The Chinese legal system takes a multifaceted approach to anti-counterfeiting. This comprises relevant laws and regulations, enforcement by multiple administrative bodies and the ability to bring suit in the people’s courts. It is also defined and reinforced by China’s membership of various international IP agreements. The following is a brief summary of the key laws, regulations, structures and agreements for tackling counterfeiting in China.
The Trademark Law first came into force in 1982, with the current version being passed in 2001. A third revision has been placed on China’s legislative plan for public consultations and should be considered and passed in the near future. The law is supported and expanded by the Implementing Regulations of the Trademark Law. Trademark rights in China are also supported by the Anti-unfair Competition Law 1993 and the Criminal Law. The Anti-unfair Competition Law prohibits the counterfeiting of registered trademarks and famous marks, while the Criminal Law sets out criminal punishments for serious cases of counterfeiting and other IP offences.
Three administrative agencies enforce the various laws and regulations on trademark counterfeiting. The primary agency for trademark-related matters is the Agency of Industry and Commerce (AIC). In addition to overseeing trademark registration, recordation and licensing, the AIC’s trademark office is the primary channel of enforcement against counterfeiting and other infringement. The Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) can also bring enforcement actions in cases where counterfeit goods fail to meet China’s quality standards. Finally, the General Administration of Customs can bring enforcement actions against imports and exports suspected of infringing recorded trademark rights.
Each of these three agencies can transfer cases of criminal infringement to the Public Security Bureau (PSB) for further investigation, which can then transfer serious cases to the People’s Protectorate for prosecution. Finally, Chinese law allows rights holders to file suit in the people’s courts.
In addition to domestic laws, regulations and enforcement bodies, China is a party to several international IP agreements with a bearing on trademark protection and anticounterfeiting. Much of China’s modern IP law is designed to implement the provisions of these agreements. Additionally, the treaties have direct force in Chinese courts for issues upon which Chinese law is silent; in the case of any conflicts, the international treaties will prevail.
China is a party to and is bound by the following relevant international treaties:
- the World Trade Organisation Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs);
- the Paris Convention for the Protection of Industrial Property;
- the Convention Establishing the World Intellectual Property Organisation;
- the Madrid Agreement and Madrid Protocol; and
- the Nice Classification (Ninth Edition) for Classification of Goods and Services.
Recently, various departments of the Chinese government have passed and revised laws and regulations that impacted on the country’s trademark and anti-counterfeiting protections. In 2010 the State Council revised the Customs IP Rights Protection Regulation, first passed in 2004. The revised regulations clarify customs enforcement procedures and give greater enforcement power to Customs and rights holders. In 2011 the AQSIQ promulgated the Provisions on the Procedures of Administrative Penalties Related to Quality and Technical Supervision, which clarify and expand the AQSIQ’s investigative and enforcement powers. Finally, 2011 saw the issuance of the Notice of the Supreme People’s Court, the Supreme People’s Procuratorate and the Ministry of Public Security to Print and Issue Opinions on Matters Concerning Applicable Laws for Criminal Cases Involving IP Rights Infringement. This notice clarifies several provisions and terms within laws and regulations imposing criminal liability for counterfeiting and other violations.
In order to assist and guide local customs offices in uniformly conducting enforcement against imports and exports of counterfeits, Chinese Customs requests that rights holders record their IP rights. However, it is not a prerequisite that rights be recorded in order for them to be protected by Customs.
The rights holder must submit an application and complete the recording procedure for Customs. The recording remains valid for 10 years. Trademark holders outside China must file the application for recording through their branch offices set up in China or through an authorised agent in China. The 2010 Customs IP Regulations list the following protective measures available to Customs:
- Customs can detain allegedly counterfeit goods as a result of an application by the rights holder. Along with the application, the rights holder must provide Customs with a security equivalent to the value of the goods;
- Customs may, on its own initiative, detain suspected counterfeit goods. If it detains goods in this manner, it must inform the rights holder, which must reply within three days with security equivalent to the value of the goods if it wants to keep the goods detained; and
- Customs may confiscate or dispose of counterfeit goods on its own initiative.
