China has long been a target of criticism for infringement of intellectual property (“IP”) rights. Over the last 20 or so years, China has not just become the world’s factory … it has also become the world’s primary source of counterfeit and infringing goods. Indeed, studies conducted as recently as 2018 indicate that over 80 percent of fakes on markets[1] originated from the People’s Republic of China (“PRC”). While China has rightly been castigated for a failure to curb this rampant counterfeiting, slowly, but perceptibly, improvements have been observed. Indeed, since its entry into the World Trade Organization in 2001, China has been consistently amending and updating its law to better comply with TRIPS[2] and to respond more directly to the ongoing criticisms.
That being said, enormous gaps remain. As well, new problems have taken root, down mainly to technological advances and seismic shifts in commerce to online trade, fuelled by ever-increasing globalisation. As a result, and although China has continued to update its IP laws, the practical enforcement of those laws by authorities and the courts remains a huge problem, one that consistently frustrates foreign brand owners.
The frustration that had been bubbling away for years finally boiled over in 2018, with United States of America (“US”) President Donald Trump imposing punitive tariffs on PRC imports to the US in response to what was referred to as China’s “IP theft and unfair trading practices”, demanding amongst other things that China make significant changes to its IP enforcement regime. After several rounds of negotiations, the US and China finally reached a preliminarily deal, inking a Stage 1 agreement entitled the Economic and Trade Agreement between the United States of America and the People’s Republic of China (“ETA”) on 15 January 2020.
Through the ETA, China agreed to boost its future purchases of US goods and services by US$200 billion over two years in exchange for the US freezing the imposition of customs duties on Chinese goods. In addition, China also committed to strengthening the protection of IP rights, especially in relation to trade secrets, patents and pharmaceutical-related IP, geographical indications, bad-faith trademark registrations, infringing activities on e-commerce platforms, and enforcement against pirated and counterfeit goods.
China had already revised some laws prior to the ETA to address a number of ongoing complaints and deficiencies. For example, it amended its Trademark Law and issued corresponding Regulations at the end of 2019 to target bad faith trademark registrations (see further details in Section B). Further, the E-commerce Law, enacted in 2019, tangentially impacted online counterfeiting by prohibiting vendor anonymity and demanding platforms protect consumer safety. China has already begun revising its laws in other area, such as patents and trade secrets, to comply with the ETA (also discussed in detail in Section B below), but it is unclear how far these amendments will go and to what extent China will follow through on its commitments under the ETA, rather than merely paying lip service to them through amended laws that are not strenuously enforced in practice. Interestingly, if those commitments are not honoured, and rather than relying on arbitration to resolve any disputes between the countries, the ETA dictates resolution of disputes under the agreement through “a bilateral mechanism”. This calls into question just how effectively and forcefully China’s failure to comply with ETA-mandated obligations can be resolved.
Of course, since the ETA was signed, other events have almost fully eclipsed the US-China trade dispute, with the COVID-19 pandemic, the US’ failure to effectively control its spread within its own borders (along with its desire to class China as responsible for the outbreak), as well as China’s imposition of a National Security Law in Hong Kong in an effort to halt unrest there, acting as natural distractions from China’s Stage 1 commitments. Indeed, it seems doubtful the parties will have the interest or the ability to return to the negotiation table to discuss the originally-anticipated Stage 2 agreement (at least before the US’ November elections).
As a result, brand owners would be wise to assume it will remain business as usual in relation to the enforcement of their IP rights in the PRC. Indeed, with COVID-19-related economic distress causing many Chinese firms to go under, an increase in counterfeiting, as cash-strapped PRC factories seek to shore up losses, may well be seen. Accordingly, we feel that IP owners may benefit from a brief review of the main challenges they will face in enforcing their rights in China, as well as of some recent developments that could impact their brand-protection strategies in the PRC.
Primary challenges and systemic deficiencies
1. Trademark hijacking and inadequate remedies to halt the same
The sheer volume of piracy at the trademark registry in China is scandalous. This is attributable to a number of causes, including, primarily, China’s reliance on a “first-to-file” registration system. That system means that whoever gets an application for a given mark filed with the Trademark Office (“TMO”) first is the putative owner of that mark, in spite of ownership of the mark outside China by another. This system heavily rewards enterprising pirates, many of whom scour the internet looking for any and every foreign brand they can identify for which true owners have not yet filed PRC trademark applications. Indeed, Chinese pirates really do view the PRC’s trademark system as akin to a lottery, with every application a “ticket” that might pay off if/when the foreign brand owner realises his mark has been hijacked.
