Opinion on handling of criminal IP infringement cases issued

In a further attempt to reduce the infringement of IP rights in China, on January 11 2011 the Supreme People’s Court, the Supreme People’s Procuratorate and the Ministry of Public Security published an opinion clarifying various issues relating to the laws applicable to the investigation and prosecution of criminal infringement cases.  
In relation to trademarks, the opinion provides as follows:
  • When calculating the monetary value of an illegal business operation, the value of any unsold merchandise may be included, even if the infringing mark has not yet been applied to it, as long as it can be shown that the merchandise in question was intended to be used for counterfeiting purposes.
  • The act of "attempting" to sell merchandise bearing a counterfeit trademark constitutes a criminal offence if any counterfeit stock remaining unsold is worth more than Rmb150,000 (approximately $22,800) or, where some counterfeit stock has been already been sold, the combined value of both sold and unsold counterfeit merchandise is worth more than Rmb150,000, provided (in both scenarios) that it can be shown that the individual was aware that he or she was dealing with counterfeit products.
A large part of the opinion focuses on copyright infringement on the internet, including who can be liable, what constitutes infringement and how the thresholds required to bring criminal proceedings apply in cases relating to conduct on the internet. The main points of the opinion in this respect are as follows:
  • It confirms that an infringement can take place at the location of a server of a website that distributes and sells infringing goods, where the website is accessed, where the infringing material is uploaded and where the manager or owner of the website is located. The definition of 'distribution' under the Criminal Code has also been clarified to include the transmission of such material through the internet. In this regard, the opinion brings the authorities’ interpretation of what constitutes infringement and where it can take place in line with the reality that, today, copyright piracy often takes place on the internet.
  • The opinion reviews the definition of the phrase 'for the purpose of making profits'. In order to be held criminally liable for copyright infringement, prosecutors need to show that the alleged infringer engaged in the infringing acts for the purpose of making profits. The opinion makes it clear that 'profits' include membership fees collected by the website operator for transmitting others’ works through the internet and fees generated by the website operator through online advertising for others. In these situations, the opinion clarifies that, even though the website operators may not charge user fees for accessing copyright-protected works, they may still be liable for copyright infringement if, ultimately, they have made financial gains by the operation of such websites.
  • The opinion attempts to deal with the issue that, in many cases of online infringement, the first infringer may not be identifiable, by holding that third parties who facilitate the infringement of IP rights could potentially be held criminally liable as accomplices. Those who provide certain internet and network storage services may now find themselves being co-named in criminal infringement cases. This should persuade service providers to be more vigilant in ensuring that their services are not being utilised for the purpose of carrying out infringing activities. It also puts rights holders in a stronger position when seeking redress from intermediaries who provide copyright infringers with the means and 'forum' for carrying out their acts.
  • The opinion seeks to quantify how much loss the rights holder has actually suffered where a copyright-protected work has been illegally uploaded to a website by defining how website operators can meet the criminal threshold required for online copyright infringement. According to the opinion, the criminal threshold is met when the quantity of a rights holders’ works being offered on the website is “more than 500 pieces” or where the works have received “more than 50,000 clicks”.
The opinion is a welcome move by the Chinese authorities, acting as a further deterrent to those engaged in the online infringement of IP rights. It also provides rights holders and prosecutors with greater certainty in this complex area of enforcement of IP rights.
Cynthia Houng, Marks & Clerk Hong Kong, Hong Kong

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