A murky past but a hopeful future?

While the label ‘copycat China’ is no longer as applicable as it once was, the long history of infringing trademarks, and the current issues that arise today surrounding intellectual property means this moniker still carries some weight. However, as standards have been gradually raised to crack down on fake products, a more modern approach has been adopted in order to fight the increasingly sophisticated and savvy infringers who are committing these crimes online. Tackling this issue, Shane Farrelly and Veronica Gianola from D’Andrea & Partners, examine what counterfeiting looks like today in modern China.

Among the State Council, administrative bodies, courts system and customs agents, a war is being waged against counterfeiting on the Chinese mainland; however, with every technological advancement, the methods infringers are using have also improved. The burden of proof of presenting evidence of infringements and the associated investigation is not only incompatible with the modern marketplace—transactions are done in large numbers and in a short amount of time—but fails at deterring future infringements.

Fighting counterfeiting in China – the current standard
Taking administrative action against counterfeiting in China’s business environment has the benefit of foregoing the often time consuming and costly Chinese court system. However, in such cases the burden of proof rests on the injured party to prove an infringement has occurred. Meeting this standard can be arduous, as the injured party is forced to gather evidence, while spending additional time and money to assess the infringers conduct.

Upon providing evidence, a formal decision is made on the findings. After it is adjudicated, a limited range of punitive actions can be undertaken. They can range from issuing a cease and desist order on the manufacturing of certain goods, the seizing of property, the destruction of goods or imposing a monetary fine. The fines placed on counterfeiters are, in comparison to the profit made from selling counterfeited goods, low in nature.

When the issue cannot be resolved at the administrative stage, or if damages are sought, an appeal may be granted, and the case may be heard by the courts. Large-scale intellectual property infringements usually bypass the administrative stage altogether and only utilise the courts. As stated previously, civil cases in the Chinese courts may award damages, injunctions as well as preliminary injunctions if the case is ongoing. Actions may even be undertaken by the criminal court system in cases of serious breaches. These cases can only be brought before the courts after they are investigated by the Public Service Bureau. Defendants may be sanctioned or imprisoned up to seven years, depending on the severity of the infringement and the amount of money the infringer has made.

The cost and amount of time it takes for the courts to come to a resolution dwarfs administrative bodies, which are often beset by their own issues. In the new world of e-commerce and fintech, there is not enough time to fully combat all of these infringements. The logistical framework which exists in China today means that orders placed, payments made, and packages delivered are being done at such a fast rate that the current methods of fighting infringement do not keep pace with modern life.

E-commerce counterfeiting – setting future standards
Since China’s e-commerce market is the largest in the world, it has set the international standard. However, industry giants, such as Alibaba and Jingdong, have paid a hefty price for their success, as large amounts of fake goods are regularly bought and sold on their platforms. While legislation has slowly and carefully begun to regulate this area (the E-Commerce Law will be promulgated early next year),[1] in the meantime, companies have taken the initiative in cracking down on counterfeiters.

Alibaba Group Holdings, a company which has long been accused of helping counterfeit products reach the masses, has established the Alibaba Anti-Counterfeiting Association (AACA), which currently has 105 brands from 16 different countries. This collective has reportedly made significant strides in its work fighting counterfeits, as it has already been able to remove 27x the number of requests issued by rights holders and approximately 97 per cent of the takedowns were processed before a single sale had even taken place.

The alliance has destroyed 247 workshops producing and selling fake goods over the past year, and it has helped police detain more than 300 suspects. The amount of money involved in these cases has so far amounted to Chinese yuan (CNY) 1 billion.[2]

The association’s work is mainly to provide proactive online monitoring and protection, offline investigations and enforcement, industry law-enforcement workshops, litigation, and public awareness campaigns. The association also helps by utilising the latest technology, such as blockchain and big data analytics, to proactively detect and remove illicit listings on their platforms before rights holders have to send takedown requests.

The prospective promulgation of new e-commerce legislation allows for a peak into the future of combatting counterfeiting in China’s e-commerce sector. According to draft e-commerce regulations,[3] statutory footing is given to incidents in which a rights holder believes there has been an infringement. In these instances, the platform operator shall be given notice to “delete, block, disable the link or terminate the transaction of service”.[4]Should the platform operator fail to undertake any of these actions in a timely manner then they will also be held liable. Additionally, without any notice from intellectual property rights (IPR) owners, if the platform operator knows or should have known of IPR infringements on their platform, if any of the aforementioned measures are not undertaken, the platform operators will also be held liable, along with the infringer. This extra level of responsibility placed on platform operators could potentially save, time, money and ultimately provide a higher standard for e-commerce operators to meet.

Although counterfeiting in China is beset with issues, the e-commerce industry aims to set a new standard by collaboration with different corporate brands and utilising the latest technology to fight counterfeits before they enter the market. The new draft E-commerce Law seems to indicate that platform operators will be held responsible for not acting against IPR infringers, indicating that China is willing to take counterfeiting head on in the e-commerce industry.

D’Andrea & Partners is an international law firm and point of reference for companies that want to enter the global market and be successful. Established by its founding partner, Carlo Diego D’Andrea, attorney at law and pioneer in Italian and European law in China, today the firm is made up of professionals coming from different countries around the world. Besides the main operational headquarters in Shanghai, D’Andrea & Partners has a number of branches in China and outside the country in Italy, India, Vietnam and Russia. The firm’s clients include large industrial groups, plus medium-sized Italian, European, Chinese and global enterprises.

*This article was published in EUROBIZ on October 18, 2018.
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