Abstract: During the process of implementing the innovation-driven development strategy, patent holders have to suffer from the dilemma of far low compensation for patent infringements in China. It has attracted a strong criticism in recent years. To address the problem of insufficient compensation, Chinese government has triggered the fourth revision of Patent Act, which focuses on “improving patent protection and strengthening law enforcement”. However, how to determine the amount of compensation for patent infringements is still a black-box in China. A few literatures discussed insufficient compensation for patent infringements in China from an empirical perspective.To close this gap, the paper endeavor to explore the black-box of “insufficient compensation” and further understand the legal system related to patent damage awards. To some extent, the amount of compensation decided by courts is regarded as a rational mechanism for detecting the legal value of patent-in-suit. In this paper, the research question is what key factors that may affect insufficient compensation for patent infringements in China. To do so, the paper constructs a series of regression models to reveal what primary elements affecting damage awards are, by taking1185decisions of patent infringement lawsuits in China as samples. Our empirical studies show that at least three important factors contribute to the insufficient compensation for patent infringements in China. First, the business value of patent-in-suit can strongly affect the amount of compensation decided by courts. The business value of a patent, namely private value, is used to sustain exclusion rights and can be measured by a number of indexes. In general, Chinese patents can be divided into three categories, which cover invention patent, utility model patent and design patent. However, our empirical results show that invention patents can achieve more compensation, while design patents may receive less compensation than other types in China. The main reason is that the intrinsic value of patent is different. In addition, whether a patent-in-suit experience invalidates process has positively correlated with damage awards. A patent usually gets more compensation than other patents if experienced invalid process. The main reason is that the excellent quality of patent-in-suit contributes to patent value enhancing.Second, the protecting capacity of a patent holder has positively correlated with patent damage awards. Our empirical results show that a patent holder who is company can attain more compensation than individuals. Patent litigation is a complex process of detecting patent legal value. Patent damage awards can be significantly affected by patent holders’ experience and skill, besides patent intrinsic value.In general, courts follow the principle of “full compensation”, which refers to damage award should be adequate to compensate for patent infringement. There are a lot of individuals assert patent right against infringers based on a single patent in practice. However, these individuals usually are lack of the outstanding capacity for asserting sufficient compensation. In addition, the number of litigation filed by patent holders based on the same patent is positively associated with patent damage awards.Third,the method of calculating compensation used by courts has played a part of the intermediary role in determining the amount of compensation. That is, the value of patent-in-suit and protecting capacity of plaintiff have positively correlated with the method of calculating compensation used by courts, and the approach of determining compensation is closely associated with the amount of compensation. According to the Section 65 of Chinese Patent Act, courts should follow the order to select an appropriate method of calculating damage awards: actual losses, infringer’s gains, referencing patent royalty and statutory compensation. The purpose of statutory compensation is to pursue an efficient and initial way to resolve the problem of hardly determining damage awards in practice. However, most of courts prefer to use the method ofstatutory compensation to determine compensation for patent infringements in China. On the one hand, it is rational that courts selected the method of statutory compensation to determine damage awards for design patents owned by individual in practice. One of reasons is that the cost of detecting patent infringement in detail is very high. Moreover, many patent holders cannot prove their actual losses and hardly bear the burden of proof. In addition, the value of patent-in-suit is usually not high and the losses could not be a great magnitude of harm. Combining these elements together, courts prefer to apply the approach of statutory compensation in practice, because courts pursue avoiding an embarrassment that defendants have consisted of infringement but plaintiffs cannot receive any compensation in China. On the other hand, the wide application of statutory compensation could result in insufficient compensation for infringing high quality patents. Our empirical results highlight that compensation that decided by statutory compensation approach is less than no statutory compensation, such as actual losses, infringer’s gains and referencing patent royalty. Patent holders with strong protecting capacity would take the burden of proof and actively assert invention patent rights. If courts select the approach of statutory compensation to determine damage awards in these cases, the amount of compensation could be less than the other methods. As a result, the approach of statutory compensation used by courts would contribute to less compensation for patent infringement.How to assert damage awards is likely to be a “black box” for most patent holders in China. This leads to some patent holders give up asserting patent rights due to low compensation for patent infringement. To encourage technology innovation, China should improve the amount of compensation for patent infringement. Therefore, several suggestions are proposed in this paper. First, patent holders should increase the business value of patents in lawsuits. Second, improving the protecting capacity of patent holders is another important way to increasing the amount of compensation for patent infringements. More importantly, courts should restrict the application of statutory compensation in patent-infringement lawsuits. More applying the other method, such as the losses incurred to the patentee, the gains obtained by the infringer or the royalty obtained for the patent, could provide sufficient compensation to patent holders.

Key words: promoting innovation, damage awards, patent value, protecting capacity, statutory compensation