How to deal with counterfeits in China

Published 22 September 2015 | Authored by: Sean Corbett

This article explores the extent of the counterfeiting problem and the measures that Rights Holders can take to counteract the economic and social impact of counterfeiting with a particular emphasis on goods originating from China. It follows a feature piece (availble here) that gives a broader overview to the threats faced by Intellectual Property Rights (IPRs) Holders within the Sports industry from counterfeit goods and piracy.

In many respects finding an effective way to deal with counterfeits in China is the same as finding an effective way to deal with counterfeits full stop. Of course given the sheer volume of counterfeits originating from China it follows that an effective strategy in China will filter down and enhance a brand enforcement programme across the board.

For the purpose of this article it would be worth noting that even within the world of counterfeiting it could be said that there are different tiers of counterfeit goods and these are identified below;

  1. Direct Counterfeits. These are fake goods that are intended to be sold as identical products to the genuine article so that they are packaged in an identical manner, use the genuine trade marks and descriptions that one would expect on the real items they purport to be.
  2. Lookalikes. These products will replicate the feel and get-up of genuine products so as to lead consumers to believe they are the real deal even though the products will not be identical.
  3. Piggy-backing Products. These are products which deliberately misuse trade marks on different products and which in trade mark terms would fall foul of similar marks dissimilar goods. Generally in this instance the reputation of the genuine mark is used to sell different products from those that the brand owner would usually sell.

If brand owners are serious about protecting their brands then any cohesive strategy to disrupt the flow of counterfeits and maintain the integrity of the brand must target all 3 types of counterfeits identified above - with the usual caveats that any action should naturally be cost-effective and targeted. While it can be debated whether anyone truly believes that Cobra golf clubs can be bought new for £100 or that Apple make shoes, or that anyone would genuinely confuse a pair of Mikes running shoes with Nikes,1 Direct Counterfeits, Lookalikes and Piggy Backing Products are all damaging to a brands reputation, and all interfere with the economic rights of the brand owner.

For any brand looking to enforce its rights, the golden thread of brand enforcement must be to make sure you have rights to rely on. Trade marks are jurisdictional and they are classified by categories of goods (Nice Classification System).2 A Registration for clothing products is not going to mean your trade mark is also protected for cosmetic or perfume products. This is as true of the names of famous individuals as it is for well-known brands. If the plan is to diversify and introduce new products under a particular brand the trade mark portfolio needs to represent the intent and therefore it becomes important to register trade marks for the relevant products of interest for example “sporting equipment” in the countries of interest including points of sale, manufacture and where products are shipped and stored. Very few brands truly have such an immensely popular and inescapable reputation such that they can rely on fame of mark to assist them in protecting and enforcing their brand rights. Essentially, the jurisdictional nature of trade marks and the “first-to-file” regime commonly adopted at trade mark Registries means if you want to protect your rights, register them at customs to police border measures and rely on them in court proceedings they need to be registered on the Trade Mark Register first. There is also a need to maintain the validity of marks that can become vulnerable to attack via revocation procedures for non-use so getting a trade mark on the Register is merely the first step in an on-going effort to establish rights to protect a brand.

It is easy to run into trouble on account of a lack of legal basis to formulate a complaint. Michael Jordan’s recent tribulations in the Chinese Courts are testimony to this. The Chinese company Qiaodan Sports (a transliteration of Jordan) successfully defeated a challenge from the six-time NBA champ over their use of the Qiaodan name and a logo consisting of the silhouette of a basketball player travelling with a basketball in outstretched hand. Qiaodan Sports owned various figurative and design marks for the mark Qiaodan and the silhouette logo meaning Jordan’s protestations of infringement fell on deaf ears despite the obvious confusion amongst consumers as to the origin of the goods.3 Jordan who promotes his own famous range of shoes under the brand Air Jordans had only ever registered the name Jordan in its English form and in the context of the proceedings he was bringing in China the first to file regime went against him. He has since had more luck in protecting the misuse of his name and image in the US courts4 but the warning signs are perhaps there for all. Look after your mark on the register and it will look after you in the Courts.  

 

Enforcement in China

China has a duel enforcement system to tackle infringements. This encompasses judicial procedures and administrative procedures which are designed to allow rights holders to enforce their rights.

