11 May
2021

Procedures and strategies for anti-counterfeiting: China

Legal framework

In spite of the difficulties brought by the covid-19 pandemic, China made great headway in trademark protection throughout 2020, issuing a significant amount of revised judicial legislation, normative documents and new guidelines concerning IP rights, including a number specifically about trademarks and online brand enforcement:

  • guidance issued by the Supreme People’s Court regarding civil cases relating to the IP rights of e-commerce platforms;
  • a response from the Supreme People’s Court to several issues concerning the application of law in online IP infringement disputes;
  • provisions issued by the Supreme People’s Court regarding evidence in IP rights civil actions;
  • an interpretation by the Supreme People’s Court on issues relating to jurisdiction and the scope of the application of law in trademark cases;
  • an interpretation by the Supreme People’s Court on several issues concerning the applicable law in trademark civil dispute cases;
  • provisions issued by the Supreme People’s Court on several issues concerning civil dispute cases in conflict with registered trademarks, enterprise names and prior rights;
  • an interpretation by the Supreme People’s Court on several issues concerning the application of law in civil dispute cases involving the protection of well-known trademarks;
  • provisions issued by the Supreme People’s Court on several issues concerning administrative cases regarding the authorisation and affirmation of trademark rights;
  • an interpretation by the Supreme People’s Court on property preservation in respect of trademark rights;
  • explanations by the Supreme People’s Court and the Supreme People’s Procuratorate on several issues concerning the specific application of the law in handling criminal cases regarding IP infringement;
  • criteria issued by the State Intellectual Property Office regarding judging trademark infringement; and
  • IP rights protection and the management of e-commerce platforms issued by the State Administration for Market Regulation and the State Intellectual Property Office.

Border measures

Customs protection is one of the important ways to protect intellectual property. The premise of such protection is simple: a trademark is registered and the owner of that mark applies to the General Administration of Customs for a record. According to the Regulations on Customs Protection of Intellectual Property Rights, IP rights protection by Customs can be divided into:

  • protection according to application; and
  • protection according to authority.

Applying for protection refers to the IP rights holder that discovers that the goods suspected of infringement are about to be imported or exported. The rights holder can then apply for customs detention at the place where the goods enter or leave the country, and Customs must detain the goods according to the law.

Protection according to authority refers to the protection measures of IP rights where Customs finds that the import and export of goods is suspected of infringing IP rights. Customs must notify the rights holder and detain the goods. It will then conduct an investigation into the IP rights and decide, according to the law, on the appropriate administrative treatment.

With the rapid development of cross-border e-commerce and other emerging forms of trade, customs’ protection of IP rights faces new challenges and pressures. In 2020, Chinese Customs continued to strengthen the protection of IP rights and carried out in-depth IP rights protection actions. According to the General Administration of Customs, national Customs detained 33,800 batches of suspected infringing goods, involving 39.58 million items of suspected infringing goods through various actions including ‘Dragon Action 2020’, ‘Blue Network Action’ for IP protection of shipping channels and ‘Net Action’ for IP protection of export transhipment goods from January to September 2020.

In 2020, Guangzhou Customs launched Dragon Action 2020, detaining 2,755 batches of suspected infringing goods, involving 5 million infringing items. These actions effectively cracked down on the illegal acts of the import and export of infringing goods, and protected the legitimate rights and interests of domestic and foreign enterprises.

Criminal prosecution

Key points

Criminal prosecution is one of a number of powerful measures used to crack down on trademark infringement. If an act of manufacturing or selling fake products constitutes a crime, the Public Security Bureau will investigate and the procuratorial authority will initiate public prosecution. Regarding online crimes, in some regions the police, with the assistance of online e-commerce platforms, have established cooperation mechanisms to crack down on counterfeits, strengthening cooperation in providing clues, checking on the ground and gathering evidence, as well as increased scrutiny into the sale of fake goods on popular celebrity live streams. One particular case relates to the sale of counterfeits via live streaming. After more than two months of careful investigation, the Shanghai Public Security Bureau, Hongkou branch, successfully cracked Shanghai’s first case of a celebrity anchor live web broadcast selling counterfeit goods. The bureau seized more than 3,000 fake luxury bags, clothing and other goods, and captured more than 50 suspected criminals, 41 of whom have since been arrested.

Preliminary measures

The investigation of trademark crimes should, by law, be conducted by public security bureaux. The main points of an investigation are as follows:

  • The case report is examined and the trademark owner’s basic information is verified (including the goods approved for use under the trademark and the ownership and transfer or licensing of the mark).
  • An investigation is conducted into the time, place, company or individual involved with the counterfeit goods. This includes the timely collection of the counterfeit goods, signs and other evidence, as well as verification of the authenticity of the goods or signs, generally issued by the rights holder of the identification report.
  • The relevant items are detained or sealed up, including products or sales documents and other information, while control of the relevant personnel on the scene is maintained.
  • The value of the products involved in the case is appraised to determine the extent of the crime committed.

If the facts of the case have been ascertained and the evidence is sufficient, the investigation will be concluded and transferred to prosecution. When examining a case, the procuratorate will interrogate the suspected criminal and listen to the opinions of both the victim and suspected criminal. Following examination, the procuratorate will decide whether to initiate prosecution.

Remedies

In accordance with the relevant provisions, if one of the following circumstances occurs, a lighter punishment may be given as appropriate:

  • admitting guilt and accepting punishment;
  • where understanding has been obtained from the rights holder; and
  • showing repentance.

