I. Background
Counterfeiting of brand-name products is the most common intellectual property violation in China. Daniel Chow, Professor, Ohio State University College of Law, has traced the origins of trademark counterfeiting to the growth of China’s economy and the emergence of a consumer market since China has reintegrated with the global economy. The combination of demand for famous goods and the lack of IP legal protection made counterfeiting commercially viable without legal ramifications. As counterfeiting increased, local government-administered markets arose as distribution centers for counterfeit goods which led to direct and indirect government involvement in counterfeit trade. This combination of demand for inexpensive counterfeit goods and the lack of IP protection created its own inertia leading to widespread counterfeiting.
Although China has adopted various laws to protect IP, the enforcement of such laws remains problematic because the court system is still in reform and administrative bureaus have limited authority. Many have predicted that as China becomes an intellectual property exporter it will enforce its laws, leading to less infringement. Others have been less sanguine. See, e.g., Time Asia article, June 6, 2005, “The Idea-Stealing Factory: What drives China’s compulsive copycatting?,” observing that the underpinning of China’s counterfeiting is that government-controlled companies comprise the industrial base. In other words, counterfeiting is not a product of growing pains as China emerges from a command economy to an early stage of free-market development. Rather, counterfeiting may de facto be official policy. At a minimum weak or uneven enforcement of laws and regulations has facilitated such activity.
II. Protection of IP in China
A. IP Prosecution
Though China is a party to international agreements to protect intellectual property (including WIPO, Bern Convention, Paris Convention, among others), a company must register its patents and trademarks with the appropriate Chinese agencies and authorities for those rights to be enforceable in China. Copyrights do not need to be registered but registration may be helpful in enforcement actions. This is especially true for software and foreign audiovisual copyrights (e.g., movies).
1. Patents
China’s first patent law was enacted in 1984 and has been amended twice (1992 and 2000) to extend the scope of protection. To comply with TRIPs, the latest amendment extended the duration of patent protection for inventions to 20 years from the date of application filing. Chemical and pharmaceutical products and the processes for manufacturing them, as well as food, beverages, and flavorings, are all now patentable. China follows a first-to-file system, even if filers are not the original inventors. This differs from the United States “first to invent” system but is consistent with practice elsewhere, including the European Union. As a signatory to the Patent Cooperation Treaty in 1994, China will perform international patent searches and preliminary examinations of patent applications. An application filed by a person or firm without a business office in China must be made through an authorized patent agent, while initial preparation may be done by anyone. Patents are filed with China’s State Intellectual Property Office (SIPO) in Beijing, while SIPO offices at the provincial and municipal level are responsible for administrative enforcement.
2. Trademarks
China’s trademark law was first adopted in 1982 and subsequently revised in 1993 and 2001. The new trademark law went into effect in October 2001, with implementing regulations taking effect on September 15, 2002. The new trademark law extended registration to collective marks, geographic indications, certification marks and three-dimensional symbols, as required by TRIPs. China joined the Madrid Protocol in 1989, which requires reciprocal trademark registration for member countries, including the U.S. China has a ‘first-to register’ system that requires no evidence of prior use or ownership, leaving registration of popular foreign marks open to third parties. However, the Chinese Trademark Office (CTO) has cancelled Chinese trademarks that were unfairly registered by local Chinese agents or customers of foreign companies. China does not recognize common law marks. However, an aggrieved party may have a claim for unfair competition (see below).
Foreign companies seeking to distribute their products in China are advised to register their marks and/or logos with the CTO. Further, any Chinese language translations and appropriate Internet domains should also be registered. As with patent registration, foreign parties must use the services of approved Chinese agents when submitting the trademark application. However foreign attorneys or the Chinese agents may prepare the application. Recent amendments to the Implementing Regulations of the Trademark Law allow local branches or subsidiaries of foreign companies to register trademarks directly without use of a Chinese agent.
3. Copyright
China’s copyright law was established in 1990 and amended in October 2001. The new implementing rules came into force September 15, 2002. Unlike the patent and trademark protection, copyrighted works do not require registration for protection. Protection is granted to individuals and firms from countries belonging to international copyright conventions or bilateral agreements of which China is a member. However, copyright owners—especially owners of software and foreign audiovisual copyrights--may wish to voluntarily register with China’s National Copyright Administration (NCA) to establish prior evidence of ownership, should enforcement actions become necessary.
