SIPS supports its clients through policy work, including contribution of our team’s time to research projects, position papers, seminars and other initiatives focused on improving legislation and government support for IP protection in China.
This memo offers a summary of the key issues our team has focused upon over the last few years.
Preliminary injunctions are promised in Chinese law for all forms of IP, but due to judicial policy they are not generally available, even in very serious cases of counterfeiting, trademark infringement and trade dress infringement.
Preliminary injunctions are routinely issued in other countries, and when imposed, can help create deterrence against widespread infringements and promote earlier resolution of IP disputes. We recommend Chinese courts be encouraged to be more liberal in their issuance of such injunctions in routine cases. Pilot programs should be considered in this regard, ideally in hotspot regions.
Bad Faith Trademark Registration
Following changes to the Trademark Law in late 2019, the legal framework for dealing with oppositions and invalidations against bad faith marks is quite positive – indeed, better than many other countries. But while this appears to have reduced the level of mass filings (applicants filing more than 1000 applications annually, say, and for the exclusive purpose of onwards sale), the recent reforms do not seem to have resulted in an overall reduction in bad faith filings per se. Further, pirates do not seem to have been chastened by new law to reduce their demands for compensation in the course of settlement discussions.
Our recommendations for addressing the current challenges are summarized below.
- Market Supervision Bureaus (MSBs) need to be more involved – and at an earlier stage – in sending a message to bad faith pirates that they may be subject to fines and perhaps other penalties. To our knowledge, the fines set out in relevant regulations (effective Dec 1, 2019) have only been imposed in one recent case (in Wenling City). Such fines should be imposed routinely, and importantly, not only after final decisions to reject or invalidate the trademarks in question have been issued.
- Courts should be encouraged to impose preliminary injunctions in appropriate cases.
- Courts should recognize that registry piracy can, under defined circumstances, be considered as an act of unfair competition, thus warranting handling and compensation under the Anti-Unfair Competition Law. Relevant laws should be amended to make this remedy explicit, but in the meantime, courts should be encouraged to experiment in order to address the obvious damage that is currently being caused by pirates.
- The current five-year time limit in the PRC Trademark Law for invalidating registered trademarks should be removed where trademarks have been registered in bad faith. (It is currently only waived where well-known trademarks are involved.)
- In cases where bad faith registrations have been invalidated or successfully opposed by victim brands and the pirates have customs recordals in place that interfere with legal export of the victim’s goods from OEM suppliers in China, procedures should be introduced to ensure that such recordals can be cancelled or suspended upon request of the victim. And as suggested above, local courts should be encouraged to intervene with interim injunctions in cases like these.
Civil Enforcement – Damages and Mediation
The maximum levels of compensation for trademark infringement were dramatically increased in the latest amendment to the PRC Trademark Law. However, there are fears that courts are unlikely to actually increase the level of compensation awarded out of fear of being inundated with new cases. This is particularly true in cities where the courts are already overburdened and under-staffed.
One potential solution is to strengthen existing pre-trial mediation procedures, which are currently quite toothless, in a manner that creates more pressure on infringers to settle quickly and to pay a reasonable amount of compensation. Increasing the accessibility of preliminary injunctions might also help in this regard.
Since the late 1990’s, industry associations, such as the QBPC, have argued that the “thresholds” system for criminalization of IP violations offers infringers obvious loopholes and does not comply with China’s obligations under the TRIPS Agreement of the WTO.
Despite improvements in various respects, criminal enforcement in China remains tricky, in part due to these same issues. Meanwhile, the NPC (China’s legislature) has refrained from amending the trademark and copyright provisions of the PRC Criminal Law following their last amendments in 1997. It is strongly recommended that the legislature consider amending the Criminal Law to address the thresholds issue and deal with other phenomena that have emerged over the last 20 years – including the emergence of online trade and globalization of commerce.
The Supreme People’s Court recently amended the Criminal Code’s provisions relating to trade secret violations, effectively eliminating most thresholds that previously posed barriers to criminal investigations and prosecutions. But the legislature, courts and government do not yet appear to have any plans to even research the possibility of amending the trademark and copyright provisions of the Criminal Law. We suggest such research be pursued without delay.
China was the subject of a WTO case in the mid-2000s arguing that China’s thresholds for counterfeiting and piracy were too high and failed to comply with the “commercial scale” standard of the TRIPS Agreement. This case was never properly settled, but a great deal of analysis on the issue was conducted at that time, and may help to support further research.