Civil enforcement

Key points

In 2020, the Chinese courts gave strong protection to civil torts, especially those with malicious intent, and there were many cases that received high compensation. In December 2020, the Shenzhen Intermediate People’s Court and the Tianjin High People’s Court issued a guideline on the application of punitive damages to IPrights.

Preliminary measures

When the trademark owner has collected all the evidence, it may bring a lawsuit to the court. In general, the fixation of tort evidence is completed by the plaintiff. After the defendant’s tort is confirmed by the court ruling, if the defendant fails to carry out the judgment, the plaintiff will apply to the court for compulsory execution. However, under specific circumstances, the court may, at the request of the other party:

  • order the property of the other party to be preserved;
  • order the other party to perform a certain act; or
  • prohibit the other party from performing a certain act in a case where the execution of the judgment may be difficult or other damage may be caused to the party because of the act of one party or other reasons.

By adopting preservative measures, the court may order the applicant to provide security. After accepting an application, if the case is urgent, the court must issue an order within 48 hours. If the order for the adoption of preservative measures is made, it will be executed immediately.

Remedies

A favourable judgment will stop the infringing activities and also grant compensation to the right holders. The amount of damages for infringing the exclusive rights to use a trademark will be the actual losses that the rights holder has suffered as a result of the infringement during the infringement period. Where the losses suffered by the rights holder cannot be determined, the amount of damages will be the profits that the infringer has earned as a result of the infringement. Where the losses suffered by the rights holder, or the profits earned by the infringer, cannot be determined, the amount of damages will be based on a reasonable amount that would be paid for a licensing royalty for the trademark right. If there is malicious infringement and serious circumstances exist, the amount may be more than five times the originally determined amount. The amount of damages will also include any reasonable expenses that the rights holder has suffered as a result of preventing the infringement.

Where the actual losses suffered by the rights holder, the profits earned by the infringer, or the licensing royalties as a result of trademark infringement cannot be determined, the court will award damages of up to Rmb5 million, depending on the facts of the case.

Anti-counterfeiting online

Unauthorised internet commerce

According to Article 25 of the E-commerce Law, if the relevant competent authorities require e-commerce operators to provide relevant e-commerce data and information in accordance with the law and administrative regulations, e-commerce operators must provide such information. The competent departments concerned must take necessary measures to protect the security of the data and information provided by e-commerce operators and ensure that personal information, privacy and business secrets are kept strictly confidential and are not divulged, sold or illegally provided to third parties.

Online investigation strategies

Counterfeits can be detected using a combination of intelligent automatic monitoring tools and regular manual online searches. Once infringement activity has been found, online evidence should be fixed using time stamps or notarisation. The infringer can then be contacted by purchasing products and negotiating business while posing as a consumer, so as to fully understand the specifics of the targeted infringement. Whether the target is a seller or manufacturer must be identified, as well as whether there is only an online store or a physical shop. The price, type and sales volume of the infringing products of the target must also be noted. Once this is clearly understood, the appropriate rights protection strategy can be formulated based on the specific situation.

ISP liability

According to Article 36 of the Tort Liability Law, internet service providers (ISPs) who use the Internet to infringe others’ civil rights and interests will bear tort liability. If a network user uses a network service to commit infringement, the infringed party has the right to notify the network service provider to take the necessary measures, such as deleting, blocking or disconnecting the link. If the network service provider fails to take the necessary measures in time after receiving the notification, it will be jointly and severally liable with the network user for the expanded part of the damage. If an ISP knows that a network user is infringing the civil rights and interests of others by using its network service and fails to take the necessary measures, it will bear joint and several liability with the network user.

Platform enterprises earnestly fulfilled their platform obligations in 2020, building IP protection platforms and continuously refining the IP protection functions within those platforms. The number of IP protection system holders on major e-commerce platforms continues to increase.

Preventive measure/strategies

Use of local counsel and investigators

Because local counsel and investigators know the local market and the characteristics of infringing activities, as well as local policies and businesses, they have a significant advantage regarding finding clues to infringement and formulating appropriate strategies to stop such infringement and recover losses in a timely and effective manner. It is vital that rights holders use local counsel and investigators when they employ preventive measures to protect their rights.

Control of contractual relationships with third parties

As a preventive measure, the rights holder should define the rights and obligations with the manufacturers, agencies and licensee in the contract.

On the one hand, in order to avoid damaging their own rights, the rights holder should not permit third parties to apply, or assist others to apply, for registration of their trademarks, copyrighted works or other intellectual property. Without the rights holder’s prior consent, third parties should not use, or assist others to use, their trademarks, copyrighted works or other intellectual property. On the other hand, it should be made clear in the contract that third parties will not be involved in any infringement, otherwise they will bear all resulting legal responsibility.

Effective use of technology, authentication and monitoring

There are many online tools for the automatic detection of infringement online. In addition, some large e-commerce platforms are devoted to the development and operation of monitoring infringement within the platform. Effective use of technology, authentication and monitoring should be applied through these tools.

Cooperation with national anti-counterfeiting agencies

China has a number of anti-counterfeiting or IP protection agencies, such as the Beijing Anti-infringement and Anti-counterfeiting Alliance and the Alibaba Anti-counterfeiting Alliance, which fight against anti-counterfeiting by promoting cooperation between e-commerce platforms and enterprises, holding regular exchange meetings and reporting the latest progress of judicial protection in the industry. Companies can protect their intellectual property through the cooperation of these institutions.