How can right holders enforce their IP in China?
Vivian Zhang, Wenwen Wang and Chong He of ACIP examine the different routes available to right holders who want to enforce their IP in China, analysing the administrative protection and civil and criminal litigation processes
With economic globalisation, strategic planning in relation to IP rights in China has increasingly appeared on the "must-do" lists of more and more foreign IP owners who wish to extend their product markets to China.
To protect the IP of their product, foreign companies often choose to register their trademarks, patents and other IP rights in China and actively enforce their IP rights, e.g. against IP infringers, for brand reputation and social responsibility.
How to strike IP infringements quickly and effectively has become one of the most concerning issues for many foreign companies in China.
We aim to provide a concise introduction to the unique system of IP protection in China, in which IP enforcement can be carried out through local administrative protection, court litigation, or both.
Administrative petition, or administrative enforcement, is a unique and important way of enforcing IP in China. IP right holders can stop infringement quickly by filling a petition with local administrative authorities with materials showing their legal right and preliminary infringement evidence.
Upon receiving the petition, the administrative authorities should investigate the alleged infringement. They may also take initiative to investigate any suspected infringers ex officio. Either way, the administrative authorities are entitled to take legal enforcement measures to stop infringements, such as on-site inspection, on-spot record, seizure and imposing penalties on the infringers. Such measures ensure an end to infringement efficiently and effectively to protect the legitimate interests of right holders.
As a practical matter, compared with civil litigation, administrative protection can be achieved by providing just preliminary evidence of suspected infringement and with a lower cost and shorter case cycle. That is why it is an enforcement measure widely adopted by right holders in China, especially for trademarks.
This procedure is also important because, since court discovery is not available in China, administrative enforcement can provide official records and other evidence acceptable to the court. It is therefore a powerful aid to IP infringement litigation intended to be filed later. Early evidence collection through private investigation and notarisation may be necessary to provide a foundation for administrative enforcement or legal action.
It is worth noting that, when the administrative authorities confirm an act of infringement of intellectual property rights, they have the right to impose a certain amount of administrative fine (the maximum fine is five times the value of the infringing products) on the infringer for disturbing social order with an illegal act. This kind of administrative penalty, however, is different from court compensation for infringement in civil litigation and will be turned over to the State Treasury, not the right holder. If the right holder needs to claim compensation for infringement from the infringer, it is necessary to negotiate a settlement or file a civil litigation.
Since 2018, China has taken a series of historical reformation measures to unify the administration of patents and trademarks and enhance enforcement efficiency.
Before 2018, the administrative management and enforcement of patents and trademarks were under two different departments and their respective local offices. Those were the State Office of Intellectual Property (SIPO), which was actually only in charge of patents, and the China Trademark Office (CTMO) which was under the Administration for Industry and Commerce (AIC) instead of SIPO.
As a result, cases involving both patents and trademarks suffered from redundant proceedings of enforcement as they needed to be attended to by two different departments. Moreover, separate departments sometimes held different or even conflicting views of IP infringement criteria, while internal communications between two departments also wasted time and therefore caused unnecessary delay in administrative actions. In 2018, at the national level, SIPO and CTMO were incorporated into the State Administration of Market Regulation (SAMR). SIPO is now called the China National Intellectual Property Administration (CNIPA) and handles registration and examination of patents and trademarks, patent invalidation, trademark opposition, and trademark invalidation. On the enforcement side, the CNIPA issues guidance for local administrative enforcement, such as criteria for determining infringement of patents and trademarks, while the AMR is in charge of organising enforcement work. At the local level, the previous local offices of SIPO and the AIC were also merged to form offices of the Administration of Market Regulation (AMR) and one single enforcement team for both patent and trademark disputes.
Hence, when filing administrative petitions, patent and trademark right holders can now refer to one instead of two local authorities to handle disputes involving both patents and trademarks, which will save time and costs.
Furthermore, in some trademark infringement cases, the infringers may have registered design patents for their product packages, containers and the like that look like those of the authentic products. This has caused trouble in the past for the administrative authority which was only in charge of trademark infringement to take administrative action because of the conflict between trademark rights and patent rights. However, now, with a unified enforcement team, the administrative authority is entitled to do a comprehensive evaluation and make a quick decision on the action accordingly.
Still in the early transition phase of such a reformation, the united enforcement team has been undergoing reorganisation and training, and the administrative enforcement cases conducted dropped in 2019 compared with previous years. However, based on the pilot example of Shenzhen, it can be reasonably expected that things will be back on track soon.
Shenzhen is a city of high-tech industries and the centre of Guangdong-Hong Kong-Macao Greater Bay Area (GBA) of China. It was the first pilot city of the IPO reformation. As early as 2009, it reformed the local departments of the IPO, Administration of Industrial and Commerce (AIC), and Quality and Technology Supervision Bureau (QTSB) into one office, the Market Supervision Administration (MSA, now AMR). The city of Shenzhen now has a unified and highly efficient system of market supervision and enforcement under the AMR. Compared with the overall drop in cases nationwide due to the reformation in 2019, Shenzhen had a year-on-year increase of 31% when it comes to administrative enforcement cases. Administrative protection of patent rights may not be as quick and strong as trademark rights due to difficulties such as expertise required in establishing patent infringement. Generally speaking, patent right holders prefer to choose civil litigation to enforce their patent rights instead, and optionally using administrative enforcement for evidence collection. Recently the government adopted measures with an attempt to change the status quo and enhance patent right protection through the administrative route.
