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Assessing China's IP Enforcement Mechanisms
date: 2019-04-15 Nell Greenhouse Read by:

China’s strong focus on innovation in current years has progressed in sequence with the strengthening of intellectual property laws and enforcement mechanisms. Effective IP protection is hard-won, as a time and labour intensive endeavour, one of the key questions clients have is how to most effectively enforce their IP rights. In this article I will examine the benefits and limitations of existing enforcement mechanisms according to the right claimed, weighing up administrative actions against litigation and discussing alternative routes to enforcement.

Cease and desist letter

This is often the first step rights holders take to combat infringement. It is an inexpensive measure by itself, but C&D letters should only be sent after the collection and fixing of evidence, as in all further actions the onus is on the rights holder to prove the infringement. A Notary should be employed to ensure the admissibility of all evidence collected. Where strong evidence of infringement has been collected this can sometimes prove an effective method of halting the infringement. However, it can damage the rights holder’s chances of successfully bringing a later administrative action, as once alerted, infringers may become more secretive or move their infringing activities to a different location.

Administrative Action

Trademark

In 2018 the Administration for Industry and Commerce (AIC) was abolished, its responsibilities taken over by the newly founded State Administration for Market Regulation (SAMR). The powers of SAMR are equivalent to those of the AIC, and as such administrative actions remain both a cost and time efficient method of enforcing existing trademark rights compared to litigation. Once a case has been filed before a local SAMR branch they will usually respond within one month, and where they find evidence sufficient to prove infringement, have the powers to conduct a raid, and to seize and destroy infringing goods. They may also impose a fine of between one and three times the worth of the goods seized, depending on the specifics of the case i.e. the scale of the infringement, the infringer’s bad faith, whether they manufacture or merely sell the product.

The value of products seized by SAMR is crucial, as where it reaches the criminal standard (50,000 RMB) the case will be transferred to the Public Security Bureau (PSB) for prosecution. This is usually effective in deterring other infringers and preventing future infringement as defendants face imprisonment if found guilty. The PSB have stronger powers of investigation, including the power of summons and forcing disclosure of the source of products seized, and as such can conduct a more thorough investigation into the source of the infringement.

Limitations: The above bodies cannot grant compensation to rights holders. The powers to investigate infringers are limited, so evidence should be collected by the rights holder and submitted before the relevant body to prove infringement. As the administration is merely a government enforcement agency they do not have the authority to bring an action where infringement is difficult to determine. Where there are questions as to the validity of a case they will reject it. They also have limited powers to investigate, the owner may be required to disclose their source however SAMR have no power to force disclosure where infringers refuse to cooperate.

Patent

In the case of patent infringement, rights holders should submit evidence of the infringement before the local IP bureau requesting them to conduct an onsite survey. This is a fairly swift process: the local IP bureau should send a defence notification requiring the defendant to provide a defence within 15 days; this shall be submitted in writing on or at a hearing to determine whether there has been infringement and a decision will be issued within three months. However this tends not to be an efficient mechanism for protection of patent rights as compared to litigation, as the local IP bureau has no further powers to enforce the decision, as they are not authorised to seize the offending products. Where an infringer refuses to halt their infringement, a motion of enforcement can be brought in court. In this case rights holders may consider bringing an administrative action ahead of civil litigation if they wish to tackle infringement quickly.

Civil Litigation

In the case that compensation is sought, the claimant should bring a civil case against the infringer. Statutory compensation is capped at three million RMB for trademark disputes, or otherwise will be calculated according to the defendant’s profits or the loss to the claimant.

The calculation for damages is the same in patent law, where this cannot be determined, the court may also make a judgement for compensation that is one to three times the reasonable royalty rate. This can be difficult to estimate, and as such mostly statutory damages are awarded, these are capped at one million RMB for patent disputes (although this is increasing to five million in the draft of the present patent law). As long as the materials submitted meet the standard for submission then the court must accept the case, and they will have the power to judge the similarity of the trademarks, whether the accused mark constitutes an infringement on the rights holders mark.

