On April 22, 2024, the Supreme People’s Court hosted a press conference on the IP Publicity Week, and released on the occasion 2023 China Courts Top10 Intellectual Property Cases and 50 Model Intellectual Property Cases, where the case of Beijing Hong X Technology Development Co., Ltd. v. Haikou Longhua XX Department Store & Shanghai Xun X Information Technology Co., Ltd. over the infringement upon the right of work distribution handled by Hainan Free Trade Port Intellectual Property Court [(2021) Qiong 73 Min Chu No. 28 Civil Judgment] was selected into 2023 China Courts 50 Model Intellectual Cases.

Case Summary

Beijing Hong X Technology Development Co., Ltd. v. Haikou Longhua XX Department Store & Shanghai Xun X Information Technology Co., Ltd. over the infringement upon the right of work distribution

Key Points

When the right holder claims punitive damages, the people’s court should deliberate whether to apply the provisions on punitive damages and determine the damages from two perspectives, i.e., whether the infringement was a willful act on the part of the accused tortfeasor, and whether the circumstance was a serious one. In this case, the punitive damages were calculated based on the losses that the right holder had suffered, i.e., copies of infringing books sold multiply unit price of authentic books multiply profit rate, where the profit rate was determined in reference to the announced average profit rate of some listed companies in the same trade.

Basic Facts

Hong X Company owns the right of publication and distribution of the series book of There’s Starlight When He Came as involved in this case, and later authorized Tian X Company to exercise the right of publication of the paperbacks of the works above. Hong X Company twice purchased, on July 12 and November 29, 2021, from XX Reading Bar (a shop opened by Haikou Longhua XX Department Store) on XX online shopping platform run by Xun X Company, copies of There’s Starlight When He came and There’s Starlight When He Came Final Edition, which were basically the same as the authentic books in front cover and contents, but obviously different in shades of color and paper quality, and verified by Tian X Company as pirated copies. XX Reading Bar sold 14,307 copies of the accused infringing books, and realized a sale of 210,208.27 yuan, on the basis of which, Hong X Company brought a lawsuit to the court, requested that Haikou Longhua XX Department Store cease the infringement, and claimed punitive damages of 1,911,330 yuan for economic losses and 103,582.18 yuan for expenses on safeguarding its rights and interests.

Rationale

Hainan Free Trade Port Intellectual Property Court tried and held that the act of XX Reading Bar that XX Department Store opened on XX online shopping platform selling pirated copies of There’s Starlight When He Came and There’s Starlight When He Came Final Edition infringed upon the right of work distribution, and therefore upheld the request of Hong X Company that XX Department Store cease to sell copies of the accused infringing books, destroy the stock and compensate its losses. Regarding the damages, the authentic versions of There’s Starlight When He Came and There’s Starlight When He Came Final Edition were priced at 45 yuan a copy, and the total price of the two books was 90 yuan, and the price of the accused infringing copies that Hong X Company had purchased from XX Reading Bar was less than 20% of the authentic copies. As XX Reading Bar had started to sell the pirated copies at a low price under the IDs of the two commodities immediately after the publication of the authentic copies, sold from May to December 2021 a total of 14,307 copies of the accused infringing books, and realized as much as 210,208.27 yuan in sales, the court held that the act of XX Department Store constituted a willful infringement with a relatively large amount of sales, and the infringing circumstance was a serious one, and therefore supported the request of Hong X Company that XX Department Store bear the liability of punitive damages. According to the Interpretation on the Application of Punitive Damages, Article 5, the people’s court, when determining the punitive damages, should follow the relevant laws and use the plaintiff’s actual losses, the defendant’s illegal gains or the benefits from the act of infringement as the basis of calculation. This basis does not include the reasonable expenses incurred to the plaintiff for the purpose of stopping the act of infringement. In accordance with the provisions of the Judicial Interpretation on Copyright, Article 25, the actual losses of the right holder can be calculated by multiplying the number of authentic copies that the right holder has failed to distribute due to the infringement or the sold copies of infringing books by the right holder’s unit profit from the distribution of these authentic copies. Where the number of authentic copies that the right holder has failed to distribute is difficult to calculate, the right holder’s actual losses is determined by the number of the infringing copies sold in the market. Therefore, the court calculated the actual losses of Hong X Company in the following way: the number of sold copies of the accused infringing books multiply the unit price of Hong X Company’s product on sale multiply the profit rate. Based on the data from cninfo.com.cn, with China Publishing & Media Co., Ltd., the gross profit rate for general books in Q3, 2021, was 39.28%, with Xinhua Winshare Publishing & Media Co., Ltd., the gross profit rate for distribution business in 2021 was 29.89%, with Shandong Publishing & Media Co., Ltd., the gross profit rate for general book publishing business in 2021 was 25.9%, and with Northern United Publishing & Media (Group) Co., Ltd., the gross profit rate for distribution business in 2021 was 8.32%. The profit rates above were not that of Hong X Company for selling the books involved in the case, but they were figures announced by listed companies in the same sector for the same period time, and were thus of reference value. Therefore, the average of the announced profit rates of the companies above, i.e., (39.28%+29.89%+25.9%+8.32%) ÷ 4 ≈ 25.8%, was adopted as the profit rate of Hong X Company for selling authentic books in this case. Meanwhile, considering the short time of XX Department Store’s infringement, the court decided that XX Department Store shall compensate two times the losses of Hong X Company, i.e., XX Department Store should pay the compensation of: 14,307 books (quantity sold) multiply 45 yuan (unit price) multiply 25.8% (profit rate) multiply 2 (times) = 332,208.54 yuan. With regard to reasonable expenses, Hong X Company claimed that its reasonable expenses were 103,582.18 yuan, where 10,000 yuan of attorney’s fee, 3,520 yuan of notarial fee and investigation fee, and 62.18 yuan for the purchase of the infringing books were backed by bills submitted by Hong X Company, the court therefore held that the reasonable expenses should be 10,000 yuan add 3,520 yuan add 62.18 yuan = 13,582.18 yuan, and rejected the other expenses that Hong X Company had claimed.

In this case, Xun X Company was the internet service provider. Upon receiving the lawyer’s letter from Hong X Company advising that XX Reading Bar was selling the accused infringing books, Xun X Company immediately banned the accused infringing books that XX Reading Bar was selling. Therefore, the court held that Xun X Company was at no fault in the occurrence of the accused infringement, and should not bear the liability for damages of the accused act of infringement, and rejected the request of Hong X Company that Xun X Company bear the joint and several liability.

Verdict