Trademark Protection via China Customs Enforcement
Chinese customs authorities are empowered to take direct action on behalf of a party to protect trademark rights. When customs officials discover goods that may infringe on protected trademark rights, they refer the matter to the customs head office. A customs officer at the head office will then send a notice to the owner, who is then entitled to pay a bond to request customs take action.
Next, China customs will begin an investigation into whether there is actionable infringement. If an infringement is found, customs will seize the goods and issue a fine. Criminal cases may also be referred to law enforcement if appropriate. Furthermore, trademark owners can use the customs enforcement and seizure process as evidence when pursuing damages in court. Thus, Chinese law now empowers trademark owners to utilize the customs enforcement process to impose both civil and criminal liability on infringers.
Contents
Customs Investigation & Penalties
Criminal liability against counterfeiters
China Customs will Investigate and Impose Administrative Penalties
An excellent starting point for seeing how China customs deals with trademark infringers is the celebrated “NY” baseball caps case, published quite widely by the China customs office. The case revolves around one of the world’s most famous logos, the New York Yankees’ “NY” logo. In this case, the complainant was the owner of the logo, who filed for intellectual property protection with customs after learning that a batch of goods bearing the “NY” logo had arrived at customs at several Chinese ports for export.
Customs held the allegedly infringing goods for investigation, which found that the “NY” logos on both the trademark owner’s products and the exports were the same. Further, the exporter was not licensed in China to use the mark, which also constituted trademark infringement in itself. Taken together, it constitutes exporting goods in violation of trademark rights. Customs seized the infringing NY branded baseball caps and imposed a fine.
In this case, we can see clearly how Customs identified a potential infringement and notified the owner, who then requested customs take action to protect their rights, ultimately resulting in an administrative penalty decision that included both the seizure of the goods and a fine.
These administrative penalties are issued primarily under the authority of the China Customs Act and its subordinate regulations. Noteworthy is the fact trademark owners can also be held liable for wrongful claims.
Trademark owners who make a wrongful claim, requesting customs seize goods, could be liable for economic losses if the subsequent investigation (or a court if a lawsuit is filed) finds no infringement. A company’s trademark compliance process should therefore include steps to verify potential trademark infringement before requesting China customs take action.
Disputes over trademark infringement during China’s import/export processes can be resolved more efficiently through mediation services. Dispute mediation can be used once customs begins investigating infringement allegations, and current regulations permit mediation only during the pendency of the investigation, or, more specifically, after the request to customs has been made but before customs reaches its decision.
Working closely with China-based staff and counsel is essential to succeeding in customs enforcement. Avoid ineffective enforcement by making sure counsel provide clear case updates and holding them accountable for providing good results. Have English versions of the materials prepared by professional translators, and not outsourced to unprofessional and unqualified freelancers or in-house staff. Supervising and collaborating with local staff on executing a well-planned enforcement strategy is a must.
Take subsequent civil action to protect your trademark
In a recent case filed by an international fashion company, China customs identified goods imported by a counterfeiter that closely resembled those of an international brand. Similar to the NY caps case, the customs head office determined that the imported goods did infringe on the fashion company’s trademark, leading to the seizure of the goods and a fine.
The company then demanded that the defendant immediately cease and desist sales of the goods and sought damages for all economic losses it suffered as a result, and proceeded to file a lawsuit in Zhejiang, China to assert its trademark rights.
The court in China emphasized the plaintiff’s trademark registration entitles it to protection from how the infringing products were prominently displayed the plaintiff’s logo, constituting use of the trademark by indicating the origin of the goods. The court held that this infringement justified granting the plaintiff’s cease and desist demand, and awarded economic damages.
The result reached by the court falls under China Trademark Act §57, which authorizes cease and desist orders and the full award of economic damages. This case is a good illustration of how, under customs law, trademark owners have an additional avenue in China to protect their IP; by requesting customs seize infringing goods and impose fines, with the possibility of further recourse to recover damages in civil litigation. Thus, import/export infringers face the triple threat of seizure, fines, and litigation damages through the remedies currently available under direct administrative enforcement action.
Moreover, during litigation, courts are empowered to order the customs office to cooperate with further investigation by providing evidence related to the imported/exported goods. Therefore, trademark owners wanting to minimize risks should be proactively collecting evidence for potential litigation in China’s courts. Specifically, they should be maintaining close contact with customs during enforcement actions and gathering detailed information about how the infringing goods were imported/exported, including samples, documentation, and records, which would then enable them to motion to collect evidence from customs in support of their case.
Customs Brokers
Chinese customs law imposes joint and several liability on customs brokers who fail to conduct reasonable due diligence on the trademark associated with goods they import and export. Particularly, customs administrative regulations require customs brokers to first examine the goods and then make a truthful declaration about potential intellectual property infringement to the customs office. A customs broker can be held jointly and severally liable with the principal infringer in China if the broker misrepresents the trademark status of the goods. Moreover, this misrepresentation is deemed intentional facilitation of infringement on the owner’s exclusive right to use the trademark. Thus, Chinese law has established a gatekeeping role for brokers in the customs declaration process as a means to enforce trademark rights.
Seek criminal liability against counterfeiters
In a celebrated case, Beijing prosecutors alleged that the items belonging to notorious trademark counterfeiter Zhang Moujie were seized by China customs during the clearance process. A customs investigation then revealed a large cache of goods bearing the HP brand, with a total sales value of ¥706,000 (then about USD $100,000). Zhang Moujie was charged with the criminal sale of counterfeit registered trademarks. During the trial, the court ordered the seizure of the counterfeits and found Zhang Moujie guilty, sentencing him to three years in prison and a fine of ¥300,000.
This case is noteworthy because the court explicitly reasoned that the value of the goods Zhang Moujie imported was “enormous,” and specifically found that the criminal conduct fell under the trademark law provisions found in China’s criminal code.
Trademark owners have some additional leverage under Chinese trademark law to cease the offending conduct: criminal penalties can be mitigated by proactively assisting customs in their investigation of the import/export of the infringing goods. This mitigation, however, presupposes the infringer proactively admitting guilt, settling with the victim and paying damages, and issuing a public apology.
Conclusion
China customs enforcement offers trademark owners a powerful first line defense to stop counterfeits before they even reach their intended market, effectively protecting their trademarks. Not only does this stop import/export of counterfeits, but the evidence gathered during customs investigations is admissible in civil litigation and can prove indispensable when pursuing damages in court. For import/export businesses, however, Chinese law creates significant legal risks for noncompliance, with businesses facing potential seizures and fines, and potentially huge damages in subsequent litigation if found infringing.
FURTHER READING
Get authoritative insights about Chinese foreign investment law from official government guidance in translation:
- Getting China’s regulators to stop trademark infringement
- How China trademark infringement litigation actually works
For a general overview of this topic, see also CBL’s China Trademark Law FAQ.