Roundtable: Trademark enforcement in China – the year ahead

It was all change for China’s trademark enforcement system in 2018, with multiple new laws taking effect and a major administrative reshuffle moving the China Trademark Office to a new bureaucratic home. Brand owners continued to face significant challenges online and on the ground, as authorities worked to improve enforcement while under the microscope of major international IP and trade negotiations.

With so much new information coming out of this crucial jurisdiction for rights holders, World Trademark Review asked AnJie Law Firm in Beijing to lead a roundtable discussion of top corporate counsel and legal experts to distill the most important lessons from a selection of the year’s biggest themes and developments.

First, Article 13 stipulates clearly that the enforcement authority may seal up and/or confiscate the property involved in a suspected unfair competition act, which, when compared to the old law, will help with the seizure of infringing goods.

Second, the newly added Article 18 states that “where a corporate name registered under a business operator violates the provisions of Article 6 herein, the business operator shall go through formalities to change its registered corporate name promptly. Prior to the change of the corporate name, the original corporate registration authority shall use the unified social credit code in lieu of its corporate name”. This new provision should help brand owners to fight infringing trade names more effectively and cost efficiently – a measure that is very similar to Hong Kong’s practice.

SZ: Another notable legislative development in China has been the new e-commerce law. What impact will this have/is this having on your litigation and enforcement strategies?

YZ: The new law specifically stipulates that the e-commerce platform will have joint and several liability with vendors if the operator knows that a vendor has violated the rights holders’ rights and failed to take the necessary action (eg, deleting listings). Platform operators might delete such listings as soon as they receive notice in order to avoid liability, but they could also potentially trigger malicious notifications which cause significant loss of revenue. For example, in a recent malicious notification case handled by the Hangzhou Internet Court, Taobao lost Rmb30 million in revenue within 10 months after a rival made malicious accusations against it.

CC: I am most concerned about Article 43 of the E-commerce Law. According to Article 43, on receipt of the forwarded takedown notice, the business operator using the platform may submit a statement of non-infringement to the e-commerce platform with preliminary evidence of non-infringement. On receipt of the non-infringement statement, the e-commerce platform will forward the statement to the rights holder (which will apply for the takedown notice) and inform them that it may lodge a complaint with the relevant competent authorities or file a lawsuit with a people’s court. Where the e-commerce platform operator is not notified within 15 days from forwarding the non-infringement statement to the rights holder, and the rights holder has lodged a complaint or filed a lawsuit, it will promptly terminate the measures that it has adopted.

We understand that this provision intends to balance the rights and interests of both rights holders and business operators, but the 15-day time limit for filing complaints or lawsuits is a big challenge, especially for multinational companies. Essentially, it requires that rights holders prepare the litigation papers and evidence before filing a complaint on the e-commerce platform.

MY: The new E-commerce Law entered into effect in January 2019. The second paragraph of Article 43 of the law may bring trouble for brand owners looking to fight online counterfeits. It will not only increase brand owners’ costs in brand-protection takedown programmes, but it will also increase the burden of enforcement and judicial authorities. This will affect BP litigation and enforcement strategy, for example, increasing the number of litigations and administrative online enforcement actions due to the increasing counter-notices from online counterfeiters.

PS: For now, the biggest challenge lies in filing complaints with e-commerce platforms – something that we have already encountered problems with. Some platforms are now adopting stricter standards of review than previously when handling complaints, especially malicious complaints. In the absence of detailed judicial interpretation or guidelines, we are concerned about the adverse impact on legitimate complaints filed on e-commerce platforms.

The 15-day time limit for rights holders to file administrative complaints or lawsuits on receipt of a non-infringement statement from business operators is also a big concern. It is difficult to complete the necessary preparation for legal action in 15 days, especially for foreign companies.

SZ: When launching litigation actions what are your key considerations when selecting the venue?

YZ: There are many factors to be considered when launching litigation actions, but the core ones are the court’s protection level and lawyer convenience. Different courts have different styles and approaches, so they vary in damage awards, speed and evidence preservation.

PS: To increase the chance of obtaining favourable judgments, we are mostly concerned with whether the judges are willing to make breakthroughs. Especially under the current legal framework, many cases now involve difficult cutting-edge issues and call for forward thinking. It will not be a good option to litigate before courts where the judges are conservative.

We usually look through prior cases to see whether the judges have handled landmark cases and assess their potential tendencies when dealing with similar fact patterns.

MY: I would say that the first consideration is whether the court has already experienced similar cases before, and whether the results were positive enough for the brand owner. It is also worth considering whether the defendant has complex social relationships in the venue.

CC: We would first look at whether the courts have specialised IP tribunals or have relatively rich experience in handling IP cases. Courts that have handled landmark cases and demonstrated a tendency to support rights holders and grant higher damages may be preferred. Many of our first-instance cases are handled by intermediate level courts, and judges are adequately capable at handling IP cases in most venues.

