New Ways to Combat Counterfeiting and Piracy in China

Note: This article is published by IP Law360 on March 11, 2014. The content is reproduced below.

New Ways to Combat Counterfeiting and Piracy in China

Lei Mei, Managing Partner, Mei & Mark LLP

Linfeng Qiu, General Counsel, Hangzhou IP Protection & Management Center

E-commerce sales in China have skyrocketed in recent years. For example, on a single day, November 11, 2013, the leading Chinese E-commerce website, Taobao.com, sold a record-breaking 35 billion RMB ($5.77 billion) worth of merchandise online. Unfortunately, many Chinese websites have online merchandise that include counterfeit and pirated products, as noted in the 2013 list of Notorious Markets by the United States Trade Representative Office (“USTR”). Therefore, IP owners, including U.S. consumer products companies, must develop a new effective strategy in combating trademark counterfeiting and copyright piracy in China in this digital age.

As an initial matter, it is worth noting that China does have comprehensive trademark and copyright laws and regulations that may be used to combat trademark counterfeiting and copyright piracy, and China’s central government has made it a high priority to protect intellectual property rights. For example, if there is a dispute regarding trademark or copyright rights, the owner of the registered trademark or copyright may bring a lawsuit in a People’s Court or request a local administrative department for industry and commerce (i.e., the local commerce department) to handle the matter.

Unlike the United States, local commerce departments in China have the authority to order an infringer to cease infringing upon that right immediately, to confiscate and destroy the goods involved and the tools used to manufacture the said goods and counterfeit the representations of the registered trademark or copyright, and to also impose a fine, without a court’s order. A party dissatisfied with the commerce department’s decision may bring a lawsuit in a People’s Court in accordance with the Administrative Procedure Law of the People’s Republic of China.

Despite these laws and regulations, it is still questionable as to the effectiveness of enforcement by local courts and commerce departments in specific cases. As the United States International Trade Commission noted in a 2010 report, “[s]ignificant structural and institutional impediments undermine effective enforcement, including the protection of IPR infringing industries by local Chinese officials, a lack of coordination among government agencies, insufficient enforcement resources and training, and non-deterrent civil and criminal penalties.” Today, local protectionism is still a legitimate concern in many parts of China, although enforcement efforts are more effective in big cities.

U.S. companies have traditionally used local Chinese law firms and/or investigative agents to crack down on physical counterfeiting activities. The problem, however, has always been that when a small factory is shutdown, another one springs up elsewhere. There have also been instances where some rogue investigative agents manufactured fake infringing activities to crack down on in order to collect more fees from IP owners. As a result, it could be very difficult for IP owners to achieve desired enforcement results in China.

In addition, traditionally, the burden of obtaining admissible evidence is upon IP owners, as China’s law does not require a civil defendant to voluntarily produce relevant documents or provide relevant information (although a new amendment to China’s trademark law, taking effect on May 1, 2014, does allow burden of discovery to be shifted in certain circumstances).

Interestingly, the solution to the traditional challenges of cracking down on physical counterfeiting activities lies with the digital evolution. With the emergence of websites like Taobao.com, online marketplace has become the main sales channel for counterfeit and pirated products in China. Therefore, IP owners could develop new enforcement mechanism to combat trademark counterfeiting and copyright piracy in China in this digital age.

Surprisingly, it is actually easier and more effective to combat trademark counterfeiting and copyright piracy online for several reasons. First, e-commerce websites typically show off product photos to the public, which can be easily and safely downloaded as evidence of infringement. This removes the obstacle of gathering evidence in a traditional physical marketplace in China, which not only is difficult but also could be dangerous at times.

 

Second, IP owners can easily obtain pricing and sales data of counterfeit and pirated products from e-commerce websites and use those for damages calculation. In general, damages are based on the amount of the profits that the infringer has earned as a result of the infringement or the amount of the losses that the infringed party has suffered as a result of the infringement. In a traditional physical marketplace, it is very difficult to prove damages because of the difficulty in obtaining relevant evidence from infringers.

Third, many leading e-commerce websites are operated by established Chinese companies in China’s more developed regions where IP enforcement has been more effective. For example, Taobao.com is operated by Alibaba Group, a leading Chinese e-commerce company in Hangzhou, the capital of Zhejiang province in Eastern China. For obvious reasons, it is easier to demand these established companies to remove counterfeit and pirated products from their online e-commerce websites.

Indeed, USTR has removed Taobao.com from its Notorious Markets List since 2012, noting that although “Taobao.com was included in previous Notorious Markets Lists for the widespread availability of counterfeit and pirated goods in its electronic marketplace,” it was removed from the List in 2012 “in recognition of [Taobao.com’s] efforts to address these problems.” According to USTR, “Taobao.com has assured the United States that it will continue to work with rights holders and law enforcement officials in China to address remaining issues raised by software, publishing and apparel and footwear companies.”

Finally, several Chinese provinces have established semi-governmental IP protection and management centers for cracking down on trademark counterfeiting and copyright piracy. These centers provide an efficient platform for IP owners to serve notices to e- commerce website operators and demand removal of the counterfeit and pirated products. Typically, these centers function similar to private firms, but due to their semi-governmental status, their involvements could make enforcement efforts more efficient and cost-effective.

As China’s e-commerce websites continues to gain popularity with estimated sales of 1.85 trillion RMB ($305 billion) in 2013, there are new and effective ways for U.S. IP owners to combat trademark counterfeiting and copyright piracy in China. With proper counseling and favorable local support, U.S. IP owners can achieve success in enforcing and protecting their IP rights.