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Protecting Intellectual Property in China

Introduction

The problem of infringed intellectual property (“IP”) rights in China has two implications. First, infringing goods sold in China reduce the sales of Canadian IP-rights holders and dilute their goodwill in China. Second, infringing goods manufactured in China are then exported to North America, resulting in lost sales and brand dilution.

General Strategy

Protection of IP rights in China is typically a three-step process, which consist of: (1) retaining local Chinese counsel, (2) enforcing IP rights via trademark, and (3) utilizing administrative remedies. Local Chinese counsel has a comprehensive understanding of the local culture and legal system. They also possess ability to work with designated agents, investigators, and officials in the infringing Chinese jurisdiction. And most importantly, Chinese IP law is constantly changing to facilitate the development of China's IP system, which is another consideration that makes retaining local counsel in China essential. The use of trademarks is the most effective method of preventing counterfeiting and protecting IP rights in China. Chinese copyright and patent authorities are not as well trained or staffed as their trademark counterparts. Also, finished products generally bear a trademark. Thus, it is possible to stop an infringer from infringing patented or copyrighted products via a trademark action. Finally, the process of registration of a trademark in China is relatively straightforward and it is easy for the trademark authorities to make an on-the-spot decision of whether an alleged infringer's mark is identical to the registered mark.

The preferred method of enforcing infringed IP rights in China is to petition one of the several administrative authorities for an administrative action. The Chinese civil litigation system is not as sophisticated as the administrative authorities and, consequently, litigation is generally not as practical. Conversely, administrative actions tend to be more flexible, less expensive, and result in the seizure of large quantities of counterfeit products. As a rule of thumb, more complex cases of infringement with high damages are litigated, while smaller, less intricate cases are dealt with administratively. However, defensive protection, in the form of proper registration of IP rights, is far more cost effective than relying on litigation or administrative actions.

Major Centres of Infringing Goods

There are at least five major wholesale distribution markets in China for counterfeit goods: Hanzhen Jie in Wuhan City, Hubei Province; Linyi Market in Linyi, Shandong Province; Nansantiao Market in Shijia Zhuang in Hebei Province; China Small Commodities City in Yiwu City, Zhejiang Province; and Wuai Market in Shenyang, Liaoning Province. The largest of these markets is the China Small Commodities City in Yiwu City, Zhejiang Province. These markets are established and regulated by the local Administration for Industry and Commerce (“AIC”). Conversely, the bulk of counterfeit manufacturing in China occurs near Hong Kong in the southeastern provinces of Fujian and Guangdong.

Trademark Protection

A. Overview

Using trademarks is the most effective tool against infringement in China. This is because it is easier for the trademark authorities to identify an infringing mark, rather than patent and copyright infringements, which require more time-consuming administrative review. Hence, trademark registration is essential to full IP protection.

B. What Constitutes Trademark Infringement

Article 52 of the P.R.C. Trademark Law sets forth five actions which constitute trademark infringement: (1) using a trademark that is identical or similar to a registered trademark (2) selling goods that knowingly infringe another's registered trademark, (3) counterfeiting or making, without authorization, representations of another's registered trademark, (4) replacing another's registered trademark without authorization, and (5) causing prejudice to the rights of another's registered trademark. Complementing the Trademark Law is Article 41 of the Trademark Law Implementing Rules, which holds that, (1) knowingly dealing in infringing goods, (2) using any sign that is similar to the registered trademark of another, or (3) wilfully storing, transporting, or concealing infringing goods also constitute trademark infringement.

