Enforcement of Rights in Trademarks and Trade Names in the People’s Republic of China

An unfortunate by-product of the enormous growth of trade between China and the United States, Europe, Latin America, and certain other Asian countries, has been a burgeoning of trafficking in counterfeit and infringing goods emanating from China. Both the United States and the European Union have expressed grave concern and have vowed to cooperate in the battle to curtail the trade in counterfeit goods and services emanating from China and elsewhere.

The disturbing growth of infringing and counterfeit goods in and from China, including watches, clothing, accessories, films, recordings, and computer programs, has resulted in billions of dollars of lost revenue to the producers of genuine goods.

Several of our partners recently met with members of leading intellectual property firms in China and with Li Dongsheng, Vice Minister of the State Administration for Industry and Commerce (of which the Trademark Office is a division) and various key members of his staff. Despite assurances from the Vice Minister that strong measures were being taken to suppress infringements and counterfeits, it is clear that much needs to be done by the Chinese government before it can be said that the problem is under control.

The State Administration of Industry and Commerce (“SAIC”) is responsible for the enforcement of Chinese Trademark Law, Anti-Unfair Competition Law for the Protection of Consumers’ Rights and Interests and Advertising Law. Individual cases of trademark counterfeiting and/or infringement can be dealt with administratively through local AICs located throughout China. The choice of AIC is normally dictated by the location of the infringing party or where the infringing goods are produced. The administrative procedure available through AICs is significantly less expensive and less time-consuming than court actions. The AICs have the power to order the cessation of infringing acts. In addition, they are authorized to confiscate and destroy the infringing goods and any instruments used to manufacture the infringing goods and counterfeit representations of the registered trademarks. The AICs can also impose a fine, although these fines tend to be modest, and therefore do not act as an effective deterrent.

The Chinese officials with whom we met emphasized that the local AICs frequently take the initiative, acting on their own once they receive credible evidence that infringing goods are being produced and sold. They stressed, however, that the cooperation of the rightful trademark owners is very helpful and is encouraged.

The rightful owners of trademarks and trade names also have the option of lodging complaints with the Courts, which are empowered to impose civil sanctions as well as criminal penalties. Damages, based on the average price of the genuine goods, can be imposed. The Courts may also impose fines and/or jail sentences of up to seven years.

However, given the amount of counterfeiting and piracy taking place in China, there have been relatively few cases brought by trademark rights holders or the Chinese government. In some cases, successful trademark infringement actions have resulted in the imposition of only relatively moderate fines. One case reported recently was brought by the owners of the famous Hennessy cognac brand against local infringing companies selling spirits under the trademarks Hanlissy or Henglishi in Chinese. The infringing parties were ordered by a Shanghai Court to pay the complainants approximately $37,000 and were forbidden from proceeding with additional sales under the infringing trademarks. The Court concluded that the Chinese companies had sought to mislead consumers.

When there are serious counterfeiting/infringing issues, the AICs have the authority to transfer cases to the Courts for judicial criminal action.

In a well-publicized case involving Beijing’s famous Silk Street market, Burberry, Chanel, Gucci, Prada and Louis Vuitton brought a successful lawsuit against not only the operators of five stalls selling counterfeit goods, but also the landlord. Counsel for the plaintiffs claimed that no action was taken to stop the stall owners from selling counterfeit goods. The Court ordered the market owner as well as the five stall operators to pay, approximately, US$32,000 in damages and to cease selling counterfeit goods. This action, however, by no means stopped the sale of counterfeit goods in Beijing’s famous shopping area for Western tourists. In many cases, the counterfeit goods are merely removed from the stall shelves and placed in containers under the shelves.

Combating unauthorized use of trade names does not fall within the provisions of the Chinese trademark law. Rather, trade name owners must bring a Court action under the Chinese Anti-Unfair Competition Law for misuse of a trade name. The law was successfully used recently to protect the Estee Lauder trade name against unauthorized use by a Chinese company. According to one Chinese attorney with whom we met, it is fairly common for Chinese nationals to set up Hong Kong companies which include the names of well-known trademarks and then allow factories in China to use their company names where infringing goods are produced.

While Chinese officials indicate that there have been special campaigns to protect trademarks pertaining to drug and food products and the SAIC cooperates closely with Chinese Customs to shut down the transportation of these infringing goods, it is clear from the numerous complaints of the legitimate trademark owners that enforcement procedures are currently far from adequate. Much more needs to be done by the Chinese Courts and the various AICs to assure intellectual property rights holders, as well as the American and European governments that the problem is being attacked vigorously. To have an effective deterrent, heavy damages and fines, as well as jail sentences in serious cases of infringement and counterfeiting must be imposed. IP rights holders must be more vigilant by using surveillance tools, such as trademark and internet watch services and by establishing ongoing surveillance procedures in order to assure themselves that they are taking adequate steps to police their IP rights in China

Because of the challenges presented in attempting to combat counterfeiting and unauthorized trade name and trademark use in China, we have developed relationships with Chinese attorneys who have had experience in dealing with these issues and taking appropriate action against infringers and counterfeiters. If you or your colleagues are encountering difficulties in policing your company’s trademarks or trade names in China, we would be glad to discuss this with you and provide appropriate recommendations.