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.
Infringer Profit Method
Meaning
An accounting measure of legal damages computes compensation in intellectual property disputes by calculating the net profit derived by a wrongdoer from commercializing infringing goods or services. The infringer profit method relies on production logs and sales invoices seized from the defendant or obtained through judicial evidence disclosure. Chinese courts apply this damages formula when the rights holder’s actual loss is difficult to quantify but the defendant’s commercial gains are clearly documented.
The scope of this method covers patent, trademark, copyright and trade secret infringement actions prosecuted under Chinese IP statutes.
Deduction Standard
Calculating net profits requires subtracting verified direct manufacturing and distribution costs from the total gross revenue generated by the infringing product line. Under the infringer profit method, Chinese tribunals disallow deductions for general administrative overhead or unrelated corporate expenses unless the defendant proves a direct connection to the infringing goods. Unsubstantiated expense claims are rejected, inflating the net profit sum awarded to the plaintiff.
Contribution Ratio
Courts evaluate what proportion of total product profit stems directly from the infringed intellectual property versus other non-infringing features. Under the infringer profit method, adjudicators apply a percentage contribution ratio to isolate IP value from general manufacturing and marketing contributions. If a patented component represents only one part of a complex machine, damages reflect solely the profit margin attributable to that specific component.
Evidentiary Limit
Application of this accounting approach ceases when a defendant conceals financial ledgers or submits falsified accounting records. In such cases, Chinese courts transition to statutory damage awards or draw adverse inference findings against the non-compliant party.