In addition to the statutory compensation, the punitive penalty of NTD 3 million stipulated in the settlement agreement has also been awarded

The Decision

1.      Article 252 of the Civil Code explicitly states that if the agreed-upon penalty amount is excessively high, the court may reduce it to a more appropriate level. The court has the authority to determine whether the punitive penalty is appropriate, either ex officio or upon petition. This determination must be based on an evaluation of general objective facts, social and economic conditions, the damages suffered by the parties, and the benefits that the creditor may receive (see Supreme Court 49 Taizi No. 807 and 51 Taizi No. 19). In this case, the defendant has infringed on the disputed trademark three times, making this the fourth infringement, which was committed intentionally. This constitutes multiple infringements from which the defendant has derived benefits. Following the second infringement, the defendant agreed to increase the punitive penalty from the original NTD 1 million to NTD 3 million as part of a settlement, indicating a clear acknowledgment of the need to refrain from further infringement of the disputed trademark. It is difficult to argue that the increased penalty amount is disproportionate. Although the defendant's revenue has declined, this cannot serve as a valid reason for reducing the penalty.

2.      When a trademark owner seeks compensation for damages, the amount may be calculated as up to 1,500 times the retail unit price of the seized goods that infringe on trademark rights. However, if the number of seized goods exceeds 1,500, the compensation will be determined based on the total value of those goods. This is clearly stated in Article 71, paragraphs 1 and 3 of the Trademark Law. According to this provision, the plaintiff calculated the total damages to be NT$987,000, based on 300 times the unit price of NT$3,290 per piece of the disputed goods, which is considerable. The defendant was sentenced to criminal detention by the Shilin District Court for intentionally purchasing the disputed goods. The defendant's request for a reduction of the damage amount, in accordance with Article 71, paragraph 2 of the Trademark Law, was denied.

Ching-I Lu’s Comment

1.      In addition to the statutory damages totaling NTD 987,000, calculated in accordance with Paragraph 3, Item 1 of Article 71 of the Trademark Law, full compensation of NTD 3 million is also awarded based on the punitive penalty clause outlined in the settlement agreement between the two parties.

2.      Regarding trademark infringement cases, the primary objective for most multinational companies is to have the infringer remove the infringing goods from the market and cease their violation of the trademark law. Consequently, when the offender agrees to stop the infringement, most cases are resolved through settlement, making it uncommon for them to proceed to court. Even when criminal proceedings are initiated due to customs or intellectual property police enforcement actions, the majority of cases typically enter the settlement process, with fewer cases requiring litigation to reach a conclusion.

3.      However, during the settlement negotiation process, in addition to requiring the offender to pay compensation, a punitive penalty clause is typically included in the settlement agreement to deter the offender from committing further infringements. If the same infringer continues to infringe the same trademark, the trademark owner may incur ongoing legal expenses, which can be quite burdensome.

4.      However, Article 252 of the Civil Code stipulates that "if the agreed amount of punitive penalty is excessively high, the court may reduce it to a reasonable amount." Therefore, how should punitive penalties be determined to effectively deter offenders from reoffending while also allowing the court to uphold the stipulated amount? This is a complex issue. If the penalty is set too low, the offender may not face sufficient consequences to discourage future violations; conversely, if the penalty is set too high, there is a risk that the court may reject it, rendering it ineffective as a formal legal instrument.

5.      There are widespread doubts regarding the enforceability of high punitive penalty clauses in litigation. However, the judgment in this case offers a glimmer of hope for those who question their validity. If the offender continues to commit offenses, the substantial punitive penalty outlined in the settlement agreement may still be awarded in full, rather than being regarded as merely symbolic. This also serves as a warning to offenders, who should no longer regard such punitive penalty clauses as mere deterrent tactics.