China has a bad reputation for IP protection, but the reputation might not be fully deserved. People often focus on occurrences of IP infringement in China and mistakenly conclude that there is little IP protection here.
China’s present IP dilemma is rooted in the concept of “rule of the man – Emperor.” China did not adopt the concept of “rule of law” until about 25 years ago when China joined the international community. Since then, China has been faced with a huge challenge of establishing an internationally acceptable legal framework. China has made significant progress in the enactment of laws, establishment of a court system, and training of legal personnel. But one cannot expect a perfect legal framework to be established in a short period of time. The fact is that IP protection is available in China today. This area has been a key focus of the Chinese government and China’s emerging high-tech industries. Significant progress in IP protection can be expected in the near future.
IP adds value to one’s business, and for many businesses it is important to register and protect IP rights in China. Even companies that have no business in China should consider obtaining IP rights in China as a defensive measure. Without IP rights in China, a business has no grounds to ask the Chinese legal system for help in stopping infringing activities. The Chinese legal system does not recognize foreign IP rights. Therefore, it can be important to include China in a company’s IP strategy from the very beginning.
This remainder of this article focuses on a hypothetical situation involving trademark rights in China. What is a trademark? Words, phrases, designs, logos, and other commercial symbols used to identify products, services, or their producers in the marketplace can all be protected as trademarks, service marks, trade names, or trade dress. A company name can be protected against the use of similar names by others. A color scheme or unique theme for a business or product packaging can be protected as trade dress. Trademark protection in China is based on a “first to register” basis. Trademark rights would be lost, for example, if another party were the first to register a trademark.
The hypothetical involves BikeOne, which is a U.S.-based bicycle company with operations in the United States, Germany, and Japan. BikeOne uses the mark TIGER in connection with a series of bicycle parts, clothing, and apparel, and has trademark registrations for the mark TIGER in the Unites States, Germany, and Japan. Although BikeOne does not have business in China, it does not want a third party to use the mark TIGER in China without is approval. Thus, BikeOne preemptively obtained a registration in China for the mark TIGER for bicycle parts, clothing, and apparel.
CopyBike is an Australian bicycle company with products very similar to those of BikeOne. CopyBike’s operation is limited to Australia. CopyBike also launched a line of products under the mark TIGER and obtained an Australian trademark registration for the mark TIGER. CopyBike manufactures its bicycle parts branded with the mark TIGER in China, and then sells those products in Australia. What recourse, if any, does BikeOne have against CopyBike with respect to the TIGER branded products?
Since CopyBike does not sell products in the United States., Germany or Japan, BikeOne cannot take any legal action against CopyBike in those countries. BikeOne also cannot stop CopyBike’s activities in Australia because CopyBike is the legal trademark owner of the mark TIGER in Australia. However, as the legal trademark owner of the mark TIGER in China, BikeOne can stop CopyBike’s manufacturing in China. CopyBike’s manufacturing of bicycle products branded with the mark TIGER is considered an act of infringement under China’s Trade Mark Act.
An injured party generally has three avenues for enforcement of its IP rights in China: administrative enforcement, civil enforcement, and criminal enforcement. Administrative enforcement is conducted by government agencies and is generally the fastest and most efficient route. Civil enforcement is a lawsuit initiated and carried forward by the injured party. Criminal enforcement is reserved for more serious cases, such as those involving a large volume of infringing goods and highly illegitimate income. In addition to these three avenues, the rights holder can also ask Chinese customs to seize infringing products.
In this hypothetical, BikeOne can initiate an administrative action by filing a petition with the local administrative authority for industry and commerce (AIC) where CopyBike’s manufacturer is located. Once the AIC accepts the petition, it will conduct a raid as soon as possible, and—where infringing items are found—order CopyBike to cease and desist, and seize and seal up infringing goods and tools. Subsequently, the AIC examines the evidence seized during the raid, makes a written decision, and usually orders the payment of a fine to the AIC. Upon a finding of infringement by the AIC, BikeOne can also take the case to court and ask the court for damages and/or criminal sanctions against CopyBike.
In this case study, BikeOne had the foresight to register its trademark in China. As a result, it could successfully stop the infringing activities of CopyBike. This case study shows the benefits of proper IP planning and why businesses might want to consider China as part of their IP strategy.