Administrative actions generally mean non-judicial procedures, whereby a complaint is lodged claiming an intellectual property infringement before the government authorities in order to seek remedies. This often means filing a complaint with the Administration of Industry and Commerce (known as the AIC), the national-level agency that handles IP disputes and enforces IP rights. Filing a complaint with the AIC is cheaper than a civil action and more likely to result in a quick injunction and/or a seizure of the infringing goods. However, the AIC does not have the power to award monetary damages for infringement or to require indemnification; to pursue this route one would need to file a lawsuit. Personal experiences of working with the AIC officials has shown that you can achieve quick results and the AIC is keen to work with brand owners. In order to engage with the AIC and to encourage their involvement in orchestrating raid actions on infringing premises detailed investigative reports with evidence of the infringing goods will help wet the appetites of the local officials. Generally, if the trade marks upon which the brand owner is seeking to rely on are identified in the complaint, together with the details of the alleged infringement, location of factory making the product and distribution channels, the AIC Officials will do the rest and provide evidence of any action taken. Usually this will mean the counterfeit or infringing goods will be seized and detained for destruction. Often the perpetrators will end up with a fine (again the fine is not usually very big) and occasionally the infringer might receive a suspension of their business license.

Thus the administrative approach via the AIC officials is a relatively cheap and efficient way to deal with a specific intellectual property infringements, especially counterfeiting cases - providing of course that the AIC choose to act. A rebuke from the AIC doesn’t always solve the wider problem since repeat infringements in neighbouring premises at the hands of the same parties is not uncommon. It does however interfere with counterfeiting activities in a contemporaneous manner with minimal documentation (especially in comparison to a Civil Lawsuit) and the Administrative Punishment Decision issued by the AIC can act as a deterrent to infringers who realise they are on a particular brands radar. In engaging with the AIC and targeting counterfeiters brand owners should not underestimate the importance of the investigative work carried out in advance of the Complaint culminating in the report detailing the infringement which will be a key part of the Complaint. The most successful anti-counterfeiting programs are likely to be the best informed. Brand owners should work with their local legal representatives or agents (they will often have their own investigators) to ensure that they are compiling an accurate investigative report that establishes the infringement and identifies the origin of the infringement and the targets being investigated.

Another option to deal with counterfeits in China is to file a lawsuit with a Chinese court that has jurisdiction over the defendant. Litigation is never a cheap option. A Judicial approach can be effective and worthwhile if the target is a suitably big target so as to justify the costs that might be incurred. For judicial cases, companies have two options: civil or criminal cases with the former being heard by specialized IPR tribunals and the latter heard Criminal Tribunals in the People’s Court.5 Brand owners will always be faced with the dilemma of stopping the infringement at source and or merely interrupting the production and supply of counterfeits. The further down the line one investigates and seeks to bring to justice for an infringement the more money it will cost. Perhaps one of the biggest benefits to Civil litigants is that they can recover statutory damages under Chinese Counterfeiting law without proving actual damages. It may be questionable however if counterfeiters will be able to pay damages.  Criticisms have been aimed at the ability of the Chinese Courts to handle intellectual property cases, especially outside of Beijing Number One Intermediate People’s Court. It seems that IPR-related cases are still fairly uncommon. It is also worth noting that “local protectionism and a lack of transparency remain a concern in court cases, especially in jurisdictions outside China’s major cities6 and in this respect weighing up the costs involved, timeframe and involvement of outside counsel serious consideration should be given to the merits of pursuing a lawsuit.

 

Customs & Border Measures

As with most territories China Customs is capable of conducting enforcement measures against the importation and exportation of counterfeit goods using a registered trade mark.According to the Regulations of Customs Protection for Intellectual Property Rights and its Implementing Methods, border measures for protecting intellectual property rights include the detention of suspected infringing goods, investigation of infringement, punishment of the exporter and importer of the infringing goods, and confiscation and disposition of the infringing goods. According to the implementing Regulations of the Customs Law of the People’s Republic of China,7 the State prohibits the importation and exportation of goods which infringe intellectual property rights. According to Article 4 of the Regulations the holder of an intellectual property right, where requesting the Customs to provide protection for his intellectual property right, shall submit an application to the Customs for taking protective measures. In practice Registration can be done online and the documentation required is relatively straight forward. Thereafter, the recordal works much the same way as in other territories. Essentially if suspect counterfeit goods are detained the Rights holder via their representative is contacted and can submit a declaration attesting to the counterfeit status of the goods and the provenance of any claim is investigated.

