The Supreme People's Court concluded a case involving the infringement of computer software copyright, where on the grounds that using preferential prices during the cooperation directly as the base of punitive compensation is in appropriate, the court changed the judgment and fully supported the punitive damages claim of the software right holder involved.
In this case, Guangzhou A Company, as the software copyright holder, signed an "OEM Cooperation Agreement" with Anhui B Company on February 10, 2015, agreeing that Anhui B Company is its only OEM partner in Anhui Province and has the right to exclusively represent and sell Guangzhou A Company's software involved in the case in Anhui Province. Guangzhou A Company allowed Anhui B Company to OEM the software at a price of 30% of the current market quotation of the software during the cooperation period. In the market quotation scheme, the software was divided into "price for singleton" and "price for cluster", and the latter mode was further divided into "standard version", "professional version" and " flagship version". For the "standard version", the number of branch authorizations is 1, for the "professional version", the number is 10, and for the "flagship version", the number is 20. Regardless of the type, a licensing fee of CNY5,000 is required for each additional branch authorization. On February 9, 2020, the two parties terminated their agency relationship. Thereafter, Guangzhou A Company found that during and after their cooperation period, without its authorization, Anhui B Company arbitrarily cracked the registration and authorization functional modules of the software and sold to multiple users who were not authorized by Guangzhou A Company. Guangzhou A Company believed that the behavior of Anhui B Company constituted a malicious infringement of its software copyright, so it instituted legal procedures requesting to order Anhui B Company to stop the infringement and compensate for economic losses and punitive damages totaling CNY800,000 (including reasonable expenses).
The court of first instance held that, although there was no evidence, in this case, to prove the losses suffered by Guangzhou A Company and the profits made by Anhui B Company due to the alleged infringement, it can be seen from the content of the agreement signed by and between the two parties that they clearly agreed that the price of branch authorizations added to the software was calculated at 30% of the market quotation, which can be regarded as the base for calculating the copyright license fee. Therefore, the base for the infringement damages to be paid by Anhui B Company can be determined concerning the amount of the license fee agreed in the aforementioned agreement and comprehensively considering the type of copyright, the nature of the infringement by Anhui B Company, the sales scale and consequences, and punitive damages can be applied at a level of more than one time but less than five times of this base. Accordingly, the court ordered Anhui B Company to immediately stop the infringement and compensate for the losses and reasonable expenses totaling CNY400,000.
Both parties were dissatisfied and appealed. The Supreme People's Court upheld the first-instance judgment to stop the infringement and ruled that Anhui B Company fully compensates CNY800,000 (including reasonable expenses).
In the second instance, the Supreme People's Court held that when determining the base of punitive damages, on the one hand, it is necessary to avoid directly using the preferential transaction price reached by the parties in normal contract scenarios based on their autonomy and true intentions as the standard for calculating compensation for infringement by a transaction party against the counterparty in the infringement scenario. The agreement in question stipulating that "the cooperative price system refers to 30% of the current market quotation" is an agreement reached by both parties on the preferential transaction price under the premise that Guangzhou A Company and Anhui B Company maintain a normal cooperative relationship. After Anhui B Company committed infringement intentionally and continuously, which caused the broken-down of the base of mutual trust between the two parties, if the infringement damages that it should bear according to law are still calculated based on the preferential price agreed in the previous agreement, it evidently lacks the contractual base and also is contrary to the true intention of the infringed party to promise the above preferential transaction price. On the other hand, determining the base of punitive damages should ensure the effectiveness of the punitive damages system’s function of remedying the intellectual property rights holders, punishing intellectual property infringers, and deterring potential intellectual property infringers. When determining the base of punitive damages, the first-instance judgment used the preferential price agreed under the normal cooperation scenario as the base for calculating the copyright license fee, which didn’t fully consider the above two aspects. It could not fully achieve the purpose of setting up the intellectual property punitive damages system, but can easily induce moral risks. In the first instance, Guangzhou A Company confirmed that the number of branch authorizations opened by Anhui B Company without its permission was 70. The annex to the agreement clearly stipulated that each new branch under the "cluster model" needed to pay a licensing fee of CNY5,000. The amount of licensing fees that the Guangzhou A Company failed to collect due to the infringement in question was CNY350,000 (CNY5,000 /unit × 70 units = CNY350,000). This amount was the actual loss that can be proven caused to Guangzhou A Company by the infringement in question, which can be used as the base of punitive damages in this case. According to the degree of subjective fault of Anhui B Company in the infringement and the severity of the infringement in this case, the multiple of punitive damages in this case can be determined to be four times. Therefore, even without considering the reasonable expenses claimed by Guangzhou A Company, Guangzhou A Company can already claim CNY1.4 million (CNY350,000× 4 = CNY1.4 million) in punitive damages against Anhui B Company for economic loss compensation alone. Therefore, the claim amount of CNY800,000 (including reasonable expenses) claimed by Guangzhou A Company in this case should be fully supported.
The judgment in this case has certain reference significance for giving full play to the function of the intellectual property punitive damages system and implementing the judicial concept of strictly protecting intellectual property rights.
(2022) Zui Gao Fa Zhi Min Zhong No. 1033
If you have any question about the protection of intellectual property rights, please feel free to send us emails. For patent-related matters, please send to info@afdip.com. For trademark/litigation/legal matters, please send to info@bhtdlaw.com.
