Protecting your intellectual property rights in China

The mainland government takes some steps in the right direction.

Introduction

The protection of intellectual property rights ("IPR") in the People's Republic of China ("PRC") continues to be the subject of both domestic and international attention. In recent years China has introduced new laws and regulations that improve the legislative environment for protection of IPR. New legislation has been issued in the areas of technology transfer and licensing, protection of integrated circuit layout-designs, computer software, domain names and electronic publications. In addition, many PRC intellectual property laws and regulations have been amended with the aim of becoming fully compliant with the Agreement on Trade-related Aspects of Intellectual Property Rights ("TRIPS Agreement").

More recently, the Supreme People's Court and the Supreme People's Procuratorate issued a judicial interpretation ("Judicial Interpretation 2004"), which sets out new criteria for prosecution and conviction of IPR offences in China. These new guidelines were promised to the U.S. government in April 2004 by Vice-Premier Wu Yi and have been billed as measures that will lead to a substantial increase in criminal prosecutions of IPR offences, such as trademark counterfeiting, copyright infringement (including internet violations), trade secret violations and certain patent abuses. Another recent legislative development is improved customs measures, which allow IPR holders to record details of their rights with customs in order to facilitate action against infringers.

Enforcement challenges

IPR owners face a variety of challenges in the PRC. Trademark owners, for example, may find themselves dealing with IPR offences ranging from trademark piracy to the counterfeiting of registered trademarks. Since the mid-1990s, the problem of counterfeiting has been acute, with a wide range of consumer and industrial goods being targeted by PRC infringers. The severity of the problem is illustrated by statistics recently released by the U.S. government for the year ending October 2004. The total value of seizures by U.S. customs increased 47%, from $94 million to $138 million - with 67% of the total coming from the PRC. To attempt to combat trademark piracy on this scale, companies must have a detailed trademark registration and enforcement program, good market-intelligence sources and the will to take pre-emptive enforcement actions.

Taking infringers to court

Court action is one of the methods available to protect and enforce IPR, and recent official figures indicate greater court involvement in IPR-related cases. From January 2002 to October 2004, PRC courts heard 2,171 cases related to production and sale of fake products, most of which reportedly also involved IPR infringements. In addition, published statistics suggest that from 2000 to November 2004, People's Procuratorates at all levels approved 2,462 arrests in 1,539 criminal cases involving IPR infringements, and in 1,500 cases public prosecution actions were initiated against 2,491 persons.

Administrative action

Administrative action, i.e. action taken by a local branch of the Administration for Industry and Commerce is an alternative to enforcing IPR violations in the courts. Administrative actions, which usually take the form of a raid on the infringer's premises, are quick and less expensive than court actions. Court fees are computed according to the amount of compensation that is requested, a factor which contributes to costs of litigation. One disadvantage of administrative actions is that the fines are small and do not in practice appear to have a significant deterrent effect.

Judicial Explanation 2004

Issue of the new Judicial Interpretation 2004 is another factor that may encourage IPR holders to initiate court actions, as the lower monetary thresholds that it sets forth would appear to make the chances of prosecution more likely. Under previous legislation, in order to prosecute a corporate or individual infringer in a trademark counterfeiting case, the case would have to involve an "illegal business amount" of at least RMB 500,000 or RMB 100,000, respectively. These standards proved difficult to satisfy in practice and appeared to be higher than those mandated by the TRIPS Agreement, which requires criminal prosecution of counterfeiters and copyright pirates in all cases that involve infringements on a "commercial scale". The Judicial Explanation 2004 stipulates an illegal business amount in a trademark case of RMB 150,000 for corporate liability and RMB 50,000 for individual liability, and as such are a significant lowering of the monetary thresholds. Similar provisions apply to copyright cases.

In addition, under the Judicial Explanation 2004, trading companies can now be considered as accomplices; certain definitions have been clarified; and criminal liability can now be pursued for the on-line transmission of copyrighted works, music works and software.

While the Judicial Explanation 2004 is clearly a positive step in the right direction, concerns remain. For example, though thresholds have been lowered, the TRIPS Agreement definition would appear to be wider as it requires prosecution of cases that involve infringements on a "commercial scale". In complicated cases it may be difficult to establish the scope of the illegal business amount. Also, where underground factories only produce counterfeits, raw materials and semi-finished products are not currently included by the courts when determining the illegal business amount.

Tougher Customs measures

Another positive legislative development is the issue of PRC Regulations for Customs Protection of IPR ("IPR Customs Protection Regulations"), which took effect from March 1, 2004. Under these regulations and other relevant legislation, owners of registered trademarks, copyright, and patents may apply to record their IPR with Customs and for the enforcement of such rights against infringers. Recordal of IPR with Customs provides significant benefits to IPR holders and a quick and effective means for dealing with the import or export of infringing products. Other new regulations, effective from November 2004, clarify the amounts of administrative fines that may be imposed for infringement of IPR protected by the IPR Customs Regulations.

Monitoring by Chinese Customs has proved reasonably successful in comparison with equivalent monitoring efforts in certain other countries. However, the costs of bonds and storage fees can be significant, a factor that in the past has dissuaded many companies from filing details of their IPR with Customs. The new regulations go far to reduce these costs, but perhaps not far enough. Customs is also now considering a general bond system that could benefit frequent users with significantly reduced costs.

Key improvements in the new enforcement regulations include a provision mandating the transfer of serious cases to the police for criminal investigation. In addition, the new regulations allow local customs to reduce the amount of bonds to be paid by IP owners following the seizure of suspected infringing goods by Chinese customs.

Conclusion

Though official figures indicate widespread IPR infringements in China, the government continues to issue new rules and regulations to tighten up the legislative environment. In light of such legislative changes, and as part of a comprehensive IPR protection strategy, IPR holders should consider whether court action may now be an appropriate enforcement option with a greater likelihood of success in certain cases. They should also consider recording their IPR with Customs to assist with enforcement in cases involving the import or export of infringing products.

¬ Haymarket Media Limited. All rights reserved.

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