4. Unfair Competition
China’s Unfair Competition Law (UCL) provides some protection for unregistered trademarks, packaging, trade dress and trade secrets. The Fair Trade Bureau, under the State Administration for Industry and Commerce (SAIC) has responsibilities over the interpretation and implementation of the UCL, and protection of company names. According to the TRIPs Agreement, China is required to protect undisclosed information submitted to Chinese agencies in obtaining regulatory approval for pharmaceutical and chemical entities from disclosure or unfair commercial use. China’s State Drug Administration and Ministry of Agriculture oversee the marketing approval of pharmaceuticals and agricultural chemicals, respectively.
B. Enforcement
In 1998, China established the State Intellectual Property Office (SIPO), with the mission of coordinating IP enforcement efforts by merging the patent, trademark and copyright offices under one authority. This has yet to occur. Today, SIPO is responsible for granting patents (national office), registering semiconductor layout designs (national office), and enforcing patents (local SIPO offices), as well as coordinating domestic foreign-related IPR issues involving copyrights, trademarks and patents.
Protection of IP in China follows a two-track system, administrative and judicial. IP rights holders may file a complaint at the local administrative office, or a complaint in court. Administrative actions are far more common, although judicial actions have been increasing. China has established specialized IP panels in its civil court system throughout the country.
Determining which IP agency has jurisdiction over an act of infringement can be confusing. Jurisdiction of IP protection is diffused throughout a number of government agencies and offices, with each typically responsible for the protection afforded by one statute or one specific area of IP-related law. There may be geographical limits or conflicts posed by one administrative agency taking a case, involving piracy or counterfeiting that also occurs in another region.
In most cases, administrative agencies cannot award compensation to a rights holder. They can, however, fine the infringer, seize goods or equipment used in manufacturing products, and/or obtain information about the source of goods being distributed. Major administrative enforcement agencies include the following:
Other agencies may also administer certain areas, such as the State Drug Administration for pharmaceutical counterfeits, and the Ministry of Culture for literary and audiovisual copyright materials and markets.
1. Administration for Quality Supervision Inspection and Quarantine (AQSIQ)
AQSIQ is primarily tasked with setting standards and ensuring product quality. It will also handle infringements of registered trademarks, when the infringing products are inferior or shoddy quality goods. In 1999 AQSIQ also issued administrative regulations regarding protection of geographic indications (GIs) separately recognized by China.
2. State Administration on Industry and Commerce (SAIC), Trademark Office
The Trademark Office of SAIC maintains authority over trademark registration, administrative recognition of well-known marks, and enforcement of trademark protection. The Fair Trade Bureau handles disputes arising under the Unfair Competition Law, including trade secret matters. SAIC has authority to investigate and determine an infringement, order infringing sales to stop, order destruction of infringing marks or products, impose fines, and remove machines used to produce counterfeit goods.
3. State Intellectual Property Office (SIPO)
SIPO is responsible at the national level for examination of foreign and domestic patents and supervision of local SIPO bureaus. Provincial offices generally handle administrative enforcement of patent complaints.
4. National Copyright Administration (NCA)
NCA is responsible for copyright administration and enforcement, including investigations, developing foreign-related arbitration rules and supervising administrative authorities. Though administrative remedies are available, NCA generally encourages complainants to use the court system due to lack of personnel.
5. General Administration of Customs (GAC)
As in other countries, China’s customs regulations ban the import or export of infringing goods. In order for Customs to exercise this authority, the IP rights holder must record its IP with Customs. The recordal certificate issued by Customs is valid for ten years and is renewable for ten-year periods. When a right holder suspects infringing goods are about to enter or exit China, it may submit a written application to Customs at the sus-pected point of entry or where protection is sought. If Customs’ investigation reveals infringement, it has the authority to confiscate or destroy the infringing goods, and impose a fine.
6. Public Security Bureau (police) / Procuratorate (prosecutors)
Under enforcement provisions of TRIPs, China must provide IP remedies through criminal enforcement against commercial-scale counterfeiting. Administrative agencies, including Customs, may transfer egregious IP infringement cases to police and prose-cutors (procuratorate) to undertake criminal investigation. Despite these provisions, most IP cases continue to be handled through the administrative system. Under Chinese law, individuals also have the right to prosecute criminal cases (although historically this was rarely used), and the authorities also encourage individuals to inform them of illegal infringements.
