Trademark Enforcement

How to Tackle Online Counterfeiting

SIPS Trademark Enforcement

The ever-growing accessibility, convenience and anonymity offered by e-commerce has permitted counterfeiters to rapidly shift their business models – in some cases entirely – online. To get a sense of the scale of this online scourge all an IP owner need do is to search for their brand on Taobao, Alibaba or other Chinese e-commerce platforms – most of which have a global reach. Those searches will often reveal hundreds, thousands or in some cases millions of advertisements, a large portion of which will be counterfeits.

Change in the wind?

Until now Chinese law and enforcement practices have failed to keep pace with counterfeiters. While helpful, recent amendments to the PRC Trademark Law (which enters into effect on May 1 2014) appear to fall far short of the changes needed to address the issue.

Fortunately, research is now underway within the State Council’s National Leading Group on Counterfeiting, the Trademark Office (TMO) and the Supreme People’s Court (SPC) on new ways to deal with the problem.

In the meantime, brand owners must consider a range of best practices if they are to stand any real chance of success (a fluid term) in their online enforcement work.

Limits of civil and administrative enforcement

Several provisions in the amended Trademark Law may better deter counterfeiters and ensure more reasonable recoveries by plaintiffs to help offset the high costs of PRC enforcement work. Chief among these is the six-fold increase in the maximum level of statutory damages (awarded where proof of actual damages is unavailable) – from Rmb 500,000 ($81,300) to Rmb 3 million ($488,000).

Courts will also have the power in “serious” cases to award punitive damages of up to three times the standard quantum of compensation. Courts will be encouraged to accept plaintiffs’ proposed quantum of damages where the defendant fails to respond with its own evidence confirming actual numbers for prior production/sales, or where such evidence is falsified.

That doesn’t guarantee that Chinese judges (already suspicious of lawyers on contingency fee deals) will embrace these higher damage award provisions.

Local AICs – the enforcement authority of choice for brand owners for decades – have not done enough to boost their resources and know-how in the fight against online infringers. They also lack the power to obtain emails, financial records and other evidence increasingly crucial for efficient investigations into online trade.

Limits of criminal enforcement

China’s Public Security Bureaux (PSBs) have dramatically increased their anti-counterfeiting resources, and in many cities now proactively investigate online infringers. There are far more cases than even the most-aggressive PSB official can pursue, however, a problem greatly exacerbated by China’s threshold requirements for criminal cases. In their current form, the thresholds stand at Rmb50,000 ($8,200) or Rmb150,000 ($24,600), depending on whether the fake goods are merely seized from the infringer or whether they have already been sold to another party.

Following pronouncements in 2011 by then-Premier Wen Jiabao that thresholds would be reduced and steps taken to amend the IP provisions of the PRC Criminal Code, brand owners expected some relief. But there is little active discussion among Chinese policy makers of these reforms moving forward.

Take-down work

Most overseas companies focus a significant portion, and in some cases, all of their enforcement budgets on monitoring advertisements on Taobao, Alibaba and other e-commerce platforms in China. However, the takedown and complaint procedures offered by these platforms have proved impractical for many companies, and are clearly insufficient to deter ongoing infringements.

Light at the end of the tunnel?

As noted above, the State Council’s National Leading Group on Counterfeiting is now researching the problems faced by IP owners and trade platforms alike. The TMO has also reportedly started research to better understand barriers to strengthening the deterrent impact of AIC enforcement work. And the SPC is now drafting a judicial interpretation that should clarify the legal obligations of online traders.

International brands now have a critical window of opportunity to offer the above authorities information on the nature and scale of their problems as well as recommendations for reform, based in part on international practice.

Best practices

Pending the introduction of reforms, IP owners should adopt a range of best practices to achieve more cost-effective results in their online enforcement programs, including:

    • systematic monitoring of online and physical markets that supply the online trade;
    • consistent monitoring for repeat offenders, and elevation of appropriate cases with trade platforms and enforcers;
    • expanding monitoring to Chinese and global social media;
    • acting more consistently against hot targets through deeper investigations and criminal complaints;
    • cooperation with other victim brands to defray costs and increase impact; and
    • experimenting more with civil strategies, including through pre-action seizure of funds held in Alipay and bank accounts.

Joe Simone and Dan Plane