Intellectual Property Rights Protection in China: Trends in Litigation and Economic Damages

13 February 2009
By Dr. Alan Cox and former NERA Senior Consultant Kristina Sepetys

As a result of external pressures and to meet its own economic objectives, China has been moving its intellectual property rights (IPR) regime closer to those found in many more developed nations. As China's economy grows, its transition from manufacturing-based to knowledge-based production, more comprehensive laws, and more attention to enforcement have led to an increase in the number of IPR infringement cases being brought before the courts or taken up through China's administrative procedures. Allowing IP owners to recover their economic damages from infringers is an important component of a system for IPR protection. Properly determined, damage awards can serve as an effective deterrent to IPR violations and protect the incentives to innovate.

While problems of intellectual property infringement are widespread in many areas of the world, some Chinese and foreign observers continue to assert that more should be done to deter counterfeiting in China. According to many of these observers, IPR owners are generally compensated for only a small proportion of their losses under existing law. If these contentions are correct, such low damages discourage the filing of meritorious lawsuits and generally fail to adequately protect intellectual property.

In this paper, NERA Senior Vice President Dr. Alan Cox and former Senior Consultant Kristina Sepetys examine the pattern of damages awards by Chinese courts. To put this examination of damage awards in context, the authors first review the evolution of IPR protection as an economy becomes increasingly dependent on knowledge-based production. For readers who are not familiar with the remedies for IPR infractions in China, they then describe the laws and procedures in China for the protection of IPR, including both judicial and administrative procedures. Finally, the authors describe the results of a statistical analysis of a unique dataset that they have compiled on recent damage awards in IP cases in China.