According to the US Embassy in Beijing, China is the number one source of counterfeit goods seized by US Immigrations and Customs Enforcement. The targets of this IP piracy and infringement today can be Chinese companies as well as foreign firms.

Street peddlers in China can frequently be found selling DVDs of movies playing in theaters worldwide for as little as 5 yuan (about 62 cents US). These often include bootleg DVDs of recently released American films as well as many popular recent Hong Kong movies. Since the main market for Hong Kong movies is China, this rampant piracy is causing declines in legal distribution and eroding profitability in the once-lucrative Hong Kong movie industry.

This is just one small example. However, to secure entry into the World Trade Organization (WTO), China has made stringent efforts to strengthen the enforcement of IP rights. It is clearly in China’s interests to enforce IP rights so as not to jeopardize either important WTO commitments or its own developing Chinese industries. With newly enacted laws, China has been steadily improving and increasing its enforcement of IP rights in a nonbiased manner.

Registration of IP rights in China is important and should be done promptly so that those rights can be enforced when needed. Here are a few items to keep in mind in this regard:

  • Registration of IP Rights in China: To protect its IP rights, an IP owner must first register its patents or trademarks in China. A foreign patent or trademark will not protect a company from infringement except with respect to the importation of products from China. Furthermore, keep in mind that registration of IP rights in China applies only to the mainland and does not include the Macau or Hong Kong Special Administrative Regions.
  • Enforcement of IP Rights in China: There are two main routes for IP enforcement in China: administrative and judicial. The judicial route is somewhat similar to the American system in that an IP owner files suit for relief in court. The administrative system enables IP owners to enforce their IP rights without going to court. Although damages are not available to the patent holder, the infringer still can be fined and any illegal earnings are seized by the administrative agency. If the IP owner is not satisfied with the results, the IP owner can then proceed to judicial remedies.
  • Customs: This is a third, and powerful, route for IP enforcement in China – registering the IP right with Chinese Customs. Customs can then seize and dispose of the infringing products. Not only will this prevent the importation of a product into China covered by the IP, it will also prevent the sale and exportation of the product from China.

As China may be the sole source for an infringing product, this can be a very efficient means of stopping infringing products at the source to prevent the products from entering other markets. Instead of having to register IP with customs in each country, which can be expensive and time consuming, the IP owner need only register IP with Chinese Customs. This generally only applies to copyrights, trademarks and design, not utility models or invention patents.

  • Enforcing US Patents on Chinese Imports: Another alternative is to file suit for IP protection in the United States or in other large markets that import Chinese products. This tends to be the most effective for US patents.

While this will not stop infringement in China, it will prevent the import and sale of infringing products in the United States, typically one of the largest markets for infringing products. A US lawsuit may also be effective in forcing a global settlement. For example, Taiwan Semiconductor Manufacturing Corporation (TSMC) recently sued Shanghaibased Semiconductor Manufacturing International Corporation (SMIC) in an American court over patents registered in the United States. Ultimately, SMIC settled for US$175 million. While the damages were not what TSMC had hoped for, this outcome was probably more favorable than any resolution from a Chinese court.