The People's Court of Huishan District, Wuxi City, issued the first criminal judgment on January 18, 2024, in IGB v. Xu, Hong and Lin with an attached civil lawsuit for counterfeiting a registered trademark in Wuxi.

This judgment quickly attracted the attention of all sectors of society and was widely publicized as a landmark case later in the year, on March 15, World Consumer Rights Day.

The case also reignited extensive discussions in the intellectual property (IP) community about how right holders can both crack down on infringements and obtain reasonable compensation from IP criminal cases.

Chang Tsi & Partners represented the plaintiff in this case. Here, we will analyze and comment on the three main pathways for right holders to obtain compensation from IP criminal cases, based on our experience with this case and other IP criminal cases, as well as related judicial decisions and practices.

Pathway #1 | Issuing A Letter of Forgiveness and Obtaining Compensation in Criminal Cases

The right holder has a variety of choices and is not forced to resort to litigation duration and enforcement issues. Generally, if economic conditions permit, the infringer, in an attempt to seek a lighter punishment upon admitting guilt, would usually choose to communicate with the right holder, compensate them, and then have the right holder issue a letter of forgiveness to gain an opportunity for leniency.

Judicial authorities strongly favor this pathway in IP criminal cases. Many judicial authorities believe that it can help right holders recover economic losses and repair social relations while combating crime.

For example, at a press conference held by the Shanghai Municipal Procuratorate on November 25, 2021, titled "Strengthening the Protection of the Legitimate Rights and Interests of Intellectual Property Right Holders," it was revealed that, in 2020, the Shanghai prosecutorial authorities carried out reasonable compensation totaling over CNY 53 million in IP criminal cases. From January to September 2021, the amount reached over CNY 57 million, achieving good results.

This compensation pathway therefore plays an important role in IP criminal cases. However, in practice, some right holders believe that this approach presents a compromise for the infringers and in fact fosters a culture of infringement. As a consequence, it fails to deter the market and is not widely adopted by rights holders.

Pathway #2 | Filing a Civil Lawsuit Separate from Criminal Cases

Right holders often use this pathway to obtain compensation.

On one hand, because evidence preserved in criminal cases can be utilized, it significantly reduces the burden on rights holder to collect evidence.

On the other hand, since this pathway is separate from the criminal case, it allows the right holder more flexibility in terms of timing for filing a lawsuit and is not overly influenced by the amount of the criminal fine, which can increase the compensation amount that the right holder may receive.

However, this pathway has a significant flaw: the stability of obtaining compensation is not very high. But, while both the Criminal Law of the People's Republic of China and the Several Provisions of the Supreme People's Court on the Execution of the Property-related Part of Criminal Judgments clearly prioritize civil compensation over criminal fines (because criminal cases usually take place before civil cases), the difficulty for the right holder to obtain compensation in civil litigation increases greatly after the infringer's main assets have been used to pay the criminal fine.

Additionally, since the infringer is a natural person, it also increases the difficulty of early property investigation and preservation of property. Under this pathway, it is common to see right holders with favorable civil judgments but poor compensation results, which makes many right holders hesitant to consider this pathway due to its ineffectiveness.

Pathway #3 | Criminal Incidental Civil Actions

For a long time, the difficulty of enforcing IP rights, as well as the long duration, the high cost, and the insufficient impact of enforcement have plagued right holders.

Criminal incidental civil action can address many of these challenges and resolve right holders' doubts about pursuing this pathway. It has many advantages, such as joint trial of criminal and civil cases, efficiency, short duration, no litigation fees, strong punitive force, and high social benefits.

Breakthroughs on the Horizon

In recent years, with the strengthening and emphasis on IP protection, we have gradually seen the possibility of breakthroughs in the field of IP protection.

In January 2021, the Zhejiang Provincial High People's Court issued the Implementation Opinions on Comprehensively Strengthening the Judicial Protection of Intellectual Property Rights in Zhejiang Province, which requires “increasing the intensity of criminal crackdowns... and guiding right holders to file criminal incidental civil actions in accordance with the law.”

In April 2021, the Jiangsu Provincial High People's Court issued the Guidelines for the Trial of Civil Disputes Involving Trade Secret Infringement Cases (Revised Edition) in Jiangsu Province, which requires "exploring and guiding plaintiffs or victims to file criminal incidental civil actions in time in criminal self-prosecution and public prosecution cases involving trade secret infringement, to resolve civil compensation issues together."

And, in March 2022, the Supreme People's Procuratorate issued the Opinions on Comprehensively Strengthening Intellectual Property Prosecution Work in the New Era, which requires "comprehensively advancing integrated judicial protection of intellectual property rights... exploring the conduct of criminal incidental civil actions and improving the quality and effectiveness of comprehensive protection."

In practice, more and more judicial institutions are increasing their attempts and application of criminal incidental civil actions in IP cases, especially as numerous classic IP criminal attached civil litigation cases have emerged in Jiangsu, Shanghai, and Zhejiang.

Moreover, the authors have noticed that judicial authorities across the country are also providing rights holders with excellent guidance.

We therefore have reason to expect that criminal incidental civil action will become another effective pathway for right holders to recover economic losses as judicial practice continues to progress.

Right holders should also seize opportunities to participate in IP criminal cases, actively engage judicial institutions, and take advantage of the benefits of criminal incidental civil action as an effective compensation pathway.