Copy culture

Some shanzhai is clearly intended as parody and is never likely to confuse consumers; the defence of parody per se is also unlikely to stand up in court, according to Bird & Bird partner Ai-Leen Lim, except that the applicable trademark and anti-unfair competition laws (discussed later) will apply.

“In China, the concept of parody as a defence in trademark infringement claims has yet to be recognised expressly in its trademark legislation,” she says.

More worrisome than the parodies are the well-designed devices clearly intended to look as similar as possible to the originals – sometimes the copy even improves on the features of the real thing. The creators of these lookalike products are not amateurs working out of a bedroom or garage, but regard themselves as businesspeople and are clearly aware of the law, and its potential penalties.

“We know Apple may sue us, but it's driven by huge market demand,” said Zhang Haizhen, vice-president of the company which manufactures the HiPhone, according to the People's Daily. “Our company needs to copy from famous brands to survive first, and we will improve our R&D and seek further development in the future.”

It is this blatant disregard of IP laws combined with commercial awareness and popular appeal which concerns many practitioners.

All is not lost, though. Lawyers acknowledge that, in most cases, a shanzhai-targetted company should be able to bring an enforcement action in China's courts (provided it has bothered to secure its local rights to patents and trademarks in time).

“You need to evaluate the enforcement options in the normal way. If there's a good chance of prevailing and obtaining a cost-effective result, then go for it,” says Baker & McKenzie IP lawyer Joseph Simone.

The PRC Patent Law (中华人民共和国专利法) provides a good base on which to take legal action, adds Dominic Hui, a partner of Vivien Chan & Co in Shanghai.

“It's quite clear. If we can prove it's infringing the claims of the patent, there should be no problem,” he says.

A product could be protected by an invention patent covering the technology involved, a design patent, or a trademark, which is especially effective if the shanzhai item is likely to cause confusion for the public. (Article 52 of the PRC Trademark Law (中华人民共和国商标法) lays out acts which can be deemed an infringement of the exclusive right to use a registered trademark.) Claims can also be brought under certain provisions of the PRC Anti-unfair Competition Law (中华人民共和国反不正当竞争法). Hui says this is useful if the shanzhai item uses similar packaging to the original; in other jurisdictions, claimants may use the claim of passing off.

A worrying mindset
Some lawyers fear, however, that shanzhai is bad news for general IP enforcement in China. As it grows and infiltrates popular culture, counterfeiting and other types of IP violations will become more acceptable in the minds of the public.

“Shanzhai is tantamount to IP anarchy. The deeper it goes, the more damage it will create,” says Simone.

“Tolerance of IP infringement culturally or socially is the first step in legitimising copycats,” adds Lim. “The concept and arguments proffered in favour of the position that shanzhai is the result of some harmless fun would no doubt inadvertently be a step backwards in the fight against IP piracy.”

There is a precedent in history: since the invention of the tape recorder, copying music has become very common, and is generally not perceived as criminal or unacceptable behaviour. As technology has moved on, copying CDs and DVDs and making illegal music downloads has in turn become regarded as acceptable. Research conducted in 2008 by a British university on behalf of UK Music, an organisation representing the British commercial music industry, found that 63% of people over the age of 14 illegally downloaded music on a regular basis (mostly to save money); over 90% regularly copied music in some form.

The British government has now had to legislate against illegal downloads, and force internet service providers to cut off repeat offenders.

Judging by many opinions expressed online, attitudes in China have already reached this point. The owner of the Trigram 2.0 blog says that when he watches videos of shanzhai items he thinks: “Wow, look at the talent and innovation that's untapped, and held back by isolation and poverty. Look at what it can do when given inspiration, using only what's available!”

When IP violation becomes acceptable, or even desirable, in the eyes of much of the public, this has an inevitable effect on the attitude and policies of IP enforcement agencies. This in turn makes it harder for IP owners to enforce their rights

“When violations are rife, the main reason to go to court is to seek a message of deterrence,” says Simone.

If a rights owners takes legal action against an infringer but the courts only say: “This is not very serious, I'm going to give you just a little compensation” then shanzhai is effectively creating a safe harbour for people that believe that IP violations are inconsequential, he says.

As deterrents from the courts become less effective, companies will in turn spend less on enforcement. The problem then becomes rapidly worse.

Hui says that in the more well-developed coastal areas, including Shanghai and Beijing, rights holders can be confident of a positive outcome in the courts because specialised judges are experienced and consistent. But, he says, rights holders may encounter certain difficulties in striking where the products are made, which will often be in less-developed cities.

“They will not deny a case, but there may be issues related to procedures and time to obtain a judgment,” Hui says.

“The rules in general are straightforward,” he adds. “It's about the details – there are usually some problems arising from pretty small issues.”

Lim also encourages companies to continue to rely on the administrative remedies available, as well as the Chinese courts where appropriate, warning of the possibility of brand dilution and tarnishing of the reputation of the brand in question by the derogatory nature of shanzhai.

“IP owners would be well advised not to let cases of shanzhai pass without enforcement simply because there is no immediate danger that the public will be confused,” she says.

Message from above
The good news for rights owners is that those at the top level in China already seem to be taking steps to turn the tide of public opinion.

At the recent meeting of the National Committee of the Chinese People's Political Consultative Conference, Ni Ping, a well-known actress and state television host, proposed seven suggestions for banning the shanzhai phenomena.

“I am determined to oppose shanzhai culture and in my opinion, the law should have clear regulation on this,” she said. “Nowadays, young people … have the idea that this is the so-called grassroots culture [but] we should give our young people a healthy education on what are the genuine and what are the fake, what are true and beautiful, what are false and ugly.”

Comments from senior party delegates are sure to have an impact on general thinking, but the need for more regulation to deal with shanzhai is questionable. The Patent Law and Anti-unfair Competition Law already seem to provide a solid base which will become even stronger after the Patent Law revisions take effect on October 1.

One China-based in-house counsel questions the role of the legal system in encouraging innovation.

“The policy debate needs to be centred on what incentivises innovation,” he says. “Is it copying something else and incremental improvement of it, or coming up with new ideas independent of others?”

Although Japan is now known for innovation and being at the cutting edge of technology, that country had a history of copying others. Later, it began to incrementally improve inventions made elsewhere, adding value, innovation and quality control becoming more competitive internationally.

In China, the government could choose to legislate further against shanzhai, urge stricter enforcement of existing laws, or approach the problem through public education and information. Whichever method it chooses, judging by the number of fierce online responses to Ni's comments, it is facing a difficult task.

For companies with rights to protect the message is clear: shanzhai moves quickly, so you must move quicker.

(This article is part of the China IP update special feature)