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Anti-Counterfeiting Guide In China
date: 2013-02-05 Gloria Q. Wu Read by:

1. Legal framework

National

The laws governing trademarks in China are as follows:

- the Trademark Law (2001) and the Implementing Regulations of the Trademark Law (2002);
- the Anti-unfair Competition Law (1993);
- the Copyright Law (2001) and the Implementing Regulations of the Copyright Law (2002); and
- the Criminal Law (2009).


The Supreme People's Court has issued the following judicial interpretations, which also play an important role in legal practice in China:

- the Interpretation of the Supreme Court on Several Issues on the Application of Law in the Trial of Civil Disputes concerning the Protection of Well-Known Trademarks (2009);

- the Interpretation of the Supreme Court on Several Issues on the Application of Law in the Trial of Civil Cases concerning Unfair Competition (2007);

- the Interpretation of the Supreme Court and the Supreme Procuratorate on Issues concerning the Application of Law in Handling Criminal Cases of Infringement of IP Rights (2004);

- the Interpretation of the Supreme Court on Several Issues on the Application of Law in the Trial of Trademark Civil Disputes (2002);

- the Interpretation of the Supreme Court on Relevant Issues on the Scope of Jurisdiction and the Application of Law for Trial of Trademark Cases (2002);

- the Interpretation of the Supreme Court on the Application of Law concerning Preliminary Injunction of Trademark Infringement and Evidence Preservation (2002);

- the Interpretation of the Supreme Court on the Application of Law in the Trial of Civil Disputes over Copyright (2002); and

- the Interpretation of the Supreme Court on the Application of Law in the Trial of Civil Disputes over Computer Network Domain Names (2001).

International

China is a party to and is bound by the following international treaties:

- the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights;

- the Paris Convention for the Protection of Industrial Property;

- the Convention Establishing the World Intellectual Property Organization;

- the Madrid Agreement and Madrid Protocol;

- the Nice Classification (Ninth Edition) for Classification of Goods and Services

 

2. Border measures

China Customs is capable of conducting enforcement against counterfeit goods using a registered trademark or an unregistered well-known trademark entering or leaving China.

According to the Regulations of Customs Protection for Intellectual Property Rights and its Implementing Methods, border measures for protecting intellectual property rights include the following actions: detention of suspected infringing goods, investigation of infringement, punishment of the exporter and importer of the infringing goods, and confiscation and disposition of the infringing goods.

There are two forms of Customs enforcement, each of which involves a different procedure: (i) enforcement through application and (ii) enforcement ex officio.

According to the Implementation Measures of Regulations of Customs Protection for Intellectual Property Rights as well as No. 31 Notice of the Customs in 2006, the IP right owner may provide general guarantee (minimum RMB 200,000) to the Customs to cover detention applications during the period from the date of approval of general guarantee to December 31 of the same year.

The amount of the general guarantee shall be equal to the total amount of cost of storage and safekeeping incurred by detention of suspected infringing goods by the Customs based on application of the IP right owner the year before; if the IP right owner did not apply for any detention or the total cost of storage and safekeeping did not reach RMB200,000 the year before, the amount of the general guarantee shall be RMB200,000.

The implementation of the General Guarantee rule has substantially improved the efficiency of application for detention of suspected infringing goods.

Administrative action

In a broad sense, an administrative action refers to any enforcement action taken by the Administration of Industry and Commerce (AIC) or the General Administration of Quality Supervision, Inspection and Quarantine of the People's Republic of China (AQSIQ).

The steps in an administrative action with the AIC and the AQSIQ are as follows:

 

1.1 Determining the Appropriate Authority

When counterfeit goods relate to a registered Chinese trademark or a well-known unregistered trademark in China, a complaint is filed with the AIC. However, if the counterfeit goods are in relation to a trademark that has not been registered in China and the counterfeiter only forges the right holder's enterprise name, contact details, and the like, the AQSIQ is the more appropriate authority.

1.2 Preparing the Administrative complaint with the supporting documents.

1.3 The Administrative Action

1.3.1 The agents of the trademark owner will lead the AIC or AQSIQ to the site where the counterfeit goods are manufactured or stored.

1.3.2 If counterfeit goods are found on site, the AIC or AQSIQ will seal and detain the counterfeit goods.

1.3.3 The authority can issue an Administrative Punishment Decision, which can include a disciplinary warning, fine, confiscation of illegal gains or confiscation of unlawful property or things of value, order suspending production or business, temporarily suspend or rescission of business permit or business license, or administrative detention. In the event that the counterfeiter refuses to comply with an order to stop selling infringing products or does not destroy the infringing products, AIC can issue a penalty of no more than 3 times the illegal gains.

