One of the main concerns many foreign investors have when approaching the Chinese trade fair circuit is how to protect their intellectual property while at a fair. Here we examine what can be done to protect your interests.
As a rule of thumb, the earlier an infringer is detected, the better. However, this is easier said than done, especially in a huge market like China. Nevertheless continuous monitoring should be part of preventive protection measures in order to find counterfeiters at an early stage and to keep the damage at the lowest level possible. If an infringer has plenty of time to establish their company and the counterfeited products in a market, the costs of fighting them will be higher and the damage done in terms of name recognition, trust in a brand and market share will be extensive.
Monitoring tasks include systematic screening of the Internet and relevant publications, visiting trade fairs and exhibitions as well as market research on the spot.
A company needs to define a procedure on how to handle a potential infringement case. Gathering as much information about the potential counterfeiter as possible is a priority in order to define further action. Any legal action against an infringer needs careful preparation; a hastily written letter with vague accusations can cause a long lasting legal battle with sometimes-bad results for the rights-holder.
Enforcement of IPR in China
Registering intellectual property rights (IPRs) is pointless unless they are actually used to prevent infringing activity. In China, the principle of "dual enforcement" provides two means of action. A rights-holder can choose to enforce their patents, trademarks and copyrights either before the courts or before an ad hoc administrative body. A rights-holder or their counterparts will also have the right to appeal in court administrative decisions.
The accession of China to the WTO has forced many changes and a modernization upon the Chinese enforcement system. In particular TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights) is now directly applicable in China, although it will be very unlikely that a rights-holder might be able to claim their rights based only upon international regulations. There is no doubt that the accession of China to the WTO has introduced a certain level of international scrutiny of the enactment of IP standards by national and local legislators and their enforcement by judicial and administrative bodies. The external pressure of the international community as well as the obvious economic calculation of the interests at stake has pushed Beijing to recognize the insufficiencies of the Chinese enforcement system and to support legislative as well as cultural reforms, including campaigns for consumer awareness of IPRs.
There still is quite some room for improvement, however, as the practical enforcement of IPRs might turn out to be very difficult. Many judges and administrative officials, especially outside the main cities like Beijing, Shanghai or Guangzhou, do not have sufficient juridical education to handle complex patent disputes.
Very often conflicting interests are at stake. One above all is that of local politicians in backing the development of local industries and protecting full employment policies, which also are incidental on social and police security. Damage compensation or even a proper enforcement is often difficult to obtain. Judicial or administrative activism is nonetheless necessary. At least it will send the infringers a clear message of the risks involved in infringing a company's IPRs. In many cases the best result that can be achieved is stopping a criminal organization from infringing on IPRs so that they will move on to a weaker target. This is the only way to push for an effective enforcement of IPRs in China.
One of the consequences of the Chinese dual system of enforcement is the multiplication of the authorities potentially responsible to hear an infringement case. This factor contributes to the slowness of many proceedings, which normally go through a first trial phase and later a revision phase with the judicial authorities. However, this is not always the case. Depending on the infringer and on the IPR at issue, curtailed strategic choices can help avoid lengthy proceedings. The infringers of trademark rights are often illegal organizations structured in so called "business card" or "ghost" companies which do not have business licenses. These kinds of infringers will try to escape the procedures initiated against them. In these cases, issues of appeal or recourses are out of the question. A simple administrative action, if well prepared, can be the first and last instance of protection.
(We will continue this article in Issue No. 13)
The author is the founder and Senior Partner of Dezan Shira & Associates (www.dezshira.com)