Navigating the Intricacies of Damages in Chinese IP Battles: An In-Depth Dive into Street Basketball Trademark Case

Over the last ten years, China legal framework has made remarkable progress by enhancing IP protections, establishing specialized courts, and raising statutory damage limits. The government stance is clear: IP is a valuable asset, and violations will face penalties. Nonetheless, there often remains a considerable gap between the legal entitlement to prevent others from using your IP and the practical ability to secure financial compensation that accurately reflects the infringement value. Calculating damages is the most complicated and frequently contested part of IP enforcement in China. Even a ruling in favor of infringement can feel hollow if the awarded damages are minimal.

This article seeks to clarify the process of determining damages in China through an in-depth, firsthand examination of a recent, illustrative case: JOYCITY Corporation v. Chengdu Lemondo Technology Co., Ltd. and Giant Network Group entities (Case No. (2024) Hu 73 Min Zhong No. 436). Acting as counsel for JOYCITY, the appellant and owner of the well-known 街篮 (Street Basketball) trademarks, we managed every phase of this complex litigation. Although the final damages decision was a bit disappointing, the experience offers valuable, practical insights for any foreign company aiming to safeguard and monetize its IP in China.

We will break down the court rationale, review the strategies used, and highlight key lessons to help you develop a stronger, evidence-based approach to maximizing damages in future IP cases.

Part I: Case Background – A Battle Between Basketball Giants

At its core, the dispute was simple. Our client, JOYCITY Corporation, a well-known South Korean game developer, owns several registered trademarks for 街篮 (Street Basketball) in China, covering categories 9 (computer software) and 41 (online gaming services). These trademarks are linked to our internationally successful game Freestyle Street Basketball, which has a loyal following in China. The respondents, Chengdu Lemondo Technology (the developer) and several companies within the Giant Network Group (the operators), released and managed a popular basketball mobile game in China called 《街篮2》(Street Basketball 2). We filed a lawsuit claiming that naming the game 街篮2 infringed on our trademark rights and constituted unfair competition.

Both the Shanghai Xuhui District Court and the Shanghai Intellectual Property Court ruled in our favor on the key issue of liability, confirming that the respondents had infringed our trademark. However, the legal fight was not over. While we won the principle battle, the dispute over the amount of damages was the toughest challenge. We initially sought RMB 20 million for economic losses and RMB 200,000 for reasonable expenses. The first court awarded RMB 3 million in damages and RMB 60,000 in expenses. Both sides appealed—the respondents aimed to overturn the liability ruling, and JOYCITY sought to increase the damages. The Shanghai IP Court final decision upheld the infringement ruling but maintained the lower damages amount. This article focuses solely on why, despite clear infringement, obtaining a higher damages award was such a difficult hurdle.

Part II: The Legal Structure for Awarding Damages in China – A Step-by-Step Method

To grasp the court ruling, it is essential to first understand the legal framework. Article 63 of the China Trademark Law sets out a clear, four-level hierarchy for determining damages in trademark infringement cases. The court must follow these levels in sequence:

1. The Rights Holder Actual Losses: The profits the rights holder lost because of the infringement.
2. The Infringer Profits: The earnings the infringer gained from the infringing activity.
3. A Reasonable Royalty: The amount that would have been paid under a hypothetical licensing agreement for the trademark use.
4. Statutory Damages: A discretionary sum decided by the court within a legal range (currently up to RMB 5 million for trademark infringement) when the first three methods cannot be applied.

Furthermore, in cases of willful trademark infringement with serious circumstances, the court may impose punitive damages ranging from one to five times the amount calculated by the above methods. Our approach focused on demonstrating the infringers profits (Level 2), a common tactic when the infringer is a publicly listed company or otherwise obligated to maintain detailed financial records. We anticipated that the evidence would clearly reveal profits well above the statutory damages limit, thereby requiring a damages calculation based on actual gains.

Part III: The Effort to Demonstrate the Infringer Profits – A Comprehensive Evidentiary Strategy

Our team presented the court with several carefully calculated approaches to estimate the illicit earnings of the respondents from the game 《街篮2》. Each approach relied on evidence either provided by the respondents themselves or sourced from highly credible third parties. The court dismissal of each method offers valuable insight into the evidentiary standards upheld by Chinese courts.

