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Navigating Customs enforcement in China

Rights owners have two options available when using Customs enforcement in China. Michael Fu, Tracy Shen and Kevin Yang of Chang Tsi & Partners explain the pros and cons of each

What are the measures to commence Customs enforcement proceedings?

According to the Customs Protection of Intellectual Property Rights in China, there are two options available to commence Customs enforcement proceedings. They are enforcement per application and ex-officio action.

What are the features of each measure and how does it proceed?

Enforcement per application is a measure actively pursued by an intellectual property right holder. When suspected infringing goods pending for importation or exportation are discovered, the right holder of an IP right may lodge an application with Customs at the port of entry or exit to detain such goods.

The main features of this measure are:

•    The IP right holder can directly submit an application for detention to initiate the proceeding without recording its IP right with Customs in advance.

•    Accordingly, Customs is not required to inspect and check whether the exported or imported goods may infringe upon the IP right which is not recorded with Customs.

•    The holder of an IP right shall provide Customs with a bond which does not exceed or is equivalent to the value of the goods. This bond is designed to compensate for the losses suffered by the consignee or consignor due to an improper application for seizure. The payment of expenses for warehousing, maintenance and disposal of the goods will be made after the goods are detained by Customs.

•   Customs is not authorised to investigate the case and make a decision. Instead, the holder of the IP right shall bring the case before a court. The detained goods will be released if no injunction or notification for asset preservation is issued by a court within 20 working days from the detention.

Where requesting Customs to detain suspected infringing goods, the holder of an IP right shall present a written application and relevant evidentiary documents, and provide evidence that can sufficiently prove the identified infringement.

In order to apply for this measure, the application should include the following particulars:

1) The name, place of registration or nationality of the holder of the IP right,

2) The name, particulars and any other relevant information relating to the IP right,

3) The names of the consignee and consignor of the suspected infringing goods,

4) The particulars of the suspected infringing goods, such as name, packaging and volume,

5) The possible ports, time, means of transport, etc related to the importation or exportation of the suspected infringing goods.

Ex-officio action is a measure initiated by Customs officers. When there are goods suspected of infringing a recorded IP right, Customs shall immediately notify the holder of the IP right of such suspected infringement in writing.

The main features of this measure are:

•    The IP right must have been previously recorded with Customs.

•    The Customs can suspend the suspected infringing goods and issue written notification to the holder of the recorded IP right.

•    The holder of the IP right is required to submit the seizure application to Customs within three working days from the written notification.

•    The holder of the IP right shall provide Customs with a bond; a general guarantee is available for this procedure.

•    Customs shall investigate the case and make a decision. If Customs cannot determine whether the suspected infringing goods have infringed the recorded IP right, Customs shall notify the holder to bring the case to court.

•    Customs has the discretion to confiscate and dispose of the infringing goods, and to impose an administrative punishment if infringement is determined by Customs.

With this measure, the holder only needs to submit an application to confirm that the suspended goods are infringing goods and the holder has applied for seizure of the suspected infringing goods within the above mentioned three working days. The remaining actions are up to Customs.

Each year, we help our clients take hundreds of Customs enforcement actions by undertaking the ex-officio action. When the goods are seized, we would recommend our clients further pursuing the matter either by lodging civil litigation or sending cease and desist letter to leverage the effectiveness of the enforcement action. We ever helped one of our client obtained written undertaking to refrain from any future infringement and obtained compensation over ¥50,000 ($7,700) from the infringing exporter.

Although it is not compulsory to record IP rights at the General Administration of Customs (GAC), what’s the benefit of doing so? Do you recommend to do so?

Recording IP rights with the GAC can achieve a certain deterrent effect for potential infringers because the GAC database is accessible to the public. In other words, a potential infringer can search the database for such recordals and understand the degree of risk depending on the presence or absence of IP reordals. On the other hand, if a prestigious brand has no valid IP recordals on the GAC database, it definitely captures the attention of numerous counterfeiters in China.

Making good use of cross-border protection can greatly reduce the incidence of unauthorized shipping activities in the supply chain and distribution channels. If IP rights are recorded with Customs, the details of a licensed vendor (shipping agents or factories) can be recorded under each particular right. Any party who is not listed with the IP recordal may have its shipment detained by local ports. If the shipment is unauthorized, one can address the issue by way of trademark infringement or breach of contract.

The GAC recently issued a formal notification to remove entirely the official fee for IPR Customs recordal (¥800 per IP right, namely each trademark, patent or copyright). Such exemption was made with effect from November 1 2015.

Customs measures can be regarded as successful in that most seizures by Customs are ex-officio discoveries of goods being exported. According to the statistical data of the GAC for 2014, China Customs intercepted 27,000 consignments and detained 24,000 batches of infringing goods at the border. The quantity of infringing goods amounted to 92 million units. It is worth noting that most of this infringement was identified in shipments for export, which amounted to 99.6% of the total number of infringing goods. Because of that it is highly recommended that an IP rights owner records its IP rights at GAC.

What types of IP rights can be recorded with the GAC? What’s the procedure to record an IP right with GAC? What documents are required for recordal?

At present, the right owner can record trademark, copyright and patent, as well as the exclusive right of Olympic symbols and the exclusive right of World Expo symbols.

