A Supreme People's Court pronouncement on the valuation of counterfeit goods

To proceed with this, it is necessary to negotiate the relevant provisions of the criminal code. In the case of the counterfeiting of multiple trademarks, this is Articles 214 to 216 of the PRC Criminal Law, together with the Joint (SPC) and Supreme People's Court (SPP) judicial interpretation: Several Issues Concerning the Specific Application of the Law when Handling Criminal Cases Involving the Infringement of Intellectual Property Rights Interpretation (关于办理侵犯知识产权刑事案件具体应用法律若干问题的解释 ) (2001/2007).

Case
In December 2006, a service provider acting for one of the brand owners (an auto parts supplier) notified their client of the publication of an application for their trademark by a third party, in a class of goods not previously registered by them as well as other auto parts brands. An investigation was conducted which later resulted in an enforcement being conducted by Xiapu Administration for Industry and Commerce about two weeks later. This netted approximately 130,556 pieces of counterfeit brakes together with packaging and 13 different auto parts brands. The Xiapu Administration transferred the case to the Xiapu public security bureau (PSB) for criminal investigation on February 7 2007.

Initial valuation
In March 2008, some concern was expressed following the low valuation provided by the PSB to the local prosecutor (approximately Rmb201,000 or US$29,500) thereby classifying it under the judicial interpretation as a “serious case” for the counterfeit brakes. A valuation in excess of Rmb450,000 (the minimum threshold for a “company” for a “very serious” case as defined in the judicial interpretation) was later sought from the brand owners and accepted. If a second evaluation (in excess of the minimum threshold) could be submitted and was accepted, this would open the possibility of a custodial sentence.

Supporting evidence such as valuation statements, depicting the retail price (an invoice or sales contract provided through the support of the relevant brand owners and/or local business) and, for example, one of their distributors would prove critical.

The idea behind this is to avoid the local people's prosecutor having to rely on the extremely low valuations provided by the PSB and the infringer, which almost certainly would have resulted in a suspended sentence with little or no fine.

Court decision
The court hearing was eventually reached in mid-August 2008, with the following outcomes:

• a fine of Rmb1.15 million was imposed on the company;

• a revised evaluation was accepted by the public prosecutor, which resulted in the case being re-categorised as “very serious”;

• the accused legal representative was arrested on August 1 2008 and remanded in custody until September 3; and

• the accused was sentenced to three-years imprisonment, with four-years suspension and a fine of Rmb650,000.

Analysis of the judgment
The Xiapu Court agreed to accept the public prosecutor's latest evidence and re-categorised the case as “very serious”. However, while the prosecutor's evaluation was Rmb5,132,918, the total value confirmed was Rmb1,151,400. The Court in fact accepted three standards of price evaluation:

1) Regarding Valeo, one of the European branded products, because the defence lawyers failed to provide any evidence of market price for these products, the Court accepted Valeo's price verification statement. This significantly increased the value of the “illegal gains” made by the defendant as a result of counterfeiting this brand.

2) The defence lawyers' claim that the Court should not accept the price verification statements provided by the individual brand owners (as these were not verified by an independent body such as the Price Evaluation Bureau) the Court accepted invoices provided by the lawyers for the defence, which they claim indicated the average retail prices for genuine Toyota, Hyundai, KIA, Honda and Bendix branded products purchased in the local market.

3) As no reference price was provided by either brand owner for Renault or PSA for Citroen branded products, the Court relied on the lower prices (based on the counterfeit value) initially provided by the Price Evaluation Bureau to the PSB.

Important learnings
Managing your evidence and the valuation process from the beginning of an administrative case is key. Getting the support of the local business from early on is critical in furnishing the relevant documentation to the PSB/prosecutor in a timely manner, if it is to be accepted by a Court. Creating cohesiveness in terms of co-operation among brand owners at the beginning of a potential criminal case (i.e. to share resources and provide timely and correct documents to the public prosecutor).

Rights owners should challenge PSB Price Evaluation Bureau evaluations when they can.