Under the U.S. government’s recent initiatives aimed at encouraging companies to export products to international markets, particularly emerging markets like China, legal issues related to intellectual property rights have been frequently brought up by U.S. companies. As it relates to China, in particular, although enforcement mechanisms have long been in place to protect companies’ valuable intellectual property assets, many issues arise from lack of information and understanding of different legal systems and enforcement mechanisms. In China, intellectual property enforcement mechanisms include enforcement through litigation and administrative actions including, but not limited to, Customs border control seizure of counterfeit goods, and/or infringing goods.
This e-update addresses the frequently asked questions about IPR border protection measures in China:
Q: What are the IPR Border Protection Measures in China?
A: When a shipment is suspected of containing infringing goods, whether it is being exported or imported, Chinese Customs detains the shipment, informs the IP owner, and can seize the goods upon request. These border measures are an effective way of cutting the flow of counterfeits from China.
Q: Why does a company need such border measures?
A: According to a US Customs report, between 2006 and 2009, about 80% of the counterfeit goods seized originated from mainland China. Also, according to a report from Chinese Customs, the US ranks in the top 5 countries whose company brands are most frequently counterfeited.
Q: Which kinds of IP Rights can be protected by the Border Measures of the Chinese Customs?
A: Chinese Customs provide protection for patents, trademarks, and copyrights.
Q: Can one stop the export of infringing goods from China at the Chinese border?
A: Yes. Though the Trade-Related Aspects of Intellectual Property Rights(TRIPS) Agreement only requires its member states to take border actions over import channels, Chinese Customs control both import and export channels.
Q: Does one have to record its IPRs with Chinese Customs?
A: Recordation of IPRs with Chinese Customs is not a prerequisite for Chinese Customs to take border actions. However, if one's IPRs have been recorded, one can benefit in two ways:
First, Chinese Customs monitor the import and export of goods and inform an IPR owner when they find shipments with a trademark, a copyrighted work, or a patented technology comparable to the IPR owner's. In more than 90% of the cases handled by Chinese Customs, infringing goods were discovered by Chinese Customs.
Secondly, an IPR owner may save certain litigation costs. If the goods are discovered by Chinese Customs, they will conduct an investigation and draw a conclusion as to whether to seize the goods, which generally helps the IPR owner since it may avoid taking the case to court.
Q: What actions does Chinese Customs take when they find a suspect shipment?
A: Chinese Customs inform an IPR owner. Within 3 days after receiving a notification, the IPR owner shall, at its own discretion, file a petition for impoundment of the shipment by Customs with a payment of a security deposit.
Q: Does an IPR owner need to pay a bond for impoundment of goods by Chinese Customs?
A: Yes. An IPR owner must pay a security, in the form of a deposit or a bond. The security will be used for payment of storage fees, disposal costs or compensation to the other side if the goods have been wrongly detained. The value of the security won’t exceed that of the goods and the maximum is RMB 100,000 (approx. USD15,000). For frequently counterfeited brands, an IPR owner may provide a general bond to cover annual cases.
Q: What happens when Chinese Customs impounds goods?
A: When Customs finds a suspect shipment firsthand, they notify the IPR owner, carry out an investigation and draw a conclusion regarding whether there is an infringement. The goods will then be either confiscated or released, depending on the conclusion. If Customs is not able to draw a conclusion (especially for patent cases) within 30 days of the seizure of the goods, the IPR owner has 20 days to bring the case to court.
When an IPR owner informs Customs about the import or export of infringing goods and has asked for their impoundment, Customs can only detain the shipment. The IPR owner has 20 days to bring the case to court. The outcome depends on the decision of the court.
Q: How much does a recordation of an IPR with Chinese Customs cost?
A: The official fee for recording an IPR with Chinese Customs is RMB 800 (approx. USD120).
Since China joined the WTO, Chinese Customs has stepped up its border control which has resulted in the seizure and detainment of many shipments. Using this Chinese Customs border control mechanism has proven to be a very useful tool for companies facing IPR infringement, particularly counterfeit goods.