Administrative Enforcement in Challenging Cases
Local MSBs are traditionally reluctant to issue formal decisions in any IP dispute which they regard as too challenging, with the most prevalent being infringements over trade dress, unregistered trademarks, trade names, company names, trade secrets and patents. This reluctance is understandable in many cases, particular where the local MSBs lack sufficient training to handle cases competently. In certain cases, the MSBs will take an informal view and seek to persuade the infringer to voluntarily moderate its behavior. But the lack of willingness to take a stand more often reduces the deterrent impact of administrative enforcement, thus indirectly stimulating more infringements.
Consideration should be given to improving training to local MSBs to support their adjudication in more challenging cases, and where they lack the required expertise, establishing a process whereby they are able to refer more complex cases to higher-level MSBs – whether for opinions or for transfer of the entire matter for determination.
In China, as elsewhere, online enforcement of IP rights presents myriad challenges to rights holders. While standard “take-downs” can be secured in the majority of cases without too much cost or difficulty, infringers fully understand the limits of enforcement and exploit this on a predictable basis. As such, even brand owners that adhere to best practices (such as those explained here) continue to suffer from extremely high levels of infringement as well as deep frustration in day-to-day enforcement work.
The factors behind these problems are varied, but mainly boil down to the following:
- The sheer scale of the problem – which consequently discourages IP owners from dedicating greater resources;
- A lack of an adequate legislative framework;
- Limited involvement by government enforcement authorities in direct policing of platforms; and
- The lack of adequate incentives for platforms, ISPs and other intermediaries to dedicate more resources to support aggressive and deterrent measures.
The Chinese government is arguably ahead of most (if not all) other countries worldwide in drafting laws, regulations and policy documents in the online enforcement area. But there remains a need for more innovation – both in terms of the legal framework and actual enforcement initiatives – to promote real progress.
Among the latest initiatives of the legislature, the courts and the government in China are the following:
- China’s Ecommerce Law, which entered into effect on January 1, 2019, addressed a wide range of issues. The provisions relating to consumer protection and IP protection are relatively broad and do not generally break new ground. The law does suggest that the identity of vendors must be published and that vendors themselves must obtain business licenses in order to conduct online trade. To date, however, these provisions have not yet been enforced due to the lack of implementing regulations. See SIPS memorandum here introducing and critiquing the new law.
- In October 2020, the State Administration of Market Regulation (SAMR) issued a draft regulation intended to clarify various issues in the Ecommerce Law, including those mentioned immediately above. See here for the text. The most helpful provision in the draft for IP protection purposes would require platforms to publish data on penalty measures they have imposed on vendors. The draft also appears to confirm that social media platforms are covered by the Ecommerce Law – something that was left unclear in the law itself.
- Finally, the SPC issued a judicial opinion on platform liability in September 2020, suggesting that online trade platforms are required to accept liability in cases where they knew or should have known an infringement has taken place but failed to take “necessary measures” to stop the violation. The opinion seems to imply that platforms will not enjoy a safe harbour against liability by simply relying on their notice-and-take-down procedures. However, this is not clearly stated in the opinion and it may take several years of litigation by local courts to better understand the true scope and impact of this provision.
Beyond the foregoing, the SAMR and local MSBs have clearly been working to develop new methods for supporting enforcement against online infringers and also quietly coaching platforms to improve their efficiency in dealing with IP violations and consumer complaints. For now, however, there is little evidence of any pilot programs having been introduced or achieving particular success. Greater engagement is clearly needed by IP owners, platforms and government authorities to develop new and practical initiatives. In the absence of other solutions, MSBs should be encouraged to expand the scope of their “coaching” of platforms on IP protection to greater resort to compulsory measures.
SIPS ODR Proposal
As is widely known, online platforms will refuse to deal with any IP disputes that are deemed “too difficult” to decide, thus forcing rights holders to take such disputes to the courts. SIPS has worked with various stakeholders in developing a proposal for resolving such disputes through accelerated and simplified arbitration, modelled in part on UDRP. For an English and Chinese presentation introducing the concept, see here.
It is understood that the China National IP Administration (CNIPA) is considering this proposal, and that Chinese trade platforms where such cases are common will be willing to commence piloting of the concept.