On 22 April 2021 the Supreme Court announced the cases selected to be included in its Top 10 and 50 Exemplary IP Cases of 2020. Among others in the spotlight is the private criminal prosecution brought against a counterfeit seller by Asea Brown Boveri (ABB) Ltd, a leading global technology company specialising in electrification, robotics and automation.
Practitioners who are familiar with China's IP enforcement regime will be well aware of the deterrence of criminal enforcement proceedings. Criminal proceedings are usually initiated by the police, either through a direct raid action or by following up a case referred to the police by an administrative enforcement authority. If the threshold for criminal prosecution is reached, the police will refer the case to the people's procuratorate, which will do its own due diligence to assess whether the case merits prosecutorial action. If the procuratorate refuses to prosecute the offender, the Criminal Procedure Law offers brand owners a remedial approach – private criminal prosecution.
Article 114 of the Criminal Procedure Law (amended in 2018) provides that the victim of a crime is entitled to file private prosecution directly with a court. Article 210 of the law provides that a private prosecution may be filed where:
- the victim has requested the prosecution of the crime;
- the victim can prove that a petty crime has taken place; or
- the victim has evidence to prove that criminal liability should be pursued for the defendant's infringement of their personal or property right, yet the police or procuratorate concludes otherwise.
Nevertheless, due to the high evidentiary hurdle, private criminal prosecutions have been quite unusual in IP cases.
ABB filed a private criminal prosecution against an exporter, Wuhu Teaton Electric Ltd (Teaton), and its owner, Zhang (the defendants).
In May 2016 the defendants attempted to export a large shipment of counterfeit ABB circuit breakers (165,480 pieces in total) to Libya. The shipment was intercepted by Wuhu Customs and in October 2016 the case was transferred to the local police for criminal investigation. In July 2018 the police wrapped up the investigation and presented its findings to the Wuhu Economic and Technological Development Area (WEDA) Procuratorate. On 29 December 2018 the WEDA Procuratorate rejected the case on the ground that the defendants had been acting as an export agent and had not been aware that the products were counterfeit.
In most situations, the procuratorate's refusal to prosecute a case would be the end of the criminal proceeding. ABB, however, refused to give up and filed a private prosecution before the Wuhu WEDA People's Court.
The defendants argued that they had been mere export agents hired by a foreign buyer and that they had known nothing about the illegality of the products. In the court hearing, ABB rebutted the argument and contended that the defendants had not only acted as export agents but had also approached the manufacturer and specifically asked for counterfeit ABB products. Further, the defendants had intentionally affixed a sign reading "Teaton" on the outer packaging of the products to obscure the fact that the products inside were all counterfeit ABB products. According to ABB, this sufficed to prove that the defendants had knowingly been procuring and exporting counterfeit ABB products.
The Court found the arguments tenable and ruled that the evidence sufficed to prove that the defendants should have known that the products were counterfeit and that they had therefore been intentionally selling counterfeit products.
On 30 December 2019 the Court rendered a decision, finding both Teaton and Zhang guilty of selling goods bearing counterfeit registered trademarks. The Court sentenced Zhang to three-and-a-half years' imprisonment and imposed fines of Rmb800,000 and Rmb850,000 on Zhang and Teaton, respectively. Both defendants appealed to the Wuhu Intermediate Court, which upheld the trial court's decision on 10 April 2020.
The rulings made by the trial court and the appellate court in this case are to be welcomed. This case showcases the complexity that brand owners face in criminal enforcement actions against outbound counterfeit products. Even if customs, upon interception of counterfeit cargos, refers the case to the local police for criminal investigation, the exporter – by passing the buck to the overseas consignor – almost always emerges unscathed from the police investigation. Further, even if the police gather evidence regarding the exporter's sale of counterfeit products by undertaking an arduous investigation process and presenting their findings to the procuratorate, the chances are still high that the procuratorate will conclude that the evidence does not reach the high bar of proof "beyond reasonable doubt"(1) and thus fails to prove the wilfulness of the exporter in knowingly selling counterfeit products. This is why the ABB case was thrown out by the local procuratorate in the first place. This case could serve to demonstrate that brand owners can fall back on private criminal prosecution should their attempt to purse public prosecution fall through.
For further information on this topic please contact Jason Yao at Wanhuida Intellectual Property by telephone (+86 755 8279 1635) or email ([email protected]). The Wanhuida website can be accessed at www.wanhuida.com.
(1) Civil and criminal proceedings are separate procedures that employ different rules. "Proof beyond a reasonable doubt" is the standard of proof utilised by court in criminal proceedings. The prosecutor has the duty to convince the court by proof beyond a reasonable doubt of each and every element of the crime in order for a defendant to be convicted. It is the highest standard of proof because a person's freedom is on the line. The "balance of probability" is a low bar of proof used primarily in civil proceedings. This means that it is more likely than not that the facts are as that which one of the parties claims.