Insights into criminal convictions for mark counterfeiting

Rouse
Diana Matthias, Diageo and
Landy Jiang, Rouse
www.diageo.com; [email protected]

A Beijing criminal case (the Judgment of Beijing Daxing District Court (2010) daxingchuzi No.320) involving trademark counterfeiting, one of the “10 Best Court Cases of Intellectual Property Rights (IPR) Protection of China in 2010”, provides a useful illustration of some of the issues surrounding criminal IP infringement, and an indication that the Chinese judicial system is supporting the recent crackdown on counterfeits in China.

Background

Foreign spirits, such as Scotch whisky and French cognac, are packaged in glass of such high quality that recyclers are reluctant to destroy the empty bottles. In March 2009, Liu Zhaolong purchased a supply of empty bottles, along with raw materials, labels, packaging, and a capping machine. He refilled the bottles with appropriately coloured generic grain alcohol, and, where the original labels had been damaged, attached counterfeit labels reproducing major brands: Rémy Martin, Martell, Hennessy, Royal Salute, Chivas and Johnnie Walker. The product was distributed and sold in the main cities of several provinces, including but not limited to Zhengzhou, Shijiazhuang and Xining. From March to September 2009, sales had reached Rmb201,507 (US$31,500).

On September 12 2009, the Daxing Branch of the Beijing Public Security Bureau raided the workshop, seizing the counterfeit materials and tools. After a full investigation, the case was referred to the Beijing Daxing District People's Procuratorate for prosecution. The Procuratorate subsequently agreed to prosecute Liu, and on May 21 2010, Beijing Daxing District People's Court held that he had committed the crime of counterfeiting registered trademarks. He was sentenced to four years' imprisonment, and fined Rmb 150,000 (US$23,500).

What was actually counterfeited: the goods or trademarks?

Articles 213-215 of the PRC Criminal Law (中华人民共和国刑法) describe several types of trademark infringement, including trademark counterfeiting- the act of “using an identical trademark on the same goods without permission of its registered owner”.

In this case, the Defendant had counterfeited both the goods and the trademarks. Because Johnnie Walker caps are complex and cannot be recycled, it was necessary for him to manufacture new caps. The counterfeit spirits were placed into recycled bottles on which both counterfeit labels and caps were used. This clearly constituted trademark infringement from a criminal perspective, but would there have been the same conviction if Liu had used original recycled caps and genuine, i.e. non-damaged, labels? Happily, the Beijing Court concluded that there would.

Under the Beijing Daxing Court's analysis, whether or not the trademarks themselves had been counterfeited, as long as the goods which bear the trademarks are unauthorised, the crime of trademark counterfeiting had occurred. The essence thus falls with the unauthorised counterfeit nature of the goods, rather than a literal interpretation of counterfeit trademark signs per se.

Two separate crimes

The crime of trademark counterfeiting overlaps with the crime of producing and selling inferior or fake (shoddy) products (Article 142 of the Criminal Law), something that has caused difficulty for Chinese authorities and frustration for brand owners. In this case, the Defendant was initially charged with the latter crime, but the charge was subsequently amended to one of counterfeiting trademarks.

In theory, both crimes had been committed. Liu had produced counterfeit spirits and sold them as genuine products. Since those spirits did not meet the Scotch whisky industry standards, or the French cognac standards, they were inferior products. At the same time, he had used registered trademarks without proper authorisation. Pursuant to the 'Theory of Concurrency' in criminal law, the offender should be charged with the crime to which the higher level of punishment attaches.

This theory is echoed in Article 10 of the Supreme People's Court and Supreme People's Procuratorate's Several Questions Concerning the Specific Application of Law to the Handling of Criminal Cases Involving the Production or Sale of Fake or Sub-standard Goods Interpretation (最高人民法院、最高人民检察院关于办理生产、销售伪劣商品刑事案件具体应用法律若干问题的解释), which provides that when a criminal who commits the crime of producing/selling inferior or fake products also commits the crime of intellectual property infringement, he shall be charged with the crime bearing the more severe punishment.

Comparing the punishments for the two crimes, the maximum punishment for trademark counterfeiting is seven years' imprisonment plus a fine, while the range of punishment for producing/selling inferior or fake products is much wider. Should the sales amount equal or exceed Rmb500,000 (US$78,000), producing/selling inferior or fake products can be punished by at least seven years' imprisonment, which is heavier than the penalties for the crime of trademark counterfeiting. However, should the sales amount be less than Rmb500,000, trademark counterfeiting may result in a higher punishment.

Final thoughts

On the basis of this decision, the crime of trademark counterfeiting will be committed where a trademark is used in relation to unauthorised goods, whether or not the trademark itself, for example, the label, has been counterfeited. Where the crimes of both trademark counterfeiting and producing/selling inferior or fake products have been committed, the Defendant should be charged with the more serious crime.