Intellectual Property Enforcement in China

Designer brands are constantly being ripped off. It is big business and a huge problem for legitimate brand owners seeking intellectual property enforcement in China.

If you have been to Ibiza or Mallorca, you will have probably seen more pairs of fake RayBan sunglasses than real ones.  Tourists make the argument that this is a victimless crime; big brands charge too much anyway and they can handle a few rip off products being sold on a beach. However, the impact is in fact huge, and the loss of sales is only a tiny part of the problem.

Cheap fake products seriously damage brand integrity and cause trade mark dilution. It can be expensive and time consuming for brands to enforce their intellectual property (IP) rights across the world. The biggest problem for the general public is that the ripping off of gadgets, clothes and consumer products leads to an assumption that there is no point in taking your idea to market, as it will probably just get copied by a Chinese company with the resources to bring it to market very quickly and at a significantly reduced price. Thus, many great innovations are being lost along the way. However, our associates in China are reporting greater success in enforcing IP rights, and foreign companies are now winning big cases against domestic rivals.

Pointing his finger at China, Donald Trump tweeted in 2018 that the US suffers intellectual property theft of $300bn per year and stating “We cannot let this continue!”. As the trade war continues through the coronavirus pandemic, President Trump is becoming increasingly insistent on moving supply chain reliance away from China. However, even with proposed government grants and incentives to move manufacturing out of China, companies around the world rely on China’s 1.4 billion people to sell products to. It is therefore no surprise that China is becoming a key country for IP protection for all types of products.

Are your intellectual property rights in China enforceable?

Firstly, you need IP rights in place. China has very developed IP laws to support the granting or registration of IP rights, which are similar to those in western countries. However, the enforcement of these rights does differ markedly from the procedures of the west. How to attack IP infringers effectively and in a reasonable time scale relative to the product life cycle, are concerns of IP owners when making the first step of investing in protection in China, particularly if the infringing party is likely to be a Chinese company.

Last year, a court in Beijing ruled that Jiangling Motors Corp had infringed Jaguar Land Rover’s (JLR) rights by copying five unique features of the Range Rover Evoque in their Landwind X7 car. The case took three years for a decision to be reached and JLR’s head of legal, Keith Benjamin, commented that the decision “strengthens our confidence in investing in China and in the fairness of intellectual property adjudication in the Chinese courts”. Keith further commented that the decision helps “protect business investment in design and innovation”.

So, how can your intellectual property rights be enforced?

Administrative enforcement

Intellectual Property Enforcement in China involves filing documents stating the IP rights you wish to enforce and evidence of the infringement with a local administrative authority. The administrative authority has the legal power to stop infringements, as well as issuing fines and seizing infringing goods. This is both a quicker and lower cost option than civil litigation, and is usually adopted by trade mark owners wishing to enforce their rights. It is important to note that discovery is not available in China, so administrative enforcement can be used to provide official records or other evidence acceptable to the court. In this regard, the administrative procedure may serve to assist in later litigation.

The China National Intellectual Property Administration (CNIPA), the body responsible for registration and examination of patents and trade marks including their invalidation and opposition, provides guidance for administrative enforcement including, crucially, guidance on how infringement is to be determined for patents and trade marks.

If the administrative authority is convinced there is or has been an infringing act, they have the power to impose a fine of up to five times the value of the infringing products, officially regarded as a fine for disturbing social order. Although, unhelpfully for the IP rights owner, this money goes to the state. If the rights owner is to seek any compensation for the infringement, they must negotiate a settlement or commence civil litigation.

Until recently, patents and trade marks were handled by completely separate offices in China. The State Office of Intellectual Property (SIPO) handled patents and the China Trademark Office (CTMO) handled trade marks. The different and separate specialist knowledge required for each of these IP rights highlights the final problem with the current procedure which is that administrative assessment of patent rights is likely to be more complicated and time consuming than a trade mark infringement evaluation, and is also likely to require more specialised expertise in technical subject-matters.

The administrative enforcement procedure, although still new, does appear to be well received in China’s high-tech cities. In Shenzhen, dubbed as China’s Silicon Valley, and where almost half of China’s international patent applications come from, administrative enforcement as described above is up 31% on last year. That being said, patent rights holders are often using the administrative procedure to gather evidence for civil litigation, as previously described, rather than as the sole channel of redress.

Overall, the administrative enforcement procedure is cheap and effective at removing infringing products if you are not concerned about seeking damages and is particularly effective at enforcing trade mark rights.

Civil or criminal litigation

Civil litigation is used when damages are sought and is typically initiated when the infringement is on a large scale. Late last year, the country’s trade mark law was amended to raise the limit of statutory compensation to 5m Yuan, which is around £560,000, and the limit of punitive damages from three to five times the losses or infringer’s profits, thus making it more appealing than ever to now go after infringers in China. On the other hand, the standard of proof required is high and the rights holder must prove the losses incurred from the infringement. Criminal litigation can also be initiated, but typically only where the scale of counterfeiting is significant.

Litigation can be very effective in securing compensation and providing a deterrent for future would-be infringers. However, it comes at a much higher price and typically takes much longer than administrative enforcement. It should also be kept in mind that there is nothing to stop the IP rights owner from privately reaching a settlement with the infringer while litigation is pending. As in any other jurisdiction, striking a suitable settlement outside of court reduces costs, risks, and the time consumed in litigation.

In summary, China is making progress to break down stereotypes and provide a fair market where international companies can compete. The current legal landscape provides for far more protection of the interests of western companies than most imagine.

Our team are experienced in intellectual property enforcement in China and around the world. Please get in touch if you would like to discuss your options in this regard.

Andy Caulfield, Patents Associate at Creation IP.

This article (and any information accessed through links in this article) is provided for information and educational purposes only. This article does not constitute professional legal advice. Professional legal advice should be obtained before performing any action based on the information provided in this article. All professional legal advice will be given in accordance with Creation IP Terms of Business. Please contact us for further information.