Countering Trademark Infringement

November 2014

Despite a robust intellectual property rights legal framework in China, businesses often face infringement of their intellectual property, and by increasingly sophisticated infringers. This alert sets out an established approach with which to systematically and efficiently counter trademark infringement in China.

Key Channels to Counter Infringement
The below table illustrates various channels available to counter trademark infringement, noting variations in resource intensity and expected outcomes.

Private Channel – Cease & Desist
Distributing a cease & desist letter to the infringer (and/or accomplices to the infringer; e.g., an internet service provider to a website that includes infringing content) is a fast and low-cost approach for a trademark holder (“Owner”) to counter infringement of its trademark rights in China; however, it does not provide damages, injunctive relief, seizure, fines or other actions requiring state authority.

It is important that the letter is well-drafted (e.g. references notarized evidence of infringing content in connection with the letter recipient, relevant laws and regulations, specific timeframe for recipient’s requested action, rights to take further action). If the letter is effective in removing infringing content, the Owner should remain vigilant to confirm that the infringing party does not resume infringing activity.

Administrative Channels
Administrative channels can be fast and cost-effective, relative to litigation, and retain the potential to develop into fines, injunctions, and/or seizures of infringing goods. However, damages and costs incurred by the Owner are not awarded. Additionally, and critically, the Owner must rely on the discretion of (generally) under-resourced agencies; hence the vigor with which a case is investigated may vary significantly. Moreover, some agencies’ mandates to counter trademark infringement are very specific.

AIC
The Administration of Industry and Commerce (the “AIC”) is applicable in cases where the infringement results in a physical manifestation that can be raided by the AIC e.g., a factory producing infringing products, in contrast to a website marketing branded products where the physical location of products is unknown.

The AIC can engage in a wide range of activities to enforce trademark rights, including and not limited to: administrative instructions, disciplinary warnings, fines, seizure and/or confiscation of counterfeit goods; confiscation of illegal gains, unlawful property, or items of value; suspension of production or business; suspension or rescission of business permits or licenses or administrative detention, counter unfair competition.

AQSIQ
The Administration of Quality Supervision, Inspection and Quarantine (the “AQSIQ”) is a relatively new administrative agency responsible for (among other things) protecting consumer rights through the enforcement of product quality or product safety standards. This channel is not yet frequently used partially because the applicable circumstances are so limited.

Customs
Countering trademark infringement with the Customs Office is possible when the Owner suspects the infringing goods will be either imported into or exported out of China, and the trademark is easily identifiable on infringing products. Within this narrow area of applicability, Customs recordation is deemed highly efficient and effective, and serves as a filter to capture and identify infringing goods.

If Customs does identify potentially infringing goods, the Owner must then post a security bond equivalent to the value of the detained goods for the duration of the investigation; the bond will be used to compensate the owner of the goods for damages incurred by such detention if the investigation shows the goods do not infringe on Owner’s rights. The seized goods and the corresponding documentation submitted with the infringing goods to Customs can be used as a basis for the Owner to pursue other administrative or judicial channels, if the Owner elects to do so.

PSB
Any of the three above administrative channels can result in the corresponding agency deciding to transfer the case to the Public Security Bureau (“PSB”) for further investigation, should the infringing activity be deemed criminal by exceeding minimum monetary thresholds. Additionally, an Owner can directly request a criminal investigation. This option offers broad investigative powers, and the facts established are available for civil litigation; the infringer might be subject to criminal liability.

While the minimum monetary thresholds are clearly defined under law, the PSB is often restricted in practice on what cases it can pursue, due to limited resources. Therefore, one can reasonably expect greater PSB responsiveness on cases that significantly exceed minimum monetary thresholds, and/or that significantly harm public interest.

Judicial Channels
Civil litigation
Civil litigation is generally deemed the most powerful tool to counter infringement because it can give rise to injunctions and damages (including an award of court costs); therefore, it has the most potential to make the Owner whole again. However, this is the most expensive channel for the Owner (unless the Owner prevails and court costs are awarded), and is time consuming. The burden of discovery rests wholly on the Owner, and the evidence must meet high standards relative to other channels. Critically, damages are often inadequate, especially when the Owner relies on statutory damages (which is the norm). Nevertheless, civil litigation may appeal to the Owner if there are broader strategic objectives in mind (e.g. protection of market share and sending message to other infringers or marketplace).

Criminal trial
Criminal investigation occurs at the discretion of the PSB and the relevant prosecutor[1]. The thresholds for investigation are quite high (normally several million RMB, and the infringement must pose a risk to public well-being or safety). The Owner has a largely passive role except to the extent that the Owner: (a) can use the evidence established by the state in subsequent civil proceedings, and (b) can petition for its victimization to be considered in the case and go towards the state taking specific actions (e.g., seizing infringed goods, increasing jail time or fines). This channel can result in a variety of criminal punishments, including seizure of infringing materials, fines or jail time. (Damages cannot be awarded to the Owner.)

Registration, Evidence
In order to establish a case of infringement in any of the available channels, the Owner needs to demonstrate (a) effective registration of the trademark and (b) infringement of the registered trademark.[2]

The Owner must show the registration was successfully filed through the China Trademark Office or World Intellectual Property Office and that such registration remains effective.

Evidencing infringement varies according to the matter trademarked (e.g., infringing on the Starbucks service mark calls for a video of coffee being sold and served, infringing on a branded Nike product requires samples of the infringing products). Formally and methodically notarizing specific instances of infringing materials is critical. Furthermore, there must be evidence of a direct link between the infringing materials and the party responsible for the infringement.[3]

Remarks – a Pre-Emptive Approach
Success in countering infringement can be significantly enhanced by preemptively registering intellectual property rights, giving you a broad set of tools with which to fight back when the time comes. Such registrations include trademark registrations (including Chinese variations and other variations of trademark) in relevant classes and subclasses, registration of domains that feature use of trademark (and may be used by third party to support online trademark infringement), using such registrations to license trademark usage by distributors, using such registrations to de-register Hong Kong shadow companies, and so on.

[1] If the PSB does not engage in criminal investigation, the Owner may press criminal charges on its own. In reality, this rarely occurs for a variety of reasons (including, if the Owner will go to the trouble of a trial then in most cases the Owner would rather seek the damages available in a civil trial rather than criminal punishments available in a criminal trial).

[2] In the case of civil litigation, damages are also a required element but can be assumed vis à vis statutory damages, once an infringement has been shown.

[3] When investigating the identity of infringers, Owners should be aware that such information may be either incorrect or deliberately misleading; contact information should not be taken at face value.

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