1.3.4 The Administrative Authorities will dispose of the counterfeit goods.

Compared to litigation, administrative actions have many advantages. Firstly, once counterfeiting has been established, the local Administrative Authorities can take immediate action whereas litigation will take a considerably longer time. Secondly, the formality of documents required for an administrative action is less complicated than that required for litigation, and the cost involved in completing an administrative action is usually much lower than litigation.

 

3. Criminal prosecution

A criminal case can be commenced at any stage where counterfeiting constitutes a crime. Criminal proceedings often follow an investigation by police or the People's Procuratorate, an administrative action, a civil litigation procedure, or an administrative litigation procedure, whichever reveals criminal levels of counterfeiting.

Pursuant to Article 213 of the Criminal Law of the People's Republic of China, using an identical trademark on the same goods without the permission of its registered owner shall, in cases of a serious nature, be punished with imprisonment or criminal detention of no longer than three years, and/or fine; and for cases of a more serious nature, with imprisonment of over three years and no longer than seven years, and with fine.

The Interpretation of the Supreme Court and the Supreme Procuratorate on Issues concerning the Application of Law in Handling Criminal Cases of Infringement of IP Rights further specifies the standard for determining whether an infringement is "serious nature" or "more serious nature" as follows:

Serious Nature:

(1) the amount of illegal business volume being more than RMB 50,000 or that of illegal gains being more than RMB 30,000;
(2) forging more than two registered trademarks, the amount of illegal business volume being more than RMB 30,000 or that of illegal gains being more than RMB 20,000;
(3) other circumstances of a serious nature.


More Serious Nature:

(1) the amount of illegal business volume being more than RMB 250,000 or that of illegal gains being more than RMB 150,000;
(2) forging more than two registered trademarks, the amount of illegal business volume being more than RMB 150,000 or that of illegal gains being more than RMB 100,000;
(3) other circumstances of an especially serious nature


Criminal proceedings can be initiated by both the public prosecution authority and the rights holder.

On the other side, the IP right owner can also file additional pleading to claim civil damages for the injury caused by the counterfeiting conduct, either during the same criminal procedure or initiate a civil procedure independently.

 

4. Civil enforcement

Article 52 of the Trademark Law provides that the following acts constitute an infringement of the exclusive right to use a registered trademark:

- to use a mark that is identical or similar to a registered trademark in respect of identical or similar goods without the authorization of the rights holder;

- to sell goods in the knowledge that they bear a counterfeit trademark;

- to counterfeit, or to make without authorization, representations of a registered trademark, or to sell such representations;

- to replace a registered trademark and re-sell the goods without the authorization of the rights holder; or

- to cause, in other respects, prejudice to the exclusive right of another person to use a registered trademark.

In the event of such infringement, the rights holder can file a trademark infringement suit before the court.

In general, trademark infringement cases are heard at first instance by the intermediate courts at city level, except in some big cities where the district courts have jurisdiction to hear cases involving trademark disputes. At second instance they are heard by the high courts at the provincial level.

The statute of limitations for instituting civil proceedings is two years from the date on which the rights holder or any interested party knew, or should have known, about the infringing act. However, if the infringement continues for a long time, the court will hear the case even if the action is brought after two years.

Similar to litigations in other fields of law, collecting evidences is always crucial, especially in calculation of damages. On-site investigation is frequently implemented in evidence collection, which is often accompanied with notarized purchase of infringing products. If the sales of infringing products are conducted via internet, it is possible to ask the notary officer to notarize the whole process of online purchase with all the relevant webpages involved.

 

Preliminary Injunction & Preservation of Evidence

According to Article 57 of the Trademark Law, where a rights holder has evidence that another person is infringing or will infringe its right to use its registered trademark, and that failure to stop the infringement promptly will cause irreparable damage to its legitimate rights and interests, it may file an application for a preliminary injunction and for preservation of evidences before instituting legal proceedings.

According to Interpretation Relating to Application of Law to Preliminary Injunction of Infringement of Exclusive Right to Use Trademark and to Evidence Preservation, in case a trademark registrant or an interested party applies for preliminary injunction, which is accepted by the People's Court and meets the requirement set forth in Article 4 of this Interpretation upon examination, the People's Court shall make an adjudication in writing within 48 hours.

Remedies

According to Article 21 of the Interpretation of the Supreme Court on Several Issues concerning the Application of Law in the Trial of Trademark Civil Disputes, the rights holder is entitled to the following remedies:

- immediate cessation of the infringement;

- confiscation of the counterfeit goods, materials and moulds, and representations of the forged trademark; and

- compensation for damage.

