China Customs provides IP protection
Shirley Fu and Yakai Shi of Sanyou analyse the different types of IP protection afforded by customs authorities in China, evaluating the advantages of seeking active protection from customs
Overview of relevant legislation and statistics
Since September 1994, China has been taking customs actions against infringement of IP rights. In 1995, China issued the Regulations on Customs Protection of Intellectual Property Rights (hereinafter referred to as the regulations), and further amended the regulations in the years 2003, 2010 and 2018. In the meantime, the General Administration of Customs (GAC) issued the Measures for Implementation of the Regulation (hereinafter referred to as the measures) in 2004, which was also amended in 2010 and 2018.
Statistics reveal that, until February 20 2019, there were 45,928 valid IP rights recorded in total. Among them 40,517 were trademark rights, accounting for 88% of the overall recorded valid IP rights. The number of recorded patent rights and copyrights is 2,805 and 2,606 respectively, both accounting for 6% of the valid recorded rights.
Data released by the GAC in April 2018 shows that China Customs seized over 40.94 million articles suspected of IP infringement, 99.5% of which were based on ex-officio actions. Only 0.5% of seizures were initiated on the request of the IP right holder. The number of trademark rights was 5,401, and 40,319,315 detained products are suspected of infringing upon trademark rights, accounting for 98.48% of all the seizures.
The statistics above reflect three trends: 1) the number of trademark right recordings is much higher than for copyrights and patent rights. The main reason might be that trademark infringement is much more easily detected from the appearance of goods or packages; 2) more than 99% of actions are initiated ex-officio; 3) over 98% of seizures are related to trademark infringement which, to some extent, can explain the high number of trademark right recordings.
Customs protection procedures
1. IP right recordation
The precondition for active protection from customs is recording an IP right with customs. In China, IP rights protected in China as trademark rights (except for service trademarks), patent rights, and copyrights and the related rights thereof can be recorded with customs. Valid IP right recordation information will be shared between all local customs in China.
The applicant for the IP right recordation must be the IP right holder. A licensee is not allowed to record the licensor's IP right. For a company registered in China, it can conduct the recordation both by itself or through its attorney. A foreign company must apply for the recordation through its branch office in China or a Chinese attorney.
The GAC will decide whether to approve the recordation within 30 working days from the date of accepting all the filing documents for recordation. The recordation becomes effective from the approval date and will be valid for 10 years. However, if the valid term of the recorded IP right is less than 10 years, the recordation term will be the same as that of the IP right. The recordation can be renewed within six months before the expiration date of the recordation upon the request of the right holder. Each renewed term is 10 years. To ensure effective customs protection, right holders need to pay attention to the renewal of both the IP right and the recordation.
2. Detaining the suspected infringing goods and disposal
Depending on the different entities initiating the procedure, customs IP right protection can be divided into two types. One is ex-officio customs action or active protection. The other is passive protection where the IP right holder applies for detainment of the infringing products once finding any infringing products have been imported or exported.
1) Ex-officio customs actions (active protection)
For active protection, customs will suspend the goods during their routine check, if they find the goods suspected of infringing on recorded IP rights. Customs will then notify the IP right holder or its agent of the suspected infringement. If the right holder confirms the infringement, files an application to detain the goods, and provides a deposit as a guarantee, customs will formally detain the goods and make a final decision after further investigation.
If infringement is established, customs will normally make a decision to confiscate the infringing products and impose a penalty on the consignor/consignee. If customs finds no infringement, the detained goods will be released. If customs cannot decide whether infringement can be established, it will notify the right holder in writing. The right holder can then request the court to take measures to stop infringement and preserve the property. Customs should provide assistance if it receives a notice from the court. Customs will release the detained goods if it does not receive any court notice within 50 working days from the date of detaining the goods.
Before customs makes a decision, the right holder can withdraw its request. Then, customs will release the goods.
Disposal of infringing goods
There are several ways to deal with confiscated goods. Firstly, donating the infringing goods to relevant institutions, if they can be used for public welfare purposes. Secondly, the right holder may purchase the infringing goods. Thirdly, if the above is not applicable and the infringement features can be removed, with the right holder's consent, the infringing goods can be auctioned without the infringing features. The gains should go to the state treasury. If the above options do not work, the infringing products should be destroyed.
2) Customs actions pursuant to application (passive protection)
If the IP right holder discovers that the goods to be imported/exported are suspected of infringing upon its IP right, it may apply for detainment of the goods by customs.
In this situation, IP right holders should provide solid evidence to prove the infringement and deposit a guarantee equivalent to the value of the goods. Where the IP right involved has not been recorded in customs systems, documents to prove its identity and the ownership of the IP right should be provided. The right holder should provide a guarantee equivalent to the value of the goods for the possible losses caused by improper application, for the fee for storage and disposal of the goods.
