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Plotting A Enforcement Strategy across North Asia
date: 2014-08-05 Aaron D. Hurvitz Read by:

Introduction


An old Chinese proverb states, "A journey of a thousand miles begins with just one step." Such profound insight rings true when one considers the possibilities of enforcing their intellectual property rights in China, and all throughout Asia. Often times the mere discovery that one's intellectual property rights are being infringed, is accompanied by sheer frustration, surprise and the realization that this actually "did happen to me." So once the shock is gone and the emotions and anger have passed, it is time to get down to business and plot your course of action.

Geographical Analysis

The first step in this journey of enforcement begins by analyzing where exactly the infringement is taking place. Especially with regard to China, it is imperative that one considers the exact location of the infringing activity. While in many cases the infringement occurs in a specific individual location, which allows for greater ease in enforcement, however in some circumstances the infringing activity is widespread across several jurisdictions.

If the infringement occurs in an individual location, it becomes easier to establish and ultimately implement an enforcement strategy. Local counsel can work directly with enforcement bodies, such as the AIC and local Courts to enforce your intellectual property rights. Having the infringement in a single location allows for a more efficient and perhaps longer lasting impact, and the results of which can be easily monitored. In this situation the rights holder can expect a relatively straightforward and smooth enforcement process, and more often than not the overall expense of the case should be relatively low compared to other more complicated multijurisdictional situations.

As a corollary when the infringement occurs over a large geographical area, and often becomes multijurisdictional, the logistical and legal challenges increase exponentially as do the costs. Most of the administrative enforcement bodies, such as the AIC and the Patent Office, are only able to enforce at a local level and are unable to handle complicated cases involving several different provinces. In China, enforcement is done locally by the local administrative branch office. Their authority only extends to their jurisdictional area, and are therefore unable to assist if infringement occurs outside of their specific zone of coverage. As an alternative, utilizing the Chinese Court system has yielded amazingly positive results over several jurisdictions. The High Court's authority is wide spread and a ruling often has far reaching effect.

Further it is highly suggested to liaise with local counsel in their individual jurisdictions as they likely have experience dealing with certain local enforcement bodies, and may know the necessary nuanced procedure of the local Chinese Court.

Once the geographical analysis has been complete, and the right's holder learns the lay of the land, prudent and intelligent decisions can be made as to where a case should be heard, and perhaps which enforcement body should be utilized.

Scope of the infringement

The next step of one's enforcement journey is to establish the scope of the infringement. Often times when one learns that infringement has occurred, the first thought is to simply file a lawsuit and do everything possible to prevent any further illegal activity from taking place. While this is indeed the ultimate goal for the right's holder, passion and emotion often eclipse prudent and strategic decision making. Recently in China there was a multinational company, who when they learned that their trademark was being counterfeited, decided to file four lawsuits against the sellers. Unfortunately the sellers were simply small retail outposts, and although successful in Court, little substantive progress was made to deal with the ultimate problem.
 

 

To properly establish the scope of the infringing activity, it is important to learn empirical business data of the adverse party. What is their annual revenue? Where are the products being sold? Who are the end users and purchasers? Where is the predominant market? These, among others, are all important practical questions to consider, and the answers can assist to structure a strategic enforcement plan.

For an example, if an IP owner's main market is in The United States and Europe, and they are merely manufacturing in China, and then exporting to International markets, then resources should be dedicated to strengthening the caliber of their Customs enforcement plan. While the ultimate goal is to indeed stop the infringing activity, the immediate need is to protect your markets. In this instance, once the IP right is recorded with Customs, infringing goods will be stopped at the border preventing export. With the owner's markets protected, then focus can be put on the actual location and origin of the infringing products.

A large international fashion company has long experienced infringement in China and Asia in general. Recently they discovered a large population of Asian consumers who carried around their products almost religiously. Unfortunately for this company, the majority of these goods were counterfeit. While there are hundreds of popular stores in Asia selling legitimate products, the majority of the consumer market could not afford the high cost of the goods. Taking this into account, the company focused their efforts on protecting their markets outside of Asia by filtering resources toward Customs enforcement.

Additionally, realizing that their product was one of the leading counterfeit targets, the company decided to slowly and methodically take steps to eliminate the problem by investigating, locating, and ultimately shutting down the factories producing the counterfeit goods. This strategic approach was applauded in the IP community, because decisions were not made with haste, instead a methodical approach was implemented after ascertaining the scope of the infringing activity.

