Enforcement of Trademark Rights

WHAT ACTS CONSTITUTE TRADEMARK COUNTERFEITING OR INFRINGEMENT?

Counterfeiting usually designates a product, identical to those protected by the registered trademark, bearing a trademark that is exactly identical or almost identical to the registered trademark.

Infringement designates a product, identical to those protected by a registered trademark, bearing a trademark that is similar to such registered trademark, or, a product similar to those protected by a registered trademark, bearing a trademark identical or similar to such registered trademark. The new law further defines the infringement by specifying that "such use is likely to cause confusion".

This distinction has direct implications for the criminal aspect of judicial actions, where criminal prosecution can only be implemented in cases of counterfeiting. The new law also introduces the concept of "contributory infringement", as "to intentionally provide a person with conveniences for such person's infringement" (such as storage, transportation, post service of concealment).

WHAT USE IS PERMITTED?

Where a registered trademark contains any generic name, device, model of the designated goods, or any word having direct reference to the quality, main raw materials, function, use, weight, quantity, and other features of the designated goods, or any geographical name, the owner of the exclusive right to use this registered trademark has no right to forbid other people from using the same (which is called "fair use"). Likewise, if a registered trademark contains a shape that is considered as functional, such shape may be used fairly by others.

Furthermore, the new law has introduced a specific protection in favor or the first user of a trademark, who might be sued by the subsequent registrant of the same or similar trademark. If the first user can prove that it has been using the mark before the application date of the subsequently registered trademark, and has acquired a certain reputation, it may continue using such trademark within the same use range.

PROTECT TRADEMARK IN ADMINISTRATIVE PROCEDURE

ADMINISTRATION FOR INDUSTRY AND COMMERCE (AIC)

If the trademark owner is not a resident of China, it should put matters in the hands of a Chinese trademark agent approved by the State.

What action should be taken?

In principle, cases should be resolved at the beginning through “consultation between the parties”. However, this is not an obligation and “if one of the parties refuses to consult...” the trademark owner may take action, by lodging a complaint with the local trademark bureau of the AIC (above the county level) where the infringement is committed (manufacture, sale, storage, etc.). The complaint should specify the trademark rights of the owner (supply a copy of the trademark registration certificate) and include any evidence of the infringement (sample of the infringing product, for example).

Since the action is mainly of a “practical” nature, and is aimed at investigating and seizing, it is always the place where the goods are made, or sold, that indicates the jurisdiction. The actual domicile or registered office, if different, of the infringing party (which, in fact, most of the time is unknown at the time of the complaint) is irrelevant. It is advisable to accompany the AIC team during the “raid”, in order to watch out for any useful evidence and make sure that all goods are seized.

What the AIC can do

Upon arrival at the premises, the AIC may exercise the following powers: Interrogate the parties concerned, review and take copies of the documentary evidence (invoices, contracts, accounting books): this investigation, unfortunately, is often disappointing because infringers rarely keep accurate records of their illegal activities; investigate the premises where the infringement is committed; the AIC can force the opening of industrial or commercial premises, but cannot force the opening of private locations. If necessary the AIC will call the police (Public Security Bureau). AIC and the police usually have a good working relationship.

Examine and seal up or detain any goods considered to be counterfeit or infringements; sealing is used when the AIC does not wish to take the goods away immediately. These are preservation measures. In fact, they should be followed immediately by confiscation.

The AIC is the largest of all IPR enforcement agencies. It deals with not only the trademark issue, but also registration of businesses (individual and legal persons), regulation of the market (unfair competition). It is present at all administrative levels of the territory: national, provincial, county, municipality and employs over 500 000 people.

Who can take action?

Any person, and in particular the trademark owner or an interested party, may take action. The “interested party” is the licensee or the lawful successor of the trademark right.

At the end of the raid, if the AIC is satisfied that an infringement has been committed: it may order the infringer to stop the infringing acts immediately and may confiscate and destroy the infringing goods and the tools specially used for manufacturing the infringing goods or labels. In practice, however, the trademark owner should be aware that it is not always easy to destroy stock, or to distinguish and destroy “specially used” equipment and tools. It seems that the old practice of destroying the goods only if it is

not possible to separate them from the trademark representations is still being implemented.

AIC may also impose fines...

The amount of the fine depends on the size of the "illegal turnover". The calculation of the “illegal turnover” is not an easy matter since in most cases the infringer does not produce any accounting material, and reference to the price of authentic goods is still not as a rule accepted by the Chinese authorities. If the amount of illegal turnover is below 50,000 RMB, the fine cannot be more than 250,000 RMB. If the amount of the illegal turnover is higher than 50,000 RMB, the fine may be up to five times such illegal turnover (compared to the previous law, these amounts have been increased significantly). In addition, if the offender is caught again within five years of a first penalty decision, the fine may be higher.