Regarding security, in addition to paying this before any enforcement application, rights holders may also provide Customs with a general guarantee, valid for one year (minimum Rmb200,000), to cover applications for detention. This rule has substantially improved the efficiency of applications for detaining suspected infringing goods.
The rights holder can invite the local AIC office to take enforcement action when a trademark registered in China is being counterfeited. AIC enforcement can also be initiated by the owner of a well-known trademark, even if this is not registered in China. The local AIC office has administrative jurisdiction over enforcement. Compared to court enforcement, AIC actions are quite efficient and less costly, and have thus been widely welcomed by rights holders.
The AIC can issue administrative punishments, which can include:
- administrative advice against possible infringers;
- a disciplinary warning;
- a fine;
- detention and/or confiscation of the counterfeit goods;
- confiscation of illegal gains, unlawful property or items of value;
- suspension of production or business; and
- temporary suspension or rescission of business permits or licences, or administrative detention.
The AIC can take action not only against counterfeiting, but also against unfair competition. Sometimes, rather than simply counterfeiting a trademark, the infringer forges the rights holder’s enterprise name, contact details and related information, or produces a misleading advertisement to suggest that the infringer has some kind of special relationship with the rights holder. In such circumstances, the rights holder can apply to the AIC to take action against such unfair competition.
The AQSIQ is also responsible for cracking down on counterfeit goods in China because some counterfeit goods do not meet Chinese quality or security standards. The AQSIQ’s new Procedure Rules for Administrative Punishment of Quality and Technology Supervision are expected to play an important role in the fight against counterfeiting. However, because these rules came into force only in 2011, it will take time for officers and rights holders to understand and fully utilise them.
Compared to litigation, administrative actions have many advantages. First, once counterfeiting has been established, the local administrative authorities can take immediate action, whereas litigation takes considerably longer. Second, the documents required for an administrative action are less complicated than those needed for litigation, and the cost involved in completing an administrative action is usually much lower than the cost of litigation.
If an AIC action reveals preliminary evidence that the counterfeiting offence constitutes a crime, the AIC will report to the PSB, which will then take over and decide whether to initiate criminal proceedings. If the judge in a civil trial finds that the counterfeiting offence constitutes a crime, he or she should also transfer the civil case to the criminal division.
Pursuant to Article 213 of the Criminal Law, using an identical trademark on the same goods without the permission of its registered owner is punishable by imprisonment for up to seven years, as well as a fine.
The following meet the criminal definition of ‘counterfeiting’:
- The amount of illegal business is worth more than Rmb50,000 or the illegal gains are more than Rmb30,000.
- More than two registered trademarks are infringed and the amount of illegal business is worth more than Rmb30,000 or the illegal gains are more than Rmb20,000.
- There are other circumstances of a serious nature.
Infringements of a more serious nature include the following:
- The amount of illegal business is more than Rmb250,000 or the illegal gains are more than Rmb150,000.
- More than two registered trademarks are infringed and the amount of illegal business is worth more than Rmb150,000 or the illegal gains are more than Rmb100,000.
- There are other circumstances of an especially serious nature.
Since the PSB usually gives priority to more serious crimes than counterfeiting, Chinese law grants rights holders remedies even without PSB involvement. When the PSB refuses to accept a counterfeiting complaint, the rights holder can initiate criminal proceedings by itself through the courts, provided that it has sufficient evidence. If the PSB is reluctant to accept the complaint, the rights holder can also apply to the procuratorate to execute its power of supervision over the police in order to encourage the PSB to intervene.
Rights holders can also file additional pleading to claim civil damages for the injury caused by the counterfeiting, either during the criminal proceedings or independently.
Article 52 of the Trademark Law provides that the following acts constitute an infringement of the exclusive right to use a registered trademark:
- using a mark that is identical or similar to a registered trademark in respect of identical or similar goods without the rights holder’s authorisation;
- selling goods in the knowledge that they bear an infringing trademark;
- counterfeiting or making, without authorisation, representations of a registered trademark or selling such representations;
- replacing a registered trademark and reselling goods without the rights holder’s authorisation; or
- causing prejudice to the exclusive right of another person to use a registered trademark in any other way.
