The General Administration of Customs of China (the “GACC”) has recently released its annual Report on the Situation of IP Protection, which contains valuable statistics on how the GACC has tried to stop the vast flow of counterfeit goods into and out of China in 2014.
These annual reports are a valuable resource for IPR owners since they provide a snapshot of the practices and priorities of the GACC and thus enable IPR owners to tweak their customs enforcement efforts accordingly.
The most striking aspects of the 2014 Report are:
- Nearly all seizures were based on trademark rights. 97% of seizures were made on the basis of trademarks, while patents and copyrights made up a mere 3% of seizures. This is understandable as customs houses generally only seize blatantly infringing products, and the detection of patent and copyright infringements require more thorough inspections and assistance from experts in the relevant fields. However, there is clearly room for improvement of border enforcement of patent and copyright rights, especially for straightforward copyrighted works and design patents, which can be achieved by providing training to the customs officers.
- Nearly all seizures were made on goods being exported. 96.5% of seizures resulted from export customs control rather than import control. This illustrates China’s continued role as the world’s leading source of counterfeit products and the need for IPR owners to incorporate China customs as part of their global IP enforcement strategy.
- Nearly all seizures were made based on prior recordals of the IPR. In 98% of seizures, the customs houses acted on the basis of an IPR owner’s prior recordal of their IPR with the GACC. Only 2% of seizures were made on the basis of a specific application filed by a right owner. This shows that recording one’s IPR with the GACC, while not mandatory, is crucial for an effective customs enforcement program. Another advantage of customs recordal is the cap of the security bond for seizures made on the basis of the recorded IPR, which is RMB200,000 (about USD32,000) even if the value of the seized goods exceeds this limit. Fortunately, the GACC has made it easy to record one’s IPR via a simple online application.
- Nearly all seized goods were intended for transport by ship. 96% of the total amount of seized counterfeit units were about to be sent overseas by ship transport. Other methods of transport amounted to less than 4% of the seized units. It is not surprising, therefore, that the customs authorities in major port cities like Shenzhen, Shanghai and Ningbo accounted for the highest number of seized units nationwide. IPR owners should consider this when devising their customs enforcement strategy.
- The postal service was frequently used to send counterfeit products. While shipping was used to send the most volume of counterfeit products, standard postal services were used to send approximately 80% of all seized batches of counterfeit products out of China. This shows that while ship transport is used for large shipments of counterfeit goods, the mail is used for more frequent, yet smaller parcels of counterfeits, likely due to the proliferation of e-commerce in China.
- Tobacco products are China’s most seized counterfeit products. Tobacco products account for 44% of the total number of seized goods. Light industrial products, cosmetics and personal care products, clothing, machinery and other electronics complete the top 5.
- Hong Kong, the USA and developing countries are top destinations for seized counterfeit products. The ‘usual suspect’ Hong Kong (as a transit/trans-shipment hub) remains at the top, followed by the USA and certain developing countries. The most striking aspect about the destinations is the apparent surge in exports to Latin American and Middle Eastern countries (with Brazil as the main destination in terms of number of seized shipments).
IPR owners can draw valuable lessons from this information. Some things to consider, for example, include:
- IPR recordals are indispensable for an effective border enforcement program since the vast majority of seizures are made ex officio based on such recordals;
- Patents and registered copyrights are historically under-recorded and under-utilized for customs enforcement, but this is changing and these types of IPR should be considered for customs recordal and enforcement under appropriate circumstances;
- Providing training to and establishing good relationships with customs officials are necessary to obtain optimal results, especially for customs enforcement of patents and copyright;
- Since the highest volume of counterfeits is sent via ship transport, customs enforcement efforts can be focused on major ports such as Shanghai, Shenzhen and Ningbo (and any other port from which the IPR owner is aware the infringing products are being shipped);
- Coordinating China customs enforcement with customs and other enforcement actions in the main destination markets can be an effective strategy and should be examined; and
- As Hong Kong remains the top destination for counterfeit products from China, and Hong Kong customs is renowned for its high efficiency and business-friendly service, IPR recordals with Hong Kong customs should not be neglected (though we note Hong Kong customs cannot seize “goods in transit”).