Why one number decides a China infringement penalty

When Chinese enforcement authorities act against trademark infringement, the penalty is not picked at random. It is built on the illegal business volume — the value of the goods involved in the infringement, or the revenue the infringement generated. Because that figure sets the penalty, it is usually the most contested number in a case.

Two things make it worth a brand owner's attention. First, administrative penalties are scaled to this figure, so a total built on inflated or unverifiable evidence ends up serving nobody's interest. Second, the figure is not fixed by the authority in isolation: price data, product specifications and evidence of sham sales all enter the file, and the rules say who may supply what and on what footing.

Until recently the calculation rested on general provisions only. Local enforcement teams had no common operating guide, results in complex cases were disputed, and enforcement risk grew. To close that gap, CNIPA and the State Administration for Market Regulation jointly issued the Measures for Calculating the Illegal Business Volume in Trademark Infringement Cases.

The Measures run to nineteen provisions. They set the principles for the calculation, define the term, and lay down standards for both ordinary and complex situations. They apply to an enforcement department handling a trademark case in which the party's conduct has already been found to infringe a registered trademark — so they govern the size of a violation, not whether one exists.

The definition and the ordinary rules

The definition is broad on purpose: illegal business volume is the total value of the infringing goods involved, or the business revenue generated by the infringement. That formulation reaches both goods-based conduct and service-based conduct.

The ordinary standards follow how far the goods travelled:

  • Goods already sold — valued at the actual sale price.
  • Goods not yet sold — valued at the average actual sale price once it has been established; where that cannot be established, at the goods' marked price.
  • No sale price ascertainable, or no marked price at all — valued at the market middle price of the infringed product for the period in which the infringement occurred.

A point that surprises rights holders is the treatment of goods that are finished but not yet labelled. Where there is solid and sufficient evidence that such goods will infringe another's exclusive right, their value does enter the illegal business volume. Unbranded finished stock in a warehouse is not automatically outside the calculation.

Complex situations: gifts, refurbishment, labels and licences

Where the ordinary rules do not fit, the Measures pair specific conduct with a specific measure.

Processing arrangements. In a contract where the contractor also supplies the materials, infringing goods count at their actual sale price. If they were not priced separately, the calculation uses their value proportion within the arrangement; where no proportion can be distinguished, the market middle price of the infringed product applies.

Free gifts. Goods given away that infringe are counted at their actual purchase price or manufacturing cost. Where that cannot be determined, or the item is non-standard, the marked price or the market middle price applies.

Refurbished goods. A refurbished item that infringes is counted on its whole value. Where the item itself is clean but a part or accessory infringes, only the value of the infringing part counts.

Labels and identifications. Infringement consisting of manufacturing or selling identifications bearing another's registered mark is counted at the actual sale price of those identifications.

Helping an infringement. A party that intentionally provides convenience for an infringement is measured on what it earned from that assistance. If it earned nothing, the case is treated as having no illegal business volume.

Rented goods. Where rented goods infringe, the rental income is the measure.

Advertising. If a trademark is infringed in advertising and the infringing goods cannot be traced, the case is again treated as having no illegal business volume.

Licensing. Where a licensor and a licensee infringe jointly, the ordinary standards and the market middle price rules apply. Where the licensor merely assists the licensee, the licence income is the measure; where the licence is granted free of charge, the case is treated as having no illegal business volume.

Where the figures cannot be pinned down

The Measures are candid about gaps, and three details matter most in practice.

Where none of the above allows the actual volume to be verified, the case counts as having no illegal business volume. Where only part of it can be verified, only that verified part is used.

The market middle price follows a hierarchy. It starts from the infringed party's published recommended retail price for the same product. With no published price, enforcement may sample retail prices from several sellers and average them, or take the sole seller's price; alternatively it may use the middle price from earlier sales of the same product, or of a comparable product similar in function, use, main materials, design and configuration. Where those routes still fall short, a price certification body may determine the figure. A price supplied by the party's own statement, or by the trademark owner, is only a reference, admitted after review against other related evidence and verification. A party that objects to the market middle price must support the objection with evidence.

Sales volume created by fake orders or similar sham sales is left out of the total where the party can prove it with sufficient evidence — a provision that matters for online sellers whose listings show inflated order counts.

Finally, there is a bridge between the administrative and criminal tracks. Where a case is referred onward and the administrative authority and the public security organ disagree on the illegal business volume, the figure may be determined in accordance with the Measures on the basis of the administrative authority's investigation.

Frequently asked questions

Does an infringement have to be established before the calculation applies?

Yes. The Measures apply to an enforcement department handling a trademark case after the party's conduct has already been found to infringe a registered trademark. The calculation measures the size of the violation rather than deciding whether one occurred.

Are finished but unbranded goods left out of the figure?

Not necessarily. Goods that are finished but do not yet carry the infringing mark are counted where solid and sufficient evidence shows they will infringe another's exclusive right. Their value then enters the illegal business volume.

Can the trademark owner's own price data be used?

Only as a reference, after review against other related evidence and verification. The same restriction applies to price figures supplied by the party's own statement. Either side may dispute the market middle price result, but must support the objection with evidence.

What happens when no sale price can be established?

The calculation falls back to the market middle price of the infringed product for the period of the infringement. Where that still cannot be established, a price certification body may determine it. Where no route produces a figure, the case counts as having no illegal business volume.

Do fake customer orders count towards the total?

No. Where a party shows with sufficient evidence that part of the recorded sales came from fake orders or similar sham sales, that inflated portion is left out of the illegal business volume.

Official sources

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