Often, and even where the true owner has protected their mark in key goods/services classes, trademark squatters may file their own applications for the mark in respect of unrelated consumer goods or services not offered by the true owners. Trademark squatters may also register Chinese translations of foreign marks or even create their own Chinese translation to get an even bigger jump on the true owners in an effort to control the PRC market for the brand.
If a trademark is filed by a squatter in bad faith, the PRC Trademark Law system provides a range of tools that the true owners can use in an effort to remove any pirated marks. The most common tools include the following:
- submitting an interference letter (before preliminarily approval);
- filing an opposition (within three months of preliminarily approval);
- lodging an invalidation (within five years of registration); or
- initiating a non-use cancellation (after three years of registration).
These actions can take at least one year and often longer where appeals are taken. In that regard, and once administrative appeals are exhausted, adverse decisions can be appealed to Beijing Intellectual Property Court and subsequently to Beijing Higher People’s Court. As a result, the registration of the true owner’s mark could be delayed for two to three years, particularly where the pirate fights back strenuously.
Meanwhile, the true owner’s trademark application will likely be unable to clear registration before the pirate’s blocking mark is fully and finally neutralised. This is because Chinese courts and administrative appeals bodies are generally loathe to suspend review of rejected applications pending the outcome of attendant actions. As a result, pirated brand owners are forced to (a) file appeals to keep their applications alive; and/or (b) file new trademark applications to keep their own filing at the head of the queue (assuming the pirate or others do not also file their own new applications to try to gazump the brand owner).
2. Deficiencies in protection of copyright
The Copyright Law currently in effect in China was first promulgated in 1991, and amended in 2001 and 2010. As a result, it does not effectively address emerging issues that have arisen with the passage of time and the rapid development of new technologies. This is clearest in respect of its definition of “works”, which is narrow and ambiguous, regularly leading to disputes over how to classify “new” content. The law is not fit for purpose from an enforcement perspective, either. Maximum statutory damages available for infringements are only Rmb500,000 (about US$71,500), an amount insufficient to compensate rights owners or deter pirates. Even more troublesome is the fact that local administrative authorities have very limited enforcement powers for copyright infringement under existing laws. This limits the Copyright Law’s use as a (cost) effective tool to inspect and punish infringers for copyright infringement and forces owners to file civil suits to protect their rights.
In addition, and unlike trademarks and patents, it is difficult for the public to check and confirm ownership of works that have been registered with the Copyright Protection Centre of China (“CPCC”). This is troublesome, where infringers regularly take advantage of the fact that CPCC does not conduct substantive review of copyright registrations to file bogus copyrights applications for works belonging to others, using those applications as a shield against enforcement actions or even as weapons in actions against third parties.
3. Insufficient protection of patent rights
Similar to the PRC’s copyright system, the current legal system for protecting patent rights is viewed by most patent holders as insufficient to deter infringers. For example, although the maximum statutory compensation for patent infringement cases is Rmb1million (about US$143,000), a paltry sum by international standards, damages commonly awarded by PRC courts in patent infringement cases is shockingly low – around US$10,000 to30,000.
As well, local administrative authorities’ power to conduct enforcement actions against patent infringers is very weak, permitting them to do little more in practice than conduct “inspections”, and if they feel inclined to do so, conduct mediation between the parties. As a result, few brand owners even bother attempting administrative enforcement of their patents. Instead, resorting to civil proceedings is the only viable means of obtaining an award of damages, importantly, permanent injunctions (where preliminary injunctions are available under the law, but are simply never granted in practice).
4. Issues with protection of trade secrets
Currently, it is very difficult to obtain a criminal prosecution for theft of trade secrets unless the victim is able to demonstrate that the stolen trade secrets have been commercialised, that is, after the harm has already occurred.
5. Other issues related to the PRC’s IP enforcement system
(a) Civil courts
Judges in China suffer under very heavy workloads. That does not appear to be changing anytime soon, where the number of lawsuits continues to grow, exacerbated by a diminishing focus on administrative enforcement as an effective tool. As a knock-on effect, the time frames for civil cases are also being blown out, particularly in relation to cases involving foreign parties or related to foreign affairs, where there is no absolute deadline for courts to issue judgments in such cases (as opposed to purely domestic cases, where strict time frames are mandated).
