NERA On IP Litigation Trends in China

Just read a good short paper written by Kristina Sepetys and Alan Cox filled with plenty of data and tables, Intellectual Property Rights Protection in China: Trends in Litigation and Economic Damages (h/t to IPKat). Though the paper briefly discusses administrative remedies, and the differences in damage estimation methodologies between administrative and judicial remedies, the focus is on judicial damage awards. Here is the summary of the the key findings from a review of 179 cases filed from 2002-2008 as written by the authors of the report:

• "More than 90% of all IPR damages awarded in China are under $100,000."
• "The median damage awards across all IPR cases in China in 2006-2007 was approximately $15,000."
• "The median damages award is approximately 15% of the IP owner's damages claim."
• "In cases involving a Chinese plaintiff and a Chinese defendant, the plaintiff received a lower median award than when the plaintiff was foreign."
• "Companies based in the US, France, Japan, and Germany make up 50% of plaintiffs in the cases reviewed, but less than 5% of defendants."
• "Courts in Beijing and Shanghai hear the most IP cases tried in China."
• "The highest damage award in each of the last five calendar years are:"
• 2004: $50,000
• 2005: $1,100,000
• 2006: $210,226
• 2007: $44,300,000
• 2008: $2,780,000

The authors conclude that the damage awards in China are are significantly below the actual economic harm suffered, and this is imposing costs on China's economy because ineffective deterrence decreases R&D incentive. The authors argue that the most significant problem with China's damage awards is that they are often based on the infringer's unjust enrichment and not on the plaintiff's lost profits. Unjust enrichment damages are insufficient for the following reasons:

• Sales of infringing product are at a much lower price than legitimate copies.
• Infringer's tend to not maintain complete records of their sales.

When unjust enrichment is not used and lost profits are used, the Chinese courts typically use simple calculations based on the plaintiff's pre-infringement sales, which are a poor predictor of lost profits for a whole host of reasons.

If this kind of thing gets you going, I highly recommend you check out the rest of the report which has a bunch of nice tables and data. The authors even devised an econometric analysis of their data "to determine whether there was a difference in the size of awards when the plaintiff was Chinese or foreign."

I have two gripes with the report:

1. The dataset is too small relative to the time period it covers. A lot has changed in China's IPR regime between 2002 and 2008, and the pre-2006/'05 cases should look a lot different than the more recent cases which should result in a lower observed reform rate than the true reform rate. The court's decisions and damage awards in 2002 probably have little to no bearing on the damage awards being made in 2008, and might only serve to skew the averages and medians away from their true values.
   
2. As the authors note, there is selection bias in their sample. The cases were not taken from court documents, but were taken from "Chinese government agencies" and various media sources. These sources tend to cover the most exceptional cases, and one would caution against using the exceptions to write the rule.

Also of note: the paper cites a post from China Esquire, and that post was an analysis of a post from China Business Law Blog.