In China, exclusive rights to use trademark, copyrights and associated rights, patent rights and other intellectual property rights (“IPRs”) related to imported and exported goods are protected by the Customs in accordance with the Regulations of the People’s Republic of China on Customs Protection of Intellectual Property Rights (“ Regulations”) and other relevant laws and regulations. In case of importation or exportation of suspected infringing goods, the Customs will protect the relevant IPRs that have been filed in relation to these goods and crack down infringements under the mode of protection on request or protection ex officio. Under the mode of protection on request (also known as passive protection), the goods that are suspected of IPR infringement will be seized by the Customs at the request for enforcement of the relevant IPR holder in China under Articles 12, 13 and 14 of the Regulations when the right holder finds that such goods are being imported or exported. Under the mode of protection ex officio (also known as proactive protection), in contrast, the Customs will, when finding on its own that any imported or exported goods are suspected of infringing upon any IPR filed with the General Administration of Customs of the People’s Republic of China (“GACC”), suspend the customs clearance procedures for such goods and notify the relevant IPR holder on its own initiative, and seize such goods at the request of the IPR holder in accordance with Article 16 of the Regulations.
According to the IPR protection data released by the Customs, protection ex officio is more common than protection on request[1].
For foreign enterprises (as overseas principals) that engage Chinese manufacturers for original equipment manufacturing (“OEM”), their trademark rights registered in their respective country do not automatically extend to other countries as such rights are territorial, and the possibility of others’ prior trademark rights in China cannot be ruled out. Therefore, even if the OEM products are not for sale in China, it is still highly likely that they will cause a match with IPRs in the IPR filing system of the GACC during exportation, thus triggering the protection ex officio by the Customs on the ground of suspected infringement of trademark rights. This article provides the overseas principals and domestic OEM manufacturers with an introduction to the general procedures and normal time limits of seizure by the Customs of goods suspected of infringing upon trademark rights under their protection ex officio and the suggestions on how to deal with it.
I. Introduction to General Procedures and Time Limits of Seizure by the Customs of Goods Suspected of Infringing upon Trademark Rights
Under protection ex officio, the general procedures and normal time limits of seizure by the Customs starting from its identification of the goods suspected of infringing upon filed trademark rights are as follows:
1. In the case that any goods suspected of infringing upon any trademark rights filed with the GACC are identified by the Customs under protection ex officio, the Customs will give a written notice to the relevant IPR holder in China, who should decide on whether or not to make a request for seizure of such goods within 3 working days from the date of service of the notice (security is required to be provided if such a request is made).
2. The Customs will commence the seizure procedures upon such request by notifying the party whose goods are to be so seized (i.e., the goods holder) to complete the relevant formalities at the Customs. (Please note that at this stage, the Customs investigation process has not yet been commenced.)
At this phase, the goods holder (typically the domestic OEM manufacturer, the customs declaration agent, or the distributor authorized by the overseas principal) is usually required to prepare basic materials including its business license, issue a statement about the goods in question in accordance with the requirements of the Customs, and complete the formalities for seizure of the goods at the Customs as soon as possible. There is no express legal provision on the time limit for the good holder to complete such formalities, and the practice varies from Customs office to Customs office. In one of our cases, such time limit was three months.
3. Upon completion of the formalities for seizure, such goods are officially seized by the Customs, and the Customs will issue a Notice of Seizure of Goods for Suspected Infringement to the goods holder and commence its investigation.
In practice, the Customs may require the goods holder to provide security bond equivalent to the value of the goods during the formalities for seizure, which will be used to offset the fine (if the goods are later determined as infringing) or refunded (if they are later determined as non-infringing). Such requirement is not limited to patent cases only.
4. The goods holder asserting that the goods do not infringe upon the trademark rights of others is required to inform the Customs of the same as soon as possible after its receipt of the Notice, confirm with the Customs the time limit for it to submit the relevant written statement and supporting materials, and make submissions accordingly.
At this phase, the overseas principal, domestic OEM manufacturer and other relevant parties involved will need to sort out and present evidence to prove that they have been conducting legitimate cross-border OEM business, including without limitation corporate status certificate (such as business license), overseas IPR certificate (such as overseas registered trademark certificate), letter or agreement for OEM business and trademark license, and materials proving that all goods manufactured are delivered to the overseas principal for sale outside of China.
5. The Customs will investigate the case and determine whether the goods infringe upon the relevant IPR, during which both the IPR holder and the goods holder may be required to answer questions and provide supplementary materials as necessary.
According to Article 20 of the Regulations, the time limit for such investigation is 30 working days from the date of seizure. In practice, however, such time limit may be extended due to a number of reasons (such as holidays). Hence it is desirable to stay in communication with the Customs.
