machine time to justify the distribution of non production expenses.
Attribution Basis
The chosen driver must reflect a logical connection between the resource consumed and the product manufactured. Courts generally reject allocations based solely on a percentage of total revenue because this does not account for the actual resource usage of a specific department. A successful defense of these figures requires contemporaneous accounting logs.
Regulatory Scrutiny
Tax authorities and court appointed experts examine these distributions to ensure they are not used to artificially deflate the reported profit of a profitable division. Inconsistent application of allocation rules across different years serves as a red flag for auditors. The enterprise must demonstrate that the method was part of its standard accounting policy before the dispute arose.