what we think

The continued pervasiveness of counterfeiting in China is not only a problem of law, but also one of enforcement. While China’s laws and regulations conform to the agreement on trade-related aspects of intellectual property rights (TRIPS) and other widely accepted international principles, certain parts of China’s protection mechanism have proven ineffective.

Common examples are the high standards for criminal liability of counterfeiters, the high burden of evidence to prove bad faith registrations, and the difficulty in proving damages in civil proceedings. On the other hand, it is abundantly clear that the police, administrative authorities and courts often lack the resources, the knowledge or the determination to effectively combat infringements.

China’s own continuing development, and to a lesser extent international pressure, will gradually lead to improvements on the above issues, but in the mean time this is not a process individual intellectual property (IP) owners will be able to influence. Owners can however ensure that they have the exclusive rights to their IP in China under Chinese law, and that the best decision can be made quickly on whether to take action against a perceived infringement. Such protection, usually inexpensive and rarely time-consuming, is the most basic element to an organization’s IP strategy.

Identifying the IP Manager

Every organization should appoint someone to coordinate IP interests. Whether it is an IP specialist, lawyer or manager, at least one person needs to maintain a clear perspective on the organization’s IP interests and rights, collect information on potential infringements, and be able to respond immediately in case of need.

Responding quickly and decisively to potential IP infringements is often a crucial part of the success of an IP enforcement action. Therefore the most effective IP Managers are people with authority, who are able to reach decision makers quickly. They build communication channels with sales persons and others in the organization to learn of infringements. And they ensure that a law firm is retained to support enforcement actions at short notice, with a valid Power of Attorney and relevant IP registration certificates in place.

Identifying your IP Portfolio

IP rights gain value during the course of one’s business. A regular review of an organization’s intellectual property to identify which are sufficiently valuable to protect will prevent an organization from being caught off-guard.

Logical moments to conduct such an IP audit are when a foreign company enters a new market or when it establishes a subsidiary. Thus foreign companies investing in China should make an IP review part of their due diligence. Furthermore, as China is a fast-developing market place, a yearly review is recommended. During this review, the IP manager should identify the old and new IP that the organization (and perhaps its affiliates) owns in China, and whether the corresponding rights are registered (in case of trademarks and patents). If not, then the IP manager should be able to proceed with registration at short notice. Among the IP that should be reviewed are:

1. Brand names, either developed by the organization or its affiliates abroad, or even those that have developed in the market – e.g. a Chinese version of an existing international mark;
2. Domain names which correspond to the trade name and/or above brand names (especially those ending with .com, .cn and .com.cn);
3. Patents, which are technical inventions developed by the organization or its affiliates abroad;
4. Specific designs of industrial products which are distinctive and may be easily copied;
5. Copyrights, such as software, catalogues, webpage's and articles; and Trade secrets, undisclosed technologies, confidential business information and other sensitive data to which the organization has rights through contractual obligations of employees or commercial counterparts.

All the above can be protected under Chinese law. However trademarks and domain names must be registered before another party does so, and for a patent filing to be granted the technique or design must be either novel (not publicized elsewhere before the filing date), or must be applied for within a certain period after the corresponding foreign application. This makes the timing of such applications crucial.

Registered trademarks, copyrights and designs may also be recorded with the Chinese customs authorities. As a consequence, if customs finds goods that are infringing on recorded rights, it will notify the owner immediately so that the latter can take action. And vice versa if IP owners discover a shipment of counterfeits, owners of recorded rights may also notify customs directly.

Maintaining your IP Portfolio

To maintain the exclusive rights to IP, an organization must have the mechanisms in place to guarantee continued protection.

First of all, someone must ensure that registered IP rights maintain their validity. Trademarks are registered for 10 years at a time, thus registrations should be extended before the ending of such a validity period. Failure to do so will result in the loss of all exclusive rights to the trademark. Domain names are cheap and easy to register, but a maintenance fee must be paid. Granted patents and designs have a non-extendable validity of 10 years (for design and utility model patents) or 20 years (for invention) from the filing date, but an annuity must be paid each year to ensure continued validity.

Secondly, an organization can initiate measures to ensure that another party does not register rights that infringe one one’s own. All trademark applications are currently being reviewed by the Trademark Bureau (TRAB) on similarities with existing registered trademarks, before they are published in the Trademark Gazette. But at publication, third parties can still object to the registration of trademarks that may have slipped through the net, which will in any case delay the registration until a review has been completed. Moreover in the near future, changes in legislation will likely retract the TRAB’s responsibility for substantive review, and put the burden of objections on such third parties, making it essential that an organization, either by itself or through a law firm or IP consultancy, monitor publications to catch infringements before they are actually registered.

If a domain name is first registered by a third party in bad faith, the procedure to get such a domain name back is relatively simple – as long as such a procedure is begun within 2 years of the original registration. If beyond this period, a lengthy civil lawsuit is the only way to cancel the registration of an existing domain name, therefore it is much more efficient to catch malicious registrations early. This is most often done through a regular review of domain names that are or could likely become of value to the company.

The monitoring of infringing patents, due to their technical complexity, is much more difficult. Organizations normally will choose to wait until infringements are apparent and then file for invalidation with the State Intellectual Property Office (SIPO), an approach particularly effective for design and utility model patents. As these are not reviewed substantively during the filing procedure, a court will usually agree to suspend such rights pending a decision on their validity. Invention patents are much more difficult to invalidate, thus some organizations monitor publications of new, competing patents.
Preparing for Action and Monitoring the Market.

What kind of response, if any, is warranted and appropriate when infringements are encountered depends on the severity of the infringement, the characteristics of the infringer, and the available evidence of the infringement. Decision makers should have a comprehensive understanding of the situation and the choices available to them, the most frequent of which are:

1. Spending more resources on finding the required evidence; and then
   Warning the infringer of pending action to push for a settlement of the case; otherwise
2. Commencing with an administrative action through a complaint with the Administration for Industry and Commerce, Quality & Technological Supervision Bureau, Intellectual Property Office, Copyright Office or Customs Office, with the objective to get an injunction for infringement; and/or
3. Filing a civil lawsuit with the competent People’s Court, with the objective of getting an injunction for the infringement and procuring compensation for damages.

Good preparation will make any organization ready to respond swiftly in case infringements are found. This includes preparing in advance the Powers of Attorney, IP certificates and other documentation necessary to take an action.

To make any of the above actions more effective and to avoid further damages caused by delays, the information on possible infringements should be collected as quickly as possible. Depending on the kind of organization and type of products, monitoring the market for possible infringements is usually done by sales people, who have the opportunity to talk to customers and may hear of competing products. Some organizations will also appoint one person to monitor the Internet – a popular marketing tool for many infringers. An organization must decide what kind of monitoring system is appropriate, but the emphasis should be on finding infringements as early as possible, and passing this information swiftly to the IP Manager.

Conclusions

The above comments are designed to assist an organization in building an effective IP strategy in China. The first step is to appoint the right person to coordinate protection and enforcement. This IP Manager should then, with the support of a law firm or IP consultancy, build the right framework for protection, with regular IP portfolio reviews and a system to monitor the market and prepare for action. IP infringements are one of the challenges for companies working in China. Deciding on and implementing the right IP strategy will ensure that an organization applies its resources effectively to counter such infringements.