Except if…the infringer is only a seller, who does not know that the goods are infringing and who is able to provide information on the supplier. Then, the AIC may only order the seller to stop selling such goods, but cannot confiscate them (nor impose a penalty). This new provision is introduced in the new law.

What AIC can’t do

It cannot grant compensation, it can only act as a mediator; assessing and granting compensation is within the exclusive jurisdiction of the People’s Courts.

ADMINISTRATION OF QUALITY SUPERVISION, INSPECTION AND QUARANTINE (AQSIQ)

This administration is in charge of managing the quality of the products: setting out national standards, certifying the quality of products and taking anti-fake and shoddy goods actions. Their main purpose is to protect the consumer against the spread in the market of “fake and shoddy” goods, which includes goods bearing a counterfeited trademark and/or sold in a package bearing the name and address of another person.

Who can take action?

Since the main issue is a quality issue, and not the protection of an intellectual property right, any person may go to the AQSIQ and complain without having to justify a personal interest. The advantage here is that it is not necessary to use the services and pay the fees of a trademark agent.

On what grounds?

It is necessary to base the claim on one of the two following grounds: the goods are of sub-standard quality and/or the goods are sold in a package bearing the name and address of another person. Most of the time, the goods are marked with a counterfeited trademark. In such a case, the trademark owner may complain to the AQSIQ.

What the AQSIQ can do

Basically, the AQSIQ has the same powers as the AIC during the raid. The fine for fake and shoddy goods is, in most cases, between half and three times the value of the goods (Article 50 of the Law on Product Quality). When the packaging falsifies the place of origin of products, falsifies or passes off the name and/or address of another party‘s factory or forges or passes off quality marks such as certification marks or bears a counterfeited trademark, the “illegal profits” are confiscated and a fine is imposed (no specific amount). The AQSIQ is not in any way involved with compensation, even as a mediator. It would appear therefore that there is a certain degree of overlapping between the attributions and powers of the AIC and those of the AQSIQ. Where the goods are of bad quality and bear a counterfeited trademark, it would be possible to submit the case either to the AIC or to the AQSIQ. However, if the goods are such that no “quality claim” would be justified, and the only issue is of a trademark nature, the claim should not be filed with the AQSIQ but with the AIC.

Whichever way is chosen should be decided on a case-by-case basis: the AQSIQ is focused on fighting fake products, whereas the AIC has other activities, which gives an advantage to the AQSIQ, which in addition has the power to impose higher fines. On the other hand, the AIC is better represented in the territory at all administrative levels and has more manpower at its disposal than the AQSIQ.

ADMINISTRATIVE LITIGATION

Review of the decision taken by AIC, AQSIQ or Customs is possible by instituting legal proceedings before the People’s Court within 15 days of notification of theirs decisions. Applications for review occur more and more frequently and are usually initiated by the defendant, who challenges the qualification of infringement or the amount of the fine. These cases are handled by the administrative division of the People’s Courts.

PROTECT TRADEMARK IN CIVIL PROCEDURE

A civil action may always be brought before the People's Courts. The choice of civil litigation is recommended in all cases where an administrative enforcement action is not easily available, such as, when the infringement is arguable, or when the infringer is a seller who could argue his "innocence" and get away with a simple order "not to sell". When damages are claimed, a civil action is the only way.

HOW TO DISCOVER AND COLLECT EVIDENCE

Prior to taking action, the trademark owner should conduct some preliminary investigation in order to ascertain, if possible, the whereabouts of the manufacturer of the infringing goods.

When the goods covered by the trademark are sold in retail stores, it is advisable to conduct periodical market surveys in various parts of China, in department stores and boutiques and wholesale markets and outdoor markets, etc.

If the infringer is not simply a seller (boutique or outdoor market) but a factory, it is essential to obtain as much information as possible on the factory (location, time of production of the infringing goods, etc.). There are, in China, a number of investigating agencies operating as consultancy firms, and some trademark agents maintain permanent investigating squads and networks.

HOW TO INITIATE A CIVIL ACTION?

The civil procedure is operated according to the following steps:

A complaint needs to be filed with the civil division of the People’s Court. When the plaintiff is a foreigner, the complaint needs to be filed by a Chinese attorney

l  who needs to produce a power of attorney dulysigned, notarized and legalized by the plaintiff. In the three cities where IP Courts have been established (Beijing, Shanghai and Guangzhou), all trademark cases are to be submitted to the basic level, regardless of their importance. The Court should "accept" (docket) the case within seven days (this is where the verification of the power of attorney takes place).

