IP Enforcement and Anti-Counterfeiting in China: A ‘Golden Era’ of Progress?

The AmeriKat understood the importance of becoming familiar
with one's territory...

Several weeks ago, while the AmeriKat was recovering from physical and mental jet lag after her AIPPI trip to Brazil and trying to figure out whether it was autumn, winter or spring, the AmeriKat's friend Nick Buckland (Irwin Mitchell) was attending a seminar devoted to another BRIC country.  At the end of October, as part of the China state visit to the UK, the China-Britain Business Council and British Chamber of Commerce in China hosted the third UK-China Intellectual Property Symposium  at The Royal Society.  Nick's report of the IP landscape in China follows:     

"Alongside a very royal welcome, selfies with Sergio Aguero and supping pints of ale in the Prime Minister’s local, one part of the Chinese state visit that garnered slightly less attention was the third UK-China IP Symposium, held at the Royal Society. Although not attended by “Xi Dada” himself, attendees included higher members of the Chinese judiciary as well as representatives of some of China’s largest companies, and promised to be a valuable insight into current IP protection in China.

The symposium consisted of announcements of further co-operation between the UK and China in developing IP protection for cross-border trade (most notably the publication of a Chinese version of the popular Lambert toolkit for collaborations between UK and Chinese industry and universities) as well as an avalanche of staggering statistics regarding growth in Chinese IP filings (2.36 million patents and 2.28 trade marks were applied for in China in 2014 alone, compared to 151,000 EPO filings and 110,000 UK trade mark applications). However, what really caught my eye, and amidst the news that a counterfeit version of the Queen’s royal carriage is apparently now available in China, were the talks on tackling counterfeiting in the world’s second-largest economy, both through judicial enforcement and in-house action.

IP civil enforcement in China – is it worthwhile? 

On the basis of this discussion, the answer is very much yes – but educate yourself on the territory and be aware of the difficulties. Following an outline of the respective enforcement regimes under English and Chinese law by our very own Justice Colin Birss and former Deputy Presiding Judge of the IP Division of Beijing High People’s Court, Cheng Yongshun respectively, Carol Arnold (President of the IP Federation) discussed the perceptions and the reality of litigating IP rights in China.

The perception of taking legal action in China has been simply that foreign companies cannot win a court case against local Chinese companies; and even if they could, the infringing company may vanish and later re-appear under a different guise making it possible to continue infringing. 

The reality is different, but in Carol’s experience not hugely so. The Chinese court system has several positive elements which means it generally works well for UK rights holders in most circumstances; costs are manageable; the speed of process between filing a claim and attending trial can be quicker than in our own system; and the responsible lawyers and judges are highly competent. 

However Carol noted that several problems still remain with the system. A high standard of evidence is required, but disclosure and evidence-gathering can be difficult to achieve when a product is not on sale to the public, such as with business-to-business transactions or the manufacture of machine parts. Alleged infringers sometimes will go to great lengths to minimise the evidence available, and with evidence of offers to sell being insufficient to prove infringement it can be an uphill struggle to substantiate an infringement claim in what could otherwise be viewed as a strong case.

Secondly, due to the high volume of claims filed, consistency of decision making across the IP tribunal system is also a factor; a structured appeals process and guidance notes sent to judges which outlined such inconsistencies were helpful, but this is an issue which required more focus. Delays can also be a frustrating factor in IP litigation, with defendants often delaying proceedings by filing a jurisdictional challenge or simply not turning up to hearings; judges are often forced to re-schedule hearings and strict sanctions are not available to prevent this type of abuse. 

The final issue is one of non-compliance; infringers often see damages orders against them as the start of a negotiation with the claimant, with assets being transferred and court orders often simply just ignored. Better sanctions are required against companies and directors who ignored court orders. 

Carol did note that foreign companies sometimes do themselves no favours by their choice of legal representative in China; just as in other jurisdictions, biggest does not always mean best, and rights holders are encouraged to get to know the territory, the court and the local lawyers before launching an action. 

Alibaba and takedowns – A model model for anti-counterfeiting? 

Alibaba is the world’s largest online combined business-to-business sales service, and China’s biggest e-commerce site; last year it handled $270 billion of transactions, and this week it has announced quarterly revenues of almost $3.5 billion. An unintended consequence of this success means that it has also been targeted as a forum for the sale of counterfeits; 80 million product listings were removed between January and August this year. So how does such a large company deal with a problem of this magnitude? 

David Ho, Senior Legal Officer, explained that for Alibaba, counterfeits are a global, recurring problem. Alibaba’s chairman has referred to counterfeits as a "cancer, which will kill the business if it is not stopped”. David explained that Alibaba’s business model is based around trust; people are paying money to people that they will never meet, and as such trust in the system is paramount. The spread of counterfeits across the platform erodes that trust and is a real danger to the business. It is for this reason, David explained, that tackling counterfeits is the only area of the business where the budget is unlimited; the money involved and time required are accepted in order to deal with the problem. 

So how do they do it? Until recently, Alibaba required all takedown requests to provide ‘elaborations’ of why the complained-of products were indeed counterfeit (in an online marketplace with over one billion listings, David explained, even the takedown requests can be fake). However due to the scale involved this proved time-consuming and unsatisfactory for rights-owners. As such, a ‘good faith’ scheme was introduced for rights-owners who had previously given accurate takedown information; prove yourself reliable (as over 400 international brands have) and the takedown process is accelerated and less time-intensive. Alibaba has also involved its consumers; complaints of counterfeit products are now met with an instant refund, and volunteers are asked to carry out test purchases with suspected counterfeit sellers.