Keys To Enforcing Intellectual Property Rights In China

Monday, December 1, 2008 - 00:00

Editor: Please describe your background and your practice at Day Pitney.

Lieberstein: I specialize in Intellectual Property Litigation and counseling, including patent, copyright and trademark litigation, as well as licensing, mark clearance, and trademark prosecution. Working in both litigation and on the transactional side allows me to spot some issues that are not ordinarily considered.

Feingold: I am the Chair of the Trademark, Copyright, Advertising & Internet Group at Day Pitney. I was trained as a litigator, but divide my time between litigation and policing matters, as well as licensing, global clearance and registration issues, and other Internet related issues, such as privacy. The broad focus that you see in both Marc's and my backgrounds reflect our clients' need for lawyers who are trusted advisors about their total brand management strategy, and view litigation, licensing, and other issues, such as domain names, from a brand perspective. That perspective informs, for instance, the advice we give clients about IP issues in China and how a company should address these issues as part of its overall IP strategy.

Editor: Is China doing anything to stop counterfeiting and piracy? Can you briefly describe some strategies that can be used in China to enforce IP?

Lieberstein: China is taking steps to address its counterfeiting and piracy problems and enforce IP protection. Unfortunately, the problem is so large, and counterfeiting and piracy make up the livelihood of so many people, that counterfeiting is still a significant concern for any company in the consumer goods arena. Nevertheless, in October 2008, China did report some encouraging statistics to the World Trade Organization (WTO) in connection with its obligations under that organization's charter.

In 2007, China prosecuted over 2,000 IP rights violation cases, with an estimated value of almost $200 million - up about 50 percent from 2006.

China reported that it arrested over 2,174 suspected infringers in more than 1,200 cases during 2007, nearly double the 2006 number. Increases were also reported in the amount of seized goods, worth over $58 million in 2007, double the amount seized in 2006.

There also were increases in the number of court rulings on criminal infringers, confiscations of pirated goods, and trademark violation and patent enforcement prosecutions.

Feingold: What these statistics do not reflect is that the vast majority of these cases were brought because of the efforts of the companies whose rights were being violated in bringing these issues to the attention of the Chinese authorities. The need for this type of involvement is not likely to change in the near term. This means that for providers of consumer goods that have succeeded in creating a desirable brand, China is likely to be a major source for counterfeit products that will continue unless action is taken.

Lieberstein: Fortunately, these companies have several strategies they can use to protect their IP. To start, it is important to recognize that trademark rights in China are based on registration, not use. Therefore, the first two strategies we will discuss presume that a company has done the proper legwork to register its marks in China. Next, companies must understand China's dual system of enforcement - the administrative mechanism conducted by the Administration for Industry and Commerce (the AIC), and the judicial mechanism. The equivalent of the AIC is our Patent and Trademark Office (PTO). Unlike the PTO, however, the AIC can seize counterfeit goods to stop an infringement. Similarly, companies can register their marks with Chinese Customs, which can, with proper prodding and encouragement, seize counterfeit goods.

Feingold: Of course, just as companies have learned that creating a personal relationship with the U.S. customs offices most likely to see the counterfeit products is necessary to obtain any relief, merely filing the necessary papers in China is unlikely to lead to any meaningful results. It is important to have people on the ground doing the proper legwork in order to get customs to act.

Lieberstein: On the judicial side, there are both civil and criminal components. Criminal cases will of course be a much greater deterrent. But, they also require higher thresholds to attract the attention of the appropriate officials, and, not surprisingly, require more direct evidence of criminal activity. That is why the civil remedies, which include injunctive relief, can often be brought for less than $10,000, and can lead to an award of damages, are often more attractive.

Feingold: We should emphasize that one of the biggest distinctions between the judicial and administrative approaches is that the administrative approach will never result in an award of damages. Some might argue that without either monetary or criminal sanctions there is no real deterrent to the counterfeiter starting up again right after the product is seized.

Lieberstein: There is one other strategy that companies can use - negotiation. While not the preferred approach for enforcing IP in China, negotiation can work if you reach out through a third-party in China to approach the counterfeiter and work out a deal; it can also save time and money. Of course, this may be the only strategy available if a company slept on its rights and never registered its marks in China, unless it is lucky enough to have a brand that is well-known or famous in China. Recognition outside of China, however, is not relevant.