Eight regions, including Beijing City, Hebei Province, Shanghai City, Jiangsu Province, Zhejiang Province, Hubei Province, Guangdong Province, and Shenzhen City, will be the first group of pilot projects to carry out the administrative ruling models for patent infringement disputes. Those regions will take various measures to unblock filing channels, improve professional ability and innovate work styles so that administrative rulings play an important role in resolving patent disputes.
Civil and criminal litigation
If the infringement turns out to be large-scale and causes great damage to IP right holders, it is common for foreign companies to initiate civil litigation to claim compensation.
The Chinese government has adopted a series of legislative acts to strengthen intellectual property protection. For instance, the amended Trademark Law of China, effective from November 1 2019, has raised the upper limit of statutory compensation for trademark infringement from 3 million to 5 million RMB, and the range of punitive damages from three times to five times the actual losses or infringer's profits or royalties. Also the Regulation on Optimising the Business Environment of China, effective from January 1 2020, states that punitive damages are applicable in IP litigation, which is key to optimising the business environment. Hence, it may be more favourable for foreign companies to use litigation as a weapon to recover illegal riches taken by infringers. This will also act as a deterrent to other copycats in the market.
The weapon has been sharpened, but it is equally important to learn how to use it. Under the Civil Procedure Law of China, a party presenting a fact bears the burden of proof for it. In infringement cases, it is extremely crucial to prove the violation, the actual loss incurred from the infringement, and the unjust enrichment of the infringers.
As mentioned earlier, administrative enforcement, in addition to being an effective block to infringement, also helps preserve evidence for later use in litigation. Administrative authorities' decisions which affirm infringement behaviour can usually serve as good evidence. This is considered to have good probative force in civil litigation and is thus admissible by the courts.
Criminal litigation can also be sought under circumstances where the counterfeiting is very serious and the threshold for the crime is reached. To initiate a criminal action, the IP right holder may file a complaint with the Public Security Bureau (PSB) based on a previous private investigation result. Meanwhile, for some serious cases, administrative authorities will transfer cases to the PSB if it is likely that the thresholds may be exceeded.
Litigation has its pros and cons. Right holders, in addition to administrative protection, can seek judicial protection by filing litigation to obtain compensation and have a stronger deterrent effect on infringers. The downside of litigation, however, includes higher costs and longer time. As the number of docketed IP cases is growing sharply, the courts will have a much heavier workload and a longer cycle for a case trial until judicial resources also increase to match growing needs.
Alternative dispute resolution (ADR) in civil litigation concerning IP
In China's dispute resolution system, mediation may be involved during the life cycle of a civil litigation case. The parties may reach a settlement at any stage from the written hearing or court trial to the enforcement stage of a civil judgment. Therefore, here is a tip for foreign companies: filing a civil litigation case does not prevent you from reaching a private settlement with the infringer outside court or through court mediation. Litigation and mediation can be parallel proceedings. An agreement on infringement compensation can reduce costs and risks associated with litigation, including time and money.
In China, however, IP infringement matters are not arbitrable. For foreign companies who are concerned about confidentiality and convenience, it is advisable to include arbitration clauses in agreement arrangements such as licence agreements and technology agreements.
China is a huge market that is open to embracing the world and offering opportunities to adventurous enterprisers worldwide. China's IP protection system may not be perfect, but it is getting more mature, fair, efficient, and powerful than ever before. It is advisable that IP owners strategically plan their IP in China and take advantage of the various ways of IP enforcement, especially administrative enforcement and mediation, in addition to litigation.
Vivian is a lawyer in China and specialises in IP enforcement. Her practice covers various areas, including trademarks, patents, copyright, unfair competition. She handles administrative, customs, criminal and civil proceedings.
Vivian has worked on IP enforcement for 15 years. She has accumulated extensive experience which has helped her to achieve a high success rate and win praise from her peers and clients. Some of her clients include multinationals such as Procter & Gamble, Longchamp and Yonex etc. She also regularly advises clients on IP enforcement strategies in China. She has represented domestic clients in IP enforcement matters overseas.
She was included in MIP's 2017 list of IP STARS in China
Wenwen received her PhD in biological sciences from the University of California, Irvine, and joined Advance China IP Law Office in 2013. Before that, she worked as a university research assistant and as the director of an industrial R&D laboratory, supervising research and IP work. Wenwen has extensive experience in patent applications in China, the United States, Europe and other countries.
She provides IP advice to various domestic and foreign companies, universities, and research institutes on patent drafting, prosecution, analysis, patentability and infringement in the fields of biotech, pharmaceuticals, chemistry, materials and medical devices. She also has IP experience in cosmetics, the food industry, biofuel and nanofilm, among other industries.
Wenwen serves on the IP-in-China Committee of AIPLA, the Asian Practice Committee of IPO, and the Bio-Pharma Professional Committee, Guangdong Division of the All-China Patent Attorney Association.
Chong He is a partner who manages the international patent department of ACIP. He joined ACIP in 2005. He has experience in patent prosecution and advises corporates on international patent drafting, infringement analysis, freedom-to-operate investigations, invalidation and patent strategy. He has helped clients to successfully obtain patent rights and win patent re-examinations and invalidations, especially in the field of engineering and electronics.
In addition to his prosecution practice, He also successfully handles patent enforcement for international clients. He was chosen as a Top 10 Outstanding Patent Attorney of Guangdong Province in 2017, recommended in the individual rankings for patent prosecution in IAM Patent 1000 2019, and elected as a council member of All-China Patent Attorneys Association in 2020.