Procedures and strategies for anti-counterfeiting: China
Brand owners often contend that counterfeiting and trademark infringement are a high-profit and low-risk business, and that trademark protection falls short in China. However, positive changes have been taking place.
Brand owners often contend that counterfeiting and trademark infringement are a high-profit and low-risk business, and that trademark protection falls short in China because, among other things, the damages granted in trademark infringement cases are too low to deter infringers. As a result, brand owners have historically hesitated to file suit against infringers in the country.
However, positive changes have been taking place and it is increasingly common for Chinese courts to award substantial damages to brand owners in IP suits. Most notably, the Supreme Court has directed that the courts should:
- use market value as a benchmark for calculating and determining damages in IP litigation;
- include attorneys’ fees and reasonable litigation costs in damages; and
- consider including punitive damages to ensure that the total damages amount is commensurate with the market value of the IP rights in dispute.
China has a comprehensive legal framework, offering IP protection according to international IP treaties and conventions and domestic legislation.
China is a signatory to most major international IP treaties and conventions, including the Berne, Paris and Nice Conventions, the Madrid Agreement and Protocol, and the Agreement on Trade-Related Aspects of Intellectual Property Rights under the World Trade Organisation. It is also a member of the World Intellectual Property Organisation (WIPO).
The domestic laws on IP rights protection across the administrative, civil and criminal spheres include:
- the Civil Code;
- the Tort Law;
- the Criminal Law;
- the Trademark Law;
- the Copyright Law;
- the Patent Law;
- the Anti-unfair Competition Law; and
- the Product Quality Law.
The respective implementing regulations of these laws also apply, in addition to judicial opinions and regulations on IP protection (eg, the Regulation on Customs Protection of IP Rights and the Regulation on IP Protection at Trade Shows).
In 2017 amendments were made to the Anti-unfair Competition Law which became effective in January 2018. Consistent with the revised Trademark Law, the amended Anti-unfair Competition Law increased statutory damages for acts of unfair competition which violate IP rights from Rmb500,000 (approximately $79,035 ) to Rmb3 million ($474,211).
The courts are developing IP case law as part of legal reforms, with the Supreme Court compiling and issuing reports on guiding cases and courts in general encouraging rights holders to cite precedents in IP litigation in order to facilitate consistent verdicts when trying similar cases.
Chinese Customs is a major IP enforcement taskforce and is known for taking proactive seizure actions to protect IP rights. It takes seizure actions either in response to complaints filed by rights holders or on its own initiative during routine customs inspections. In practice, most customs seizure actions in China are ex officio.
Customs recordal of IP rights is not compulsory, but is a prerequisite for rights holders to seek assistance from Customs for seizure actions. Recordal is completed and updated exclusively online and covers:
- trademarks registered in China, including international trademark registrations with territorial extension to China;
- patents (including designs, inventions and utility models) issued by the State Intellectual Property Office (SIPO); and
- any copyrightable subject matter, provided that the work is deemed protected in China.
Customs recordals are valid for up to 10 years, provided that the underlying IP rights do not expire during that time.
On receipt of notice from Customs regarding the detection and detention of suspected infringing goods, the rights holder must respond within three working days to verify whether the shipment is authorised. Customs will seize goods that are verified to be unauthorised, provided that the rights holder posts a bond. Rights holders should work closely with local counsel in China to file a response to Customs within the set timeframe.
The rights holder may request Customs to transfer the case to the local public security bureau (PSB) (ie, the police) for criminal investigation and hopefully criminal prosecution (if the quantity of goods is high or the infringer is a repeat offender). The rights holder may also consider filing a follow-on action after seizure (eg, a civil suit to claim damages).
The likelihood of ex officio customs seizure actions depends on the knowledge of the customs officials working in the field regarding the IP rights in question. Regular training for customs officials in key ports has been proven to increase the likelihood of customs seizures. Rights holders can also prepare enforcement manuals for customs officials, helping them to better distinguish between genuine goods and counterfeits and facilitating detection of suspected infringing goods.
China protects IP rights through administrative, civil or criminal channels.
Administrative IP enforcement actions, which are cost effective and efficient, are the most frequently used – although damages are not awarded in these proceedings. Rights holders should therefore consider following up on an administrative enforcement action against repeat or sophisticated infringers with a parallel civil or criminal suit, depending on the violation, so that the enforcement actions can have stronger deterring power.
The following government bodies are involved in administrative and criminal IP enforcement:
- the administrations for industry and commerce (AICs) (China’s primary market supervision, regulation and enforcement officers);
- the quality technical and supervision bureaux (TSBs) (product quality and labelling law enforcers);
- the food and drug administrations (FDAs);
- the PSBs and public prosecutors (procuratorates);
- the General Administration of Customs;
- the Copyright Protection Centre of China;
- the SIPO; and
- the Trademark Office (TMO). A related body, the Trademark Review and Adjudication Board, oversees trademark rejection appeals, invalidation applications and appeals of other TMO decisions.