Given that, and the fact that Chinese courts seem utterly loathe to issue preliminary injunctions in even the most egregious IP infringement cases, civil suits are usually ineffective in immediately halting infringement, forcing brand owners to either consider leveraging settlement via the litigation or dig in for a protracted lawsuit.
Discovery is also an issue. In the PRC, there is no true discovery process, and access to evidence from the other side is restricted, with neither party obligated to produce any evidence, particularly materials damaging to their case. This issue is exacerbated by the willingness of Chinese litigants – and their lawyers – to put forward fraudulent evidence, and Chinese courts’ willingness to look the other way. Indeed, few parties or lawyers are punished for production of fraudulent evidence. There is anecdotal evidence that this is changing, with a few Chinese courts assessing penalties, albeit minor ones, where the fraudulent evidence has been deemed particularly material to the case, but these cases are exceptions.
(b) Public Security Bureaux (“PSB”)
Generally, the s in China are less willing to act in relation to IP crimes. This is mainly due to a lack of a clear message from above that counterfeiting should be aggressively punished, and the concomitantly limited resources directed to such cases. It is also likely due to historical reasons, where administrative enforcement has long been the “go to” tool for direct action against infringers. As a result, and speaking practically, PSBs will generally only accept criminal complaints in cases where the victims have already conducted their own in-depth investigations identifying the seller, or more importantly, the manufacturer of the infringing products, and to confirm that the value of the goods involved exceed relevant criminal thresholds for the value of the goods.
(c) Online enforcement
With the rapid development of computer technology and the meteoric proliferation of the internet, China has witnessed an explosion in online infringement. Although music and video streaming services appear to have effectively curtailed online piracy of copyright works, sale of counterfeit goods online in China is endemic. China’s laws and enforcement authorities have done little to keep pace with the exponential growth of the problem. As to the platforms themselves, they will generally take down listings for clearly fake products, but will balk at doing so in ambiguous circumstances, forcing brand owners to issue civil proceedings to halt the infringement (where the platforms can absolve themselves of civil liability by finally taking down the listing upon notice of the suit). This issue is exacerbated by the ability of infringers to hide their identity. This is in spite of recent provisions in the PRC E-Commerce Law that mandate disclosure of the same, which are not yet being enforced due to a lack of Regulations or clarity as to who is responsible for its enforcement.
Recent developments in PRC IP protection
The Chinese Government is aware of the problems faced by IP owners in protecting their rights and is striving to make improvements, including by continuously revising IP laws. Some recent developments in changes in IP-related laws are discussed briefly below.
1. Trademarks
(a) Trademark hijacking
Following extensive foreign lobbying, as well as pressure from local interests, in 2019, China revised its Trademark Law and issued Regulations clearly targeting bad-faith registrations.
The current version of the Trademark Law now offers a clearer legal basis for actions against pirates. For example, in the past, the China National IP Administration (“CNIPA”) or courts rarely supported oppositions/invalidations on the grounds of “bad faith” alone. With the revisions, however, bad-faith filings made with an accompanying lack of intent to use (easier to demonstrate where the pirate has filed for hundreds of foreign-owned trademarks, and/or seeks trademark rights for goods/services outside their registered scope of business) is now a standalone basis for the rejection/invalidation of pirated marks.
The revised Trademark Law also allows administrative fines to be imposed against trademark squatters and their agents. It even threatens to record such behaviour in China’s nascent social credit system, an effective, if Orwellian, means of controlling conduct in 21st century China.
So far, the revised Trademark Law has resulted in the following positive outcomes:
- CNIPA has established an informal internal “blacklist” of particularly pernicious pirates and trademark warehousers.
- The TMO has unilaterally rejected hundreds of thousands of applications filed by warehousers.
- The TMO is now inviting victimised brands to file informal interferences before pirated marks are reviewed and approved.
- Several Market Supervision Bureaux (“MSB”) are reported to have imposed fines on trademark pirates and their agents for bad-faith filings, though only in relation to marks tied to the COVID-19 pandemic. So far, there are no reports indicating that MSBs are imposing fines on other type of pirated marks.
As a result of these improvements, victimised brand owners now have a much higher chance of winning legal actions against pirated marks. That being said, there are no reported cases yet where pirates and their agents are feeling the full force of these changes, including by being forced to bear liability for their victims’ legal and investigation costs.
