Sep 2022

China

Introduction

In China, brand owners have an arsenal of civil and criminal laws and regulations at their disposal, which provide various remedies to use in pursuit of efficient and effective anti-counterfeiting enforcement programs. For example, IP rights holders have the ability to initiate a civil litigation before the local Court in which they can seek, among other things, compensation, and injunctive relief. If an infringer’s behavior constitutes a crime, the local Public Security Bureau (PSB) may initiate a criminal action. In addition, IP rights holders have the ability to record their IP rights with Customs, file complaints with online e-commerce platforms, and file complaints with the local Administrative Authority (the AIC). Both Customs and AIC have the authority to seize goods and AIC may also levy fines and conduct raids. E-commerce platforms set their own rules as to how to enforce against counterfeiting violations. In some instances, the platforms have been known to cooperate with, and even proactively share evidence with, law enforcement and/or brand owners regarding potential counterfeit rings or manufacturing operations. 

The primary laws relating to IP in China are: 

  • Trademark Law; 
  • Copyright Law;
  • Patent Law; 
  • Administrative Punishment Law;
  • E-commence Law;
  • Anti-unfair Competition Law;
  • Civil Procedure Law; and
  • Criminal Procedure Law. 

Recently, China revised certain IP-related legislation, issued new guidelines concerning IP rights, as well as new trademark examination guidelines in 2021. Most notably, the trademark examination guidelines now explain the principles for assessing similarity between trademarks when considering an application for registration, including factors that are not inherent to the marks, such as their fame, the degree of attention paid by the public, and the subjective intent of the applicant (helpful in cases involving bad faith filings), among other factors.

In the next decade, it is likely that China will strengthen the protection of intellectual property, including by potentially implementing a stricter system of punitive damages for trademark infringement, intensifying the crackdown on malicious trademark registrations, accelerating the revision of the Patent Law, extending the protection period of design patents, and patent rights more generally. Also, it is anticipated that China will issue new e-commence laws to deal with the platform issues. 

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1 . Criminal prosecution & civil enforcement

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1.1. Criminal prosecution

Infringing on and/or counterfeiting of a trademark, copyright or patent may subject someone to criminal prosecution in China. The relevant section of the criminal law relating to IP violations is Section 7 (clauses 213-220) “crimes of infringing intellectual property rights". 

Criminal offenses include: 

  • counterfeiting registered trademarks; 
  • selling counterfeit goods; 
  • illegally manufacturing or selling illegally manufactured goods bearing registered trademarks;
  • infringing copyright; 
  • selling infringing copies; 
  • counterfeiting patents; and 
  • infringing trade secrets.

If an act of manufacturing or selling fake products constitutes a crime, the PSB will conduct an investigation to collect evidence. If an infringer’s behavior is serious and exceeds certain thresholds, which vary based on the offense, the PSB will assign a third party to assess the amount of the products involved, so as to ascertain if the relevant criminal threshold has been reached. The local PSB will then use this report to determine whether to transfer the case to a local prosecutor for criminal prosecution. 

If the prosecution is successful, the infringing goods will be confiscated and destroyed. Rights holders cannot participate in criminal proceedings, but instead, are able to commence civil litigation to claim compensation during the criminal prosecution or within three years after the criminal judgment comes into effect.

There are four IP courts in China (Beijing, Guangzhou, Hainan Free Trade Port, and Shanghai) that deal with IP matters. There is no obvious difference among the courts. China also has courts designated to handle online issues in Hangzhou, Beijing and Guangzhou.

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1.2. Civil enforcement

The following laws may be the basis of a civil enforcement proceeding in China: 

  • Trademark Law; 
  • Copyright Law;
  • Patent Law;
  • Anti-unfair Competition Law; and
  • Civil Procedure Law. 

Judicial interpretations promulgated by the Supreme People’s Court also form a main basis for enforcement. 

In China, there are four levels of people’s courts (from highest to lowest): 

  • the Supreme People’s Court; 
  • the High People’s Court; 
  • the Intermediate People’s Court; and 
  • the Primary People’s Court.

When IP owners have sufficient evidence, they may initiate a lawsuit before the Primary People’s Court. If a judgment is entered and the defendant fails to carry it, the plaintiff may apply to the court for compulsory execution (i.e., an order that the property be preserved, the defendant perform or refrain from a certain act, etc). 

An IP owner is able to seek the following compensation: 

  1. actual damages suffered as a result of the infringement; 
  2. if actual damages cannot be ascertained, the infringer’s profits arising from the infringing acts; 
  3. if the actual damages and profits cannot be ascertained, damage may be assessed as an appropriate multiple of the license fees; or 
  4. if 1 through 3 cannot be ascertained, statutory damages of not more than RMB 5 million (US$700,000). 

If there is malicious infringement and serious circumstances exist, the amount of damages awarded may be more than five times the originally determined amount. The amount of damages will also include any reasonable expenses that the rights holder has suffered as a result of preventing the infringement. In addition to damages, the following remedies are available in civil actions: injunctions, delivery-up for destruction of infringing goods, recall orders and/or declarations of infringement, and validity.

