July 02, 2007
By Aaron R. Wininger, Xiao Luo
'Intellectual property (IP) infringement is a grave concern of multinational companies operating in China. Piracy is rife, and the loss of one's investment in developing IP can seriously hurt a company. As such, there are several methods of enforcing IP rights in China. Not only can a party sue in court for infringement or register its rights with Customs to prevent the export of infringing articles, an aggrieved party can also use the route of administrative enforcement, which tends to be fast and inexpensive. While administrative enforcement cannot give an IP right holder monetary damages, it nonetheless should be considered when speed and cost are issues and/or when the infringer may not have assets to satisfy a judgment.
TSB's Enforcement Against Counterfeits
The State Technical Supervision Bureau and its local counterparts (TSB) are responsible for administrative enforcement of counterfeits and other product quality problems, including labeling compliance.
Under the Product Quality Law, the manufacturers or sellers of products are prohibited from engaging in the following activities, which may infringe another party's intellectual property: (1) falsely designating the place of origin on the product packaging; (2) falsely stating the origin of the products as originating from a facility of another party; and (3) falsely using famous brand marks of another party.1 The Product Quality Law encourages any entity or individual to report to the TSB any violation of the law2 by submitting certain preliminary evidence of the alleged illegal activities. The TSB, based on such evidence, has the authority to conduct on-spot investigations, question the legal representative or key person in charge of the entity, and examine and copy all relevant contracts, invoices, and financial books of the entity.3 The TSB may also impose any or all of the following penalties if an actual violation is found: (1) issuance of an order to cease the manufacture or sale of the products; (2) confiscation of the products; (3) imposition of a fine equal to the value of the products that have been manufactured or sold; (4) cancellation of a business license; and (5) transference of the case to the Public Security Bureau should the activities violate criminal law.4
It generally takes about three to six months from official acceptance of the case for the authority to render a decision to the parties; however, if there is a raid action, the time-frame for a decision may be shortened to several days.5 In general, even when there is a raid action, it typically still takes several months for a decision to be made.
AIC's Enforcement Against Trademark Infringement
The State Administration of Industry and Commerce and its local counterparts (AIC) are responsible for the administrative enforcement of trademarks.
Scope of Investigation. Under the Trademark Law and the Implementation Regulations on Trademark Law, six kinds of activities are considered infringement of the exclusive right to use a trademark and therefore subject to the investigation of the AIC:
Requirements to Launch an Investigation. Any person, including the trademark owner, may report to the AIC and request an investigation.8 However, such report must be accompanied by some preliminary evidence to get it put on the docket for investigation.9 Though it is unclear from the written laws as to what kind of documentation must be submitted, in practice the AIC usually requires the following materials: (1) Trademark Certificate and its copy (typically, a copy alone is sufficient); (2) basic information about the alleged infringer; (3) preliminary evidence and reasons for the alleged infringement (presumably, profit); (4) a Power of Attorney if the trademark owner is using an agent to act as a liaison with the AIC; and (5) a letter of complaint against the infringer. Furthermore, depending on the jurisdiction, an agent who acts as a liaison with the AIC may be required to have "trademark agent" on his or her business license. In addition, certain AIC offices may require all raid documents to be notarized in the home country of the trademark owner and then certified by the Chinese embassy of that country.
Penalties. If a reported case is successfully put on the docket for investigation, the AIC has the power to question the person involved, examine and copy all the contracts, invoices, financial books, or other materials that are related to the alleged infringement, conduct on-the-spot investigations, inspect the goods, and, if necessary, confiscate the goods.10 In practice, however, the most that the AIC does is seize the products; it typically does not thoroughly review documents and computer files. In general, the AIC does not have the capacity to conduct a professional forensic audit of accounting books and documents that may uncover more substantial evidence against the infringer. If an investigation reveals that infringement has occurred, the AIC may impose the following penalties:
Upon the request of the trademark owner, the AIC may also conduct mediation between the parties in order to determine the appropriate amount of compensation to be paid by the infringing party. However, if mediation fails, the trademark owner may file a case to the people's court.12
Diagram of Administrative Enforcement
Click hereto see a diagram that illustrates the administrative enforcement of trademark and counterfeits.
Conclusion
In addition to considering enforcement via the courts in China, it may be worth considering other types of administrative enforcement action against IP infringers. During the course of an investigation the trademark owner may uncover other issues such as the use of child labor, safety and health concerns, or possible fire hazards. The trademark owner may consider using these issues as a basis to lodge a general complaint with the labor department, fire department, or other public authority. While these departments may not have the power to seize counterfeit products, there is some advantage in having them conduct a surprise inspection, which would disrupt production at the factory and may result in penalties for the non-IP issues. Furthermore, if counterfeits are found during the surprise visit the trademark owner will be in a better position to lodge a complaint with administrative bodies such as the TSB, AIC, or Public Security Bureau.
For further information, please contact:
Aaron R. Wininger
Partner, China Practice
+86.21.6137.7920
awininger@thelen.com
Click here to learn more about Thelen's China practice.
Click here to learn more about Thelen's Intellectual Property practice.
Endnotes
©Copyright 2007 American Bar Association. All Rights Reserved. This article originally appeared in the Spring 2007 edition of IPL Newsletter (Volume 25, Number 3), which is published by the American Bar Association Section of Intellectual Property Law (ABA-IPL), and is here republished with permission.
This article has been published as an information service for clients and friends. Please recognize that the information is general in nature and must not be relied upon as legal advice. The authors, or your Thelen attorney contact(s), would be happy to discuss the information in this article in greater detail and its application to your specific situation. We welcome your comments and suggestions.
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