(b) Trademark enforcement
The revised Trademark Law increased maximum potential compensation for trademark infringement dramatically, raising maximum statutory damages from Rmb3 million to Rmb5 million (about US$715,000). The base level for punitive damages was also increased from three times to five times the underlying damages awarded. It remains to be seen how effective these increases are, however, where average damage awards in trademark cases run at only around US$10,000-20,000, and infringers generally safely avoiding paying damages awards against them, regardless.
2. Copyrights
China published a Draft Amendment to the current Copyright Law for comment in April 2020. Amongst other things, the Draft Amendment seeks to broaden and modernise the law’s scope by modifying or expanding the definitions of “works”. For example, the term “cinematographic works and works created by a process analogous to cinematography” will be expanded to the broader catch-all term “audio-visual works.” This and other proposed amendments are clearly designed to modernise the law to account for continuous technological developments and to better conform with relevant international conventions.
Another significant proposed amendment is the increase of the maximum statutory compensation from Rmb500,000 to Rmb5 million (about US$715,000), important where the current ceiling on statutory compensation is simply ineffective as a deterrent.
The Draft also looks to grant additional authority to local administrative authorities when conducting raids against copyright infringing activities, permitting them to make enquiries of infringers, arrange onsite inspections, copy relevant materials, seal up relevant sites, and seize infringing goods identified during investigations. The Draft also proposes creation of a streamlined registration system that would allow the public to easily search and confirm the ownership of works.
3. Patents
The Second Draft Amendment to the Patent Law was published on 3 July 2020 and was open for public comments until 16 August 2020.
A key development in the Second Draft Amendment is the introduction of partial design protection. It also provides for the extension of design patent protection to 15 years from the current term of 10 years.
In addition, and in line with China’s obligations under the ETA, the Second Draft Amendment also introduces the concept of “patent linkage”. Under this proposal, a patentee or other interested party can challenge the approval of any drug by a generic applicant with a court or CNIPA within 30 days of the announcement of the application for market approval by the National Medical Products Administration (“NMPA”). If no such challenge is raised, the generic drug applicant may in turn request a determination of non-infringement from the court or CNIPA to confirm that the product does not infringe any patents listed on the Approved Drug Patent Registration Platform. The court or CNIPA will need to render a decision within nine months. The NMPA may then rely on that decision in determining whether to grant market approval for a generic chemical drug that has passed technical review.
Another significant change in the Second Draft Amendment is the addition of a supplemental protection period (“SPP”) to compensate for unreasonable delays due to invention patent examination by the CNIPA, and/or for invention patent rights in new drugs that take longer to pass through relevant regulatory review and approval processes.
Finally, the Second Draft Amendment also seeks to increase the level of statutory damages specified in the earlier-issued First Draft Amendment, raising the maximum damages to be awarded up to US$715,000. Interestingly, it also removes a “minimum” award in respect of statutory damages awards. As a result, some have expressed concern that courts may abuse this “basement”, leading to low damage awards and potentially undercutting the deterrent effect sought by increasing the maximum amount that may be awarded.
4. Trade secrets
Through the ETA, China had also promised to amend Criminal Code provisions and judicial interpretations relating to trade secrets. In this regard, the Supreme People’s Court previously published Draft Interpretations on Several Issues regarding Application of Laws in Civil Disputes in Cases regarding Infringement of Trade Secrets. The Draft Interpretations are aimed at facilitating criminal prosecution of trade secret infringers by shifting the burden of proof to them, reducing the threshold for criminalisation of such thefts. It also broadened the definition of “losses” due to infringement.
5. Online enforcement
There have been several positive changes afoot in relation to online enforcement against infringements and counterfeits. As noted above, the 2019 E-commerce Law has technically outlawed vendor anonymity (though Regulations dictating how this will be enforced and punished are still awaited). Further, the Zhejiang Higher People’s Court issued an opinion in 2019, which sought to impose a higher legal duty on platforms, a change similarly embodied in the ETA, as well as CNIPA’s own “Action Plan” issued in 2020.
Best practices
With the above challenges and opportunities in mind, IP right owners should consider the following best practices to more effectively protect their IP rights in China and to keep pace with upcoming changes.