Once an infringer becomes aware of a potential claim, it may become difficult to collect evidence. Thus, it is important to notarize such evidence before initiating a lawsuit.

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1.3. Grey market and counterfeit goods

Online commerce has been growing rapidly in recent years, a trend that has accelerated during the COVID-19 pandemic. In 2020, the Shanghai Public Security Bureau, Hongkou branch, successfully cracked Shanghai’s first case of a celebrity anchor live web broadcast selling counterfeit goods. The Bureau seized more than 3,000 fake luxury bags, clothing and other goods, and captured more than 50 suspected criminals, 41 of whom have since been arrested.

Grey market goods are legal in China (see Harris Bricken: China Trademarks: Counterfeit Goods and Parallel Imports) so sellers are not subject to criminal penalties. While a brand owner can bring a civil litigation based on trademark infringement, based on current examination standards, such a claim—to the extent it covers grey market goods—will be rejected by a court. 

In addition, China has the Consumer Protection Law, Contract Law, Tort law, and Product Quality Law, among others, that impact the dealing in counterfeit products.

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1.4. Criminal v. civil enforcement

Both civil and criminal enforcement provide the option for and potential benefit to quickly stop an infringement. Criminal enforcement, conducted by the PSB, is the strongest deterrent, given that counterfeiters may be arrested and criminally punished. The greatest enforcement challenge is local protectionism. In addition, the greatest challenge faced in pursuing criminal action is, given the urgency of action in most counterfeit cases, unless the investigations are comprehensive and complete, whether conducted by private investigators or law enforcement, there may be significant delays due to the speed at which law enforcement typically pursues said claims in light of the limited resources often assigned to these types of cases. 

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2 . Border enforcement

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2.1. Measures

There are two kinds of Customs actions: 

  1. the IP rights holder discovers the infringement and applies for the detention of goods with Customs; or 
  2. Customs finds suspected infringing goods, notifies the rights holder and detains the goods.

In order to seek Customs protection, rights holders should record their intellectual property rights with the General Administration of China Customs (GACC). If the rights holder confirms the goods are counterfeit, Customs will detain the goods and request that the rights holder pay bond fees. Customs may seize the counterfeit goods, and impose administrative penalties. When the infringing goods are destroyed and the case is closed, Customs will refund the bond fees. The IP rights holder may then initiate a civil litigation against the importer(s). If the case meets the relevant criminal threshold(s), criminal prosecution may also be instituted by relevant authorities. 

Customs recordal is a relatively cheap and efficient solution to stop the exportation and importation of infringing products in China. Customs is under a statutory duty to check all imported and exported goods into and out of China. If IP rights are recorded with Customs, Customs officials will check for any infringing goods crossing into or out of any ports or borders in China. It will usually take 2-3 months for the Customs recordal process to be complete. It is also advisable for brand owners to record authorized manufacturers and distributors in order to permit a smoother flow of authorized goods through Customs. 

With the rapid development of cross-border e-commerce and other emerging forms of trade, Customs protection of IP rights has faced, and will continue to face, new challenges and pressures. There are now two means of Customs enforcement: one is ex officio, and the other is as requested by the right holders. It is only more recently that Customs has proactively conducted targeted special law enforcement actions ex officio. For example, in 2020, Customs conducted special actions against infringing medical materials and in 2021, Customs conducted special actions against infringing Olympic goods in light of the Games coming to Beijing in 2022.

Chinese Customs may transfer IP infringement cases to the PSB for criminal investigation. Customs is considered a supervisory and administrative organization and does not have the right to pursue criminal enforcement actions on its own.

Goods seized by Customs are strong evidence of infringement in a civil or criminal proceeding. When Customs locates potential counterfeit goods, they will seize the goods temporarily and require local counsel for the IP owner to confirm whether the goods are counterfeit. Customs will often send the IP owner photographs of the goods and details on the quantity involved and identity of the potential infringer.

It is useful to train Chinese Customs on identifying counterfeiting issues and many brands have taken an active role in doing so.

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2.2. Recent trends and COVID-19

In light of the difficulties brought by the COVID-19 pandemic, China has made great headway in trademark protection in the past two years, including the issuance of a significant amount of revised judicial legislation, normative documents and new guidelines concerning IP rights. 

Because of the COVID-19 pandemic, the number of fake face masks, hand sanitizers, and other related goods has been staggering. From January to February 2020, in just one month, a total of 2,224,400 fake masks were seized in Henan.

We are hopeful that China will take tougher measures to crack down on counterfeiting occurring online in the future; however, no such pending legislation exists. 

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3 . Online anti-counterfeiting enforcement strategies

Article 49 of China’s Copyright Law specifically prohibits organizations or individuals from: 

  • attempting to circumvent technical measures; 
  • manufacturing, importing, or providing devices or parts to the public for the purpose of avoiding or destroying technical measures; and/or 
  • providing technical services to aid others in avoiding or destroying technical measures. 