Availability of resources

Continuing down the enforcement path, one of the most important yet difficult decisions an IP owner needs to address is how much they are willing to dedicate toward solving the problem. This is often a sensitive issue to discuss, and now more than ever companies are restricted by budgetary concerns. The need to maximize results while spending as little as possible, has mandated the need for Counsel to create and put forth efficient and practical enforcement solutions. Every situation is unique and no two problems are the same, allowing for creative and often times non-traditional approaches.

While the go-to solution used to be filing a lawsuit against the infringer, presently there are very effective administrative enforcement avenues. Utilizing the AIC for trademark infringement is a practical, straightforward, and effective approach. The costs are significantly less than a lawsuit, and often times the same goal can be achieved. Additionally while it may take almost one year to conclude a trademark litigation, and action involving the AIC deals in weeks rather than months. Moreover the AIC has the power to seize infringing goods, tools used to make the goods, and is very quick to levy fines against the infringer. Although damages aren't awarded by the AIC, as they may be at the conclusion of litigation, the efficiency of this trademark enforcement avenue is something to consider.

On the other hand, if resources are not an issue and priority is given to simply solving the problem, filing a lawsuit may be the best course of action. A judgment issued by Court will likely have far reaching authority and can be used to follow up and continually enforce the Court's judgment. While cases are usually concluded within one year, the costs are higher than that of utilizing the AIC or other administrative body. Since there is no formal discovery process in China, and both sides are responsible for bearing their own burden of proof, the total cost of litigation in China is merely a fraction of that in other Western jurisdictions.

Establishing the Ultimate Goal

Before even venturing down the enforcement path it is prudent to take a moment and decide what exactly one wants to gain from the entire process. Without a doubt the overreaching answer will unequivocally be "to stop the infringement." While this is a practical goal, there are a number of ancillary points to consider before one begins their journey.
 

 

First, with regard to damages in China; damages are difficult to get and even harder to collect. At present there are certain statutory damages for acts of infringement, often upwards of one million RMB (roughly 170,000 dollars), collection is an entirely different issue. Often a company who was healthy and solvent before litigation, will seemingly be near bankrupt after losing in Court. Additionally, the time it takes to track down the adverse party's bank information, and then implement the judicial award, is almost always enough time for the defendant to move their assets outside the scope of the judicial reach. While Courts do allow for evidence preservation to be applied before a court case, it is relatively difficult to obtain as substantial proof demonstrating the necessity of such preservation is required.

While it is beneficial for a lot of IP owners to focus on damages, perhaps it is more prudent to dedicate efforts toward obtaining and enforcing an injunction. Courts are relatively willing to grant an injunction preventing the adverse party from continuing production or sale of the goods at issue. Further, while it may take months and even years to obtain damages, the positive effects of an injunction are almost immediate.

International Cooperation

If a counterfeit product is profitable in one country in Asia, it will very likely be so in another. In extreme cases on infringement, goods may be manufactured in one country and then ultimately be exported to and sold in another. Looking at the situation from an ocean away, it will no doubt appear daunting if not downright impossible to overcome. Most firms in Asia are connected to one another and work on a variety of matters together for like clients. While the laws are certainly different from one jurisdiction to another, communication among different counsel needs to be seamless.

This can be accomplished through active involvement by the IP rights holder. The rights holder needs to clearly convey their expectations and goals to all parties, and to establish deadlines and milestones. Additionally counsel should clearly communicate how the laws in their given jurisdiction apply to the present situation and discuss any legal or practical challenges. Additionally work should be done in all jurisdictions to tighten the enforcement belt, preventing any new infringement channels from being established.

Recently an American technology company coordinated a multinational enforcement campaign with three different Asian countries. The goods were made in China, then exported to Vietnam and Indonesia. While the ultimate source of the goods, and how to terminate the operations was forefront in everyone's mind, cutting off the supply chain was paramount. Through a joint effort, counsel in all jurisdictions was able to record the IP right with Customs, and prevent the counterfeit goods from leaving or entering their respective country. Once this was established, China counsel focused on terminating the counterfeit operations, and Vietnam and Indonesia counsel dedicated their efforts to seizing the remaining supply of counterfeit products and shutting down the various retail outfits. This could not have been done without open and active lines of communication between counsel and the IP owner.

Conclusion

While the journey of one thousand miles certainly seems like an insurmountable obstacle, putting one foot in front of the other is all that is necessary to finish the trek. Realizing your ultimate destination is important, no question about that, but establishing your route of travel and beginning your journey is equally as valuable. Enforcing your intellectual property rights in China, and all throughout Asia, may turn out to be your most challenging journey yet. Getting a lay of the land, mapping your course, and then starting on your quest is all you really need to do; after all, enforcement begins with just one step.

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