Perhaps the most burdensome aspect of customs enforcement in China from the point of view of the IPR holder is the requirement to submit a security bond payment to the relevant port customs where the goods have been temporarily seized. This is to guarantee the other party against potential losses in the event that seizure by customs proves groundless. Some brand owners will undoubtedly be put off by this but there are provisions in place for a general bond with the General Administration of Customs China (referred as “GAC”).

Ultimately the value of registering trade marks or other IPRs with Customs in China will depend on the Rights Holder and the size of the perceived problem. Stemming the flow of counterfeit goods coming out of China is perhaps one of the most effective anti-counterfeiting actions a brand owner can take.8 It is not for everyone. There are cost implications. It is worth noting that whereas in China the rights holder is liable for storage costs and destruction costs in respect of other territories this is not the case. For instance, a European based brand might well look to a European wide customs registration with the Central Customs Authority as an important means of stopping infringements arriving from China since the so-called simplified Procedure embodied within the EU Custom Regulation9 gives Custom Authorities the power to have the detained goods destroyed without any obligation for the applicant to initiate proceedings in order to have the alleged IP infringement confirmed by a Court. Also importantly for brand owners, under the simplified procedure, Customs Authorities may presume that the declarant, the holder or the owner of the detained goods has agreed to their destruction where there has been no opposition to the destruction within 10 working days of notification period. Likewise trade mark owners who have registered marks with Customs and Border Protection (CBP) in the US will know that if rightfully detained the costs of storage for detained goods is borne by the owner of the goods not the rights holder. While Recording IPRs with the GAC could be hugely beneficial to rights holders in bringing the fight to Counterfeiters on their home turf counterfeit good escaping China can still be stopped effectively at other borders depending on what other measures a rights holder has in place to protect their brands.

 

Online Fakes

The problem of counterfeits has perhaps spiraled as the so-called fakery business has moved online.10 America’s trade representative predicted earlier in the year, that online sales of pirated goods might exceed those in physical markets.11 It may be something of a fait accompli but unfortunately, online counterfeiters can hide behind anonymity, and target a huge borderless consumer market with a number of escape routes to evade legal action.

Just as with other forms of piracy, infringements online can be targeted if you are aware of the tools available to combat them. Sourcing the resources and implementing the tools to enable a brand owner to establish their rights, locate and remove infringements will ultimately bring the fight to the online counterfeiters. In order to reach their consumer base counterfeiters utilising online space to ply their wares need to attract potential customers by advertising their surreptitious products. To this end they will invariably use trade marks as internet keywords and AdWords not to mention as part of domain names incorporating the brand owners Intellectual Property i.e. CheapestBRANDNAME.com. Effective Online monitoring can identify numerous counterfeit products and establish links between multiple listings or websites making a targeted approach more cohesive. Often there may be a vast web of interwoven sites all linked to the same source offering the same counterfeit goods. While a UDRP12 action to recover an infringing domain being used to sell counterfeits can remove the immediate problem, realistically infringers can simply adopt a new domain name and carry on selling the same products. More effective measures often lie in going to the ISPs directly to highlight the trade in counterfeit goods or other such fraudulent activity. Usually such activity will be a breach of the contractual basis on which a domain is being hosted and therefore ISPs can deactivate infringing sites , although be prepared for a hard slog as ISPs vary in their compliance and responses to complaint from brand owners without a court order to back them up.

Brand owners have become accustomed to online sites such as Amazon and Ebay offering verified rights programs to enforce trade mark rights and the big Chinese ecommerce sites that are often criticised for facilitating the sale of counterfeits, such as Taobao13 and Alibaba,14 nevertheless have IP Complaint procedures in place allowing Brand owners to file complaints to target the removal of counterfeit or infringing listings. Brand owners should be prepared to back up their complaints with copies of Registration Certificates to substantiate their claims via registered rights but monitoring listings on B2C sites and the big ecommerce sites, particularly cybershops purporting to sell branded goods at discounted rates can reveal large numbers of infringements that can easily be removed. The website “www.stopfakes.gov/business-tools/retailer-reporting” is a good resource for rights owners to familiarize themselves with takedown policies for some of the major e-commerce sites. Online channels offer the perfect shop window for the sale of counterfeit goods, but even online shop windows can be closed by implementing a strategy to prevent online traffic diversions while locating and removing the counterfeit products from the shop window.

