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31 August 2020
“Everybody has a plan until they get punched in the mouth,” Mike Tyson once quipped.
“That quote, it morphs life so much,” he explained later on. “It’s all about endurance. [And] if you’re good and your plan is working, somewhere during the duration of that, the outcome of that event you're involved in, you’re going to get the wrath, the bad end of the stick. Let’s see how you deal with it.”
The question is how you adapt your plan when you get punched in the mouth. After all, a well-conceived strategy is necessary as it can help you put yourself together after the initial fear and freeze brought by the punch in the mouth and then adjust, survive and prevail in confrontations.
Chinese general, military strategist and philosopher Sun Tzu advised that “The skillful warriors in ancient times first made themselves invincible and then awaited the enemy’s moment of vulnerability. Invincibility depends on oneself, but the enemy’s vulnerability on himself. In all fighting, the direct methods may be used for joining battle but indirect methods will be needed to secure victory.”
According to Carl von Clausewitz, a Prussian general and military theorist active in the early 1800s, “To achieve victory, we must mass our forces at the hub of all power and movement. The enemy’s ‘centre of gravity.’”
Drawing upon the wisdom of these master strategists, we would like to share some tips on developing a strategy for trademark enforcement in China.
The eminent expert on strategic planning, Richard P. Rumelt, a professor at the University of California, Los Angeles Anderson School of Management has summarized: “A good strategy has an essential logical structure. The kernel: a diagnosis, a guiding policy, and coherent action.”
Diagnosis is the process to identify the trend and the challenges. It is advisable that brand owners review annual IP reports, which are compiled and issued by the PRC Supreme People’s Court, the China National Intellectual Property Administration (CNIPA), the local people’s courts and law enforcement authorities etc., around every April 26 – World Intellectual Property Day – and/or other similar reports published by independent institutions, etc., as the diagnosis process to have a general picture of the IP landscape in China and identify the trend in trademark enforcement by reviewing the statistics, most recent legislation and regulations, guiding cases, typical cases, reference cases, judicial interpretations, guiding opinions and judicial and enforcement policy etc. in the annual reports or other informative reports so as to keep up with the trend and adapt strategy.
On July 27, 2020, the Supreme People’s Court (SPC) issued the Guiding Opinions concerning Strengthening Searches for Similar Cases to Unify the Application of Law (Guiding Opinions), effective on July 31, 2020. The Guiding Opinions are intended to resolve inconsistencies in courts’ judgments. The SPC affirms the practice of judges using rules derived from prior similar cases to fill in the gaps in legislation and judicial interpretations. The issuance and adoption of the Guiding Opinions are legal reforms which are bound to improve the trial system in China and better protect the interests of the parties in litigation. Lawyers and brand owners need to master and hone their skills in conducting searches for similar cases as well as analyzing and distinguishing the similar cases searched by the courts and/or submitted to the courts so as to best argue the cases before the courts in China.
Meanwhile, brand owners should also conduct searches or investigations to learn from their peers, competitors and, particularly, hostile competitors and trademark squatters as part of the diagnosis process to identify challenges and come up with a plan to overcome the challenges. Hostile competitors and trademark squatters are the worst enemies for brand owners, but also can be the best teachers, as they are quick to find and exploit the loopholes in legitimate brand owners’ portfolios and strategies and then try to file and register trademarks identical or similar to the trademarks owned by legitimate brand owners and use such trademarks to piggyback on the reputation of the legitimate brand owners, defend such trademark use and at least create obstacles for the legitimate brand owners to take enforcement actions. Meticulous study of hostile competitors or trademark squatters enables the brand owners to make well-informed decisions and put the brand owners in a stronger position in confrontations.
As Sun Tzu has pointed out: “Know the enemy and know yourself; in a hundred battles, you will never be defeated.”
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China is a first-to-file jurisdiction and trademark squatting is active and frequent. The Chinese government is taking actions to fight trademark filings made in bad faith. Brand owners should file trademarks proactively and adequately, covering a broader scope of goods and services to obtain adequate trademark protection.
Chinese consumers, business and media tend to identify foreign brands by using their Chinese equivalents. Therefore, foreign brand owners should ensure that they file and register Chinese versions of their foreign-language marks for sufficient protection in China.
Businesses are now going online and the internet has turned the globe into a smaller and smaller world. A brand launched in another part of the world can become the target of trademark squatters, cybersquatters and hostile competitors in seconds due to the speedy and easy spread of the information online. Therefore, brand owners should file trademarks proactively and, in addition to filing trademarks, brand owners should also file and register trademark-formative domain names and social media accounts proactively.
Without adequate legal basis for trademark enforcement actions, one will not be able to “mass our forces at the enemy’s ‘center of gravity.’”
The following government bodies are involved in administrative and criminal IP enforcement:
The Administration for Market Regulation (AMR), formerly known as Administrations for Industry and Commerce (AIC), is China’s primary market regulation an enforcement authority. After structural reform, the quality technical and supervision bureau (TSBs) (product quality authority) and the food and drug administrations (FDAs) are now part of AMR.
Other government bodies involved in administrative and criminal IP enforcement include:
China sets monetary thresholds for pursuing counterfeiters for criminal liabilities. With basic evidence proving the gravity of the counterfeiting acts and the monetary threshold requirements having been met, the brand owners may file a complaint to the local PSB, i.e. the police, requesting a criminal investigation into the counterfeiters. Other competent government bodies will also transfer cases to the PSBs to enhance protection for brand owners and the public interest. If it is found that a crime has been committed after the police investigation, the police will transfer the case to the competent procuratorate to file criminal suits. The Chinese law enforcement authorities have been active in pursuing the counterfeiters for criminal liabilities. Brand owners should take the following steps to help the police and prosecutors to build a successful criminal case against the counterfeiters:
In the PRC Trademark Law amended on April 23, 2019, and effective as of November 1, 2019, statutory damages on trademark infringement have been increased to Rmb5 million (US$720,000) from Rmb3 million (US$430,000) and punitive damages for grave trademark infringement have been raised from three to five times.