Feingold: Much of the domain name and trademark (as opposed to counterfeiting) issues we see involve companies who, when they finally sought a registration in China, were shocked to find that someone else had already registered it. Typically, the entity that has made this registration did so precisely in order to sell it back to the rightful owner. These entities are astute at making the asking price close to the cost a company would incur if it tried to use the Chinese legal system to address the issue. From their perspective, this is a reasonable charge since most of these cases would probably fail. Of course, sometimes the amount demanded is exorbitant because the entity owing the registration or domain name knows it is sitting in the catbird seat. For companies that are used to taking a principled stance on not paying cyber or trademark squatters a dime, this situation can present unpleasant alternatives.

Editor: How difficult is it to find counterfeiters in China?

Lieberstein: It depends on the scale. Large-scale counterfeiters are usually easier to detect; smaller counterfeiters are harder to unearth. It boils down to having a presence on the ground.

There are some tried and true methods for finding counterfeiters in China, such as having informants or agents, or working with Chinese counsel or investigators. You can also engage a Chinese attorney or investigator to watch the Internet or visit trade shows. Constant monitoring of the Chinese marketplace is important, as well as watching the Chinese trademark office publication, the Trademark Gazette , in which you might see the publication of your trademark. If you see that some entity in China has registered your trademark, you can assume that person is either making your product or letting someone else make counterfeit product. While not always true, the names and addresses of registrants are supplied to the trademark office. Companies employ the same kinds of monitoring procedures in the U.S.

Editor: It seems like the most important advice for a U.S. company would be to register its marks in China. Are there other things a company can do to deter counterfeiters?

Feingold: Counterfeiting in China is a fact of life. Much of what happens occurs in small factories or by people working out of their homes or garages. The manufacturing techniques these people have at their disposal are not that sophisticated. I have seen studies indicating that companies can design their packaging and trade dress to make it more difficult for someone to create a product that is going to be attractive to the consumer. Remember, the counterfeit product has to look enough like the original that either the consumer thinks it's the original or people seeing them with the product think it's the original. By using non-primary colors, embedded designs, and other techniques, the counterfeiter is more likely to select another product that won't present the same challenges.

Editor: We've covered counterfeiting and piracy, now let's turn to the internet. We keep hearing about these e-mails sent from apparent domain name registrars advising them that their trademarks or trade names were the subject of .cn domain names registered in China. How do you approach this, and what advice do you provide to address this matter?

Feingold: You are referring to the fact that there are companies who purportedly have, at the request of a third party, "pre-registered" domain names corresponding to U.S. trademarks or trade names, and then write that company to advise them of the attempt by this third party to obtain those domain names, but advise that they have put those names on hold in order to give the U.S. company a chance to obtain those domain names. Typically, the charge for these domain names is three to four times more than the cost of registration, if done in the normal course.

How a company responds depends on its overall China strategy. Its response should also be consistent with the company's overall strategy with respect to domain name registrations generally. We typically advise our clients to ignore these letters, unless they have a specific plan for China. If there is any interest in China, the best response is to immediately contact the vendor you use for domain name administration services to see if they can register those domain names at the ordinary fees. This is possible because often the company writing the letter has not finalized its acquisition of the domain names. But for many companies with a U.S. based business model, this is just a red herring. A company whose focus is concentrated in the U.S. would be better off investing that time and money into a more coordinated policing strategy targeting U.S. infringements.

Editor: Any other final thoughts?

Lieberstein: Things are changing in China with regard to enforcement, and for the better. The latest evidence of this is the World Trade Organization (WTO) ruling, which found that certain China regulations making enforcement more difficult in China violated China's obligations as a member of the WTO. China's reaction to such rulings will provide us all with a better idea of how serious it is about enforcing intellectual property.

Feingold: The cost of enforcement in China is expensive. Stopping counterfeiting requires a tremendous investment that is not limited to money, but also to resources. The question of how a company deals with counterfeiting in China has to be part of a global IP strategy in which you make sure the company's IP assets are being rationalized and leveraged in furtherance of the business's strategic economic goals. There are simply too many competing interests not to recognize that brand enforcement must be part of a coherent business plan.

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