Method 1: Using the Infringer Own Audit Report

Our Approach: The respondents, Giant Mobile, submitted a Special Audit Report during the initial trial, which detailed the revenue generated by 《街篮2》. We used this revenue figure as the basis for our calculation. To estimate profit, we applied the average operating profit margin (42.32%) of the respondent parent company, Giant Network Group Co., Ltd., as reported in its publicly available annual reports from 2019 to 2023. This yielded an estimated profit of about RMB 55.6 million over the infringement period.

Court Rejection: The Shanghai IP Court ruled this method lacked foundation. Their reasoning was twofold: (1) The financial data and profit margin of the parent company were not directly applicable to its subsidiary or the specific game, since the parent overall profitability is influenced by many other games and business segments. (2) We used the respondent revenue data but rejected their corresponding cost data from the same audit report, instead applying the parent company margin. The court viewed this as selective use of data that did not reliably reflect the game actual profitability.

Method 2: Using the Infringer Self-Reported Revenue

Our Approach: Lemondo, the developer, submitted a Statement on Lemondo Revenue Situation detailing the revenue share it received from Giant Mobile for 《街篮2》. We used this figure to extrapolate the game total revenue and again applied the 42.32% profit margin of the parent company.

Court Rejection: This method was rejected for the same fundamental reason as the first: applying the parent company profit margin was considered irrelevant and unreliable for calculating the specific game profit. The court emphasized that this approach ignored the actual costs associated with 《街篮2》.

Method 3: Using Notarized Player Spending Data

Our Approach: We attempted to introduce a notarized document submitted by the respondents, which showed total player recharge amounts (gross revenue) for the game. Using this gross revenue figure, we applied the 42.32% profit margin to estimate profits exceeding RMB 65 million.

Court Rejection: The court questioned the authenticity of the content of the notarized document. More importantly, it reiterated that the 42.32% profit margin was without basis and could not be used to calculate net profit from gross revenue.

Method 4: Using Third-Party Market Intelligence

Our Approach: We submitted data from Sensor Tower, a globally respected mobile app analytics firm, which estimated the revenue of 《街篮2》. We applied the 42.32% profit margin to this third-party revenue estimate.

Court Rejection: The court was highly skeptical of third-party data, stating that its authenticity and scientific nature are difficult to verify. It regarded such data as secondary estimates, inferior to the parties own financial records. Again, the critical flaw was the use of an unsupported profit margin.

Key Takeaway from Part III: Chinese courts require a direct, causal, and verifiable connection between revenue and the specific, corresponding costs to establish profit. Using an industry average or a parent company profit margin as a proxy is risky and likely to be rejected. The ideal evidence is the infringer own complete financial records for the specific infringing product, showing both revenue and detailed costs. However, obtaining such detailed evidence can be a significant discovery challenge in China.

Part IV: The Intangible Factor – The Trademark Contribution Rate

Even if we had managed to establish the total profits of 《街篮2》,our challenge would not have ended there. We would still need to address the concept of the trademark contribution rate (商标贡献率), which refers to the portion of the infringing product profits that can be directly attributed to the use of the infringing trademark.

Our Argument: We maintained that the 街篮 trademarks were a key factor in attracting players and driving initial downloads. Due to their strong reputation and clear connection to the basketball game genre, we argued that the contribution rate should be at least 50%.

The Respondents Argument: They contended that the contribution rate was very low. They claimed that players were drawn by the game quality, its link to the earlier game 《街篮》(which they developed), and other elements, rather than the specific use of the 街篮 trademark.

The Court Evaluation: The court adopted a balanced and analytical stance. It recognized that the 街篮 trademark has a certain level of fame and influence, and that a game name can help attract players. However, it wisely pointed out that player retention and revenue generation (such as in-app purchases) largely depend on the game content, design, and user experience. The court found both our 50% estimate and the respondents minimal claim to be clearly unobjective and unsupported. It upheld the lower court decision not to assign a specific contribution rate due to the complexity and lack of reliable evidence.

Key Takeaway from Part IV: The trademark contribution rate is a subjective and challenging figure to prove. Courts will not accept legal arguments alone. To successfully claim a high contribution rate, a rights holder must present strong empirical evidence—such as consumer surveys, market research, or A/B testing data—that directly connects the brand or trademark to consumer purchasing behavior. This necessitates proactive evidence collection before litigation begins.