l  Within five days of such acceptance, the court sends the complaint to the defendant. The defendant must file a written defence within 15 days after receipt (30 days for foreign defendants), which is served in the five following days by the court to the plaintiff. Parties should exchange their evidence. The court may organise a pre-trial hearing during which evidence is examined and discussed by the parties. Permissible evidence includes: documentary evidence, material evidence, statements by litigants, conclusions of experts, records of inspection. Most evidence, including expert evidence, is written. Evidence in a language other than Chinese must be translated, notarised and legalised to be admissible before the People’s Courts. As for the evidence materials which authenticity can be proved directly and primarily, such as publications from overseas etc., no notarisation and certification need to be done, unless the opposite party brings out effective questioning and the inducing party cannot effectively refute.

l  In theory, the court may act as fact finder and order inspection, but usually, evidence is produced by the parties themselves. However, if the plaintiff has fulfilled its duty to produce evidence to the best of its ability, the court may order the defendant to disclose evidence (such as accounting books) that is in its possession. If the defendant refuses to comply, the court may "draw the consequence" accordingly when making its decision.

l  At the trial, the hearing starts with opening statements read by both parties, followed by oral debate on issues selected by the court.

l  At the end of the hearing, the court asks the parties if they wish to settle the dispute. If they do, a settlement may be negotiated out of court, followed by a mere withdrawal of the case or signed in the presence of the court. In such case, the court endorses the agreement, which shall then have an enforceable strength equivalent to that of a judgment.

l  The judgment is delivered within a few months, depending on the complexity of the case. There is no time limit for the trial of the cases involving foreign element. In some complicated, or sensitive, cases, the decision may be reviewed by a judicial committee composed of senior judges and other persons, but the parties do not get to be heard at such committee.

WHAT REMEDIES CAN THE TRADEMARK HOLDER GET FROM CIVIL PROCEDURE?

The court may apply the following measures:

(1) order to cease the infringements (injunction);

(2) confiscate infringing goods, materials as well as the tools and equipment used in the production of the infringing goods;

(3) order the payment of damages.

Obtaining damages, however, implies that the trademark holder uses its trademark. If the plaintiff argues, as a defence, that the trademark is not used, the court may order the plaintiff to prove such use during the last three years. Failing to do so deprives the plaintiff from the right to obtain damages.

The amount of damages for infringing a trademark right is be calculated according to: (1) the losses suffered by the right holder;

(2) if this is difficult to determine, the

profits gained by the infringer out of the infringement;

(3)again, if this is difficult to determine, a reasonable multiple of the royalty that the right holder might have earned (if the use had been authorized). The new law specifies that if the circumstances are "serious" the amount resulting from the application of the above methods of calculation may be multiplied by (maximum) three. When no calculation is possible, the court may decide to award "statutory" damages for an amount up to three million RMB (a significant increase introduced by the new law). The amount of damages includes the appropriate expenses of the right holder for stopping the infringement, such as attorney fees.

PROTECT TRADEMARK IN CRIMINAL PROCEDURE

WHAT ACTS CONSTITUTE A TRADEMARK CRIME?

The activities concerned are manufacturing or knowingly selling counterfeits and forging or selling unauthorized representations of a trademark.

WHAT IS THE THRESHOLD OF THE CRIME?

In principle, the threshold is 50,000 RMB for one trademark and 30,000 RMB if more than one trademarks are involved. In practice, however, the decision to accept a case a criminal is not automatic and the actual threshold is often higher. Furthermore, the method of calculation is complex.

WHAT ARE THE PENALTIES FOR TRADEMARK CRIMES?

The penalties are: fixed-term imprisonment of up to 3 years or detention and/or fine where conditions are “serious” or the sales are “large”, three to seven years fixed-term imprisonment where the conditions are deemed “extremely serious” or the sales are “huge”.

HOW TO INITIATE A CRIMINAL PROCEDURE?

Public prosecution

Generally, the criminal cases are brought before the court by a bill of indictment of the People’s Procuratorate. However, in order to reach this stage, the right holder needs to file a complaint with the local Public Security Bureau (PSB: the police). The PSB have the power to detain suspects and interrogate them. They may also summon witnesses (such as employees) to come to their office and declare what they know about the infringing activity. They, of course, can search and inspect premises without restraint (in some difficult cases, it is useful to try and set up a raid jointly by the PSB and the AIC or the AQISQ).

If the PSB wishes to proceed with keeping a suspect under custody, it submits a request for approval of arrest to the People’s Procuratorate in order to transform the "detention" into "arrest". If it is approved, the arrest will be executed immediately by the PSB. If not, the People’s Procuratorate will explain the reasons and call for a supplementary investigation as necessary (see Article 66-68 of the Criminal Procedure Law of the P.R. China).

Within three days from the date of receiving the file of a case, the People’s Procuratorate notifies the victim that he has the right to entrust an agent ad litem, for example a lawyer. If the victim has suffered material losses as a result of the defendant’s criminal act, he has the right to file an incidental civil action during the course of the criminal proceeding.

