The Future of China IP Enforcement? Let’s Hope Not.

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If you got together ten experts on China intellectual property enforcement for a chat and asked them to discuss needed reforms, you would probably end up with everyone agreeing on a short list of fixes. That’s because everyone knows what’s wrong and what needs to be done, but moving forward with the resources and institutional will to do so is another story.

What are some of those obvious fixes? Here are my top five, several of which are pipe dreams and won’t happen in the foreseeable future:

1. More resources and training for enforcement and registration staff.

2. Incentivize criminal enforcement authorities to prioritize IP cases.

3. Free judges from certain policy guidance that interferes with straightforward judgments (i.e. forced settlements).

4. Strengthen central control of IP enforcement to crack down on local protectionism and assert more power over local officials.

5. Promote more judicial and administrative communication with an eye towards coordinated activities between agencies and equal application of the law.

These are big picture items, and there are hundreds of technical matters that could also be tacked on to that list. But if you’ll notice, I did not include “Greater emphasis on civil litigation” as a line item. In this, I do not agree with recent government pronouncements.

At a news conference yesterday that publicized IP enforcement measures, Jiang Zhengwei, Vice Minister of Commerce, had this bit of advice:

The current protection of IPR relies heavily on administrative measures, which are fast and efficient but need to be improved.

In the future, China will draw lessons from Western countries and place more emphasis on dealing with these cases in court. We will simplify the process and make it more efficient while cutting the cost.

I don’t know where this idea comes from, and I don’t understand it. Administrative actions (the most common are raids of suspected IP infringers) are indeed fast, cheap, and efficient, and yes they do have their drawbacks as well, many of which I addressed in that list above. Court action is slower and more expensive, but it is also the only way to receive damages from the infringer.

The choice of court versus administrative action (or in a perfect world, going to the police) is a complex one, but it usually boils down to a few factors: speed, cost, and damages.

The above quote suggests that court is the better choice, so the government should make going to court easier. Two problems with this. First, I don’t care how much cheaper and more efficient you make civil litigation, it won’t be able to compete with administrative action. A colleague of mine recently supervised a raid on behalf of a foreign client for about USD 6,000 and the whole thing took about ten days. Try that for a court case — ain’t gonna happen.

Second, in cases where the defendant will not be able to pay damages, there are few cases where court action would be preferred.

So why the emphasis on court action? Here’s the answer, which almost made me start crying:

Feng Xiaoqing, a law professor at the China University of Political Science and Law, noted that taxpayer money would have to be spent if administrative agencies were left to fight infringements of intellectual property rights. Courts, on the other hand, can cover their costs by collecting fees from litigants, making it fairer to rely on them to protect individual rights.

Are you f*^$(ng kidding me? We want to push court action because the costs can be defrayed by litigants’ fees? I’m nearly speechless here. Spending less money is certainly not what leaps to mind when I consider how to strengthen IP enforcement in China.

Here’s what it comes down to. If we’re serious about IP enforcement, then the resources need to be allocated to do it right. If arbitrary decisions about choice of dispute resolution venues are made based on filing fees, then we’re never going to fix these problems.

Let’s get serious.

6 responses on “The Future of China IP Enforcement? Let’s Hope Not.

  1. Dan Welygan

    I take it then, that despite numerous vague suggestions to the contrary (usually made during visits from foreign officials and trade groups), IP enforcement is really not a high priority to the Chinese government.

    Assuming that the groups most likely to push IP enforcement court cases are foreigners, it looks bad politically if the Chinese state is outlaying cash to help hand over domestically earned money (even if earned improperly using others’ IP) to foreign parties.

    Apparently the importance and value of domestic IP hasn’t hit critical mass yet; or those domestic organizations that stand to benefit the most from improved regulation and enforcement don’t yet have enough influence in the party?

    Although there is probably a high degree of IP ‘borrowing’ that happens among domestic competitors in any given industry in China, it seems (to me) that is simply an accepted part of the competitive landscape. Not sure what it would take for domestic companies in IP disputes to choose a court-driven legal resolution over any number of other alternatives (product differentiation, creating red-tape issues for competitors, etc).

    1. Stan Post author

      A couple comments. First, IP enforcement is taken seriously here, but of course more resources would help. This is not an either/or proposition. IP owners, and foreign governments, say spend more, and the government says we have other pressing issues to deal with. To some extent, they are both correct. Moreover, many problems (like training and experience of officials) cannot be solved overnight.

      Second, in fact most IP cases are domestic vs. domestic, not involving foreigners at all. It is a mistake to characterize China’s shortcomings in the area of IP enforcement as simply a matter of pillaging from foreign firms to enrich local companies. The reality is much more complicated than that.

  2. FOARP

    Here’s where my ignorance of Chinese law may be getting the better of me: are you saying that preliminary search-and-seizure and interlocutory injunctions can’t be had through the courts but only through administrative action?

    As an example, in England and Wales (which is the jurisdiction which permanently unqualified old I am most familiar with) an Anton Piller order (i.e., search and seizure) takes, in the most extreme cases, only a few hours to arrange, and can be combined with a Mareva injunction (i.e., freezing of assets). All it requires is that you get an order from a judge (there is one available via a hotline 24/7), and it can be awarded ex parte. This is the reason why civil actions are so favoured – because of the powers the civil courts can and do have to stop infringement very quickly as a preliminary to proceedings (in which the infringing party will be strongly motivated to settle) where the infringement can easily be shown.

    I suppose (but am not sure) that state and federal law in the US has something similar to this.

    1. Stan Post author

      In a perfect world . . .

      Actually, preliminary injunctions are available and are granted more often these days (used to be virtually impossible). However, this process is not available everywhere, and there are still major obstacles. It’s a possibility that major reforms will make this the way to go in the future, but we are very far away from that point right now, which is why I would still emphasize going the administrative route in the near future.

      1. FOARP

        So basically, if I discover that a bunch of material which I can easily show infringes my Chinese trademark is due to be shipped from a Nanjing warehouse to an unknown location for sale the day after tomorrow, no court in China is going to grant injunctions allowing the search and seizure of evidence, the freezing of assets, and blocking any further infringing activities pending litigation? Instead I should go to the cops? Even if the infringement is not what we would traditionally think of as criminal in nature (i.e., not straight-up counterfeiting)?

        And what if my perfectly legal business gets raided by the cops for infringement on bad info? Or it’s possible for me to show invalidity? Where’s my come-back?

        I think I can see why a lot of people would like to see stronger enforcement through civil proceedings – especially given the success of such measures in countries with similar legal traditions to China such as e.g., Germany and Japan.

        On a separate note, I have worked on patent applications in China drafting responses to the SIPO, and found the SIPO examiners to actually be a lot better than USPTO ones, but this may not be indicative of the whole, and anyway, the USPTO is hardly the gold standard!

        1. Stan Post author

          I wouldn’t say that no court will help you, it just might be a crap shoot depending on where you are, who the infringer is, the facts of the case, etc. The judge has complete discretion. I’d try it, but you never know.

          Chances are that the cops will not help you unless there are some very unique factors at play, and with that timeline, a raid will take too long to organize. That would be a tough situation.