China: Options for Enforcement of Intellectual Property Rights in China

Starbucks, after an almost two year legal battle in the Shanghai No. 2 Intermediate People’s Court, was granted 500,000 RMB for the infringement of its trademark by a Chinese company. The process was not swift and the Chinese company has appealed the ruling. The decision is a victory for foreign intellectual property in China, but it begs the question as to how to get the best and fastest result when infringement occurs. Many foreign companies, when they encounter infringing activity in China, are uncertain as to how to proceed. This article addresses only the "in China" options and does not discuss the other remedies companies can pursue extraterritorially. Those remedies may be more appropriate when the infringing product has already entered the international market.

The discussion below is aimed at ways to stop infringement at the source. Foreign companies in China, after identifying the infringer, have three procedural options: 1) administrative relief, 2) relief through the civil court system, or 3) criminal prosecution of the infringer. Depending on the objective—which may be obtaining injunctive relief, getting monetary damages or sending a message to the marketplace—any one or a combination of these proceedings may be appropriate. This article briefly discusses each of these. Foreign companies should not forget that negotiation may be the fastest and most efficient recourse.

The key Chinese laws at issue are the Patent Law, revised August 25, 2000, the Copyright Law, revised October 27, 2001, and the Trademark Law, also revised October 27, 2001. Certain judicial interpretations may further assist in understanding the implementation of these laws. See for example, The Provisions Concerning the Application of Laws in Pre-Suit Preliminary Injunction Against Patent Infringements. (1/1/2001) Other laws may apply to a specific product; for example, there are specific regulations relating to the protection of computer software. (Regulations for the Protection of Computer Software (1/1/2002).)

Before undertaking any enforcement action, a foreign company should consider speaking to the relevant Chinese authorities to identify the issue and discuss the planned course of action. Often the company may not get approval or direction, but this added step may serve the company well later. The Chinese administrative agencies involved in intellectual property enforcement include the following: State Intellectual Property Office, Chinese Trademark Office, National Copyright Administration, State Administration of Industry and Commerce, the General Administration of Quality Supervision Inspection and Quarantine, Ministry of Commerce, Ministry of Public Security, Ministry of Science and Technology, and the Customs General Administration.

When infringement of a trademark, copyright or patent has been identified, the injured company may seek redress through an administrative proceeding. The administrative procedure is faster than the courts, usually proceeding to conclusion within three to six months, depending on complexity, and, thus, it may be less expensive. Unfortunately, the remedy is limited to an order stopping the infringement, ordering the destruction of the infringing product or imposition of a fine. No damages are available.

For trademark infringement, the applicant should apply in writing to State Administration of Industry and Commerce (SAIC) or one of its local bureaus. If the application is rejected, the applicant will be notified within fifteen days. If accepted, SAIC may investigate the allegations, inspect the goods, and obtain relevant documents. Based on that review, SAIC may issue an order or decision enjoining the infringement. Before the decision, the parties are notified and given an opportunity to be heard. A party may appeal the decision to the People’s Court.

For copyright infringement, the applicant should apply to the National Copyright Administration (NCA). The application, if accepted, will trigger an investigation. If rejected, the applicant will be notified within 15 days. Post-investigation, NCA will generate an "Opinion on Administrative Penalties for Copyright Infringement." Before the decision, the parties are notified and have an opportunity to be heard on the proposed decision. A party may appeal the decision to the People’s Court within three months of issuance.

Patent cases are more commonly the subject of civil court proceedings and are usually not submitted to administrative proceedings—most parties seek injunctive relief as well as damages for patent infringement. However, for patent infringement, the applicant can apply in writing to the State Intellectual Property Office. The process here is similar to that for other infringements, in that an investigation is followed by an order against the infringer, with an opportunity to be heard. In complex cases, a hearing may occur. The order may be appealed to the People’s Court. One difference in patent infringement cases is that there is often a conciliation process before the administrative proceeding commences.

In civil court proceedings, the injured party can seek immediate redress before suit is filed. A preliminary injunction may be sought before or at the time the lawsuit is filed. To file for preliminary injunction, the applicant must be the owner of the intellectual property right or the exclusive licensee of that right. The application must be filed in writing and must set forth the jurisdiction in that particular court.

Jurisdiction for intellectual property matters resides in the intermediate courts and special intellectual property courts set up in Beijing, Shanghai, Tianjin, Chongqing, Qingdao, Dalian, Yantai, Wenzhou, Fushan, Shenzhen, Zhuhai, Shantou and Xiamen. A few district courts in Shanghai (Pudong and Huangpu) and in Beijing (Chaoyang and Haidian) also have jurisdiction for trademark, copyright and unfair competition, but as a general rule, not patent. Beijing courts seem to see more complicated patent cases, while Shanghai courts have traditionally seen more trademark and unfair competition cases. Factors in deciding jurisdiction include place of business, situs of performance of contract, and situs of infringing activity. If jurisdiction is improper, cases are usually transferred, not dismissed. Thus, forum shopping is quite common and jurisdiction should be carefully considered before suit.

Further, when pursuing a preliminary injunction, the applicant must file a guaranty. When the suit involves seizure or detainment of infringing product, the guaranty may range between 50 to 100 percent of the value of the seized property. In other cases, the court decides the guaranty amount at its discretion as a valuation of the actual or potential harm. The guaranty is usually in the form of a cash payment into the court.

To succeed on a preliminary injunction, the applicant must demonstrate in the application that the infringement is ongoing or imminent, and that the applicant will be irreparably harmed by the failure to immediately enjoin the infringement. If successful, the court will grant the injunction and will issue within 48 hours an equitable award enjoining the activity, which award is immediately enforceable. Preliminary injunctions are relatively rare in China.

Within 15 days of the receipt of the order granting preliminary injunction, the applicant must file a complaint. Otherwise, the preliminary injunction will be vacated. Thereafter, the applicant can pursue the case and seek damages for the infringement or a permanent injunction against the infringing activity.

The cases should normally take six months to trial for domestic entities and another three months for appeal. This time table has not applied for more complex cases involving foreign parties, and as seen in the Starbucks example, it may be years rather than months. One to one and a half years is a more reasonable estimate for suits involving foreign companies.

Under the laws of the PRC, it is a crime to:

• Intentionally use another party’s registered trademark;

• Manufacture any representation of a registered mark without the permission of the registered owner;

• Intentionally reproduce or distribute copyrighted materials; and

• Use another’s patent without permission.

Patent infringement matters are rarely the subject of criminal prosecution. Criminal prosecution has been more common in trade secret and trademark matters.

These infringement crimes may result in imprisonment up to three years, and in severe cases for certain violations, up to seven years. Criminal enforcement may be initiated at the request of a private company. The local prosecutors’ office, once advised of the infringing activity, may raid the manufacturing site, confiscate infringing material and press charges against the infringer. Foreign companies must often assist the prosecutor in the collection of evidence toward prosecution of the case. The time frames for prosecution vary, but generally, criminal prosecution may take three months depending upon the availability of evidence, the prosecutor’s docket and interest in preparing the case.

Each process has its attributes. Administrative procedures in China are swift and less expensive. They also serve to improve relations with the government agency and educate the relevant government authorities about products and the need for protection of intellectual property. Civil remedies offer the benefit of both injunctive relief and damages. Finally, criminal prosecution can stop the infringer, who might otherwise covertly move and rename the operations in response to a cease and desist order. Before embarking on any recourse, the foreign company must define its objectives, liaise with appropriate members of the PRC Government and then weigh the options in conjunction with the company’s overall China business plan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.