SZ: One challenge that can follow on from litigation wins is actually recovering damages from infringers. What strategies should be employed to ensure that awarded relief can be attained?

PS: Enforcement of judgment is always an issue. In some cases, even though we have a favourable judgment, we may have significant difficulties in getting payment of damages. To increase the chances of enforcement, it might be necessary to investigate the infringers’ financial status at an early stage in the litigation and apply for asset preservation where possible. Successful asset preservation could serve as a deterrent to infringers and act as insurance for successful enforcement.

YZ: Evidence is a core issue because the Chinese courts do not have a discovery process like in the United States. This requires the plaintiff’s lawyer to play a bigger role in evidence collection and damages requests.

MY: In my experience, there are a couple of strategies that can help attain relief. Before launching civil litigation, trademark owners should investigate the defendant’s financial status and ascertain whether there are clues to the property that they own. Plaintiffs can duly apply for property preservation before the litigation commences.

CC: We have had some success in requesting the individuals or legal representative of companies to be placed on the black list of discredited personnel. Infringers who are capable of performing monetary liabilities, but intentionally escape from such liabilities, may be listed as discredited personnel and be limited from high-value consumption. This is likely to inconvenience the infringers and may drive them to enforce the judgments or propose settlement offers on the damages.

SZ: In August 2018 China’s State Intellectual Property Office was renamed the National Intellectual Property Administration (CNIPA), with the activities of the SAIC (trademarks and competition) regrouped under one central administration, the State Administration for Market Regulation (SAMR). What are your expectations with respect the impact of the changes on enforcement and litigation endeavours?

YZ: The reformed structure will have an impact on enforcement. On the one hand, the post-merger enforcement team will be bigger. IP enforcement is now the responsibility of the parent agency SAMR, instead of being conducted by separate patent and trademark teams as in the past. On the other hand, the centralised and combined enforcement team might dilute IP protection, because SAMR is responsible for a lot more than just intellectual property – its remit also includes food and pharmaceutical safety.

Overall, China has been improving IP rights protection around the country, and we should be optimistic about its IP enforcement. Compared with countries that do not offer administrative IP enforcement, China’s administrative protection system provides rights owners a great alternative to judicial actions.

MY: My main expectations are that the creation of SAMR and CNIPA will enhance administrative enforcement against counterfeiting and infringing acts, and further unite the rules governing trademark grants and authorisations.

CC: I would expect that the enforcement can be conducted in a more efficient and effective way.

PS: Consolidation of various administrative authorities may demonstrate a tendency to stronger IP protection on all scales and harsher punishment on infringers. Additionally, it is not yet clear how internal division of functions will change under the centralised structure. If there are no substantial changes in terms of functions, there might be no big differences on enforcement. We will keep observing if this restructuring brings expected changes in practice.

SZ: What, to you, was the most significant trademark case in China in 2018, and why?

YZ: Guangzhou Pharmaceutical Holdings v Jiaduobao, regarding trademark infringement, was among the most noteworthy cases of 2018. Although the case itself was not complicated, the damages award of Rmb1.44 billion makes it among the rarest of all trademark cases, even of all IP cases, in China. The significant monetary award will not only increase brand owners’ confidence in IP protection, but might also influence future damages awards in Chinese courts.

CC: In my view, the administrative litigation regarding a review on the refusal of the sound mark QQ, Tencent instant messaging social media software, is a landmark case from 2018. This is the first case regarding a sound mark, the registrability of which is acknowledged by the Chinese courts. It may be perceived as a precedent for evaluating the thresholds for acquired distinctiveness for sound and non-traditional marks.

PS: There are quite a few influential cases from 2018. Some cases are still controversial, such as the ongoing dispute between two time-honoured pantry brands, Beijing Dao Xiang Cun and Suzhou Dao Xiang Cun.

This dispute has been ongoing for many years. Both parties hold trademark registrations and have previous agreements to distinguish markets and trademark use. Beijing Dao Xiang Cun got an injunction against Suzhou Dao Xiang Cun before the Beijing Intellectual Property Court, while Suzhou Dao Xiang Cun sued for trademark infringement and won the first instance before the Suzhou Industrial Park District Court. This resulted in heated discussions on whether the seemingly contradictory judgments are indeed the result of local protectionism or inconsistencies in standards of review.

During the 2019 annual plenary meeting of the National People’s Congress, Vice President Tao Kaiyuan of the Supreme People’s Court was also asked about this dispute. Ms Tao commented that the two judgments seem contradictory, but they are in fact made based on different facts and claims. The Supreme People’s Court has been reviewing the two cases and will ensure that justice is served and final judgments are well-grounded.

The Supreme People’s Court usually announces IP guiding cases around World Intellectual Property Day each year. We will follow the cases closely and see which ones prove enlightening and valuable to our future brand-protection work.