Meaning
Pre-set compensation ranges defined by law provide a fall-back remedy for plaintiffs who cannot prove the exact amount of their actual loss or the profit of the defendant. These statutory damages are commonly used in intellectual property disputes where the financial impact of an infringement is difficult to quantify with precision. This remedy stops applying when a party provides sufficient evidence to calculate damages based on actual loss, illegal gain or a reasonable royalty rate.
Within the Chinese legal system, the caps for these awards have been significantly raised to strengthen the protection of patents, trademarks and copyrights.
Award Determination
Judicial discretion plays a central role in deciding the specific amount to be paid within the range provided by the law. Statutory damages are determined by the court after considering the nature of the infringement, the popularity of the infringed work and the scale of the business of the defendant. For a trademark case, the court might look at the length of time the infringing goods were on the market and the geographic reach of the distribution network.
The law provides a floor and a ceiling, such as between five hundred and five million yuan for trademark infringement, and the judge selects a point that matches the perceived severity of the case. This allows for a quick resolution of cases where the cost of a full financial audit would exceed the value of the claim. The result is a more efficient and less expensive litigation process for small and medium-sized enterprises.
Evidentiary Substitution
Reliance on this remedy occurs when the plaintiff lacks the access to the internal records of the defendant or when the infringement did not result in a direct sale. Statutory damages serve as a proxy for the harm done to the brand or the market position of the owner. In many cases, the defendant will actively hide their sales data to prevent a higher award based on their profits.
When this happens, the plaintiff can ask the court to move directly to the statutory range. This prevents the defendant from benefiting from their own lack of transparency. The court may also use this method when the plaintiff has not yet commercialized the invention or the work, meaning there is no history of sales to use as a baseline.
The award represents a societal recognition of the value of the intellectual property rather than a strict accounting of lost revenue.
Remedial Constraint
The primary limitation of this approach is that the maximum award is often lower than the actual harm in high-value cases. Statutory damages are not intended to replace the primary methods of calculation if better data is available. If a plaintiff can show that their loss was ten million yuan, they should not settle for the five-million-yuan cap of the statutory range.
To avoid this, a party should always attempt to use the court-ordered evidence preservation process to obtain the financial records of the defendant. Only when this process fails should they rely on the statutory fallback. The boundary of this remedy is also set by the requirement that the plaintiff must still prove the existence of the infringement and the ownership of the right.
A failure to prove the basic facts of the case will result in a dismissal, regardless of the availability of the statutory award. For foreign firms, the increasing caps on these damages provide a more credible threat against local infringers who previously viewed small fines as a cost of doing business.