1. Trademarks
(a) File early and file broadly
With China’s “first to file” trademark registration system, it is highly recommended to file trademarks early in China to avoid your marks being pirated by third parties. Having your mark pirated regularly results in supply chain interruptions and, in the most serious cases, infringement claims being brought against authorised manufacturers and distributors – perhaps even criminal claims.
In addition, broader defensive trademark applications are also recommended, particularly in relation to goods or services that might be the subject of future business expansion. Pirates regularly file applications in such classes, often to make use of those marks as cover for their infringement of the brand owner’s PRC registered trademark. This is because the existence of registered rights, even in relation to dissimilar products, is often sufficient to scare authorities off from punishing counterfeiting, concluding the matter is a commercial dispute between competing rights holders.
Chinese marks are also key. Obviously, Chinese is the native language of most people in China, so domestic consumers are much more likely to use, understand and/or respond to a Chinese-language version of foreign marks. As well, and where there is as yet no “official” Chinese translation of a given trademark, consumers will craft – and pirates will register – their own. For this reason, it is highly recommended that foreign brands seriously consider creating their own Chinese-language version before they enter the Chinese market, obtaining relevant trademark registrations as soon as possible. When developing a Chinese translation for their brands, foreign brand owners should also consider variations in pronunciation and dialects amongst Chinese-speaking jurisdictions.
(b) Searching/monitoring
Given the rampant trademark piracy in China, conducting in-depth clearance searches prior to filing for a given brand is always recommended. These searches will help to identify pirated marks that might pose an obstacle, and permit trademark owners to potentially design around to identify any blocking marks and take proactive measures to resolve potential conflicts. This is a far more cost effective and time saving approach than blindly filing a new application without any clear picture of what might be out there lurking on the register, only finding out after the mark is rejected due to multiple citations.
In addition to trademark searches, regular monitoring of the PRC Trademark Gazette is also strongly recommended. A solid watch service or regularly scheduled searches for similar marks in key classes will inevitably identify marks of concern, permitting diligent brand owners to potentially curtail piracy and counterfeiting issues before they take root.
(c) Copyright registrations
For logos, local copyright registrations (discussed in greater depth below) are also recommended. Such registrations can be a useful tool against pirated trademarks (where prior rights such as copyright can form a basis for oppositions and invalidations) as well as against counterfeits bearing substantially similar or identical versions of the logo. A copyright can also serve as a shield to defend against enforcement actions brought by pirates. In that regard, proof of superior prior rights such as copyright, along with newly-introduced Trademark Law provisions intended to punish malicious use of pirated trademarks, should help to dissuade authorities from rewarding pirates for their behaviour by declaring a mark’s lawful owner a counterfeiter.
(d) Customs recordals
China is the “world’s factory” for both genuine and counterfeit products, exporting goods in massive quantities all around the world. Given that, China’s General Administration for Customs has been tasked with inspecting not only goods coming into China, but those going out as well. Customs, via an online recordation system, permits IP owners to record trademarks, copyrights and patents to facilitate the seizure of goods infringing those rights at the time of export/import. By recording their IP rights with Customs, brand owners can facilitate the seizure of goods infringing those rights at the time of export/import.
One downside of PRC customs recordals is the potential halting of shipments of genuine products. If suppliers/distributors of such goods do not appear in the brand owner’s “white list” in Customs’ online system, authorised goods could be held up in transit. This requires careful control and monitoring of the white list to ensure it is accurate and up to date.
2. Copyright
(a) Registration
Chinese copyright registrations can be obtained for all traditional types of works, including literary works, music, photographic works, and fine art works.
In addition, Chinese courts also regularly recognise copyright in “works of applied arts”. This species of copyright is a boon for holders of products not protected by registered designs. For works that possesses sufficient aesthetic value, a copyright registration or extrinsic evidence of creation and ownership can provide a basis for the IP rights owner to enforce rights in the design on the basis of copyright. As the term “works of applied art” is not actually recognised under current CPCC policies, the best practice is to apply for a copyright registration for a “work of fine art,” thereafter pressing the claim that it should be treated as a “work of applied art” in civil actions with the courts and in negotiations with the pirate.
