New bank guarantees ease administrative burden on IP rights holders

Notice 31/2006 formulating the implementation of the use of a continuing bank guarantee in enforcing IP rights through Customs has now come into force. The notice, which is provided for under Article 14 of the PRC Intellectual Property Customs Protection Regulations and Article 72 of the Implementation Rules of the PRC Intellectual Property Customs Protection Regulations, was first issued by the General Administration of Customs of the PRC in May.

At present, when Customs discovers any goods for importation or exportation that it suspects of infringing an IP right under Customs recordation (ie, the relevant IP right had been duly recorded with Customs), it will immediately notify the holder of the IP right recordal in writing of the suspected infringement (Article 16 of the regulations). The rights holder then has to submit an application and provide a performance bond (Articles 13 and 14 of the regulations respectively) within three working days upon receipt of the notification. On receipt of the application and performance bond, Customs will then detain the suspected infringing goods, notify the rights holder of this and serve a customs detention receipt on the consignee or consignor. Customs then carries out an investigation and makes a determination, within 30 working days of the date of detention, as to whether the suspected goods have infringed the relevant IP right (Article 20 of the regulations).

The performance bond has to be made out for a sum equivalent to the value of the goods in order to cover any possible compensation for losses that might be suffered by the consignee and consignor due to an improper application by the rights holder. The bond also has to cover the customs authorities' expenses in warehousing, maintaining and disposing of the goods after detention. Hence, a performance bond varies on a case-by-case basis and can be up to Rmb100,000 depending on the value of the goods involved.

Before Notice 31/2006 came into effect, rights holders were required to provide a performance bond for each and every seizure case within three working days of receiving notification from Customs. The requirement posed an undue administrative burden on rights holders (especially those who reside overseas) and also created a financial burden for rights holders, especially for large-scale infringements where Customs would make many detentions.

Under the new measure, rights holders may now rely on a general continuing bank guarantee for all the performance bonds necessary to cover seizures by Customs throughout that year. The amount covered by the general guarantee shall be the aggregate sum of the expenses of warehousing, maintaining and disposing of the infringing goods found in the preceding year, or Rmb200,000 if the aggregate is less than Rmb200,000 in the preceding year.

The rights holder must submit:

• a prescribed application form;
  
  
• a general continuing bank guarantee issued by a bank that is allowed to provide financial services in China; and
  
  
• a list of cases applied for by the particular rights holder for seizure and detention by Customs setting out the respective expenses of warehousing, maintaining and disposing of the infringing goods paid in every case in the preceding year.

The application and bank guarantee shall be approved by Customs and can be relied upon until the end of the year. During that time, the rights holder is no longer required to pay any further performance bond, although it will still have to pay the expenses for warehousing, maintaining and disposing of the infringing goods or any civil compensation to the consignor and the consignee in case of wrongful seizure. If the customs authorities' expenses are unpaid after 10 working days after receipt of a request for such, or if the rights holder does not bear its civil liability and an enforcement order is issued by the People's Court, Customs will write to the guarantor (ie, the bank) to seek reimbursement and payment of the guaranteed sum accordingly.

This new measure provides a more user-friendly procedure to rights holders in enforcing their rights, but may be of less help to foreign rights holders that do not yet have bank accounts with any China-approved financial institutions.

Rubya Ramjahn and Alan Chiu, Johnson Stokes & Master, Hong Kong