CIVIL PROTECTION OF IP IN CHINA: TWO STEPS FORWARD, ONE STEP BACK?
Businesses operating in China are all too familiar with the current state of intellectual property (“IP”) enforcement in China. In general, administrative enforcement is of limited or no deterrent value, as fines are insignificant compared to the profits gained by breaking the law. There is also little criminal enforcement, due mainly to high liability thresholds, and a bureaucratic reluctance to involve the police force, which itself is understaffed and overwhelmed by other, more pressing, priorities. On the front end, foreign entities find it extremely difficult to obtain “Well-known Mark” status, while the license recordal scheme is currently in complete disarray.
New IP Challenges Arise
In addition, over the past few years, new problems in enforcing IP rights have emerged.
First, manufacturers of counterfeit products are moving their production facilities to remote areas farther inland. These locations are not only harder to find, their administrative, judicial and criminal enforcement organs are also almost always less sophisticated, less sympathetic, and more prone to local protectionism than those in the developed coastal areas.
Another issue is the rise of the Internet as a primary tool for infringers. China has the largest Internet population in the world, with some estimated 298 million netizens, over 90 percent of which use broadband connections. This sizable “market” has led to widespread online copyright infringement and sale of counterfeit goods online. A dozen “MP3 Search Engines” offer “deep links” to massive libraries of infringing digital music files, while counterfeiters now send shipments via post, often under the radar of Customs enforcement officials, who are used to detaining large shipments. These smaller shipments also keep relevant figures well below the thresholds for criminal enforcement, which further undermines “effective enforcement” of IP rights in China.
Tackling Infringement: Administrative, Civil and Criminal Options
In this environment, rights holders are faced with a deficit of effective and efficient enforcement options. Many businesses have acknowledged the limitations of administrative enforcement, and are now more willing to test their luck in PRC courts. While more expensive, civil suit in China has several advantages over administrative enforcement actions, notably, higher damages and compensation awards, as well as pre-trial enforcement measures such as preliminary injunctions and assetpreservation orders.
Over the past 18 months, two positive trends in civil enforcement of intellectual property rights in China have emerged. These have since been backed by recent Opinions and Interpretations released by the PRC Supreme People’s Court, which are meant to guide lower courts in handling IP disputes. In general, these guidelines are aimed at producing a more sophisticated and professional judiciary, as well as significantly raising the cost and penalties for infringers facing civil charges. Indeed, several high-profile cases have demonstrated that these trends are more than mere aspirations contained in policy speeches, but real and significant changes in how IP rights are treated in Chinese courts.
This article highlights both the regulatory changes and significant cases that show how courts have become more sophisticated in handling IP infringements, as well as how infringers are having to pay more for their crimes. In particular, the court cases described below demonstrate how businesses operating in China can successfully protect complex intellectual property assets, and receive substantial compensation if those assets have been infringed.
Finally, the article examines why these two trends still require further development, and how, in the face of the global financial crisis, recent regulatory notices are threatening to roll back significant progress towards effective enforcement of IP rights in China.
General Growth in Civil Enforcement of IP Rights in China
Official statistics show that PRC courts accepted a total of 24,406 civil IP cases in 2008
1, a 36 percent increase over 2007, while data from 2006 indicates that this increase is 50 percent greater than that of the year before
2. Hence, not only are more companies choosing to take infringers (and competitors) to court, they are doing so at a greater rate than in the recent past. Of particular significance, PRC courts accepted 1,139 cases of first instance relating to foreign rights holders. While this represents less than 5 percent of all civil IP cases brought, it is up over 70 percent from the previous year. This firmly demonstrates not only that more foreign companies are choosing courts as a battleground for enforcing their IP, but that Chinese companies, too, are hauling foreign business before judges to settle disputes.
1. The statistics are available from several websites, including the following: http://www.nipso.cn/bwdt/200904/t20090430_458404.html (in Chinese).
2. Available at: http://doc.ipr.gov.cn/ipr/doc/info/Article.jsp?a_no=160618&col_no=10&dir=200712 (in Chinese).