China's legal system has made great strides in the last decade, but it still has a long way to go to meet international best practices. Below are some improvements the country should make in the IP field that would bring it closer to international norms.
Trademark registration, oppositions, and cancellations
China should immediately reduce delays in the examination of trademark applications and the handling of oppositions and cancellations. As a first step, more examiners should be recruited and better computer systems put in place to facilitate the handling of trademark matters by the Trademark Office.
Another way to speed up the handling of cancellations is to allow parties to apply directly to the courts to cancel trademarks. The courts in Beijing (where all trademark review cases are heard) hear appeals from the Trademark Review and Adjudication Board (TRAB). Introducing procedures that would allow parties to bypass TRAB and go directly to the Beijing courts would speed up the handling of cases.
Criminal actions are the most effective means of dealing with counterfeiters for it is difficult to make **** items in prison. The imprisonment of counterfeiters also acts as a strong deterrent to others.
Administrative bodies, such as the State Administration of Industry and Commerce (SAIC) and the Quality and Technical Supervision Bureau (QTSB), carry out the majority of anti-counterfeiting raids. Customs also makes a significant number of seizures. China handled about 30,000 administrative IP cases in 2004. For a case handled by SAIC, QTSB, or Customs to be transferred to the **** (***) for criminal prosecution, the value of the **** goods must reach certain thresholds, currently ¥30,000 ($3,700) in profits for an individual infringement and ¥90,000 ($11,100) for a company. The same thresholds apply to cases directly handled by the *** as well. Because of these high thresholds, it is difficult to establish a criminal case in China. As noted, infringers are sophisticated enough not to keep records and amounts of infringing products that reach the criminal threshold.
Even when the thresholds are met, many cases are not transferred. The administrative bodies will often say that the *** is not satisfied with their evidence, and the *** will say that evidence has gone cold after administrative action.
In August 2005, draft regulations relating to the transfer of criminal cases were issued by the Supreme People's Procuratorate. There is no timeline for when these will be finalized and enacted. The proposed guidelines may be useful, however, for improving the current system by requiring better reporting on the transfer of cases.
China should make three relatively simple changes that would substantially improve anti-counterfeiting actions.
These changes would align PRC law and procedure with international norms and result in a significant increase in criminal prosecutions. In a short time, these changes should lead to a substantial reduction in counterfeiting, as the criminal prosecutions produce a deterrent effect.
Two serious weaknesses in PRC civil procedure laws make the handling of civil cases difficult. First, though courts can issue both preliminary and final injunctions, the Civil Procedure Law does not spell out the penalty for breach of an injunction. Most countries have procedures for finding defendants in contempt of court if they breach an injunction. This means that the court that issues the injunction can fine or imprison defendants for breach of an injunction without involving other enforcement bodies, such as the police, in investigations. In China, the lack of a procedure for enforcing injunctions seriously weakens the effectiveness of such orders.
Second, Chinese civil procedure does not provide procedures for reversing the burden of proof in general IP cases. (Two exceptions are a provision in the Patent Law that allows for the reversal of the burden of proof in cases regarding the infringement of process patents and a recent interpretation on unfair competition relating to proof of the use of similar tradenames or look of identical products.) Indeed, the Civil Procedure Law specifically states that the burden of proof is on the plaintiff in all aspects of the case.
Because the Civil Procedure Law provides for only limited discovery, it is difficult to prove infringement cases, particularly in relation to damages. For example, during the course of an investigation, a plaintiff may obtain copies of sales documents from the defendant that show model numbers or codes but do not mention the trademark on the products. In China, the plaintiff must prove that the products sold had the trademark on them when sold. This can be difficult in cases where the products have already been shipped and cannot be inspected.
If the law included provisions allowing for the burden of proof to be shifted, provided the plaintiff could show that other shipments with the same model number had borne the trademark, the burden of proof would be shifted to the defendant to show that this shipment did not have the trademark. This is not an onerous requirement on defendants; they should have records to show what they have done. Providing for a reversal of the burden of proof, in appropriate cases, would substantially improve the success rate for plaintiffs in civil cases in China and, in particular, make it easier to recover substantial damages.
- Douglas Clark
Source: This is an excerpt from an article originally published in the Jan, 2006 issue of the China Business Review.