11 August 2017

What Should IP Owners Do to Hold Infringers Criminally Accountable?

This article was written by He Fang(Partner) and Zhang Yue(Intern).

Enterprises and the general public are becoming increasingly aware of their intellectual property (IP) rights as well as the need to protect them.  Remedies for IP infringements are commonly obtained from civil lawsuit and complaint to administrative authorities seeking investigation and punishment. In severe infringement cases, an action may even be brought by the IP owner in the criminal court. This article will look at the ways IP owners could do to assist the authorities to hold infringers criminally accountable?

IP Criminal Law Legal Framework

Section 7 of the Criminal Law of the People's Republic of China provides seven types of IP infringements, including:

  1. counterfeit of registered trademark; 
  2. sale of products with counterfeited trademark;
  3. illegal manufacture of the marks of registered trademark and sale of illegally manufactured marks of registered trademark; 
  4. patent counterfeit; 
  5. copyright infringement; 
  6. sale of infringing copies of a copyrighted work; and 
  7. trade secret infringement. 

In addition, the authorities have published the following legal documents to assist with framing the criminal IP law in China:

  • the Interpretation on Certain Issues Concerning the Specific Application of Law in Hearing Criminal Cases of Infringement upon Intellectual Property Rights published by the Supreme People’s Court and the Supreme People’s Procuratorate in 2004;
  • the Interpretation (II) on Certain Issues Concerning the Specific Application of Law in Hearing Criminal Cases of Infringement upon Intellectual Property Rights published by the Supreme People’s Court and the Supreme People’s Procuratorate in 2007; and
  • the Opinions on Some Issues Concerning Application of Law in Handling Criminal Cases of Infringement upon Intellectual Property Rights published by the Supreme People’s Court and the Supreme People’s Procuratorate together with the Ministry of Public Security in 2011.

In order for an infringer to be held accountable for criminal offence, the act or acts of that infringer must meet the minimum threshold stipulated by the laws mentioned above (and explained by the interpretations and opinions). This involves the consideration of either the “degree of seriousness” where the authorities will look at the seriousness of the infringement and the amount of money involved, or the “nature of the infringement”, which places focus on repeated infringements, as explained in more detail in the table below:

Degree of seriousness  Serious  In the case of counterfeiting/manufacturing without authorization any marks of registered trademark, or selling any counterfeited/illegally-made marks of registered trademark, the number of counterfeited/illegally-made pieces or sold pieces reaches 20,000 or more, or the illegal turnover is over RMB 50,000, or the illegal gain is over RMB 30,000  In case of counterfeiting/ manufacturing without authorization marks of two or more registered trademarks, or selling counterfeited/illegally-made marks of two or more registered trademarks, the number of counterfeited/illegally-made pieces or sold pieces reaches 10,000 or more, or the illegal turnover is over RMB 30,000, or the illegal gain is over RMB 20,000  Other serious circumstances 
Extreme  In case of counterfeiting/ manufacturing without authorization any marks of registered trademark, or selling any counterfeited/illegally-made marks of registered trademark, the number of counterfeited/illegally-made pieces or sold pieces reaches 100,000 or more, or the illegal turnover is over RMB 250,000, or the illegal gain is over RMB 150,000  In case of counterfeiting/manufacturing without authorization marks of two or more registered trademarks, or selling counterfeited/illegally-made marks of two or more trademarks, the number of counterfeited/illegally-made pieces or sold pieces reaches 50,000 or more, or the illegal turnover is over RMB 150,000, or the illegal gain is over RMB 100,000  Other extreme circumstances 
Nature of the infringement  Repeated infringement  Mainly manufacturing and wholesale     

Criminal prosecution process

Generally speaking, the criminal prosecution process can be divided into three phases: public security bureaus, procuratorates and courts. This process is elaborated by the chart below:

how-to-assist-authority-to-put-ip-infringer-into-prison

This separation of powers (the three phases) allows the Public Security Bureaus investigate cases, Procuratorates to initiate public prosecutions and supervise the public security bureaus, and the Courts to hear cases. These three authorities take their own responsibilities and cooperate with each other. IP owners should have general knowledge of every phase, especially the knowledge about difficulties and opportunities for public security bureaus to initiate cases in courts. They should also cooperate with related authorities to facilitate all investigation and the criminal prosecution process to better protect their legitimate rights.

Issues IP owners need to pay attention to during the criminal prosecution process

IP owners may assist the authorities in a proper manner to facilitate the criminal prosecution process. The assistance may include the following eight parts:

how-to-assist-authority-to-put-ip-infringer-into-prison

During the criminal prosecution process, IP owners should pay extra attention to the following issues:

  1. The value of the counterfeit products affects the conviction and sentence of IP infringements directly and valuation methods adopted by the authorities vary depending on the status of the counterfeit products. When the goods have already been sold, it is the actual sales volume of perpetrators (including sales of dealers) is often considered as the value of the counterfeit products in judicial proceedings. As to the unsold products, it is the marked price of counterfeit products as oppose to the price of the genuine version of the counterfeit products that will be used in determining the value involved in the crime. If the counterfeit products are not priced, the median price of the similar products available on the market will be used as the value indictor instead. 
  2. When searching for the sources of counterfeit products, it is necessary to locate not just the factories manufacturing the counterfeit products, but also the actual perpetrator instructing the manufacturer (if there is one behind the scene). Punishing the processing factories only is not enough to protect the IP owners’ legitimate rights as actual perpetrator may simply engage another factory and continue its IP infringement.
  3. More importantly, IP owners need to consider the scope and timing of “private investigation” and “intervention of the official authorities”. Generally, due to limited time and resources, the public security authorities are more inclined to investigate the cases returning positive results from “private investigations”. As such, a good coordination between internal and external counsels and investigation agencies will assist public security authorities initiating the whole prosecution process more efficiently.
  4. In the e-commerce era, IP owners may take preventive measures, for example, cooperating with network service providers. IP owners may register their IPs with Alibaba Group IP protection platform. When an infringement occurs, the IP owner may file a complaint to the platform and apply for the collection of related evidence to identify the sources and targets efficiently with the joint efforts from lawyers, IT professionals, consulting firms and investigation agencies.

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