A Comprehensive Introduction of Available Approaches for IPR Enforcement in China
I.Statistics and Facts
According to the U.S. Chamber of Commerce, Global Intellectual Property Center, reported from the U.S. Customs and Border Protection, Office of International Trade-Seizure Statistics, Fiscal Year 2012, in FY 2012, the U.S. Department of Homeland security seized 22,848 IP-infringing products with a MSRP of $1.3 billion. Top counterfeits seized in FY 2012 by U.S. Department of Homeland Security were handbags/wallets, watches/jewelry, apparel, consumer electronics, footwear, and pharmaceuticals. China and Hong Kong are the primary sources of intercepted counterfeit products, which represent 84% of seizures.
The above statistics is one example of the increasingly worrying global trend of IP infringement by Chinese counterfeiters. To provide effective remedies to our oversea clients, PRC lawyers are often work closely with local investigators through various approaches. Below is an introduction of the available approaches often adopted in anti-counterfeiting practice for IPR enforcement in China.
II.IPR Legal Framework in China
The IPR legal framework consists of basic PRC laws including Patent Law of the PRC (2008.12.27), Trademark Law of the PRC (2013.08.30), Copyright Law (2010.02.26) and Criminal Law (2014.04.24). At the same time, there are also administrative regulations, such as Regulation of the People's Republic of China on the Customs Protection of Intellectual Property Rights (2010.03.24), Notice of the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security on Issuing the Opinions on Several Issues concerning the Application of Law in Handling Intellectual Property Right Infringement Criminal Cases (2011.01.10).
III. Enforcement Authorities
In China, IPR laws and regulations are enforced by two categories of authorities, namely administrative authorities and judicial authorities. Specifically, administrative authorities refer to The Administration for Industry and Commerce (AIC) and PRC Customs. Other organizations like Administration of Quality Supervision, Inspection and Quarantine of the PRC (AQSIQ), Public Security of PRC and State Intellectual Property Office of the PRC (SIPO) also play important roles in IPR enforcement. In addition to the various administrative authorities, judicial authorities simply refer to the civil and criminal courts in China.
IV. Enforcement Approaches
Depending on various enforcement authorities, IPR enforcement approaches are divided into administrative and judicial ones. Administrative approach is carried out by the Administration for Industry and Commerce (AIC), the Customs and other organizations like AQSIQ, PSB and SIPO. Also, as mentioned in the second part, the judicial approach refers to the proceedings implemented by civil and criminal courts.
A. Administrative Approach - AIC
Compared with others, AIC is the largest of all IPR enforcement agencies. AIC deals with not only trademark issues, but also registration of businesses (individual and legal persons) and regulation of the market (unfair competition). AIC offices present at all administrative levels of the territory: national, provincial, municipality, county.
The AIC enforcement procedure consists of four steps. First, in order to file claim to a local AIC, a before-action investigation is necessary. After that, a complaint can be lodged with local office of AIC with submission of proofs. Such proofs are mainly proof of entitlement to the IP and evidence of the infringement. Upon submission of sufficient evidence to local AIC, the AIC will conduct a raid against the alleged infringer. At the end of a raid, the AIC can make orders to stop the infringing operation, to revoke business license and\or to impose a fine of ≦5X of the illegal sales revenue.
The following are the representative cases of AIC enforcement of our firm. For example, in the administrative raid with Huai'an Huaiying AIC against Huai’An VKINGM Packing Co., Ltd., over 100,000 counterfeit tapes bearing the brand of one of our US clients were seized. And in the Administrative raid with Yiwu TSB against Yiwu Lezhong Adhesive Factory, 36,000 pieces of counterfeit super glue, 180,000 counterfeit tubes, and 68,000 counterfeit packing cards were seized.
B. Administrative Approaches – Customs
The administrative approach carried out by the custom protects registered trademarks, copyrights and patents that either recorded or not. Once merchandise is suspected of infringing existed IPRs, customs have the right to detain. If infringement is confirmed by later investigation, such merchandise will be seized and forfeited. Briefly speaking, the custom’s enforcement methods can be classified into acts on its own (ex officio) and acts upon application.
The procedures of enforcement ex officio and enforcement upon application are different. The former requires that the IPR protected must be recorded. Once the custom discovers suspected goods, it will stop clearance and inform the relevant IP right holder. The right holder may submit application to detain the suspected goods and provide security bond. Upon submission of application and sufficient security bond, the custom may detain the suspected goods. The custom is entitled to investigate and identify whether infringement is established. Upon issuance of such decision, the custom may dispose of the counterfeits.
As mentioned above, in the procedure of enforcement ex officio, the IPR protected must be recorded first. When apply for recordation, the applicant should provide information of IPR right holder, IPR certificate, goods using IPR and identified infringer. The recordation’s term of validity is 10 years with each renewable term of 10 years.
The procedure of enforcement upon application, just as the terms suggest, can only be started by the application of IP right holders. At the same time, the applicant should provide security of similar value with the suspected goods. Upon sufficient application and security, the custom can detain the goods. After that, shippers and consignees may apply to discharge the suspected goods. Different from the procedure of enforcement ex officio, in procedure of enforcement upon application, customs are not authorized to investigate and identify. After customs’ detention of suspected goods, the IP right holder should apply to court for judicial measures and customs may assist such judicial measures.
V. Enforcement Approaches - Judicial
A. Judicial Approach – Civil Remedies
Once an infringement is discovered, the IP right holder is first recommended to negotiate on the purpose of reaching a licensing agreement, which will enable the infringer to utilize the IP upon payment made to the right holder. In case the negotiation fails, an IP right holder may resort to civil proceedings, during which the court will award an injunction against the infringer or damages to the right holder. In the case of 新百伦 Vs. New Balance，the award of damages is as high as RMB 98 million, so far the highest infringement compensation in China.
Civil proceedings can be a powerful weapon to protect IP right holders’ legal interests based on our firm’s past experience. In the civil lawsuit against Hunan Magic Power Industrial Co., Ltd., Guangzhou Intermediate People’s Court held that the counterfeiter shall stop using the plaintiff’s mark and compensates RMB 500,000 Yuan. Guangzhou High People’s Court upheld the judgment after the defendant’s appeal. The plaintiff’s fund and interest in the amount of RMB790, 000 Yuan has been successfully collected. In another case, a small-sized factory named Kaiping Dongbao Factory produced counterfeit products of the plaintiff’s. Kaiping People’s Court held that the owner of the factory shall pay the compensation to the plaintiff in the amount of RMB200, 000. Jiangmen Intermediate People’s Court upheld the judgment after the defendant’s appeal. A total amount of RMB230, 000 had been collected. The factory finally bankrupted due to the judgment.
B. Judicial Approach – Criminal Remedies
In China, the majority of IP enforcement actions are civil not criminal for the reasons that, the burden of proof through criminal approach is much higher than that in civil ones. The threshold amount for criminal charges is illegal sales revenue of RMB30,000 or illegal net profit of RMB20,000 and the maximum of prison term for the infringer is 7 years sentence. (a) Whether organized crime is involved; (b) whether public health and safety concerns are impaired; (c) the commercial nature; (d) the amount of loss and harm, are the main factors to be taken into consideration when evaluating whether to charge criminally.