• How to face the challenge of protecting and enforcing IP rights - LAW IP
Western companies continue to complain about ongoing infringements of IP rights, delays in registration processes and insufficient enforcement actions. However, there are certain key strategies which can be adopted to deal with such problems, write Doug Clark and Melanie Huelsemann.

Foreign companies doing business in China and seeking for protection of their IP rights should not just passively rely on China's laws and enforcing systems. They should be aware of their own responsibility to be proactive and to adopt the right preemptive measures to prevent infringements. Key strategies which have been shown to be effective when protecting IP rights are as follows:

Register your IP rights comprehensively
Registering IP rights ‘comprehensively’ includes more than just registering the IP rights currently being used. In addition to such common basic protection there is much more that can be done.

Take trademarks. Besides registering existing house marks, companies should register a variety of marks and sub-brands in order to block others from using these marks.
This strategy should particularly be adopted if the company intends to expand its business in the future. When filing the application, the specification should be drafted as widely as possible to obtain the greatest scope of protection.

Consider also registering Chinese language trademarks. They can be created by translating or transliterating the corresponding English trademark or by adopting an entirely new Chinese trademark.

Similar principles regarding tactical applications should be applied to other IP rights such as inventions, utility models or designs.

Copyright does not require registration but exists only upon the creation of a work. However, in case enforcement actions become necessary, it is advisable to apply voluntarily for registration at China’s National Copyright Administration (NCA) in order to establish evidence of ownership.

Conduct regular IP audits
The registration of IP rights needs to be understood as an ongoing process. IP audits should be conducted regularly to renew existing registrations on time, to register new rights as soon as they arise and before products are put on the market.

Companies should monitor official gazettes in order to detect rogue applications or registrations as early as possible. Once detected, opposition or cancellation actions should be taken immediately to meet possible time limitations. An opposition against the registration of a trademark, for example, must be filed within three months from the date of publication.

Companies have to face time-consuming registration processes in China. At present, China's trademark office is the busiest in the world. A registration process can easily take about two years.

Apart from filing a well written application which covers the full range of IP rights, there is not much that can be done to speed up the process. However, even if IP rights are not registered, companies can use their rights in the market after submitting the application. Registration primarily aims at protecting rights and is a prerequisite if companies want to stop others from infringing their trademarks.

Enforcement
Once infringement has occurred the question arises, What action should be taken to ensure effective enforcement?

Some companies may prefer to take actions outside China, for example in countries where goods are sold. It is generally more effective to stop the infringement at its source. This is particularly true as judgements of foreign courts are not enforceable in China.

There are ways, however, to enforce rights within China. There is a two-way enforcement system in operation: administrative and judicial. There are advantages and disadvantages to both proceedings and a company's decision should be made upon the circumstances of the individual case. Taking each in turn:

Administrative proceedings
Administrative proceedings are appropriate for small-scale infringements as they are cheaper and quicker than judicial proceedings. Unlike in judicial proceedings, where the filed complaint has to be supported by substantial evidence, the threshold for administrative actions is much lower and can be based on simple evidence (such as a sample).

Once a complaint submitted to the administration body has been accepted, an inspection on the premises of the suspected infringer will be conducted (a ‘raid’) almost immediately. In case infringing activities are found to take place, the administrative body has the authority instantly to seize or seal infringing goods and to confiscate the machinery used to produce infringing products. It can inspect accounting books in order to ascertain the level of infringement.

The administrative body also has the power to order that all infringing activity cease immediately and to impose a fine based on the profit of the infringer. In practice, however, the fine is often fairly low and has no real impact on the infringer’s motivation to restrain from infringing actions.

Judicial proceedings
Civil and, or, criminal court actions are more common for repeated and serious infringement. In judicial proceedings, the parties also have more scope to present their cases and are therefore more suitable for complex issues.

Judicial proceedings are also advisable for complicated cases such as patent infringements.

Civil actions
Civil actions are necessary if companies wish to obtain preliminary injunctions
and, or, to recover damages (as such remedies are not available through administrative actions). Be warned, though, that damages awarded by Chinese courts are often lower than those awarded in Western countries.

Recent court decisions show a readiness to award larger sums of money than before. One newsworthy example is the judgement of the Supreme People's Court in June, awarding Yamaha Motor Corporation Yn8.3m (about US$1.1m) in an action for infringement of registered trademarks.

There is value in winning successful court orders, even if the levels of damages are comparatively low, since such judgements serve to discourage others from infringing IP rights.

Criminal actions
Criminal actions are a particularly effective way of making a public statement and are useful against infringers who are not deterred by civil sanctions but may fear possible imprisonment.

The problem is that infringers only become subject to criminal prosecution if the profit from the illegal business exceeds the criminal threshold of Yn50,000. This threshold is rarely reached, since it is calculated on the basis of the price of the counterfeit product and not the real thing. Counterfeit products are, of course, always far cheaper.

Local protectionism remains an issue. Some courts unfairly favour locally based parties, particularly if one of the parties has connections with local authorities. In order to avoid biased proceedings and decisions, companies should consider creating a situation where a sale takes place in a particular location and thus to bring the infringer within the jurisdiction of a more neutral court.

Better prospects
Things are getting better. Protection and enforcement of IP rights in China are, slowly but surely, improving as a result of the continuous implementation of a number of measures.

There are guidelines on how to improve IP protection in China, promotion of enforcement campaigns, legislative reforms and awareness-raising measures, under the so-called Action Plan on IP.

Another positive step was the introduction of a measure which imposes liability on a landlord for their tenants’ sale of counterfeit goods. The authorities are co-operating better. For example, the Public Security Bureau (which handles criminal prosecution of IP infringement cases) and the Administration for Industry and Commerce (which handles administrative IP cases) are now encouraged to share intelligence and cross-refer cases.

Ultimately, it will be the general increase in wealth levels, and the desire among Chinese companies to protect their own IP rights which will have the telling effect. Until then, UK companies will have to take all the steps outlined above to protect and enforce their rights.

Doug Clark is a partner and Melanie Huelsemann is a professional support lawyer with Lovells, the international law firm. Contact: douglas.clark@lovells.com