Criminal IP cases: New ground rules

Jurisdictional issues

The Opinion provides that criminal IP infringement cases should be established and investigated by the police authorities in the place where the crime was committed (or locus delicti), or, if needed, by the police in the place of residence of the criminal suspect. It lists the following as plausible loci delicti in such cases:

- the place where the infringing goods are manufactured, stored, in the course of transportation or sold

- the place where the criminal result that causes actual harm to the rights holder occurs

- in cases involving the online dissemination or sale of infringing works or products:

- the location of the website server

- the place where the Internet is accessed

- the location of the operator or administrator of the website

- the location of the uploader of the infringing work

The above appears to grant police more clarity and a wider flexibility in establishing jurisdiction in cases where infringing works are being disseminated online or counterfeit goods are been sold through websites.

Evidence

The Opinion states that physical evidence, documentary evidence, audio-video evidence, test reports, expert conclusions, and crime scene investigation (CSI) -type records collected or prepared by administrative law enforcement authorities such as local Administrations for Industry and Commerce (AICs) may be considered as evidence in criminal cases if examined by the relevant police and public prosecutors, and confirmed after cross-examination during court trials. It also says, however, that if the police want to use testimony of witnesses, parties' statements or other investigation records prepared by administrative authorities, such evidence and records should be collected and prepared anew. This has clarified to a degree what type of evidence resulting from previous administrative actions such as AIC raids can be used in subsequent criminal prosections.

The Opinion further provides that the police may take evidence samples, or consult with administrative authorities and relevant test centers, and request them to assist with taking evidence, as required. Where an expert opinion has been sought and obtained, the police, public prosecutor or court shall grant the IP owner and the criminal suspect or defendant an opportunity to comment on any such expert opinion.

The Opinion also reiterates the existing practice in private criminal prosecutions, in cases where the party commencing action is able to provide good leads but is unable to collect evidence due to undefined objective circumstances, that the People's Court should collect evidence if requested to do so.

Identical trademarks defined

Article 213 of the Criminal Code defines the crime of “counterfeiting a registered trademark” in terms of the infringing mark being “identical” to the registered mark being infringed. The Opinion has widened the scope of what constitutes an “identical” mark. It states that marks will considered “identical” where:

n there are minimal differences in fonts, case (upper case v. lower case) or direction of the text (vertical v. horizontal, left to right or vice versa)

n the spacing of the text or between letters and/or numerals has been changed without altering the distinctive features of the registered mark

n a different color has been used; or

n in effect, there are no visual differences and the mark in question may mislead the public.

In the past, several criminal prosecutions have become bogged down in arguments related to the infringing mark not being perfectly “identical” to the form of the mark registered by the legitimate trademark owner. The expanded definition is welcome, though some legal commentators are concerned that the definition has gone too far and some judges may be reluctant to apply it.

The Opinion also comments on what constitutes “the same type of goods” in terms of the same Article 213 of the Criminal Code. In cases where the infringing goods use a product name that is different from the genuine product, one is supposed to look at the function, use, main raw materials, target consumers, sales channels, etc., and consider the relevant public's perception for that type of product, as well as the specification of goods covered by the relevant trademark registration. Again, this provision helps avert certain doubts that may be cast on whether criminal liability exists where a different generic product name is used by counterfeiters.

Unlawful turnover and unsold goods

The Opinion states that the value of goods not yet bearing a representation of the counterfeit mark may be included in calculating the amount of unlawful turnover if there is sufficient and substantial evidence that such trademarks were going to be attached on such goods. This point is helpful. China has set monetary thresholds for the determination of criminal liability, and therefore the clarification regarding unmarked goods could be useful in overcoming minimum thresholds.

The Opinion establishes that anyone that knowingly sells counterfeit goods may be convicted for the crime of attempted sale of counterfeit goods in the following circumstances:

n none of the counterfeit goods was sold, and the value of the goods is over Rmb150,000; or

n some of the counterfeit goods were sold and the sales amount is less than Rmb50,000, but the sum of the sales amount and the value of the unsold counterfeit goods is not less than Rmb150,000.

