Assessing China’s IP enforcement mechanisms
Nell Greenhouse of Kangxin evaluates different ways to enforce IP rights in China, including administrative actions, mediation, cease and desist letters and customs recordal
China's strong focus on innovation in recent years has progressed in line with the strengthening of intellectual property law and enforcement mechanisms. Effective IP protection is hard-won. As a time and labour intensive endeavour, one of the key questions clients have is how to most effectively enforce their IP rights. In this article, I will examine the benefits and limitations of existing enforcement mechanisms according to the right claimed, weighing up administrative actions against litigation and discussing alternative routes to enforcement.
Cease and desist letters
This is often the first step rights holders take to combat infringement. It is an inexpensive measure by itself, but C&D letters should only be sent after collection of evidence as in all further actions the onus is on the rights holder to prove the infringement. A notary should be employed to ensure the admissibility of all evidence collected. Where strong evidence of infringement has been collected, this can sometimes prove an effective method of halting the infringement. However, it can damage the rights holder's chances of successfully bringing a later administrative action, as once alerted, infringers may become more secretive or move their infringing activities to a different location.
In 2018, the Administration for Industry and Commerce (AIC) was abolished. Its responsibilities were taken over by the newly founded State Administration for Market Regulation (SAMR). The powers of the SAMR are equivalent to those of the AIC, and as such administrative actions remain both a cost and time efficient method of enforcing existing trademark rights compared with litigation. Once a case has been filed before a local SAMR branch, it will usually respond within one month, and where it finds evidence sufficient to prove infringement, has the powers to conduct a raid, and to seize and destroy infringing goods. It may also impose a fine of between one and three times the worth of the goods seized, depending on the specifics of the case i.e. the scale of the infringement, the infringer's bad faith, whether they manufacture or merely sell the product.
The value of products seized by the SAMR is crucial, as where it reaches the criminal standard (RMB 50,000) the case will be transferred to the Public Security Bureau (PSB) for prosecution. This is usually effective to deter other infringers and prevent future infringement as defendants face imprisonment if found guilty. The PSB has stronger powers of investigation, including the power to issue summons and force disclosure of the source of products seized, and as such can conduct a more thorough investigation into the source of the infringement.
The above bodies cannot grant compensation to rights holders. The powers to investigate infringers are limited, so evidence should be collected by the rights holder and submitted before the relevant body to prove infringement. As the administration is merely a government enforcement agency, it does not have the authority to bring an action where infringement is difficult to determine. Where there are questions as to the validity of a case, it will reject it. It also has limited powers to investigate. The owner may be required to disclose their source but the SAMR has no power to force disclosure where infringers refuse to cooperate.
In the case of patent infringement, rights holders should submit evidence of the infringement before the local IP bureau requesting it to conduct an onsite survey. This is a fairly swift process. The local IP bureau should send a defence notification requiring the defendant to provide a defence within 15 days. This must be submitted in writing or at a hearing to determine whether there has been infringement, and a decision will be issued within three months. However, this tends not to be an efficient mechanism for protection of patent rights in comparison with litigation, as the local IP bureau has no further powers to enforce the decision; they are not authorised to seize the offending products. Where an infringer refuses to halt infringement, a motion of enforcement can be brought in court. In this case, rights holders may consider bringing an administrative action ahead of civil litigation if they wish to tackle infringement quickly.
In circumstances where compensation is sought, the claimant should bring a civil case against the infringer. Statutory compensation is capped at RMB 3 million for trademark disputes, or is otherwise calculated according to the defendant's profits or the loss to the claimant.
The calculation for damages is the same in patent law. Where this cannot be determined, the court may also make a judgment for compensation that is one to three times the reasonable royalty rate. This can be difficult to estimate, and as such mostly statutory damages are awarded. These are capped at RMB 1 million for patent disputes (although this is increasing to five million in the draft of the present patent law). As long as the materials submitted meet the standard for submission then the court must accept the case. It has the power to judge the similarity of the trademarks and whether the mark constitutes an infringement of the right holder's mark.
Litigation is a timely process. It may take anywhere between 12 and 18 months. In practice, it is difficult to prove the defendant's profits or the claimant's losses and statutory compensation is low.