(b) Proof of copyright ownership
The CPCC does not substantively examine applications for copyright, permitting registration of nearly any copyright work at all, owned by anyone at all. Copyright registration certificates, however, only serves as prima facie proof of subsistence and ownership. Pirates defending against infringement claims based on those certificates, and courts hearing cases against those pirates, will regularly press for more substantial evidence on those points. This will likely entail production of sufficient extrinsic evidence, evidence which will need to be translated if not in Chinese, and legalised and notarised to comply with PRC evidentiary standards. For commissioned works, works created by external design agencies, and works created by employees of the company, strong consideration should be given to creating contemporaneous agreements confirming the facts on creation and ownership. It is often difficult (or even impossible) to obtain the cooperation of those third parties years later.
(c) Infringement claims relating to fonts and photographs
Outside of lawsuits for piracy of music and movies, the majority of copyright lawsuits in China involve fonts and stock photographs. Litigation farms scour the internet searching for unauthorised uses of those rights, conducting quick preservation of the infringement through Chinese notaries and sending off demand letters, backed by threats of lawsuits. Foreign companies’ local offices or marketing companies retained by those offices are regular targets of such claims, where they are lax in clearing copyright before making use of others’ content. To avoid such claims, local employees and contractors should be made clearly aware of this risk and required to only use content created by them or lawfully licensed from its owner. For external companies, contracts with those entities should provide for indemnification of the company in the event of any infringement claims and payment of the company’s legal fees tied to defending the complaints.
3. Patents
(a) File for patents in China as early as possible
As with trademarks, early filing for patents in China is recommended, even where the patented product is unlikely to be manufactured or sold in the PRC. This is because for successful products, it is a near certainty that rip-offs of that product will be manufactured here.
For design patents and utility models, no substantive examination is conducted on applications and registrations are granted immediately. To the contrary, invention patents undergo detailed substantive examination, and as in other countries, can take years to be granted. As a result, and where seeking protection for a new invention, companies should also consider filing applications for both the invention and a utility model covering the same subject matter. The utility model, granted quickly, will be enforceable within at most a year or so, often less. The utility model can be enforced against infringers while awaiting the outcome of the Patent Office’s review of the invention patent. When the invention patent is finally granted, the patentee can then simply withdraw the utility model, avoiding any double patenting issues.
(b) Seek “evaluation” of design and utility model patents
As designs and utility models do not undergo substantive examination, enforcement authorities and courts usually require favourable evaluation reports finding the design or utility model is patentable before they will entertain infringement complaints. Favourable evaluation reports are also helpful in supporting Cease and Desist (“C&D”)letters and demands for settlement with infringers.
4. Trade Secrets
Unauthorised disclosures of trade secrets can cause companies massive financial harm. Given that, and the sheer difficulty of proving and remedying such breaches in China, proactive steps are vital in reducing the risks of trade secret theft by PRC employees and business partners. These steps include the following:
- Written agreements, executed by the recipient of the trade secrets, acknowledging its confidentiality and undertaking to prevent its disclosure. Such agreements and acknowledgements will ideally be executed before the confidential information is disclosed, as well as upon the termination of the relationship with recipients.
- Secure handling of all trade secret materials, including by clearly marking them as “confidential” and sequestering them in a location (or a format) only accessible by authorised parties.
- Upon termination of the relationship with recipients, return of any confidential information should be pressed. As well, and because it is common for ex-employees and business partners to become dreaded competitors when armed with vital commercial secrets, monitoring and investigation of those parties in the months following termination is strongly recommended.
If any unauthorised disclosures or theft of trade secrets are identified, companies will need to be prepared to move quickly to confirm the facts surrounding the breach. Take clear note that absent proof of proper classification and handling of the confidential information, along with notarised evidence of the thief’s misuse and abuse of the information, police and courts are unlikely to be sympathetic to trade secret theft claims.
5. Enforcement
(a) Investigations
Before conducting enforcement actions, investigations are always required in order to understand the nature and scale of infringing activities and determine appropriate actions. The easiest means of proceeding is with thorough online research, designed to collect as much background information from open sources as possible. After online research is completed, companies can dispatch investigators to conduct market surveys and field visits designed to obtain evidence of infringement.
Notarisations of both the online research and the field investigations (including purchases of samples) are strongly recommended, as they will form the basis of any potential civil litigation, and will be helpful in persuading administrative and police authorities to act.
(b) Consider all available enforcement avenues before deciding on an action plan
After investigations are completed and sufficient evidence has been obtained and preserved, companies should evaluate the different types of enforcement actions open to them before deciding on the “best” action to take, based on their budget, objectives, and practical challenges they will face. Generally, the most common IP enforcement actions in the PRC include the following:
- Online take-downs requests with platforms to remove content related to infringing activities, such as offers of sales of counterfeits, misuse of trademarks and copyright-protected content, etc.