There are three ways to calculate damages according to Chinese law:

- lost profits by the plaintiff due to infringement, which are calculated by multiplying the reduced sales volume of the products by the unit loss per infringing product;

- unjust enrichment by the defendant due to infringement, which is determined by multiplying the sales volume of the infringing products by the unit profit per infringing product; and

- where damages cannot be determined by the methods mentioned above, statutory damages determined by the court up to a maximum of Rmb300,000 in regular cases and Rmb500,000 in cases with severe consequences or serious circumstances.

The rights holder shall also be entitled to recover reasonable expenses incurred during the course of enforcement, such as expenses for investigation, transportation, collection of evidence, statutory attorneys' fees and notarization fees.

 

5. Anti-counterfeiting online

In most of the online counterfeiting cases, there involve two major issues: 1) domain name dispute, and 2) online counterfeiting.

According to the Rules for CNNIC Domain Name Dispute Resolution Policy (CNDRP) and relevant procedural rules, if any party considers that a registered .CN domain name or Chinese domain name conflicts with its legitimate rights or interests, it may file a complaint to a dispute resolution service provider, i.e. CIETAC Domain Name Dispute Resolution Center.
Support of a Complaint against a registered domain name is subject to the following conditions:

(i) the disputed domain name is identical with or confusingly similar to the Complainant's name or mark in which the Complaint has civil rights or interests;
(ii) the disputed domain name holder has no right or legitimate interest in respect of the domain name or major part of the domain name;
(iii) the disputed domain name holder has registered or is being used the domain name in bad faith.

Before a Complaint is filed pursuant to this Policy, or during the dispute resolution proceedings, or after the expert Panel has rendered its decision, either party may institute an action concerning the same dispute with the People's Court at the place where CNNIC's principal office is located or subject to the agreement between the parties, submit the dispute to a Chinese arbitration institution for arbitration.

Once infringement or unfair competition is found, the Court may order the defendant to cease the infringement and/or cancel the domain name, or, at the request of the plaintiff, order that the domain name be transferred to the plaintiff for use. The plaintiff may also claim damages from the defendant for the loss caused by such infringement or unfair competition.

Counterfeits are sold online mainly through auction sites, such as www.taobao.com, www.alibaba.com, www.ebay.com. There are also many independent online sellers which operate their own websites.

In the event of online counterfeiting, the first step is generally to send a warning letter to the seller. Most auction sites have notice and takedown procedures and will generally take down counterfeit goods upon being notified by rights holder; but the problem is that the seller will generally continue to infringe.

Where online sellers ignore the warnings or continue to infringe, it is necessary to conduct an investigation to learn more about the counterfeiter and collect evidence by notarizing the web pages that contain infringing content and the process of purchasing counterfeit goods. This is done in preparation for subsequent AIC action, civil proceedings or criminal prosecution.

 

6. Preventative measures/strategies

Trademark registration and monitoring

It is always mentioned that "Registration is King" in China, considering the high threshold and difficulty of prove to protect unregistered trademark, which usually needs to be "well-known". Thus, registration of the trademark as early as possible is always recommended.

Besides, due to the language difference, it would be a wise decision to localize the original English (or other foreign language) trademark by selecting its appropriate Chinese equivalent(s), so that the brand can be more easily remembered and promoted among Chinese consumers.

On the other hand, due to the limitation of examination in similarity of trademarks as well as similarity of goods/services, trademark owners cannot totally rely on the Trademark Office to reject all identical or similar trademarks filed by others on identical or similar goods/services under the official examination standard, instead they must make their own efforts to monitor the newly published trademarks, so as to timely stop similar marks being registered by others.

Market monitoring

Considering the vast geographical area of China, it is usually very difficult to have a nationwide monitor of infringement. However the right holders could work with local attorneys and investigators to form a monitor network to cover at least some major cities where manufacture and sales of counterfeits are likely to take place, and surveys of local markets, fairs and trade shows, as well as online monitoring, should be conducted on a regular basis.

Public resources

AIC authorities play an increasingly important role in anti-counterfeiting and rights holders should participate actively in their efforts.

For example, some AIC offices have set up famous brand protection associations, which are tasked with strengthening cooperation between member enterprises and the authorities, and collaborating in anti-counterfeiting activities.

Some AIC offices have also launched online anti-counterfeiting platforms, where rights holders can record their trademarks and relevant information in the system and submit complaints against counterfeiters online. Officials can communicate promptly online with the rights holder, verify the documentation and arrange a raid. This enhances the efficiency of enforcement action and strengthens the protection afforded to the rights holder.

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