C. Choosing a Trademark in China

In addition to registering the original trademark, Canadian trademark should identify their products and services to Chinese consumers using Chinese characters. Despite different spoken Chinese dialects, a Chinese character trademark is a symbol understood by all Chinese consumers. Adopting a Chinese character trademark removes a language barrier, improves recognition of a trademark and enables the products to reach a wider market. Registering a trademark in Chinese also serves to maintain the goodwill of the mark within China. Otherwise, if a foreign product is sold without a Chinese trademark, Chinese consumers will adopt their own name for the product. As a defence mechanism, Canadian trademark holders may register Chinese character versions of foreign trademarks as soon as their product enters the market. Roman character trademarks can be translated into Chinese character trademarks by either: (1) literally translating the concept of the Roman trademark, or (2) translating the phonetic sound of the Roman trademark. Any translation, whether phonetic or literal, should be reviewed by a native Chinese reader to ensure that no unintended translation results. Chinese is also written in simplified and traditional characters. Thus, foreign trademark holders should file separate trademark registrations for both versions. In sum, foreign trademark holders should register and use the following three trademarks: (1) the original Roman trademark, (2) the newly created simplified Chinese trademark, and (3) the newly created traditional Chinese trademark.

D. Administrative Remedies

Articles 53 and 54 of the P.R.C. Trademark Law enable the AIC to aid trademark registrants or interested parties to stop infringement of their trademarks. Additionally, the Technical Supervision Bureau (“TSB”), exercises enforcement power over counterfeit products under P.R.C. Consumer Protection Law or P.R.C. Product Quality Law. In practice, the AIC is the relevant authority with exclusive jurisdiction over the investigation and enforcement of trademarks. Unlike Canadian and the U.S. ‘first-to-use’ system, China's trademark system is a ‘first-to-register’ regime. As such, designated trademark agent must file trademark infringement petitions with the AIC. Once infringement is exposed, the usual first step is for an investigation company to conduct an investigation and detail a raid plan. The infringed company may then assemble an infringement petition and present it to the local AIC, who conducts a raid of the plant or facility where the infringing goods are manufactured or stored.

An infringement petition must contain the following information: (1) a brief description of the background of the intellectual property owner, (2) a brief description of the infringer and circumstances of the infringement, (3) the relevant law and reasoning, (4) IP registration certificates, and (5) power of attorney. If the AIC determines that the goods in question did in fact infringe, the goods will be confiscated. The AIC may order the goods, the tools for making the goods, or the tools for making the infringing trademark to be destroyed. Although, in most cases, the goods and any tools for making the goods will be auctioned off publicly. Unfortunately, the infringer, his associates, or others seeking to enter the illegal trade may purchase the items. Thus, Canadian trademark owners may attend auctions to buy and destroy infringing goods and tools. Damages for trademark infringement are the “profit that the infringer has earned … or the injury that the infringee has suffered from the infringement … including the appropriate expenses of the infringee for stopping the infringement.” Additionally, the AIC has the authority to inflict fines, payable to the Chinese government, of up to fifty percent of the illegal turnover or up to five times the profit of the infringing activity. However, damages may only be compelled if the infringed company takes the AIC's decision to the People's Court to be validated.

Patent Protection

A. Overview

Chinese patent law recognizes the following three kinds of patents: (1) invention, (2) utility model, and (3) design. A patentable invention or utility model “must possess novelty, inventiveness and practical applicability.” Design patents “must not be identical with and similar to any design which, before the date of filing, has been publicly disclosed in publications in the country or abroad, or has been publicly used in the country.” Similar to Canadian and the U.S. patent law, Chinese patent law provides that no entity may make, use, offer for sale, sell, or import a patented invention, utility model, or design. Article 57 of the P.R.C. Patent Law sets forth that “exploiting a patent without the authorization of the patentee constitutes … infringement.”

