Trademark owner obtains damages through negotiation in criminal proceedings
In criminal IP proceedings, the Chinese courts tend not to accept a civil claim collateral to the criminal proceedings filed simultaneously by the victim (the IP owner). Therefore, in criminal proceedings it is advisable for the victim and the infringer to reach an agreement on damages by way of negotiation, since it will help the victim to obtain compensation and the infringer to get a commuted sentence.
In March 2014 a German trademark owner found out that an individual named Hwang was engaged in the sale of counterfeit machinery and equipment in Baiyun District, Guangzhou. The trademark owner reported such findings to the police, which initiated a raid against the alleged infringer. During the onsite investigation, the police found a large quantity of counterfeit products in Hwang’s warehouse and identified that the infringer's illegal business transactions amounted to more than Rmb590,000.
In June 2014 the police transferred the case to the Baiyun District Procuratorate. In July 2014 the procuratorate initiated a public prosecution for “selling commodities bearing counterfeit registered trademarks” with the Baiyun District Court of Guangzhou.
After the oral hearing, the court informed the German trademark owner that Hwang wished to indemnify it for the damage suffered in exchange for a suspended sentence. Through negotiations, Hwang apologised for his behaviour, paid compensation in the amount of Rmb380,000 and promised to pay Rmb1 million as compensation in case of repeat infringement.
In August 2014 Hwang was sentenced to a 30-month suspended prison term, and was ordered to pay a fine Rmb50,000.
Article 1 of the Regulations of the Supreme People's Court on the Scope of Civil Suits Collateral to Criminal Proceedings (Fa Shi (2000) No 47) stipulates that "where a victim suffers economic damages caused by the criminal violation of its personal rights or suffers from economic damages caused by the fact that its legitimate properties are being destroyed by the criminal, such victim may file a civil action collateral to the criminal proceedings".
In practice, the People's Courts tend to hold that IP-related criminal cases do not fall within the circumstances set out in the aforementioned article, and thus refuse the victim’s civil action collateral to the criminal proceedings. Further, if the victim files a civil action after the criminal case has been concluded, the court may, when deciding on the amount of damages, take into account the fact that the infringer has paid a fine or has been sentenced to imprisonment, thus rendering a less satisfying judgment for the victim. Moreover, the execution of such judgments is subject to various uncertainties.
Article 9 of the Guiding Opinions of the Supreme People's Court on Sentencing for Common Crimes (Fa Fa (2013) No 14) provides that, “where the defendant actively compensates the victim for its economic losses and obtains the victims’ understanding, the court, by taking into consideration the nature of the offence, the amount of compensation, the defendant’s compensation capacity, his confession and extent of repentance etc, may reduce the sentence by up to 40%”.
In such cases, it is advisable that the victim obtains a considerable amount of compensation through negotiation, which has no substantial impact on the sentence in the criminal case.
Shuhua Zhang and Yi Luo, Wan Hui Da Intellectual Property Agency, Beijing
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