The right holder may, within 20 working days from the date of customs detaining the suspected infringing goods, request the court to stop the infringement or property preservation. If receiving the court notice within 20 working days after detaining the goods, customs must provide assistance. Otherwise, customs must release the detained goods.
Counter-guarantee for release in cases involving patents
In a customs action involving patent rights, the consignor/consignee can request release of the detained goods by submitting an application and depositing a counter-guarantee. This is only applicable to actions involving patent rights.
3) Comparison between active protection and passive protection
To summarise, the main differences between active protection and passive protection are as follows:
Prior recordation – the prerequisite for active protection is that the IP right has been recorded with the GAC. However, recordation is not required for passive protection. If the IP right has been recorded, the process will be relatively simple for passive protection in that the applicant does not need to submit relevant IP right certificates when it requests customs to detain the suspected goods.
Guarantee – in active protection, the maximum amount of the guarantee shall not exceed RMB100,000. In passive action, the right holder must submit a guarantee equivalent to the value of the detained goods.
Substantial investigation – in active protection, customs will conduct substantive investigation and decide infringement or not. In passive protection, customs will only make decisions according to the application, without substantive investigation. The right holder needs to go through the judicial way to decide if infringement is established. Therefore active protection might save cost and make full use of administrative resources.
Time limit for filing a lawsuit – in active action, the right holder must file a lawsuit within 50 working days after customs formally detains the goods; in passive action, the IP right holder must file a lawsuit within 20 working days after receiving the notification of detaining the goods.
From the above, we can conclude that active protection is more beneficial for the IP right holder in terms of time and cost.
3. The characteristics of IP customs protection and connections with other legal means
Compared with civil litigation, customs protection of IP rights has the following characteristics:
Time efficient – in active protection, the right holder should submit the application for detaining of the goods to customs and provide the guarantee within three days after receiving a notice from customs. It is about two months for customs to make a final decision counted from the date of application for detaining goods.
Relatively low cost – now there is no official fee for recording IP rights with customs. In active protection, rights holders do not need to prepare too much evidence. The rights holders only need to pay a guarantee, storage fees and possible destruction costs if the infringing goods are eventually destroyed. Therefore, the attorney fee is relatively lower in active protection in comparison with the fee in civil lawsuits.
Customs help right holders to discover infringements – in active protection, customs can help right holders discover infringement when conducting routine checks, collect and fix evidence and provide clues and evidential support for the right holders to take further action. If the right holder files an infringement lawsuit after requesting the detainment of the goods, it may ask the court for property preservation against the detained goods.
Warning the infringers – since IP right recordation is publicly available, the exporters/importers may stop infringement to avoid troubles if they find the IP right they use has been recorded. Besides, in customs actions, if infringement is established finally, customs will confiscate the infringing products and impose a fine on the infringers and the decision will be made public. Thus this recordation can have warning and deterrent effects on those who conduct IP right infringement.
Therefore, IP right customs protection is very beneficial to combat cross-border IP right infringement.
Internet infringement governance
Based on the traditional investigation mechanism with the postal department, some customs departments cooperate with ecommerce platforms, using ecommerce platform big data to trace the source of infringing postal parcels, locating the source of the platform for sales, jointly launching Internet infringement governance, and strengthening the fight against cross-border ecommerce counterfeits. For example, after signing a memorandum of cooperation with Alibaba, Hangzhou Customs notified Alibaba Group of five batches of IP right infringement, involving 1,737 postal parcels. Alibaba Group verified and closed 35 infringing shops, while those involving criminal offences were transferred for criminal procedure.
Open information and joint punishment
Customs decisions are available to the public, which is convenient for IP right holders and may have a warning effect on infringers. The GAC also takes measures to execute joint punishment with other departments. For example, on November 21 2018, 38 departments including the National Development and Reform Commission, the People's Bank of China, the State Intellectual Property Office, and the General Administration of Customs etc. jointly issued the Cooperation Memorandum on Joint Punishment against Entities of Bad Faith in the Field of Intellectual Property (Patents). The target of the joint punishment is the entity conducting serious bad faith behaviour in the field of intellectual property (patents). When handling customs-related matters connected to entities exhibiting bad faith behaviour in the IP field (patents), customs must strictly supervise their import and export goods and strengthen inspection, supervision and verification.
With the enforcement of the new measures, we are confident that customs IP protection will be further strengthened.
Shirley Fu started her career in Sanyou IP in the patent management department. In 2005, after earning her master’s degree in Australia, she joined the trademark team in Sanyou IP and started to focus on trademark work such as trademark registration, prosecution, review of refusals, oppositions, cancellations, invalidations and searching. Now, as an attorney, she focuses on litigious matters in the trademark and copyright fields.
Yakai Shi has extensive experience in trademark infringement and administrative litigation, anti-counterfeiting actions, trademark portfolio management, copyright disputes, and other non-litigious work due to his many years of practice in the field of intellectual property. He has represented clients from China, Japan, Korea, Italy, France, Spain, Germany, as well as many other countries.