In the event of infringement, the rights holder can file a civil lawsuit for trademark infringement against the suspected infringer before the court.
Civil IP cases in China are usually started in the intermediate court; a party is allowed to appeal to a province-level high court if it does not accept the first instance judgment. Because of the rapidly increasing number of IP lawsuits being brought before Chinese courts, the Supreme Court has granted jurisdiction to hear civil IP cases, including trademark infringement disputes, to over 100 district-level courts. Thus, many district courts in large cities, such as Beijing, Shanghai, Guangzhou and Shenzhen, now have jurisdiction to hear trademark infringement disputes.
According to the Civil Procedure Law, a first instance decision must be issued within six months of filing, although this may be extended for another six months if the case is complicated and the extension is approved by the trial court president. The timeframe for appealing cases at second instance is the same as at first instance. Therefore, it usually takes between six months and two years to complete a trademark infringement case.
According to Article 21 of the Interpretation of the Supreme Court on Several Issues Concerning the Application of Law in the Trial of Trademark Civil Disputes, rights holders are entitled to the following remedies:
- immediate cessation of the infringement;
- confiscation of the counterfeit goods, materials, moulds and representations of the forged trademark; and
- compensation for damage.
There are three ways to calculate damages:
- the profits lost by the plaintiff due to the infringement, which are calculated by multiplying the reduced sales volume of the products by the unit loss per infringing product;
- unjust enrichment by the defendant due to infringement, which is determined by multiplying the sales volume of the infringing products by the unit profit per infringing product; and
- where damages cannot be determined by the methods mentioned above, statutory damages determined by the court up to a maximum of Rmb300,000 in regular cases and Rmb500,000 in cases with severe consequences or serious circumstances.
The rights holder may also recover reasonable expenses incurred during the course of enforcement, such as for investigation, transportation, collection of evidence, statutory attorneys’ fees and notarisation fees, by producing all official receipts.
When it is found that the infringer registered a domain name that is identical or confusingly similar to the rights holder’s name or mark, the rights holder can submit a dispute complaint before the China International Economic and Trade Arbitration Commission Domain Name Dispute Resolution Centre. If this body finds that the domain name was registered or is being used in bad faith, it will compel the infringer to return the name to the rights holder. The rights holder can also move for resolution before the court.
When counterfeit goods are offered by online sellers on a platform that is operated by an independent electronic business provider, such as Alibaba or Taobao, the rights holder can first instruct its lawyer to send a warning letter to the website. After receiving this, the provider must take down the offer for the counterfeit goods within a reasonable time. If it refuses or delays in doing this, the rights holder can file a lawsuit against both the seller and the website.
The rights holder should provide the right certificate when initiating an action with the AIC. The AIC does not have as stringent requirements for evidence and procedures as the courts, and no procedure for authenticating documents is required. The rights holder’s lawyer must prepare the administrative complaint bill and present the counterfeiting situation and the preliminary evidence.
Before initiating litigation, the rights holder should begin to undertake investigations in order to collect accurate information about the suspected infringer, any shareholders, the place where the infringement is taking place and the scale of the infringement. Chinese courts are very strict about examining documents when a case is filed. The investigation must be adequate before judicial enforcement can be initiated, in order to ensure that the court has no grounds to refuse the case. Investigation can also help the lawyer to choose the most appropriate litigation venue for the rights holder.
Measures for exhibitions
Recently, some infringers in China have begun openly promoting counterfeits at exhibitions. However, rights holders can take effective and powerful measures to protect themselves.
First, rights holders should carry out detailed preparations, including conducting analysis of possible competitors and counterfeiters, and maintaining well-prepared certificates for trademarks and other rights, as well as the documents for powers of attorney. Second, if counterfeits are found at an exhibition, rights holders can contact the exhibition’s IP office or the local AIC office and request that it take action. It may also be possible to contact the AQSIQ, depending on the situation. Third, exhibitions offer good opportunities for rights holders to collect evidence of counterfeiting in order to file suit before a court at a later date.