“For Profit” defined

For criminal liability to stick in copyright infringement cases, one has to prove that the infringement took place “for the purpose of obtaining profit”. This has proved difficult in some very common circumstances.

The Opinion now helpfully provides that an act may be deemed profit-motivated in the following circumstances:

- direct or indirect charges are made in the form of publishing a paid advertisement in another's work or bundling the work of others with a third party work;

- direct or indirect charges are made for advertising services on a website used to disseminate the work of others;

- the charging of membership fees by websites used to disseminate the works of others;

- seeking profit using another's work through other circumstances.

The reference to the charging of membership fees appears to be a “new” way of establishing a profit motive in such cases.

“Distribution” defined

Article 217 of the Criminal Code refers to the reproduction and distribution of copyright infringements. The Opinion has defined the term “distribution” to include general distribution, wholesale, retail, dissemination through the internet, lending and sale by means of display. Again, such clarification is helpful to the cause of countering criminal copyright infringement.

Conviction standards for online copyright infringements

The Opinion expands on the catch-all terms “other serious circumstances” and “other exceptionally serious circumstances” used in Article 217 of the Criminal Code.

“Other serious circumstances” (in addition to a relatively large unlawful income) in respect of the dissemination to the public, for the purpose of making profit, of unauthorised copies of copyright-protected works through the internet include the following:

- unlawful turnover is over Rmb50,000

- the aggregate number of disseminated works is over 500

- the actual number of hits on the disseminated works is over 50,000

- works are distributed using a membership system, and registered members total more than 1,000

- the numbers indicated in one of the above items are not met, but they do meet at least half of each criterion set forth in two or more of the above items

- (the catch-all) other serious circumstances.

Where the various numbers shown above are multiplied by a minimum factor of five, the circumstances become “exceptionally serious circumstances”.

These two terms relate to levels of sentencing, and the indicative numbers could prove useful not only in the actual prosecution of copyright-related crime but also as a deterrent.

Accomplices

The Opinion provides that anybody who is well aware of another's criminal IP infringement but provides any of the following goods or services to an infringer will be considered a criminal accomplice and punished as such:

- primary raw materials

- ancillary materials

- semi-finished products

- packaging materials

- machinery and equipment

- labels and marks

- production technology or formulae

- internet access

- server hosting

- online storage space

- communication and transmission channels

- payment collection

- fee settlement, etc.

This provision is welcome and may lead to a proliferation of deterrent warning letters to known suppliers of such goods and services to counterfeiters, and hopefully more criminal prosecution of accomplices of this nature.

Conclusion

Any joint or collective input by the SPC, SPP and MPS in the continued struggle against counterfeiters in China is welcome by the IP community, and these authorities will hopefully continue to uncover faults and deficiencies within the system and try to correct them. Criminal prosecution of IP crime is the only effective deterrent, and it is hoped that the Chinese government will allocate even more manpower and budgetary resources to the police and the People's Procuratorates for the pursuit of IP criminals, and that the police in particular will build dedicated IP crime units throughout the country and maintain the focus of the ongoing enforcement campaign.

Interestingly, when the Opinion was issued and printed on January 10 by the General Office of the SPC, it was circulated officially to a good number of government, military and Communist Party authorities and departments, the official media, the All-China Federation of Trade Unions and curiously even the All-China Women's Federation, but not to the Ministry of Commerce, the State Administration for Industry and Commerce, the State Intellectual Property Office, the National Copyright Agency or the General Administration of Customs. It is not sure what, if anything, can be read into these omissions. What one hopes is that they do not indicate a split in the ranks, and that the various arms of the Chinese executive and judiciary will continue to work together to attack counterfeiters and protect the lawful rights and interest of consumers worldwide.

Clifford Borg-Marks and Rieko Michishita, Bird & Bird, Beijing