Private prosecution

IPR holders can also directly initiate criminal proceedings before a court without involvement of the public security organs (police) or the People’s Procuratorate (except if the case represents "serious danger to public order and state interests").

In fact, such direct action is practically never used, although it is encouraged by the court. It is, indeed, extremely difficult for an IP owner to gather and produce full evidence that the IPR violations constitutes a crime, i.e., that the threshold requirements are met.

SPECIAL PROTECTION FOR WELL-KNOWN TRADEMARKS

WHAT IS A WELL-KNOWN TRADEMARK?

Not every trademarks is well-known, a well-known trademark is a trademark that is “widely recognised” by the “relevant public”, i.e. the current or potential consumers of a certain kind of goods or services designated by the trademark, the people who manufacture the aforementioned goods and who render the aforementioned services, and the relevant people involved in the distribution channels.

BY WHAT WAY CAN A TRADEMARK BE RECOGNISED AS A WELL-KNOWN TRADEMARK?

When to apply for recognition as a well-known trademark?

It is only possible to apply in one of the following circumstances:

The trademark is not registered in China, but is nevertheless well-known in China. If another trademark, identical or similar to such unregistered well-known trademark, is applied for, or used on identical or similar goods, the holder of such unregistered trademark may request that such identical or similar trademark be refused or stopped

from being used.

The trademark is already registered in China and is well-known in China. If another identical or similar trademark is applied for, or is used on, non identical or similar goods, the owner of the prior registered trademark may request that such identical or similar trademark be refused or stopped from being used. In order to achieve this, it needs to prove, not only, sufficient reputation, but also that such use is likely to mislead consumers or to damage its interests.

On what basis is the recognition decided?

“Well-known” status is recognised by the administrative or judicial authority on a case-by-case basis, based on the following factors: extent of awareness of the trademark in the relevant public sector, duration of use of the trademark, duration, extent and geographical scope of promotion of the trademark, any record (judicial or administrative decision) indicating that the trademark has been protected as a well-known trademark (including in other countries) and other factors concerning the reputation of the trademark (such as sales volume, sales area, etc. of the main commodities bearing the trademark), it being understood that it is not a precondition that the trademark conform to all the above criteria.

Where to apply?

It depends on the circumstances: when filing an application for opposition against another trademark, the application for recognition is filed at the same time with the CTMO; when filing an application for cancellation of another trademark, the application for recognition is filed at the same time with the TRAB.

When organising a raid against the use of the trademark by another person, the application for recognition and protection is filed with the AIC at the municipal (prefecture) or at the provincial level. After proceeding with some verification on the case, the AIC transfers the file to the CTMO for a decision on the “well-known” status. The application may also be lodged in the course of a civil law suit before a People’s Court.

How long does it take to obtain recognition?

If the application is filed in the course of an opposition or cancellation procedure, the decision is dependent on the duration of such procedure, the first stage of which is strictly contained in a maximum duration of 18 months, but judicial appeal is possible. If the application is made directly before a people's court, the decision depends on the duration of the procedure, which can take several years. If the application is made in the course of a raid by the AIC, the decision is with the CTMO, who is not bound by a time limit.

What is the validity period of a “well-known” status?

There is no time limit for the period of validity of a well-known trademark. However, when the party concerned requests protection for a well-known trademark where the scope of protection requested in the current case is different from that of another case, in which the trademark has been recognised as a well-known trademark, or if the other party objects to the said trademark being well known and at the same time produces evidence proving that the said trademark is not well known, the CTMO or the TRAB should re-examine the material relating to the recognition of the well-known

status of the trademark and make a decision. In the case of People’s Court proceedings, this obligation to re-examine the case arises each time the defendant objects to the well-known status, even if he does not produce any evidence that the trademark is not well-known.

WHAT SPECIAL PROTECTION CAN A WELL-KNOWN TRADEMARK ACQUIRE?

Once a trademark is recognised as well-known, its protection may be strengthened in the following respects:

1.      prevent malicious registration and use of thetrademark by others, even on non-similar goods or services;

2.      extend the scope of protection against similar trademarks;

3.      obtain higher damages;

4.      easier to initiate criminal action;

5.      prevent the registration of the trademark as an enterprise name (whereas if the trademark is not recognised as “well-known”, it is necessary to prove that the mark is used prominently in the enterprise name);

6.      prevent the registration of the mark as a domain name (whereas for a “normal” mark it is necessary to prove that actual transactions under the disputed domain name have been conducted).

7.      It is possible to sue in court a registered trademark (this possibility is only opened to the owner of well-known trademarks).

Over the years, the recognition of the well-known status had given rise to abuses. Applications were made for the sole purpose of promoting sales and confusing consumers. Such "commercial use" of the recognition of the well-known status is, now, expressly prohibited by the new law.