When it comes to fighting counterfeiters, trademark owners want the criminal law—and the police—on their side. Finding the makers of fakes is arduous, often dangerous work, and without the threat of time in jail there may be little incentive for counterfeiters to stop what can be a very lucrative trade.
There are few places where trademark owners have been more keen to see robust criminal measures in force to support their fight against knock-offs than China. But many brand owners have long complained that Chinese law makes it hard for the police and prosecutors to investigate and prosecute suspected IP infringers.
Panelists at a session today on criminal enforcement will explain how China’s criminal law can be used against infringers and what recent changes to the country’s trademark law mean for IP owners. The session will be moderated by Yunze Lian of Hylands Law Firm. Lan Li of Baker & McKenzie will discuss China’s rules on thresholds and explain how IP owners can initiate criminal proceedings, and two in-house counsel, Steven Wang of Philips Intellectual Property & Standards and Edward Haijiang Yang of Nokia, will outline some trends in the way that IP crimes are handled and explain what recent court rulings tell us about judicial thinking on criminal enforcement.
Thresholds
The issue of minimum thresholds for criminalizing trademark infringement has long frustrated IP owners in China. Chinese officials have argued that these thresholds are justified given that China has a multi-pronged approach to enforcement of its IP laws: the police and public prosecutors tackle serious counterfeiting, while agencies such as the Administration for Industry and Commerce and the Quality and Technical Supervision Bureau deal with smaller-scale infringements. Trademark owners, however, argue that only the jail sentences handed down by judges will deter committed counterfeiters.
The formula for calculating the thresholds for criminalization takes in a number of variables. For trademark counterfeiting, the basic threshold is Rmb50,000 (USD8,000). This falls to RMB30,000 (USD4,800) if two or more trademarks are being counterfeited by the same producer. The thresholds can also take into account the amount of money made by the infringer. Although these thresholds are often lower, IP owners generally struggle to prove how much profit the infringer has made from making fakes.
The threshold to bring a criminal case based on unsold goods is Rmb150,000 (USD$22,800). A Judicial Interpretation issued by the Supreme People’s Court, Supreme People’s Procuratorate and Ministry of Public Security in 2011 clarified that even if a label has not yet been fixed to unsold goods, those goods can still be taken into account for the purposes of calculating thresholds.
The 2011 Interpretation also makes it clear that revenues and profits generated from separate IP infringements in the past two years can be added together to meet the thresholds for an IP crime as long as the infringer has not already faced administrative or criminal punishment.
But Li Lan of Baker & McKenzie says that while this interpretation of the law represents a “substantial step forward” in removing some of the constraints on prosecuting IP-related crimes in China, the current thresholds “still function as a severe barrier to involvement of Chinese police in the investigation of IP crimes.”
Reasons to be cheerful
Although IP owners who want to use China’s criminal law against trademark infringers certainly face challenges, there are plenty of positive developments for IP owners. Edward Yang of Nokia will explain today how enforcement officials within China are getting better at cooperating with colleagues in other agencies and with those based in other regions of China. He will also praise officials for being increasingly likely to look at the bigger picture during anti-counterfeiting work, considering how the entire supply chain works rather than focusing on just one point along the chain.
Yang also says that there have been more successful cases criminalizing the counterfeiting of components in recent years. This has been a legal gray area that has long frustrated brand owners. Chinese law had traditionally been interpreted as saying that counterfeiting could only be a criminal offense if the goods were completed products. Yang will explain how a series of decisions in 2012 involving Nokia-branded goods has helped reshape interpretations of the law in trademark owners’ favor.
Another trend which should make life easier for trademark owners whose marks have been infringed in China is that enforcement agencies are becoming increasingly willing to accept evidence that the value of the case or the illegal turnover meets the thresholds for a criminal prosecution. China is often regarded as having very tough rules on evidence—evidence can be difficult to obtain and the formal requirements for submitting it to the courts often pose problems, particularly for foreign IP owners unfamiliar with Chinese judicial rules. But Yang will explain how the authorities are increasingly likely to accept evidence that infringement satisfies the threshold requirements by admitting records of bank transactions and lists of prior sales, corroborated by statements from the parties involved.
