IP remains one of the growing concerns as brands move their productions and/or operations to China. With all the counterfeiting of products on the market, one can only reason that we need to keep our products in the US in order to protect them from Chinese pirates. But are you really safe? Catherine Sun, a partner of Foley and Lardner LLP, debunks 3 of the most common misconceptions of intellectual property law (IP law) in China in a video presentation.
Source (Foley and Lardner LLP):
Below is a summarized outline of her points, in short, but I do recommend that you watch her short presentation (2:33).
- IP is not enforceable in China.
- If I keep my brands in the US, I will be safe.
- The counterfeiting products are poor in quality.
The first point is the one I find myself so often telling myself: IP is not enforceable in China. It may be my misconception, but I always get the thought in the back of my mind that “the mountains are high, and Beijing is far away.” How is it possible for the Chinese government to enforce such IP rights? It appears that there are enforcement options in China. For example, the China-Britain Business Council details much of what I wanted to know about IP protection in China. I was surprised by how enforceable IP was, even just based on grounds of samples of pirated products compared to actual products. They actually perform raids based on this evidence in administrative proceedings! That might be unsettling to some. Below is an excerpt detailing IP enforcement in China.
Source (China-Britain Business Council):
Enforcement
Once infringement has occurred the question arises, What action should be taken to ensure effective enforcement?
Some companies may prefer to take actions outside China, for example in countries where goods are sold. It is generally more effective to stop the infringement at its source. This is particularly true as judgements of foreign courts are not enforceable in China.
There are ways, however, to enforce rights within China. There is a two-way enforcement system in operation: administrative and judicial. There are advantages and disadvantages to both proceedings and a company’s decision should be made upon the circumstances of the individual case. Taking each in turn:
Administrative proceedings
Administrative proceedings are appropriate for small-scale infringements as they are cheaper and quicker than judicial proceedings. Unlike in judicial proceedings, where the filed complaint has to be supported by substantial evidence, the threshold for administrative actions is much lower and can be based on simple evidence (such as a sample).
Once a complaint submitted to the administration body has been accepted, an inspection on the premises of the suspected infringer will be conducted (a ‘raid’) almost immediately. In case infringing activities are found to take place, the administrative body has the authority instantly to seize or seal infringing goods and to confiscate the machinery used to produce infringing products. It can inspect accounting books in order to ascertain the level of infringement.
The administrative body also has the power to order that all infringing activity cease immediately and to impose a fine based on the profit of the infringer. In practice, however, the fine is often fairly low and has no real impact on the infringer’s motivation to restrain from infringing actions.
Judicial proceedings
Civil and, or, criminal court actions are more common for repeated and serious infringement. In judicial proceedings, the parties also have more scope to present their cases and are therefore more suitable for complex issues.
Judicial proceedings are also advisable for complicated cases such as patent infringements.
As we also know, China’s legal system is still developing. My question to you is: how do you see IP law in China developing? Is it enough to protect our rights on intellectual property? What challenges do you see in the future as IP becomes more important (as it already is)? How would you consider conducting business in China with the current IP protection? Does the current IP law in China make you feel comfortable?