With Chinese counterfeiters responsible for two in three of the products seized by US and UK customs, Paolo Beconcini, who is speaking at the Luxury Law Summit, advises businesses on the best way to protect their goods.
Counterfeiting is a serious problem for brand owners. China is the largest manufacturer and exporter of counterfeits worldwide. More than 70% of the counterfeits seized by the US and EU customs in 2012 came from China. This is why one of the most effective strategies to reduce the negative economic impact of counterfeiting on a brand is that of enforcing IP rights protecting the brand in China.
Due to the peculiarities of the Chinese legal system and culture, non-registered IP rights such as copyright or slavish imitation do not play an important role in anti-counterfeiting enforcement especially with respect to luxury industrial products from fashion accessories to car spare parts. The best way for a brand owner to obtain swift and efficient enforcement against counterfeiters in China is by possessing registered IP rights and chose the right legal tools for enforcing them.
Available IP Rights for anti-counterfeiting
Generally speaking, brands in China are protected by trademarks. Trademarks are IP rights protecting the distinctive nature of a brand and are meant to allow consumers to recognize the origin of the product upon which the trademark is used. A counterfeiter will exploit this recognition function of a trademark in order to induce the consumer to believe that the product he is selling is a genuine one. Brands can also be represented and thus incorporated in a design patent when the recognition function is also referable to the aesthetic outer appearance of a product' shape, color, and pattern.
Both trademarks and design patents are exclusive rights, ie the use and implementation of them is exclusively reserved to the right holder, while the use and exploitation by third parties is illegal unless it is expressly consented by the right holder (ie license).
The brand function of many products or parts of them may be protected by both trademark and designs. A typical example is the tire rim of a car. In the middle of the rim there will be the logo of the car maker, which will be protected by a trademark. The special design of the rim will be then protected by a design patent. Another example is that of a designer bag. The buckle or a pendant shaped as the company brand will be protectable as a trademark, while the bag outer shape or shape and colors will be protectable as a design patent. The mentioned IP rights will operate independently from each other but they can be jointly enforced for the benefit of the right holder.
Trademark enforcement system
China has a dual-enforcement system. IP rights in China, including trademarks and design patents can be enforced before a civil court (People's Court) or a specialized administrative organ. Among the major differences between the two types of enforcement, is the fact that economic damages derived from a trademark or a design patent infringement can only be claimed before a civil court.
In order to issue an injunction, civil courts require the applicant to pay a deposit, while the infringer will, in many cases, be notified and invited to a hearing and file opposition to the injunction. Furthermore, the applicant must follow up the injunctive order with the filing of a civil lawsuit (within 15 days from the injunction) in order to keep the seizure legally binding. All this takes time and it is costly. Counterfeiters are fast to disappear, considering that they normally are not legally registered enterprises with sizeable assets, but "underground" operations. A civil injunction will normally arrive when they have already disappeared and moved to another area.
This is why against counterfeiters trademarks are normally enforced through administrative raids rather than civil judicial process. It is in fact an accepted practice of the administrative enforcement authorities to conduct raids without advanced notice to the infringer upon request of the right holder within few hours from the filing of the request. Also, administrative organs have the power to order the destruction of the counterfeit manufacturing tools, a remedy not expressly available in a civil lawsuit.
Enforcement of criminal law
Trademarks can be enforced under criminal law through the intervention of the territorially competent Public Security Bureau (PSB). The procedure is the same as in case of administrative enforcement. The difference is that the quantities of sighted goods in a factory and/or warehouse must be really large in order to warrant the intervention of the police. In the Chinese legal system, an act of counterfeiting is not per se a criminal conduct until its dimensions in terms of quantity of goods and illegal revenues involved reaches given statutory thresholds.
Police raids are less frequent because infringers carefully organize production and storage so as to avoid accumulating large quantities of counterfeit products in the same place for a long time. Even if a factory produces large quantities, it may organize production so that delivery is done continuously in small batches (often at night or after PSB office hours), so as to reduce the time window in which a large number of finished goods could be found in the factory and/or warehouse.
The IP portfolio
In sum, a good IP portfolio is a necessary prerequisite for enforcement against counterfeiters in China. Thereafter, a brand owner can "play" with this portfolio to conceive most effective and comprehensive enforcement strategies depending on the type of products, market and business strategy.