7. Regional IPR Bureau
In an attempt to coordinate local IP enforcement efforts, some provinces and municipal-ities in China have established IP bureaus or committees to coordinate public awareness campaigns and, to a more limited extent, enforcement. A local bureau is generally a good source for companies seeking information on local regional enforcement mechanisms.
8. Judicial System
Companies can pursue civil actions in the local People’s Court. Since 1993, China has maintained Intellectual Property Tribunals in the Intermediate People’s Courts and Higher People’s Courts throughout the country. The total volume of civil IP litigation in China is considerably less than administrative litigation. Though small companies may prefer to pursue the administrative route, the number of judicial complaints may signify-cantly increase with recent changes in IP laws. Appeals of administrative determinations, such as fines, are generally made to Administrative Tribunals of the Supreme People’s Court (SPC), while the Criminal Tribunals of the SPC are likely to hear criminal cases.
9. Implementing Rules
As in the United States, In addition to the various IP statutes, China also promulgates administrative rules that provide the implementing mechanisms for these laws and may come into play in enforcing IP rights. Implementing Rules for the Copyright and Trademark Laws were promulgated in 2002, and for the Patent Law in 2001.
III. ENFORCEMENT STRATEGIES
There is no one solution for the problem of counterfeiting, but many IP owners have been relatively successful in dealing with it by building global enforcement programs.
Any strategy will have a number of elements in common. Any strategy will cost money.
1. Intelligence
An IP rights holder needs an accurate understanding and as much information as possible about any counterfeiting problem. Because of language and cultural differences, and the vastness and to some degree disorganization of China, this can be a major challenge. The IP rights holder can build a database including details of the infringing products, locality of the infringement (source and destination if stopped in transit), identity of the party or parties involved (retailer, importer and, if possible, original source), markets supplied, method of distribution and enforcement action taken. Intelligence can be gathered via private investigators or informants, staff, licensees or local attorneys, or in some instances administrative agencies (e.g., notification from a customs agency). Staff and licensees (and their staff) should be educated about counterfeiting and trained to identify, differentiate and report infringements.
2. Acquiring Enforceable IP Rights in China
To be in a position to deal with infringements when encountered, a company needs to have its own IP protection in place in China. However, this can be difficult to do if the company does not itself do business in the PRC or use its IP there. In that case, the company may be driven back to attacking PRC-based counterfeits through actions in other countries and markets, and against third parties, where it has a strong presence and strong intellectual property rights. Acquiring jurisdiction over the infringer, or enforcing a judgment against an infringer in these circumstances may be problematic, so that the focus must be on distributors and even customers.
In some industries, it may be appropriate to identify and educate key customers or importers in eliminating demand for counterfeit goods. For example, most airlines will not knowingly purchase counterfeit aircraft parts. Therefore, it is in the aircraft manufacturers’ interests to ensure that they share their intelligence about counterfeits with their key customers.
3. Legal Options
Suing every small-scale infringer or counterfeiter is impractical, as music companies have found. An IP rights holder should pick its battles by identifying and prosecuting key players such as producers, importers and, if appropriate, even key consumers to generate publicity. In many jurisdictions, it is also possible to file or otherwise initiate criminal actions against counterfeiters. This may be the best alternative in some instances. Local police have more ability and power to deal with the infringer, and criminal penalties can be significant. Seizures by customs agencies can also be effective (and cheap), but usually requires a specific level of information (e.g., name of shipper or ship, date, port of entry). In China, specific administrative bodies are empowered to seize counterfeits and sometimes impose fines.
4. Industry Cooperation
IP rights owners with counterfeiting problems may be able to collaborate and coordinate on an industry-specific basis and gain strength in numbers, including such efforts as public education and lobbying. Examples of such trade groups are the International Anti-Counterfeiting Coalition, the Business Software Alliance, the Partnership for Safe Medicines, and the Motion Picture Association of America. Caveat to note any anti-monopolization or other laws treating agreements in restraint of trade.
5. Reducing Exposure
There are numerous internal and business policies that companies can undertake to reduce the exposure of IP to misappropriation in the first place, including internal IP control; non-disclosure of trade secrets and know-how; careful selection and monitoring of business partners in China, including distributors and licensees; or avoidance of business partners altogether through use in many (not all) economic sectors of a wholly-owned foreign entity (although this may make market penetration more difficult).
The information in this article is general in nature, and should not be relied upon for specific applications. Proper legal analysis and advice must be tailored to the circumstances of each unique situation.
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