A finding of infringement leads to a compensation order of 1 million yuan.
For
intentional and serious infringement, punitive damages can push the total to 5 million yuan.
The new judicial interpretation on punitive damages issued by the Supreme People’s Court took effect on May 1, 2026, closing all loopholes for malicious intellectual property (IP) infringement.
I. What Is Punitive Damages?
In theory, there is no upper limit for IP compensation. Punitive damages are an "enhanced version" of ordinary compensation: on top of compensating the right holder’s actual losses, the court may award an additional 1 to 5 times the base amount as a penalty, inflicting substantial financial consequences on the infringer.
For example: if the right holder’s actual loss is 1 million yuan, the court may order a total payment of up to 5 million yuan (1 million yuan as compensatory damages, 4 million yuan as punitive damages).
This is not an empty warning. In 2025, Chinese courts applied punitive damages in 505 cases involving intentional and serious infringement, with a total award of 1.8 billion yuan. The highest award—380 million yuan with 3x punitive damages—was handed down in a CNC machine tool trade secret infringement case.
II. First Major Change: From "May" to "Shall" Find Serious Circumstances
Previously, courts "may" find serious circumstances in certain scenarios, leaving room for judicial discretion. The new interpretation upgrades multiple scenarios from "may" to "shall": courts must find serious circumstances if the conditions are met.
A typical example is "running an IP-infringing business". The new interpretation defines it clearly: "taking infringement as the main business or deriving primary profits from infringement". Once labeled, serious circumstances are established.
Other scenarios upgraded to "shall" find serious circumstances:
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Repeating infringement after administrative penalties or court judgments (refusal to reform);
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Obtaining huge illegal profits, or severely damaging the right holder’s goodwill and market share;
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Forging, destroying or concealing infringement evidence;
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Refusing to comply with a court’s preservation order without just cause.
The interpretation also adds two scenarios that directly establish intentional infringement:
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Resuming infringement after reaching a settlement with the plaintiff and agreeing to cease infringement;
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Evading liability through "shell changes"—setting up affiliated companies, replacing legal representatives, or holding shares anonymously.
In short: reoffending after a settlement equals intentional infringement; continuing business under a new corporate shell also equals intentional infringement.
III. Second Major Change: Easier Calculation of the Compensation Base
The biggest challenge for punitive damages is calculating the base amount—actual losses, illegal gains and infringing profits are often hard to quantify.
The new interpretation provides clear guidelines:
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The base amount shall be calculated by reference to operating profit for illegal gains or infringing profits;
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For "running an IP-infringing business", it shall be calculated by reference to sales profit;
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If the profit rate cannot be determined, the industry average profit rate released by statistical authorities or industry associations may be used.
Another key change: statutory damages (up to 5 million yuan) cannot serve as the base for punitive damages. Right holders must submit sufficient pre-litigation evidence to prove actual losses or infringing profits, which will boost demand for professional evidence-collection legal services.
IV. Third Major Change: Strict Time Limit for Claiming Punitive Damages
Previously, right holders often added a punitive damages claim mid-trial. The new interpretation closes this path.
It clearly states: if the right holder does not claim punitive damages when filing the lawsuit, even after being expressly informed by the court, the claim will be barred forever. The court will not accept a separate lawsuit for punitive damages after the conclusion of the original case.
The rule is simple: assess whether the case meets "intentional + serious circumstances" at filing, and prepare evidence in advance. Miss the deadline before the end of the first-instance debate, and the right to claim punitive damages is lost permanently.
V. Fourth Major Change: Clear Upper Limit for Punitive Damages
Article 12 of the new interpretation sets a clear cap: the total punitive damages shall not exceed 5 times the base amount. Reasonable rights-protection expenses are excluded from this cap and calculated separately.
This gives defendants a clear forecast of maximum liability, facilitating settlement negotiations. For plaintiffs, it creates an incentive to prove eligibility for a multiplier higher than 1x.
VI. Three Practical Suggestions
For right holders: assess eligibility for punitive damages at filing, and gather evidence of "intent" and "serious circumstances" (e.g., reoffending after settlement, shell changes) in advance. Miss the deadline before the end of first-instance debate, and no remedy is available.
For defendants: admit liability and cooperate early; never reoffend after signing a settlement; shell changes will only aggravate liability; fully comply with evidence preservation orders to avoid being found "serious circumstances".
For corporate legal teams: study SPC Guiding Cases No. 274 and 275 (issued March 2025) on punitive damages in utility model patent and new plant variety disputes. Upgrade IP compliance and litigation strategies aligned with the 14 articles of the new interpretation.
Conclusion
The core message of the new rules is unambiguous: IP infringement will no longer be a low-cost offense.
The old tactics of delay, shell changes and refusing to cooperate are obsolete. As of May 1, the rules have changed—and so must the game. The cost of infringement has risen sharply; only those who abide by the law will thrive.