6. The Customs will close the investigation and make one of the following three determinations based on the investigation results in accordance with the law:
a) The goods have infringed upon the trademark rights, in which case the goods will be confiscated, and the case will be transferred to the public security organ for further handling in accordance with the law if any suspected crime is found; or
b) The goods have not infringed upon the trademark rights, in which case the goods will be released; or
c) The Customs is unable to determine whether or not the goods have infringed upon the trademark rights, in which case the Customs will release the goods if it does not receive any enforcement assistance notice from a people’s court within 50 working days from the date of seizure (i.e., 20 working days from the date when the investigation is closed). In practice, this time limit may be extended due to a number of reasons, and it is desirable to stay in communication with the Customs.
7. A trademark infringement case involving cross-border OEM will be more complicated than an ordinary one (such as a pure trademark counterfeiting case) and requires ascertainment of various facts if the goods holder does act in good faith and is qualified for legitimate cross-border OEM business, and the Customs, not specialized in handling IPR disputes, will tend not to make a definitive determination on whether infringement exists. Based on our experience in handling similar cases, odds are that the Customs will declare that it is unable to determine whether or not the goods have infringed upon the trademark rights, advise the IPR holder to file a lawsuit with the court as soon as possible and, in the absence of enforcement assistance notice from court, release the goods.
II. Suggestions to Cross-Border OEM Business Operators on How to Deal with Seizure by the Customs
Among the various ways of IPR protection, protection by the Customs features simpler formalities, higher efficiency, stricter measures, and a high possibility of protection ex officio being triggered due to the continuous operation of the Customs, and therefore becomes one of the key ways for IPR holders at home and abroad to protect their rights. Yet, there is no need for cross-border OEM business operators operating in good faith to be too upset if they become subject to IPR-related seizure and investigation by the Customs, as it is unlikely for their activities to be determined by the Customs as infringements in so far as they get the picture of the general procedures and time limits of the IPR protection measures of the Customs, promptly make response plan and preparations, keep constant communication with the Customs, and submit evidence in a timely manner.
In case of goods seizure by the Customs on the ground of suspected trademark infringement, we suggest that the overseas principal/domestic OEM manufacturer (and other parties involved) take the following actions:
1. To promptly verify the validity of the trademark rights of the party requesting seizure and the authenticity and validity of the filing of the trademark with the GACC and, if the trademark rights in question are of potentially defective basis or the filing is inauthentic, to promptly raise objection to such seizure to the Customs with supporting materials and apply to the Customs for change or revocation of the filing where necessary;
2. To collect evidence proving that they have been carrying out legitimate cross-border OEM business as soon as possible, and to communicate with the Customs in a timely manner for a longer time limit for the submission of any materials that require a long time to prepare (such as extraterritorial notarization of overseas evidence, authentication by the local Chinese embassy or consulate and official translation);
3. To submit all evidence and statements on time and otherwise cooperate with the Customs as required to the extent possible and to stay in communication the Customs, so as to create and maintain a good impression of operation in good faith;
4. In the case of the third determination mentioned above (that is, the Customs is unable to determine whether or not the goods are infringing), to file a lawsuit with the competent court for non-infringement declaration and damages after a certain period of time (with the filing party being the overseas principal, or the overseas trademark owner, or the domestic OEM manufacturer or distributor authorized thereby), and, if possible, to take appropriate actions against the trademark rights of the domestic holder to weaken the basis of such rights with a view of reaching a settlement with the holder as soon as possible, thus avoiding lawsuit to save time and costs; and
5. In the event that a domestic trademark squatter harasses the domestic OEM manufacturer, to forestall the squatter’s attempt to file trademark infringement dispute by taking the initiative and filing a lawsuit for non-infringement declaration and economic losses.
Conclusion
The Supreme Court’s judgment on the HONDAKIT case[2] has sparked a heated discussion among lawyers, as it challenges the previously prevailing view that there will be no trademark infringement as long as the goods manufactured under cross-border OEM mode are not sold in China (as it will not cause confusion among the public in China and does not fall within the meaning of “use” under the Trademark Law). We have noticed in our communication with the Customs offices that they have similar concerns in their recent IPR protection cases involving trademark infringement determination under cross-border OEM mode. However, according to the judicial precedents, the determination is still made depending on a number of factors and evidence[3]. In summary, where the goods are seized by the Customs on the ground of suspected infringement of trademark rights, the overseas principal/domestic OEM manufacturer is advised to formulate a response plan in a timely manner, actively communicate with the Customs and efficiently collect the relevant evidence, or file a lawsuit for non-infringement declaration upon further authorization, so as to minimize losses and protect legitimate rights and interests.
See Press Release of the Customs of the People’s Republic of China on the Protection of Intellectual Property Rights, published on the website of China National Intellectual Property Administration on April 27, 2021 at https://www.cnipa.gov.cn/art/2021/4/27/art_2587_159200.html.
Dispute over Trademark Rights Infringement, Honda Motor Co., Ltd. V Chongqing Hengsheng Xintai Trading Co., Ltd. and Chongqing Hengsheng Group Co., Ltd., (2019) Zui Gao Fa Min Zai No. 138
See An Important New Case: Lawful Cross-Border OEM Mode is Still Upheld by HE Fang published on Official WeChat Account “KWM_China” at https://mp.weixin.qq.com/s/6G3brz0ESCmdi_mkL2xwHQ