 

Education

One of the best ways of minimizing the appeal of counterfeits is to educate consumers. If customers know what they should expect to pay for genuine goods it should not take too much to convince them that if they come across branded products purporting to be sold at a massive reduction at prices too good to be true, the catch is exactly that, it is too good to be true and the provenance of the goods is likely to be questionable. Brand owners that use their brand and take measures to combat counterfeits will find it easier to spot the fakes and educating consumers and enforcement officials for that matter about genuine goods and authentication devices can pay dividends in denting the flow of counterfeits.

 

Conclusion

Combatting IP infringement in China can be like playing a game of whack-a-mole.15 It certainly can be difficult to actually locate the source of an infringement and or strike a blow that hits. A defeatist attitude will hinder efforts to combat counterfeits. In some respect success shouldn’t be judged on the number of products seized. In China for instance the “just in time” nature of made to order counterfeits will mean it is unusual to come across huge numbers of infringing products stored for long periods of time. Likewise, it has also been said that Chinese consumers have a tremendous demand for cheap goods and various Chinese policies actively encourage the manufacture of inexpensive products. In that regard brand owners have to accept that there are people out there who simply don’t mind paying for knock-off products for the simple reason that they are paying less and this is certainly not restricted to China. Demand should not always dictate supply and for brand owners looking to a strategy that will ultimately restrict the trade in counterfeit products the aim should always be to go after the big counterfeits and make a noise about the big splash that capturing a big fish can make while chipping away at the so-called easy wins by utilising the Rights Protection Mechanisms that are available on most social media platforms and most ecommerce sites, not to mention the ready-made protection measures afforded to brand owners by customs and borders authorities via trade mark recordal systems.

Earlier this article highlighted that counterfeiters are non-discriminatory. If you make it they will fake it. The more successful a brand is the more likely it is to be copied and the more likely it is that it will be targeted by counterfeiters. Sports brands and products endorsed by sports personalities or licensed by professional teams are by their very nature among the most popular brands and products out there. Sports brands would be wrong to be flattered by imitation products however. While the manufacture of imitation brands might be seen as unethical often the purchase of counterfeit goods is not and perhaps therein lies the problem. Brand owners need to target anti-counterfeiting strategies at both the counterfeiters and those that deem it ok to purchase counterfeit goods. There is no simple solution to targeting counterfeits but there are numerous factors that can influence the effectiveness of measures utilised by brand owners to stop counterfeit goods from making it onto the marketplace.

 

Top 10 Tips for Combatting Counterfeits

Points for brand owners to consider in implementing an effective strategy to combat counterfeiting are:

  1. Make registering your trade marks in countries where you sell, manufacture, ship or store products a priority;
  2. Record trade marks with national customs where possible;
  3. Monitor and audit your company’s supply chains;
  4. Add authentication devices to genuine products. Holograms, legal notices and unique bar codes can differentiate genuine products from the fakes;
  5. Educate consumers and enforcement officials alike about the virtues of your brand, what distinguishes official products from the fakes and what to look out for in identifying fakes;
  6. Provide training for employees and enforcement officials about anti-counterfeiting measures and counterfeit products as this can help identify and deal with counterfeits quicker;
  7. Utilise Online monitoring and takedown tools. Online Stores, social media sites, domain name registers and the use of keywords and AdWords can lead brand owners to the source of infringements and provide a quick and easy solution for their removal;
  8. Investigate the origins of infringements: Knowledge is power and knowing where the counterfeit goods originate and where they are being sold can help enforcement officials act swiftly and enhance corporate practices and production processes to stem the flow of counterfeits.
  9. Consider publicising successes. An active enforcement programme with end results is likely to act as a deterrent as ultimately counterfeiters are likely to look for easier targets.
  10. Litigate if needed.

 

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About the Author

Sean Corbett

Sean Corbett

Sean is an IP practitioner and trade mark attorney with a unique insight into, and focus on, brand protection issues. After 14 action-fueled years at Formula One Management Ltd where he was Brand Protection Manager Sean has set up on his own as a Brand Protection Consultant offering a unique one-stop resource for every conceivable brand protection challenge to help protect, develop and strengthen the IP rights that are crucial to commercial success.

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