- C&D letters issued to infringers demanding they halt infringing activities. In-person delivery by lawyers is recommended if budget permits, as this can exert more pressure on the infringers to comply and potentially open channels for negotiation.
- Administrative or criminal enforcement – by filing complaints with MSBs or PSBs requesting that they conduct raid actions against infringers, investigate infringers and their activities, and issue penalty decisions or court issued criminal judgments.
- Civil proceedings – by filing relevant civil complaints with courts, requesting issuance of permanent injunction against the infringers and orders for payment of compensation, etc.
As companies will undoubtedly face a range of different infringers doing differing degrees of harm, from small fish selling lousy knock-offs, to large kingpins seeking to steal the brand and business entirely, companies will need to consider the full range of the above-listed options to maximise the impact of their enforcement dollars, using the right weapons and tools for any given target.[3]
(c) Online enforcement
Companies will ideally conduct a broad initial audit before undertaking any online enforcement. This will permit them to identify the full range of infringers they are facing, informing decisions on target selection and prioritisation and budgeting. As a purely practical matter, it should be noted that the PRC is awash with genuine grey market products brought in from overseas (referred to as the “daigou” trade). This will often require brand owners to conduct regular (and often expensive) sample purchases for examination and testing to avoid making claims of counterfeiting against genuine goods. During these sample purchases, information can often be obtained from the sellers, information that could be helpful in later enforcement actions, if and when needed or for exerting greater control on supply chains overseas to limit grey market goods (if required).
For companies just getting started with their online enforcement program, consideration should be given to seeking free or low-cost surveys from online monitoring service providers, such as Incopro, OpSec, Yellow, and Pointer. Those entities are usually happy to provide limited surveys to demonstrate their capability and help to shape initial strategies.
At some point, particularly when the most blatant and egregious infringements have been eliminated via takedown notices, the ability to cheaply and efficiently identify infringing listings and to have those listings easily removed, could be hampered. More sophisticated infringers selling higher-quality – and much harder-to-identify-as-fake – counterfeits may also be present. Given that, and in addition to regularly and systematic online takedowns, companies should be prepared for a range of actions to bring online infringement to heel. Regular takedowns against smaller infringers, C&D letters to larger infringers, and targeted civil suits against particularly pernicious counterfeiters will likely be warranted. Although time consuming and expensive, these coordinated long-term actions are key to deterring infringers from targeting your brand and will hopefully drive them to rip off less aggressive victims.
Conclusion
Enforcement of IP in the PRC has always been a challenging proposition. Sustained international pressure on China, over the last few years has seen a number of shifts and changes intended to address the most serious deficiencies in its enforcement systems that may finally result in lasting, institutional changes. This is most true in relation to bad faith trademark piracy, where significant changes to the law and TMO practice are initially quite promising.
That being said, experienced China practitioners have been here before, and will know to temper their expectations. Improvements on paper in China, via amended laws, regulations and legal interpretations, have regularly failed to live up to their promise when it comes to execution by relevant authorities. Savvy brand owners will therefore be alert to and take advantage of potential opportunities presented by incremental improvements – but be well prepared for disappointments and setbacks. That means maintaining a solid, fundamental IP protection program in China typified by broad filings and proactive monitoring and enforcement measures, upgraded and updated where possible.
By Dan Plane and Grace Chen
Endnotes:
[1] Wade Shephard, ‘Meet the Man Fighting America’s Trade War Against Chinese Counterfeits (It’s Not Trump), Forbes (Web Page, 29 March 2018)
https://www.forbes.com/sites/wadeshepard/2018/03/29/meet-the-man-fighting-americas-trade-war-against-chinese-counterfeits/#3dd0560f1c0d.
[2] Marrakesh Agreement establishing the World Trade Organization, opened for signature 15 April 1994, 1867 UNTS 3 (entered into force 1 January 1995) annex 1C (“Agreement on Trade Related Aspects of Intellectual Property Rights”).
[3] SIPS, ‘Enforcement of IP Rights in China – A Primer’ (Web Page, 31 March 2020)
(https://sips.asia/knowledge/trademark-enforcement/enforcement-of-ip-rights-in-china-a-primer/)