Alternative enforcement measures
Mediation can take the form of an appointed court or private mediation. Court appointed mediation occurs when both parties to a case are open to mediation. The plaintiff can then choose to withdraw the case or ask the judge to make a mediation decision. The results of the court appointed mediation are binding and if the infringer does not enforce the mediation decision then rights holders can appeal to the court to issue an enforcement decision.
Parties can also mediate privately. In trademark disputes, where a company has not registered its rights in china, it can work creatively to cooperate with the rights holder of the mark in China. In some cases it may choose to collaborate with the rights holder in China. It may also choose to purchase the trademark directly.
Mediation is a comparatively cheap and efficient method of enforcement as attorney court fees are reduced, and both parties have more control over the outcome. This means the dispute can be solved more creatively. However, in cases where there is clear bad faith, mediation may not be a viable enforcement measure, and where private mediation is initiated, rights holders should take care to draw up a valid mediation agreement to ensure the terms of the mediation are enforceable.
The majority of large online platforms have their own dedicated IP complaints teams. In China the complaints process is fairly straightforward. Once the rights holder has submitted evidence of its prior IP right, the platform will make a judgement on whether the goods in question infringe the rights of the complainant. This can be a very effective method of enforcement where infringer's business models rely heavily on online sales. Generally online platforms will take down infringing links fairly quickly. Where platforms fail to take effective action they can be held liable for any further losses incurred by the rights holder, as demonstrated by ELand Fashion (Shanghai) Trade Co. v Taobao Network Co.& Du Guofa where the court held that where a network service provider is made aware of infringement it "shall take such necessary measures as removing, blocking or disconnecting the link…otherwise, it shall be liable for harm." This liability has further been codified in the new China E-Commerce Law, which came into force at the beginning of 2019.
If suspected infringement is discovered at an exhibition, a complaint can be filed with the exhibition organiser. This is usually very simple if the target uses an identical, or very similar trademark, or in the case of patent infringement, where the patent in question is a design patent. However, given the challenges involved in proving infringement even in specialised IP courts, it is very difficult to demonstrate infringement of invention patents to someone like an exhibition organiser who lacks the specialised technical expertise required to identify infringement. Where successful, exhibition complaints offer good temporary protection, as they stop infringers from continuing to show or sell their products at that exhibition. This can also be an effective long-term enforcement strategy given the damage caused to an infringer's reputation when they are unable to fulfil orders and the enforcement is made very public: in some cases infringers may be asked to physically cover the offending product at the exhibition, or remove it from sale altogether. Rights holders may further increase the reputational damage to an offender through media coverage at the event.
Rights holders can register their IP rights with customs, to defend against infringing products being exported or imported. Once a customs recordal has been made, the marks registered will be included in the customs database. Customs officers will check consignments at random, and where suspected infringing products are found, will seize the goods in question. In the case of suspected patent infringement, given the practical difficulties involved, officers will rarely proactively check for infringement. In these circumstances, customs will usually act on information provided by the patent holder as to specific consignments. Once seized, the rights owner must then determine if they wish to detain the suspected infringing products, and pay a deposit to hold the goods.
The target may provide evidence in their defence and customs officers will make a judgement as to whether these goods are infringing goods. Where goods are deemed infringing they will be destroyed or disposed of. Where infringement cannot be determined, the right holder may file a lawsuit to allow the court to rule whether the goods should be released. In practice, the majority of goods seized by customs are done so on the grounds of trademark infringement. Where right holders take a more proactive approach to identifying infringing consignments, customs actions can prove particularly efficient.
Although many businesses are concerned about the protection of IP rights in China, there are a diverse range of enforcement measures available. Rights holders should understand the features of each measure before determining the enforcement strategy that best suits their business needs. A good practitioner will guide you through this process to build a strategy that works for you.
Nell Greenhouse is a bilingual legal consultant and case manager specialising in intellectual property strategy consultancy. She is experienced in advising both foreign and domestic clients, ranging from Fortune 500 companies to SMEs. Hailing from England, with five years experience on the ground in China, she has a deep understanding of the Chinese business landscape and culture as well as the challenges and concerns foreign companies face operating in China.
Ms Greenhouse gained her law degree at the University of Sheffield and honed her Chinese language skills at Nanjing University before joining Kangxin Partners where she is responsible for IP strategy consultancy, interpretation and cross-cultural communication. Ms Greenhouse is a regular speaker, host of Kangxin’s IP podcast and former panellist on the Chinese political talk show Tiger Talks.