B. Administrative Remedies

Generally, administrative authorities are the best avenue to stop clear-cut patent infringement. The Patent Office (a department within the SIPO) oversees patents. Designated agents are generally responsible for submitting patent applications to the Patent Office. Each province and the large city have an Administrative Authority for Patent Affairs (“AAPA”). The AAPA is responsible for resolving patent disputes administratively. The AAPA often functions as a mediator or an arbitrator in patent disputes since it has no authority to enforce its own judgments. There are three advantages to resolving a case of IP infringement via administrative action: (1) speed, (2) effectiveness, and (3) low cost. Unfortunately, punishment imposed by the AAPA for patent infringement is not normally harsh. Once infringement is detected, a Canadian company employs an investigation firm to conduct an investigation and to prepare a raid plan, similar to trademark infringement. The Canadian company may then assemble a petition and present it to the local AAPA, who will conduct a raid of the plant or facility where the infringing goods are manufactured or stored. A petition must contain: (1) a brief description of the background of the intellectual property owner, (2) a brief description of the infringer and circumstances of the infringement, (3) the relevant law and reasoning, (4) IP registration certificates, and (5) power of attorney. Once Canadian patent holder files a petition with the AAPA, the parties will be ordered to attempt consultations in order to resolve the dispute. If the parties are not willing to consult with each other or consultation fails, Canadian patent holder may initiate legal proceedings directly in court against the alleged infringer or file a petition to the AAPA for administrative review. If the AAPA determines that the goods in question did in fact infringe, the infringer will be subject to a fine, payable to the Chinese government. Fines can be up to three times the profit made by the infringer, or, if there are no illegal earnings, RMB50,000 ($6,500). However, compensatory damages may only be compelled if Canadian patent holder takes the AAPA's decision to the People's Court for enforcement.

Copyright Protection

A. Overview

Foreigners have copyright protection of their works if they were the first to publish the work in China. As is the case in Canada and the U.S., registering a copyright with the Chinese authorities eases the process of copyright enforcement. Under Chinese copyright law one is guilty of infringement if he or she: (1) reproduces or distributes a copyrighted work without the permission of the copyright holder, (2) publishes a book whose rights belong to another, (3) reproduces or distributes a video or sound recording of a performance without the permission of the performer, (4) reproduces or distributes a video or sound recording produced by another without the permission of the producer, (5) broadcasts a video or sound recording without the permission of the television or radio station, (6) intentionally circumvents anti-copying devices, (7) intentionally deletes or alters the electronic right management information of a work, video, or sound recording without the permission of the copyright holder, or (8) produces or sells a work where the signature of another is counterfeited. Copyright violations can be pursued administratively, judicially, or criminally.

B. Administrative Remedies

The most effective way to enforce rights in a copyrighted product is to affix a trademark to it and pursue the enforcement of the trademark. Enforcing a trademark is more effective because administrative authorities are reluctant to make a determination as to whether the plaintiff's work is original and whether the two works of authorship are substantially similar. Moreover, Chinese copyright law holds that “copyright owners, in exercising their copyright, shall not violate the Constitution or laws or prejudice the public interests.” With this public interest restriction, the copyright administrative authorities are even less likely to take action against copyright infringers. Thus, it may be better to seek judicial remedies for cases of pure copyright infringement.

C. Litigation

“Anyone who commits … copyright infringement shall bear civil liability for such remedies as ceasing the infringing act, eliminating the effects of the act, making an apology or paying compensation for damages.” However, prior to filing a lawsuit, Canadian copyright holders may file an injunction to stop infringers. P.R.C. Copyright Law provides that if a copyright owner has evidence that another may infringe the copyright, and that infringement would cause “irreparable injury … if not stopped immediately,” the copyright holder may apply to the People's Court for a preliminary injunction. Additionally, a copyright holder may apply to the People's Court for an order to preserve evidence upon the posting of a guaranty. Where a copyright is infringed, the infringer shall pay the copyright holder damages in the amount of the actual injury suffered. If the actual injury suffered is difficult to compute, damages will be based on the unlawful income of the infringer. In the event that no injury or profit can be determined, the People's Court will award damages not exceeding RMB500,000 ($61,728). Additionally, the copyright administrative authorities may: (1) order the infringer to make an apology, (2) order the infringer to cease infringement, (3) confiscate unlawful income, (4) confiscate and destroy infringing reproductions, (5) imposing a fine, or (6) refer the infringer to the prosecutors for criminal liability in serious cases.