Limitations: litigation is a timely process, it may take anywhere from 12-18 months. In practise it is difficult to prove the defendant’s profits or the claimant’s losses and statutory compensation is low.

Alternative Enforcement Measures

Mediation

Mediation can take the form of court appointed or private mediation. Court appointed mediation occurs when both parties to a case are open to mediation, the plaintiff can then choose to withdraw their case or ask the judge to make a mediation decision. The results of the court appointed mediation are binding and if the infringer does not enforce the mediation decision then rights holders can appeal to the court to issue an enforcement decision.

Parties can also mediate privately, in trademark disputes, where a company has not registered their rights in china, they can work creatively to cooperate with the rights holder of the mark in China – in some cases they may choose to collaborate with the rights holder in China, they may also choose to purchase the trademark directly.

Mediation is a comparatively cheap and efficient method of enforcement as attorney court fees are reduced, and both parties have more control over the outcome, which in turn can be more creative in solving the dispute. However in cases where there is clear bad faith, mediation may not be a viable enforcement measure, and where private mediation is initiated rights holders should take care to sign a contract to make the terms of the mediation enforceable.

Platform Complaints 

The majority of large online platforms have their own dedicated IP complaints teams. In China the complaints process is fairly straightforward, once the rights holder has submitted evidence of their prior IP right, the platform will make a judgement on whether the goods in question infringe the rights of the complainant. This can be a very effective method of enforcement where infringer’s business models rely heavily on online sales. Generally online platforms will take down infringing links fairly quickly, as where platforms fail to take effective action they may be held liable for any further losses incurred by the rights holder, as demonstrated in ELand Fashion (Shanghai) Trade Co. v. Taobao Network Co.& Du Guofa where the court held that where a network service provider is made aware of infringement it “shall take such necessary measures as removing, blocking or disconnecting the link timely, otherwise, it shall be liable for harm”.

Exhibition Complaints

If suspected infringement is discovered at an exhibition we can file a complaint with the exhibition organiser. This is usually very simple if the target uses an identical, or very similar trademark, or in the case of patent infringement, where the patent in question is a design patent. However given the challenges of proving infringement even in specialised IP courts, it is very difficult to demonstrate infringement of invention patents to an organisation such as an exhibition holder who lack the specialised technical expertise required to identify infringement. Where successful, exhibition complaints offer good temporary protection, as they stop infringers from continuing to show or sell their products at that exhibition. This can also be an effective long-term enforcement strategy given the damage it causes to an infringers reputation when they are unable to fulfil orders placed and the enforcement is made so public: in some cases infringers may be asked to physically cover the offending product at the exhibition, or remove it from sale altogether. Rights holders may further increase the reputational damage to an offender through media covering the event.

Customs Recordal 

Rights holders can register their IPR with customs, to defend against infringing products being exported or imported. Once a customs recordal has been made, the marks registered will be included in the customs database. Customs officers will check consignments at random, and where suspected infringing products are found, they will seize the goods in question. In the case of suspected patent infringement, given the practical difficulties involved, officers will rarely proactively check for infringement. In such cases customs will usually act on information provided by the patent holder as to specific consignments. Once seized, the rights owner must then determine if they wish to detain the suspected infringing products, and pay a deposit to hold the goods.

The target may provide evidence in their defence and customs officers will make a judgement as to whether these goods are deemed to be infringing goods. Where goods are deemed to be infringing they will be destroy or disposed of, in the case that infringement cannot be determined the right holder may file a lawsuit to allow the court to rule whether the goods should be released. In practise, the majority of goods seized by customs are done so on the grounds of trademark infringement, however where rights holders take a more proactive approach in identifying infringing consignments customs actions can prove particularly efficient.

Conclusion

Although many businesses are concerned about protection of IPR within China, as the above comparison demonstrates there are a diverse range of enforcement measures available. Rights holders should understand the features of each measure before determining the enforcement strategy that best meets their business needs. A good attorney will guide you through this process to build a strategy that works for you.

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