On April 23, 2019, the PRC Anti-unfair Competition Law was amended and effective, the second amendment since its enactment in 1993 and the first since 2017. The amended Anti-unfair Competition Law increased fines and damages for unfair competition acts, increasing statutory damages for acts violating IP rights from Rmb3 million (US$430,000) to Rmb5 million (US$720,000).
In recent years, Chinese courts have been rendering landmark verdicts with skyrocketing and unprecedented damages awarded to brand owners, reaching to millions of renminbi. These verdicts illustrate the Chinese courts’ increasing tendency to award substantial damages to brand owners. Trademark lawsuits now have more, and increasing, deterring effects. Trademark litigation can be much more of a deterrent if it can hold the individuals (ie, the masterminds of the infringement, the legal representatives or shareholders of the companies committing the infringing acts) liable for trademark infringement.
In recent years, China’s courts have rendered verdicts that have held company legal representatives or shareholders liable jointly or severally for trademark infringement perpetrated by their companies to prevent sophisticated infringers from abusing the independent legal person status of the company or the limited liabilities of shareholders to evade punishment and penalties.
In ExxonMobil, Zhang Zhimin (the legal representative of Beijing Beinong Guoxin Technology Development Co Ltd) and his daughter were sued as co-defendants for their part in the infringement regarding use of the trademark MOBIL (in both English and Chinese) on pesticides and fertilizers. The appellate court affirmed the trial court verdict and ordered the four defendants to pay damages of Rmb3 million (US$430,000) to ExxonMobil.
Brand owners should consider relying more on trademark litigation against counterfeiters and infringers in order to seek an injunction, damages and other civil relief (eg, a public apology); set an example to deter other infringers and educate the public; or create precedents.
Online counterfeiting is now one of the most significant challenges facing brand owners. Counterfeiters and infringers are internet savvy and quick to exploit technical advantages to imitate and copy popular products, and then promote and sell their counterfeits or infringing goods online to the global market. Brand owners with frequent and prolonged takedown issues are advised to hold face-to-face meetings with e-commerce platforms to explain the nature of the problems and/or join in anti-counterfeiting initiatives or alliances launched by e-commerce platforms to work out effective takedown solutions and follow up on more aggressive actions to win support from e-commerce platforms and go after counterfeiters and infringers in administrative, civil or criminal actions.
Brand owners may also consider conducting ad hoc takedown actions before or during popular online shopping events. The proper timing for the ad hoc takedown actions can be more effective in fighting counterfeiters or infringers online.
Chinese Customs is a major IP enforcement taskforce and is known for taking proactive seizure actions to protect IP rights. The likelihood of ex officio customs seizure actions depends on the knowledge of the customs officials working in the field about the brands. Regular road-show training for customs officials helps them to know the brand and increases the likelihood of customs seizures. Brand owners can also prepare enforcement manuals for customs officials, helping them to better distinguish between genuine goods and counterfeits and facilitating detection of suspected infringing goods.
Infringers and counterfeiters attend trade shows to solicit business. Brand owners should monitor influential trade shows so as to identify infringers and counterfeiters and take enforcement actions at trade shows in time or collect evidence to take follow-up actions after the trade shows.
In light of the nature of the dispute, brand owners should also consider using other kits in the tool box such as cease and desist letters, negotiation, mediation or arbitration, as well as resorting to commercial maneuvers and technical methods to fight counterfeiters and infringers.
It is a frequent scenario that one counterfeiter or infringer manufactures and/or sells the counterfeiting or infringing products involving multiple brands or one trademark squatter files or registers multiple trademarks in bad faith. Brand owners should share information, cooperate and join forces and support each other in fighting as joint actions can have more teeth.
Brand owners with an extensive market presence and frequent and severe IP infringement issues should meet regularly with the competent Chinese law enforcement authorities in order to build close cooperation with them. They should also ask the authorities to include their brands in ex officio regional or nationwide anti-counterfeiting campaigns, which are frequently organized.
The SPC or other courts or law enforcement authorities publish draft laws, guiding opinions or regulations for public comments so as to make well-informed and considered laws, guiding opinions or regulations. Brand owners should submit opinions and proposals so as to ask the SPC or other courts or law enforcement authorities to address their concerns in the process of making or amending laws, guiding opinions or regulations etc.
Consumers are also victims of trademark counterfeiting and infringement and trademark squatting acts. Brand owners should consider taking steps such as using the media to educate consumers, warn counterfeiters, infringers and trademark squatters and win the support of the consumers and enlist their help in fighting a “people’s war” against counterfeiters, infringers and trademark squatters, encouraging them to provide leads for brand owners to initiate enforcement actions or offer necessary assistance to help consumers in filings complaints to the competent law enforcement authorities.
There is no “one size for all” strategy for trademark enforcement actions. More meticulous calculations in strategy lead to victory and few calculations result in defeat. Brand owners should work closely with local counsel to work out creative solutions and formulate tailor-made trademark enforcement strategies to overcome the challenges and better protect their brands, business interests and consumers, who patronize and follow the brand owners for the quality and enjoyable consumer experience the brand owners offer.
