It seems that everyone is talking about trademarks in China. Far and away the most common question continues to be: is it really possible to enforce trademarks in China?
The Chinese market has vast business potential and almost infinite capitalisation opportunities. However, the answer to the seemingly complicated trademark enforcement conundrum usually tips the balance one way or the other. This article looks at the bigger picture and takes a bird’seye view of the options, issues and potential problems that can arise when enforcing
trademarks in China.
The possibilities are endless when it comes to trademark enforcement in China. While there are traditional methods that are most often used, it takes a creative mind to determine the best course of action. Before deciding on the most prudent avenue of enforcement, it is important to consider a variety of factors:
- Resources – what resources are available to combat the potential infringement?
- Location – where is the infringement taking place? Is the location rural or urban?
- Goals – is the primary objective to obtain damages or an injunction?
- Nature – on what scale is the infringement occurring? Is it purely a domestic issue or are the infringing products surfacing in other jurisdictions?
Rights holders are often inclined to quash any amount of trademark infringement with a vengeance. However, more often than not, a well-thought-out and refined strategy is sufficient to accomplish enforcement goals.
Before taking any action, a rights holder must consider the resources at its disposal to enforce its mark. While litigation in China is not nearly as expensive as in the United States or Europe, the costs can still add up. A basic trademark litigation can cost as little as $25,000 for a fairly simple matter and upwards of $100,000 for a complicated case. Attorneys are often quick to suggest filing suit, but other cheaper and equally effective options are also available.
Going through administrations for industry and commerce (AICs) to combat trademark infringement is a quick and efficient avenue by which to enforce IP rights in China. AICs handle small, localised instances of infringement – often at a fraction of the cost of what one might pay for litigation.
The location(s) of the trademark infringement is one of the first issues that a rights holder should consider. The location of the potential infringement can lead to a variety of options and decisions in order to effectuate positive enforcement. Determining the actual location of the infringement can give rise to issues such as local protectionism, venue queries and the jurisdictional reach of the relevant enforcement body.
Local protectionism was a prevalent and dreaded practice five years ago, but not so today. While the notion of local courts and government bodies protecting local interests was a major concern in years past, the situation has improved dramatically in recent years. The central government has implemented a variety of programmes and provided ample resources to local judges and agencies to improve their understanding of and respect for IP rights. However, while there has been significant change and progress, it is still highly recommended to liaise with local counsel in any unfamiliar jurisdiction. Local counsel understand the native judiciary and have a working relationship with the relevant governing bodies in that specific jurisdiction.
If a local jurisdiction is indeed unfavourable, the rights holder should consider applying for a change of venue. Judges will often move the venue to a more favourable jurisdiction if certain criteria are met, such as obvious bias or no possibility of a fair trial. Further, according to Chinese law, a plaintiff may file suit where the defendant has a registered address or where the sale, manufacture, seizure or storage occurred. Plaintiffs can avoid potential local protectionism challenges by filing suit in an IP-friendly court. Such courts are often located in China’s larger cities, such as Beijing, Shanghai and Shenzhen.
Finally, with regard to the infringement location, it is imperative to consider the overall reach of the enforcement body. The courts can handle matters that are complicated in scope and that may involve infringement occurring in multiple locations. A court ruling has a greater and more prominent effect, with often farreaching enforcement ramifications.
On the contrary, while going through AICs is a quick and effective way to combat infringement, their influence is localised. There are more than 3,000 AIC offices throughout China with more than 500,000 employees working to improve the Chinese IP system. However, their authority is often limited in scope and location. An AIC action may be effective in its respective jurisdiction, but has little influence in other locales.
Before making the decision to enforce a trademark in China, it is important to determine what exactly is hoped to be achieved at the end of the process. Is the end goal to stop the infringement outright, or will damages be pursued in an attempt to punish the infringing party? While both options are available in China and can often be accomplished simultaneously, a rights holder should understand the realities and potential for success in any given situation.
As a general rule, damages in China are low compared to those in other jurisdictions. Consistent with Chinese trademark law, courts calculate and then ultimately determine damages based on either the infringer’s illegal profits or the economic loss suffered by the rights holder as a result of the infringement. The burden of proof lies with the plaintiff; however, due to the absence of discovery in the Chinese legal system, such empirical data is difficult to obtain. The law further states that absent such data, the court has discretion to determine the amount of damages; however, damages cannot exceed Rmb500,000. In reality, courts in China’s major cities have been reluctant to award damages for trademark infringement, with only one-third of courts rendering judgments in excess of Rmb100,000.
Rights holders have had significantly more success pursuing injunctions to preserve evidence of the infringement and stop infringing activity. According to Chinese law, if the plaintiff can prove that significant infringement has occurred and that the infringing activity has caused or is causing severe damage, then a court will likely be inclined to issue an injunction against the infringer.
Additionally, a rights holder must consider how long it is willing to wait for the matter to be concluded. Utilising the court system is certainly effective; however, it can take more than six months before a judgment is rendered. On the contrary, an AIC is extremely fast acting; matters are generally concluded in weeks rather than months. However, as discussed above, using an AIC may not necessarily be an effective method for every instance of trademark infringement.
Nature of infringement
Fundamental to infringement is determining the scope and nature of the illegal activity. This provides clarity and a true understanding of what is actually occurring. Some of the important factors to focus on are:
- the type of goods or mark being infringed;
- the extent of the infringement;
- the market for the infringement;
- the potential impact of the infringement on the rights holder;
- the complexity of the infringement network; and
- whether the infringing goods are being exported from China.
Initially, determining the types of goods being infringed may provide rights holders with alternative options. The Chinese government places significant emphasis on protecting products and markets that affect national security and public health and welfare. Taking this into consideration, the owner of, for example, the owner of a pharmaceutical trademark which is experiencing infringement in China may be able to turn to government bodies (eg, the State Food and Drug Administration) to assist in enforcing its trademark.
Further, it is recommended to spend time analysing the complexity and scope of the infringement network. Counsel can assist in determining whether the infringement is small and localised, or whether it is running rampant throughout China. Moreover, through such analysis, rights holders can determine the size and business structure of the infringing operation. Such intelligence will assist the rights holder in making an informed and prudent decision about how to proceed with trademark enforcement.
The infringer’s market is another key aspect which should be closely scrutinised. It is advised to ascertain whom the infringer is selling to and where the sales are taking place. If the infringement is purely a localised domestic issue, a variety of options are available; however, if the infringement is international in scope, it may be necessary to involve multiple parties in the dispute.
Keeping with the notion of infringement with potential international ties, rights holders should record and enforce their IP rights with Customs. Customs enforcement is an effective method through which to prevent infringing goods from leaving China; data suggests that the administration is efficient in its monitoring. The cost of recording a registered trademark is low and will pay for itself multiple times over in terms of the resulting benefits.
Trademark infringement in China can present a frustrating situation for rights holders. A variety of emotions, including confusion and anger, are often initially invoked at the first sign of infringing activity. However, with multiple options available and the Chinese IP system continuing to improve, there is little doubt that a rights holder will be able to enforce its trademark in China.
This article first appeared in World Trademark Review. For further information please visit www.worldtrademarkreview.com.