It is clear that the protection of intellectual property (IP) in China is gathering strength. In addition to the IP provisions in the Civil Code, which was implemented on 1 January 2021, the Interpretations of the Supreme People’s Court on the Application of Punitive Damages in the Trial of Civil Intellectual Property Infringement Cases were officially implemented as complementary judicial interpretations on 3 March 2021. The Dedicated Action Plan of the China National Intellectual Property Administration for Combating Bad Faith Preemptive Registration of Trademarks was also issued and implemented on 15 March 2021.
The protection of IP rights under this new legal environment presents both an opportunity and a challenge to rights holders. The opportunity lies in the fact that the importance attached to protecting IP has increased, whether legislatively, administratively or judicially, making it a good time to move various kinds of cases forward.
The challenge lies in the fact that infringers will usually act quickly to revise their infringement plans in response to a change in the situation. If a rights holder fails to move with the times, it can still suffer setbacks at the time of the granting or defence of its rights. Accordingly, it is incumbent upon rights holders to think up IP protection strategies that are consistent with their own circumstances.
Adjustment of strategy
Preemptive registration and infringement of IP in China is quite frequent, with infringers active and their methods increasingly sophisticated. Simple counterfeiting and passing off have become less common, whereas sophisticated infringements – such as where a similar trademark is registered by an offshore entity controlled by the infringer, and then licensed to a domestic entity to manufacture and/or sell infringing products – are becoming increasingly common.
Furthermore, infringement not only involves the market distribution sector, but also usually the preemptive registration of IP. Infringements may involve different rights such as trademarks, patents, enterprise names, domain names, etc., and the territory may involve China or foreign countries. Accordingly, in many cases, the confrontation with the infringer is three-dimensional and multi-faceted, requiring consideration of the situation as a whole.
The biggest challenge in the new situation usually is not posed by the opponent, but rather by the knowledge and determination of the rights holder when facing the protection of its IP. The author still sees some clients who are reluctant to file trademark or patent applications in China, and are not active in defending their rights. While there are certainly business strategy considerations involved in this, the fundamental reason is a continued lack of confidence in IP protection.
In the absence of a strategy to respond to increasingly sophisticated and evolving infringement, a rights holder will often miss the best opportunity to strike against an infringement because it acts without taking a proper measure of the situation, or is unable to effectively strike against the infringement due to taking inappropriate action.
If IP protection is merely regarded as a corporate expenditure, this will not in the long run be conducive to protecting IP. It may be more beneficial for an enterprise to set as its main objectives the enhancement of the notoriety of its brand, and increasing its market share through protection of its IP. It is only by building up confidence in defending rights, effectively analysing the infringement, and observing and summarising the reasons for losing a case from the perspective of the overall case strategy, that a similar unfavourable outcome can be avoided in future.
Taking trademarks as an example, a trademark with high notoriety can be a great cash generator for an enterprise. When an enterprise actively takes action to defend its trademark rights, it does so not only to safeguard its trademark rights, but, more importantly, to maintain and increase its market share.
This is also helpful in enhancing brand notoriety. In a trademark right granting or defence case, the evidence of efforts taken by an enterprise to crack down on fakes and defend its rights has an important role in substantiating its trademark rights and the influence of its trademark in the market, and the same also affects the determination of the measure of damages for infringement in a civil infringement case.
It is only by building a tailored trademark management system and formulating a targeted strategic plan to enhance the success rate of rights defence that an enterprise can meet the demands of market competition and continually improve its market share and brand notoriety.
In practice, typical conventional solutions are usually not up to the task when dealing with experienced and crafty infringers. To effectively deal with infringers, it is necessary, by means of a unified strategy, to integrate IP rights organically through their mutual support of one another and their methods of protection, in light of the rights holder’s business development objectives, the current status of its IP rights, and its protection objectives in China.
In the face of complex infringement challenges it is necessary, on the one hand, to use administrative protection and/or litigation to combat infringement existing online and in the market, while on the other hand, to take measures to invalidate and vacate the IP pirated by the infringer, and ensure that the two types of action are mutually supportive and co-ordinated, so as to effectively halt the infringement.
The advantage of the above-mentioned comprehensive strategy is that while it takes into account the immediate case, it places even greater emphasis on the impact of the actions taken in the course of an IP dispute on the overall business interests of the rights holder.
In the new IP legal environment, if a rights holder is insufficiently knowledgeable of the infringement in China, such lack of knowledge may cause it to be insufficiently prepared to respond to infringement and, it goes without saying, lack the corresponding experience in responding to the same, which will place it at a disadvantage in any subsequent dispute with the infringer. Only by building confidence and actively responding with a comprehensive tailored IP strategy can a rights holder duly exploit the opportunities found in the new situation and achieve the desired result.
Frank Liu is a partner at Pacific Legal