On April 20, 2026, China's Supreme People's Court issued a new Judicial Interpretation on Punitive Damages in IP Cases, effective May 1, 2026, replacing the 2021 version. The revision is not merely technical — it represents a meaningful shift from broad encouragement of punitive damages toward precision in application.

Since 2021, Chinese courts have applied punitive damages in 1,471 IP cases. In 2025 alone, 505 cases resulted in punitive damages totaling RMB 1.8 billion (approx. 250 million). Yet inconsistent standards, vague thresholds, and difficulties in calculating the damages base have long constrained the system's effectiveness. The 2026 Interpretation directly addresses these pain points.

Stricter standards, clearer rules

The threshold for finding "intent" has been substantially tightened. Where the 2021 version allowed courts to "preliminarily find" intent, the new rules establish a rebuttable presumption — once a statutory circumstance is proven, intent is presumed unless the defendant produces sufficient rebuttal evidence. Two new circumstances have been added: resuming infringement after a settlement agreement, and evading liability through shell companies, nominee shareholders, or similar corporate restructuring.
For "serious circumstances," the previous discretionary "may find" has been upgraded to a mandatory "shall find." Courts no longer have the option to look the other way when statutory conditions are met. The concept of "making IP infringement one's primary business" now has an operative definition for the first time.

Calculation rules become more sophisticated

The new Interpretation distinguishes between operating profit (the general standard) and sales profit (applicable when the defendant's primary business is infringement — meaning overhead costs can no longer be deducted). Where profit margins cannot be determined, courts may reference industry averages or the rights holder's own margins. Statutory damages are explicitly excluded as a base for punitive damages. Reasonable enforcement costs — attorney fees, notarization, expert opinions — are now calculated separately, outside the five-times cap.

Procedural discipline tightened

Punitive damages claims raised for the first time on appeal will no longer be entertained if mediation fails. And if a court informs the plaintiff of the right to claim punitive damages but the plaintiff declines, the claim cannot be raised in a subsequent lawsuit. The message is clear: punitive damages must be part of the litigation strategy from day one.

What this means for international rights holders

For multinational companies enforcing IP rights in China, the 2026 Interpretation sends a clear positive signal. The presumption rules lower the evidentiary burden for proving intent. Refined calculation methods make damages awards more predictable. And the separate treatment of reasonable costs removes a practical barrier to enforcement.

Jurisdiction strategy also matters. Shanghai's Pudong New Area — operating under special authorization from the State Council — permits punitive damages of up to ten times (versus five times under national law) for particularly egregious infringement, with statutory damages capped at RMB 10 million (approx. USD 1.4 million). Pudong courts have handled approximately 50 punitive damages cases over the past five years and are actively developing coordinated approaches combining evidence disclosure orders, preliminary injunctions, and spoliation rules.

China now has the broadest coverage and highest multiplier for IP punitive damages among all civil law jurisdictions — a position shared only partially by South Korea. The 2026 Interpretation signals that China's institutional competitiveness in this area is evolving from scale and intensity to precision and predictability — which, for international rights holders evaluating where to bring their disputes, may matter even more.

This is the second installment of our 4.26 IP Day Special Series. For the full Chinese-language analysis or further discussion, please feel free to reach out.