A rights holder could pursue a litigation and claim remedies under Article 49 of Copyright Law. For example, in Tencent vs. True Color, the court held that the technical measures taken by Tencent to protect copyright should be protected and even though True Color stopped the accused’s behavior, the court found True Color liable and awarded Tencent RMB 110,000 in economic losses.

If a network user uses a network service to commit infringement, the rights holder has the ability to notify the network service provider to take the necessary measures, such as deleting, blocking or disconnecting the link. If the network service provider fails to take the necessary measures in time after receiving the notification, it will be jointly and severally liable with the network user for damages suffered after such notification. In addition, if an ISP knows that a network user is infringing the civil rights and interests of others by using its network service, and fails to take the necessary measures, it will bear joint and several liability with the network user.

China’s e-commerce law took effect on January 1, 2019, which addresses three levels of operators: 

  1. platform operators (i.e., traditional platforms such as Taobao); 
  2. platform users (i.e., vendors that operate online storefronts on platforms); and 
  3. other e-commerce operators (i.e., operators that sell goods or provide services through self-established websites or other channels, such as WeChat).

When an online infringer is found to have a physical presence, the first step should typically be to conduct an onsite investigation to see whether the seller is indeed an established manufacturer that is actively producing and then selling infringing products online. If that is the case, the next step should be a notarized purchase. After that, the IP holder could file a complaint before the AIC or initiate a civil litigation.

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3.1. Domain names

UDRP provides a quick, cheap, and easy means to adjudicate domain name disputes between trademark holders and bad faith registrants of domain names. The first and most important step is filing a complaint. In order to succeed, three factors have to be proven: 

  1. the domain name is identical or confusingly similar to the IP rights holder’s name/mark in which the IP rights holder has civil rights; 
  2. the registrant has no legal rights to the domain name or its prominent part; and 
  3. the registrant registers or uses the domain name in bad faith. 

For ground (1), the civil rights may mean trademark registrations in any jurisdiction that are earlier than the registration date of the disputed domain name. For ground (2), the IP right holder may argue that the domain registrant does not have any trademark registrations yet and therefore does not have any legal rights to the domain name. For ground (3), evidence to show bad faith is required. In most cases, disputes are resolved within 60 days of filing.

People in China like domain names that have positive connotations (for example, meta, versus something with a negative connotation like pandemic), and can easily be memorized, and such domains are quickly taken. Domain name disputes occur frequently in China. Some rights holders choose arbitration or litigation for domain name disputes, while others believe arbitration and/or litigation is too time consuming, so they find another path forward, such as negotiating directly with the domain holder. 

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3.2. Social media

WeChat is one of the most popular tools for social media marketing in China, with over 1 billion monthly active users. Given that WeChat’s user base is concentrated heavily in China, it is easy to see why many call it the Chinese Facebook (with Facebook having 2 billion worldwide users). Chinese users spend an average of over 70 minutes a day within the app, which can be used for text messaging, making video calls, shopping, paying bills, transferring money, etc., and has been used as a vehicle for the purchase and sale of counterfeit goods. 

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4 . Additional information

China has the State Administration for Market Regulation (SAMR), which coordinates IP enforcement, streamlines multiple bureaucracies and is responsible for extensive market controls, including the issuance of business permits and licenses, regulating anti-monopolistic behavior, etc. 

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5 . Frequently asked questions

1. Please advise whether there is a time limit to produce evidence before the Court / Chinese authorities, i.e. is there a validity deadline we must keep in mind?

There is a limitation period to initiate a legal action in China, which is calculated 3 years from the date of knowledge that a rights holders’ rights have been infringed (before October 1, 2017, the limitation period was 2 years). For continuing acts, the limitation period runs from the day the infringing activities stop. 

2. If we commence court proceedings, how long would it take to get a decision?

Based on the current examination speed, it may take around 8-12 months to complete the examination and deliver the judgment. For complicated cases, it may take longer.

3. Are we likely to obtain damages if we are successful in the civil litigation?

If infringement is found, according to our experience, a damage claim normally will be supported by the court.

EXPERT ANALYSIS

Chapters

Brazil

Tânia Aoki Carneiro

Canada

Lorne M. Lipkus
Melissa J. Tarsitano

Greece

Alkisti-Irene Malamis

Israel

Roy Kornick

Italy

Graziana Ercolanelli
Monica Bucarelli

Mexico

Diana Martínez
Roberto Arochi

The Netherlands

Fleur Boom
Gie van den Broek
Iris van der Wal

Spain

Ana Padial
Gonzalo Barboza
Miriam Anidjar Mogeda
Patricia Ramírez Melgen

Ukraine

Alexander Pakharenko

United Arab Emirates

Felicity Hammond
Munir Suboh

United Kingdom

Fiona Lawson
Simon Barker

United States

Ashly E. Sands
Danielle S. Futterman
Gabriela N. Nastasi
Jason M. Drangel
Kerry B. Brownlee

Uruguay

Agustina Viera
Daiana Pereira
Lucia Cantera
Virginia Cervieri