The government bodies protecting IP rights are undergoing a structural overhaul, with AICs, TSBs and FDAs merging into one body known as the Market Supervision Administration, but continuing their respective enforcement functions.
China sets monetary thresholds for pursuing criminal liabilities against counterfeiters. For instance, the Criminal Law provides that the threshold for criminal liability is Rmb50,000 ($7,903) for producing counterfeit goods and Rmb150,000 ($23,715) for reselling counterfeit goods.
With basic evidence proving the gravity of the counterfeiting acts and the monetary threshold requirements having been met, the rights holder may file a complaint to the local PSB, requesting it to commence a criminal investigation into the suspected crimes. Other relevant government bodies or Customs will also transfer cases to the PSBs to enhance protection for rights holders and in the public interest. If it is found that a crime has been committed after the police investigation, the police will transfer the case to the relevant procuratorate to file criminal suits. Sometimes, the police may drop the criminal investigation midway when resources are limited or where they consider the case to be trivial. In such cases, rights holders may pursue the counterfeiters by filing civil suits or even a private criminal litigation, given that the victim has sufficient evidence to prove a criminal case.
Rights holders should take the following steps to help the police and prosecutors to build a successful criminal case against the counterfeiters:
- File complaints directly to the PSBs, asking them to initiate a criminal investigation, or urge other relevant government bodies or Customs to transfer cases to the PSBs.
- Join forces with competitors and fellow victims in the criminal investigation against common targets in order to aggregate the infringer’s revenues from separate cases and increase the chances of prosecution, larger fines and heavier custodial sentences.
- File supporting evidence, such as penalty decisions or verdicts issued to the infringers in prior cases.
Rights holders should follow up with authorities diligently and regularly, by phone and in person, providing all necessary assistance required by the authorities to show support and strong interest in the case.
A rights holder can bring a civil action against an infringer in order to:
- seek an injunction, damages and other civil relief (eg, a public apology);
- set an example to deter other infringers and educate the public; and
- seek clarification from the court on an issue of law that is ambiguous and impeding administrative enforcement, or create precedents.
Damages for trademark infringement are assessed with reference to one of the following factors:
- the actual losses of the rights holder;
- the profits of the infringer; or
- a reasonable multiple of the relevant trademark licence fees.
Where the trademark infringement is committed in bad faith and the circumstances are serious, the amount of damages must be more than one time but less than three times the amount assessed by referring to the above calculation methods. The amount of damages must also include the reasonable expenses incurred by the rights holder to stop the infringing act. Where it is difficult to determine damages based on the above formulae, the court must grant compensation not exceeding Rmb3 million ($474,211) according to the circumstances of the infringing act.
The defendant will not be held liable for damages if:
- the plaintiff fails to prove actual trademark use in the past three years and losses; or
- the defendant unknowingly offered the infringing goods for sale, and can prove that it obtained the goods lawfully and provide the sources of the goods.
There are provisions for court-ordered evidence preservation which – if permitted by the court – may provide rights holders with an avenue to collect important information for use in a lawsuit. Rights holders may also consider filing an asset preservation request targeting the defendant’s assets, which may be granted if a bond (amount specified by the court) is posted.
Since 2014 (the enactment of the revised Trademark Law) the Chinese courts have been rendering landmark verdicts with skyrocketing and unprecedented damages awarded to brand owners, reaching up to millions of renminbi. These decisions illustrate the Chinese courts’ increasing tendency to award substantial damages to brand owners, although this tendency has also been observed in patent and copyright infringement suits. Rights holders should consider adjusting their IP protection strategy to rely more on litigation to obtain stronger protection in China. Legitimate brand owners should also be more cautious in using trademarks in the country in order to avoid trademark infringement suits and the large damages awards that may follow.
Online counterfeiting is now one of the most significant challenges facing rights holders in China. Chinese counterfeiters are internet savvy and quick to exploit technical advantages to imitate and copy popular products, and then promote and sell their counterfeit goods online to the global market.
Chinese e-commerce sites have been required to develop efficient online takedown mechanisms for foreign companies that can provide evidence of the required IP rights. For domestic sites (eg, Taobao, Tmall, JD, 1688.com and Suning), online takedowns can be carried out by relying on Chinese patent and trademark registrations. However, these sites may refuse to take down the infringing postings or content if the infringer has submitted documents proving that it has filed or registered the trademark in dispute, even if the trademark was filed or registered in bad faith and is pending opposition or invalidation proceedings. For international sales sites (eg, Aliexpress or Alibaba), copies of the company’s overseas registration certificate can be relied on for takedown applications.
Rights holders with frequent and prolonged takedown issues are advised to hold face-to-face meetings with the platforms to explain the nature of the problem and request tailored solutions. They may also consider working in conjunction with other brands, meeting with the platforms as a delegation to voice concerns and seek their support. Further, rights holders may consider conducting joint investigations of serial infringers or a division of labour to monitor and attack counterfeiters appearing on certain platforms.
