Why China's trademark enforcement still needs reform

China Law & Practice attended the 136^th annual meeting of the International Trademark Association, which took place in Hong Kong from May 10 to 14 and was attended by over 8,500 trademark professionals. This was the first time the event took place in Asia and the event included a number of sessions looking at trademark protection in China.

These included a Regional Update on China (where the new Trademark Law was discussed in depth), a government perspective panel on Trademark and IP Issues in China, an IP Attachés Update, Social Media in China and, finally, a session on Criminal Action against Counterfeiters in China.

The Trademark Law anticlimax

The PRC Trademark Law was enacted in 1982, first amended in 1993 and again in 2001 before this year's third amendment. With the influx of foreign brands and rapid emergence of domestic businesses over the past decade, the importance of brand name and recognition is greater than ever. The amendments that came into force on May 1 were important for all investors and practitioners, but they failed to please everybody.

Speaking at the Trademark Law and regional update session, Hui Huang of Wan Hui Da Intellectual Property Agency highlighted the subtle interplay between trademark registration and use, as well as the exceptions to the law's first-to-file principle that protects the rights of the registrant. These are that the owner's trademark must firstly be well known, and, secondly, the infringer must be proven as an agent or representative of bad faith – the owner can then not only oppose or invalidate the registered trademark but also stop the infringer's use.

But the difficulty of defining bad faith leaves the owner unable to stop the infringer's use of the trademark in some cases. The concept of “well-known” trademarks was said by European Union Delegation Attaché Christophe Gimenz to be “raising more questions than bringing in answers on how they will be pragmatically implemented”. Gimenez was speaking at the IP Attachés' update session.

The new Trademark Law also amends the opposition and invalidation framework. BMW's Jochen Volkmer, who has dealt with many trademark infringement lawsuits in China, also spoke at the session on the new Trademark Law's implications. He explained that in the newly-altered opposition review, the trademark will be approved for registration if the opposition is not successful, which creates challenges for brand owners: “There is a very low chance of success in oppositions and a relatively high chance of success in opposition reviews,” Volkmer said. “From August 2013 to 2014, BMW won 190 of its opposition review filings and lost 23. The opposition review is very important for foreign brands so the amendment is worrying,” he added. Moreover, the absence of cross-examination and oral hearings as well as the relative inexperience of CTMO examiners compared with TRAB examiners has led to scepticism among foreign brands about the system and the validity of CTMO's rulings.

Criminal action against counterfeiting

Despite the progress in judicial IP protection, counterfeiting remains a serious issue. China continues to be the largest supplier and exporter of counterfeit goods globally. To try and deal with this problem, the criminal threshold has been lowered, meaning more counterfeiters are being put in jail and for longer periods of time.

In terms of legal provisions, Article 213 sets out the crime of counterfeiting registered trademarks, Article 214 sets out the crime of knowingly selling merchandise bearing counterfeit trademarks and Article 215 sets out the crime of manufacturing or selling representations of registered trademarks. But although efforts are evident in the law, the difficulty lies in enforcement and capturing infringers.

“There is an increasing width and depth in criminal action, from actions on single point to multiple points,” said Edward Yang of Microsoft. He explained during the session on criminal action against counterfeiters that IP issues now have multifaceted aspects that encompass networks, supply chains and cluster actions against manufacturing bases, wholesalers, upstream suppliers, distributors and retailers. They also involve taking action simultaneously in different cities and provinces as well as engaging multiple agencies.

Moreover, counterfeiting cases increasingly involve refurbished products, which entail low costs, high profit margins and low enforcement risks for the infringer. Most prevalent in the electronics, auto parts and printing supplies industries, refurbished goods were a long-time grey area; police were reluctant to chase after them since they were technically not fake products. However, authorities are becoming increasingly willing to act.

On the positive side, enforcement in the court is improving. “Judges are increasingly free and confident in adopting circumstantial evidence, in other words, a more liberal adoption of evidence for calculation of case value and illegal transfer,” said Yang. While they previously bet on physical seizure and it was difficult to establish a chain of evidence of sold goods, now they also base evidence on bank transaction records, prior sales including online trading records, self-admission and statements of parties involved, leading to a more accurate valuation.

Foreign companies are not alone

The weaknesses in the law and the rampant counterfeiting are also affecting China's rapidly expanding domestic companies, who are realising how much this is affecting their business both in China and as they venture overseas. Their attempts to lobby the government for improved protection are also likely to be more effective than those of foreign brand owners.

The IP Attachés in China provided regional updates on the activity of domestic companies and their attitude towards the development of the country's IP regime. Tom Duke, the IP Advisor for China from the UK IP Office said: “Chinese companies are increasingly protective of their rights. We already hear stories of Chinese directors wanting to make money out of their broad global IP portfolio.”

USPTO IP Attaché Tim Browning, based in Guangzhou, agreed that Chinese companies emerging as global leaders are also concerned about their own IP protection when going abroad. “While 10 years ago 80% of companies relocated to South China for export businesses, today most of them are marketing domestically towards the greater China region,” he said, adding that “25% of trade secret cases in China occur in Shenzhen, and high tech companies like Huawei have located R&D centres abroad due to trade secret issues”.


By Katherine Jo