The procedure to handle the recordation of IP rights through the registration system include:

1) Submitting the new account application on the online database of GAC,

2) Recording the IP rights under the GAC account of the particular IP rights owner.

Generally speaking, the IP right owner shall provide the following documents to complete the Customs recordal:

•    A copy of the related business license or Certificate of Good Standing, or personal identification certificate of the IP rights owner,

•    A copy of the Chinese registration certificate for trademarks, patents or copyrights with photographs of the works certified by the copyright registration authority (other evidence of copyright ownership may be accepted in place of the voluntary copyright registration certificate). If an invention patent is the subject of a Customs recordal, a copy of the patent register issued within six months prior to the application for Customs recordal must be submitted to the GAC if the invention patent grant has been announced for more than one year. If a utility model or design patent (granted after October 1, 2009) is the subject of a Customs recordal, a patent right evaluation report made by the State Intellectual Property Office (SIPO) must also be submitted. Please note that certificates of the last renewal, certificates of change of name or address of the registrant, approval of assignment also serve as prerequisites for submitting a Customs recordal.

•    A power of attorney executed by the authorized signatory of the IP rights holder. Notarization and legalization is not required.

Apart from registration, is there any other method to safeguard your IP rights at the border?

Apart from registration, Customs training is another opportunity to safeguard the rights of the IP right owner. Generally speaking, Customs training can allow Customs officials to better understand your recorded IP rights and to pay more attention to such rights in their inspection of shipments, provide Customs officials with a simple and quick image, if any, to verify the products which infringe your IP rights, and establish a smooth and healthy channel of communication with Customs so as to improve the IP protection on behalf of the right owner.

The three-day time limit is sometimes difficult for foreign IP right owners. What tips do you have for them in this situation?

From the point of view of the IP right owner, the most burdensome aspect of Customs enforcement is the requirement to submit a bond payment to the relevant port Customs where the goods have been temporarily seized. Trademark rights owners that have a recordal with the GAC may submit a bank guarantee letter (also known as a General Bond) instead of having to make a cash bond payment following each seizure notice.

As with the verification of seizure, it is very important that the IP rights owner has a procedure in place for its designated agents or local business unit to handle bond payments as soon as positive verification is made. For a product that is frequently counterfeited, such seizures can involve tens of thousands of units and multiple shipments from many different ports in China. In other words, if this procedure is followed, it can result in frequent and voluminous seizures.

It is always advisable to maintain IP recordal information up-to-date, especially the details of authorized suppliers, so that authorized shipments will not be seized. This therefore requires that the IP right owner is familiar with its suppliers and distributors and takes efforts to keep such information current.

On what ground will Customs authorities arrange for criminal proceedings to be brought against the infringing party?

Customs will communicate with and transfer the case to the public security authority for criminal investigation when the criminal threshold is satisfied. In practice, among the criminal cases transferred from the Customs to the public security authorities for criminal investigation, counterfeit trademark cases form a large percentage of such cases. When the requirements and thresholds are satisfied in trademark cases, Customs will communicate and refer the case to the competent public security authority for criminal investigation, as a start of the criminal proceeding.

Where the infringer, without authorization, uses a trademark identical to the registered trademark on identical goods, the threshold for criminal liability for trademark infringement is as follows:

1) The turnover of unlawful business operation is no less than ¥50,000 or the amount of illegal gains is no less than ¥30,000;

2) Counterfeiting no less than two kinds of registered trademarks with the turnover of unlawful business operation no less than ¥30,000, or the amount of illegal gains no less than ¥20,000;

3) Other serious circumstances.

A seller shall be convicted of selling counterfeit goods when he knowingly sells counterfeit goods and the sales income is no less than ¥50,000 according to Article 214, PRC Criminal Law and its correspondent judicial ­interpretation.

Criminal liability shall be imposed when:

1) forging or producing, without authorization, the labels of registered trademarks or selling the labels forged or produced without authorization with the number amounting to 20,000 pieces or more, or the turnover of unlawful business operation amounting to ¥50,000 or more, or the amount of illegal gains is no less than ¥30,000;

2) forging or producing, without authorization, the labels of two or more registered trademarks or selling the labels of two or more registered trademarks forged or produced without authorization with the number amounting to 10,000 pieces or more, or the amount of unlawful business operation is no less than ¥30,000, or the amount of illegal gains is no less than ¥20,000.

Michael Fu

Michael Fu graduated from University of New Hampshire School of Law in 2013 with a Master in Intellectual Property. He focuses his practice on intellectual property law. He passed the Chinese bar in 2006 and is a member of Beijing Lawyer’s Association. He has served many Fortune 500 Companies and leading multinational companies on overall intellectual property strategy.

Tracy Shen

A graduate of Emory University School of Law in 2015 who passed the Chinese bar in 2006, Tracy Shen has been working as an attorney at law for over 10 years focusing her practice on IP protection, infringement investigation and various disputes resolution. She provides comprehensive legal service for international and domestic corporations on IP prosecution and enforcement. She also has abundant experience in IP portfolio management and trademark registration strategy.

Kevin Yang

A graduate from Hong Kong Baptist University, Kevin Yang is an expert in providing consultancy on China Customs IPR practice. Besides that, he has years of experience in assisting clients across industries on various IPR programs in China and the ASEAN regions. Mr Yang also acts as a liaison with Chinese authorities and conducts regular meetings in various formats on border protection.

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