Right holders may also consider conducting ad hoc takedown actions before or during popular online shopping events, such as the annual Singles’ Day online shopping day. Occurring every year on November 11, this holiday is popular among young Chinese people and celebrates their pride in being single; it is roughly the equivalent of Black Friday in China, with spending exceeding Rmb168.2 billion ($25 billion) during the 2017 celebration. Singles’ Day can therefore be a good window of opportunity to fight online counterfeiters and infringers, which have made tremendous investments in terms of costs and time in order to benefit from the shopping frenzy.
Rights holders may also consider following up on leads obtained from counterfeiting acts online, using them to pursue counterfeiters in administrative, civil or criminal actions.
China is a first-to-file jurisdiction and trademark squatting is active and frequent in China. Brand owners should file trademarks proactively and adequately, covering a broader scope of goods and services to obtain adequate trademark protection even if the brand is not actively used in China.
Choose a suitable Chinese language mark
Chinese consumers, business and media tend to identify foreign brands by using their Chinese equivalents. Therefore, foreign brand owners should ensure that they file and register Chinese versions of their foreign-language marks for sufficient protection in China. Rights holders should check to see how the locals are using their trademarks in Chinese and seek registration of such Chinese trademarks as quickly as possible, thereby avoiding the risk of losing the Chinese trademarks to third parties and particularly hostile parties. Meanwhile, rights holders should consult with local counsel when selecting an appropriate Chinese version of their brands. The Chinese trademark is usually generated in consideration of phonetic translation (transliteration) or literal translation of the foreign brand name into its Chinese equivalent, or a combination of both methods; in some cases, a Chinese dictionary word may be used which sounds similar to the foreign language trademark (eg, the Chinese trademark for BENZ is 奔驰, which means “gallop” but is pronounced as “ben chi” in Chinese). Care should be taken to ensure that the transliteration works across China’s many dialects without having any negative connotation or implication in some local dialects.
Similarity sub-classes in classification of goods and services
China’s domestic classification system breaks down the Nice Classification into ‘similarity sub-classes’, under which identical marks can coexist in a given class as long as they do not specify goods or services in the same sub-class. Oversight or ignorance of this classification practice has caused significant trouble for foreign filers. Rights holders should therefore take it into consideration when devising their filing and protection strategy, and check with local counsel to file trademarks on goods and services as broadly and adequately as possible to avoid leaving loopholes for hostiles parties, which will file or register the trademark and then challenge the legitimate owners.
Regularly monitor Trademark Office Gazette and online database
Rights holders should conduct regular searches of key classes in the Trademark Office Gazette, as well as periodic all-class searches of the TMO’s online database so as to identify infringing marks, file opposition or invalidation actions as early as possible and take enforcement actions to stop the use of the infringing marks.
Obtain copyright registrations
Prior copyright ownership for logos and stylised versions of word marks can be invoked and is sometimes vital in supporting and increasing the chance of success in oppositions or invalidation actions against infringing trademarks, particularly where the rights holder has not registered the logo or stylised mark. Copyright is protected immediately on the work’s creation, but it is strongly recommended that rights holders obtain and keep a Chinese copyright registration certificate for relevant works in order to support legal actions that may be initiated at any time. Copyright remigrations are completed with the Copyright Protection Centre of China.
Obtain certified copies for international trademark registrations
Rights holders must submit certified copies issued in Chinese by the TMO when taking enforcement actions based on international trademark registrations. Therefore, after obtaining an international trademark registration through WIPO with territorial extension to China, brand owners are advised to file a request with the TMO for a certified copy. Without certified copies, legal actions can be delayed and urgent actions can be impossible.
Register domain names and social media accounts
Cybersquatting is widespread in China. For increased online protection, it is therefore recommended that brand owners register their trademarks as country-code top-level domain names (‘.com.cn’ and ‘.cn’) in addition to top-level ‘.com’ domain names, and register their trademarks as accounts on popular social media platforms (eg, WeChat).
Rights holders should consider regular online monitoring of popular e-commerce sites and social networking platforms, including Tencent’s WeChat app, to identify infringers and proceed with takedown and follow-up actions against manufacturers and wholesale distributors. Regular online monitoring can be outsourced to local counsel with professional monitoring services or global online policing consultants.
Use of local counsel and investigators
Local counsel are familiar with China’s IP landscape, the inner workings of its legal system and its political and legal culture. Rights holders should work closely with local counsel to benefit from their expertise and hands-on experience when conducting IP enforcement in China.
Cooperation and public relations with government bodies
Brand owners with an extensive market presence but frequent and severe IP infringement issues in China, or their representatives, should meet regularly with the competent Chinese law enforcement authorities in order to build a close working rapport. They should also ask the authorities to include their brands in ex officio regional or nationwide anti-counterfeiting campaigns, which are frequently organised.
CCPIT Patent and Trademark Law Office
10/F, Ocean Plaza, 158 Fuxingmennei Street
Tel +86 10 66412345
Fax +86 10 66415678
Deputy director of legal division