Part V: The Default Result – The Domain of Statutory Damages

Since the methods for calculating the infringers profits were dismissed and there was no clear evidence of JOYCITY actual losses or an existing license agreement, the court resorted to the fourth option: Statutory Damages. In this area, the judge has wide authority to grant an amount up to the legal maximum (RMB 5 million), taking into account a comprehensive set of factors such as:

• The nature of the infringement (whether it was intentional, malicious, or accidental)
• The recognition of the trademark (whether it is well-known)
• The infringer awareness of the trademark
• The length and extent of the infringement
• The impact of the infringement (including harm to the rights holder reputation or market position)
• The reasonable costs the rights holder incurred to stop the infringement (like legal and investigation expenses)
  The trial court evaluated these elements and decided on RMB 3 million. Upon appeal, the Shanghai IP Court deemed this figure to be within a reasonable discretionary range and upheld the decision. The court recognized that the infringement was ongoing but found the evidence insufficient to justify a significantly higher award or punitive damages, which require proof of greater malice and serious circumstances.

Part VI: Key Strategic Insights for Foreign Rights Holders – Crafting a Successful Damages Claim

The JOYCITY case offers a valuable lesson. It shows that although proving infringement has become easier than ever, obtaining substantial damages requires a well-planned, evidence-driven approach. Here are our main recommendations for international companies:

Keep Detailed Records – Your Most Powerful Asset.

• Document Everything: From the very start of your operations in China, carefully record all activities related to your intellectual property. This includes marketing expenses, sales figures (before and after infringement), consumer surveys, market research, and all communications with potential infringers.
• Measure Your Brand Worth: Commission independent market research to demonstrate your brand recognition and reputation in the Chinese market. This information is crucial for arguing a high trademark contribution rate and justifying a larger statutory damages award.

Avoid the Profit Rate Pitfall.

• Don’t Rely on Proxy Margins: As demonstrated in our case, using parent company or industry average profit margins is ineffective.
• Prioritize Discovery: The main objective during litigation should be to obtain the infringer specific financial data related to the infringing product. This requires assertive and well-supported discovery requests and motions for court-ordered evidence preservation. Be ready to explain why the infringer data is essential and why your case cannot be proven without it.

Develop and Utilize License Agreements Strategically.

• Establish a Benchmark: A reasonable royalty (Tier 3 damages) is often the clearest route to a high damages award. If you license your IP anywhere globally, ensure these agreements are well-crafted, reflect fair market value, and are professionally translated. They can serve as strong evidence in a Chinese court.
• Consider Hypothetical Licenses: Even if you don’t license your IP, you can commission an expert report to estimate a hypothetical royalty based on comparable industry licenses. While not as strong as an actual agreement, it is better than having no basis at all.

Build a Case for Malicious Intent to Access Punitive Damages.

• Keep Records of Your Efforts: Maintain a thorough paper trail of all attempts to stop the infringement, such as cease and desist letters. If the infringer ignores these, it strongly indicates malicious intent.
• Emphasize Prior Relationships: As in our case, if there was a previous business relationship (like the 2016 Cooperation Agreement), use it to show the infringer knew your rights and deliberately infringed them.

When Litigating, Focus on Statutory Damages.

• Understand that statutory damages are often the most achievable outcome. Structure your entire case to maximize the factors courts consider: the strength of your brand, the infringer’s willfulness, the scale of infringement, and the damage caused to your business and brand reputation in China.

Conclusion: Moving from Reactive Litigation to Proactive Strategy

The JOYCITY v. Lemondo case underscores an important reality: in today China, enforcing IP rights is not just about winning legal arguments but about winning the evidentiary battle. Chinese courts are willing to grant significant remedies, but they require clear, direct, and convincing proof.

For foreign companies, this means a fundamental shift is needed. IP strategy cannot be an afterthought triggered only by disputes. It must be a proactive, integral part of your business operations in China from the outset. By investing in thorough evidence collection, understanding the subtleties of Chinese judicial reasoning, and building a case based on measurable data, you can turn your IP from a vulnerable asset into a powerful tool to secure your market position and fully realize the value of your innovation in one of the world most dynamic economies. While calculating damages in China is complex, it is manageable. With the right guidance and strategy, you can navigate this challenge successfully.

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