“We can copy everything except your mother,” goes a saying in Shanghai, neatly summarising China’s rampant counterfeiting industry in a nutshell. Over the years, China has seen rapid economic transformation presenting various challenges to businesses across different geographies. Companies face a challenging, rapidly evolving intellectual property rights (IPR) landscape in China. According to reports, piracy in China had cost IP owners around USD 2.4 billion worldwide in the year 2007. Apropos of the CBP data, IP seizures of both footwear and consumer electronics, the second-largest product category seized in 2010 ($34.8 million, or 18.6 percent of the value of seizures), have grown rapidly since 2005. In 2009, China accounted for 64.4 percent of the number of IPR-infringing articles seized in the EU.
Globally, three quarters of all imitations originate from China. But counterfeits in China go even further, only recently an entire group of ‘fake Apple stores’ was discovered. These stores did not only sell fake goods, they imitated the entire look and feel of the original stores. Store layouts matched those of the original stores, so did the employee outfits and the promotional posters on the walls. The same happened to IKEA. In Kunming in the southwest of China an IKEA store can be found—only it is not IKEA. The counterfeiter copied every aspect of an IKEA store, the layout, the small pencils, the products and even the yellow shopping bags.
Characteristics of Chinese Counterfeit Products
A lot of the Chinese counterfeit stuff could be categorised as moderate or low-quality. Majority of the firms in different sectors whose products are infringed upon characterise these goods as inferior-quality products
These involve counterfeit products that the consumer identifies only after opening the packaging or using the products once. Infringing bait-and-switch products ranks particularly high for firms that are in the consumer goods manufacturing sector and the high-tech and heavy manufacturing sector.
With some counterfeits, it’s difficult to identify any difference from the original whatsoever because they have no discernible difference in terms of how they look and the features they have. Such counterfeits exist mostly in the chemicals manufacturing sector.
A very few firms characterise the allegedly infringing products as high-quality or high –price substitutes of the original products. Such counterfeits exist mostly in the transportation manufacturing, information and other services sector.
What are the factors that have facilitated counterfeiting of IP in China all this while?
- An important factor that may have facilitated the growth in IPR violations is globalization and widespread technology that enables simple and low-cost duplication of popular products, as well as packaging and labeling. More and more manufactures have moved their operations to Asian regions in the recent times, widening the scope of counterfeiting from the standpoint of both production of products and their packaging.
- The availability of counterfeit products on various e-commerce portals allows users to purchase these counterfeit goods online which are then shipped to different regions of the world by postal or express mailing services often in relatively small quantities that are difficult to detect.
- It might also be attributable to the activities of the small crime groups that smuggle counterfeit products into different regions of the world to make huge profits. Apropos of the ICE, these smugglers would use these profits to bankroll other criminal activities such as trafficking of drugs and weapons.
Administrative Enforcement of Patents in China
On January 27, 2015 State Intellectual Property Office (SIPO) published a new draft of an improved set of rules concerning administrative enforcement of patents for public comments. China has in fact a unique system of IPR enforcement, in that a right holder can chose to have his patent rights enforced by a civil court or by a special administrative body under SIPO’s supervision.
According to the data published early this year, Chinese patent administration authorities in 2014 dealt with 24,479 patent administrative cases. The overwhelmingly vast majority of such cases involved Utility Model and Design Patent dispute (respectively 43.8% and 41.9% of all cases). If we consider that the vast majority of such patents in China, and especially so for Utility Models are filed by Chinese companies only, it is not surprising to know that barely 6% of the over 24,000 cases in 2014 involved a foreign patent! In spite of slight percentage increases, this remains a dismal figure. It is obvious that administrative enforcement of patents is not a viable option for foreign right holders.
We must remember that even in case of design patents, administrative enforcement may be unsuitable. In fact foreign designs are often of high quality and their infringement is costly. The fact that administrative enforcement does not provide damage compensation is definitely a turn off for a design patent holder. Also, seen from the side of the infringer, if a design infringement is lucrative, it will not be an administrative fine to stop him from continuing the infringement. This will force the right holder to ultimately resort to judicial enforcement with injunctions and damage compensation.
Few Salient Modifications in China’s Patent Law and How it may help in curbing Counterfeiting
- According to the new draft on Patent Administrative Enforcement Rules published by SIPO on January 27, 2015, the patent administrative body is required to set up a specialized body or assign full-time enforcement personnel to carry out patent administrative enforcement. Patent administrative authorities will now be required to enforce law more stringently than before. It will also affect the decision making process of the courts.
- The new draft provides a legal frame for right holders and administrative enforcement bodies to stop the counterfeit of patents through Internet and in particular the sale of such counterfeit products on various e-commerce platforms. If the administrative authorities identify counterfeits infringing on patents, it is required to notify the e-commerce platforms about the same and order them to adopt measures such as blocking the webpages that contain counterfeit products or taking them off from their websites altogether. This norm is a welcome change for many inventors as it provides an immediate relief from the misuse of an invention over the internet in simple design or utility patent infringement cases.
- The new draft states that the patent infringement cases regarding “invention patent” or “utility model” shall be closed within three months and “design patents” within 2 months before the case is put on record. Also, the timeframe has been shortened from 15 days to 10 days on submission of defense statement.
It appears that the new rules laid out predominantly aim at reducing the workload of courts by attracting low inventive content patents of minor Chinese companies to the administrative enforcement, which make up for more than 80% of the patent litigation in China. These provisions do not seem to make administrative enforcement suitable for the foreign patents and their complex litigation schemes to a significant degree.
But, the use of administrative enforcement against patent counterfeiting via e-commerce web sites might come across as an appealing tool for the foreign patentees once these new provisions are in force.