VI. Administrative Relief, Customs Protection, and Criminal Prosecution of Patent Counterfeiting

A. Administrative Relief

1. Administrative Injunctive Orders in Ordinary Infringement Cases

The Chinese Patent Law provides that the owner of a patent that is infringed may either start a lawsuit in court, or request the administrative authority for patent affairs to handle the matter. Once the administrative agency decides that infringement is established, it may order the infringer to stop the infringing act immediately. If the infringer is not satisfied with the order, he may, within 15 days from the date of receipt of the notification of the order, institute a legal proceeding in the people's court in accordance with the Administrative Procedure Law of the People's Republic of China. If, within said time limit, such proceedings are not instituted and the order is not complied with, the administrative authority for patent affairs may approach the peop1e's court for enforcement of the administrative order.[1]

2. Administrative Penalties in Cases Involving “Passing Off”

Harsher administrative penalty is imposed on a person who “passes off the patent of another person as his own.” In such a situation, the offender’s illegal earnings shall be confiscated and a fine may be imposed on him not exceeding three times his illegal earnings. If there is no earnings, a fine of no more than RMB 50,000 yuan may be imposed on him.[2]

3. Stay of the Administrative Proceeding Pending the Outcome of an Invalidation Proceeding

As in a court litigation, the respondent in an administrative proceeding also

has the option to request to stay the proceeding after filing an invalidation application with the Patent Reexamination Board. But if the administrative agency finds that the grounds raised by the respondent for the stay are “obviously untenable,” it may not suspend the handling.[3]

4. An Efficient and Swift Procedure

In comparison to judicial relief, administrative protection is relatively efficient and swift, requires less evidence to prove infringement, but may be obstructed by local protectionism as they are enforced by local government agencies. Besides, administrative agencies cannot award damages to the complainant but only issue injunctions and impose fines.[4] Therefore, if the owner of the patent is mostly concerned with stopping the infringement, administrative relief is a cost-effective option. Otherwise it is not an adequate remedy.

In fact, most intellectual property enforcement in China is carried out through administrative means. In 2003, administrative agencies handled 1,517 patent dispute cases, of which 1,237 were resolved.  A total of 1,873 cases were settled as passing-off patents and 164 cases were settled as counterfeiting patents.[5]

5. Illustrative Examples

In 1997, the Japanese motorcycle manufacturer Honda filed a complaint with the Zhejiang Province Patent Administration Office (predecessor of the current provincial intellectual property office) against a local motorcycle manufacturer for infringing a Chinese design patent owned by Honda. After an investigation, the patent administration office found that products made by the local company did infringe on Honda’s patent and it indicated its intention to award damages to Honda. The parties settled the dispute after the local company agreed to destroy all the infringing products and parts, stop making and selling similar products, and pay 100,000 yuan RMB.[6]

At the request of Royal Philips Electronics of the Netherlands, the Sichuan Provincial Intellectual Property Office in August, 2002 conducted a raid on 26 stores that sold electric shavers infringing Philips’ Chinese patents. The 26 stores promised not to repeat the infringing conducts and entered into agreements with Philip that they would pay heavy fines for violating Philip’s IP rights in the future. 821 pieces of infringing products were seized and destroyed under the supervision of Philips.[7]

B. Customs Protection

Another important means to enforce one’s patents in China is through customs protection. Pursuant to the Regulations of the People's Republic of China Regarding Customs Protection of Intellectual Property Rights[8] (“Customs Intellectual Property Protection Regulations”), the owner of an intellectual property can not only stop imports of infringing products from entering China, but also prevent exports of infringing products from leaving China.

1. Duty of Shippers and Consignees to Declare Status of Intellectual Property Rights

This regulation was first introduced in 1995, but underwent an overhaul in 2003. For instance, Article 3 of the now obsolete “Customs Rules of the People's Republic of China Concerning the Implementation of Customs Protection of Intellectual Property Rights” merely provides that “[w]here it is deemed necessary, the Customs may require shippers and consignees to make a supplementary declaration of the status of the intellectual property rights of the goods when going through the customs formalities regarding the import or export goods.”[9]  In the new Customs Intellectual Property Protection Regulation, Article 5 imposes a duty on the consignees of import goods or consignors of export goods and their agents to “declare to the customs authorities the state of the intellectual property rights related to the import or export goods and submit the relevant certificates and documents.”[10]

2. Right to Apply for Detention of Infringing Products

Under Article 12 of the Customs Intellectual Property Protection Regulation, the owner of an intellectual property right has the right to apply to the Customs Authority to detain suspected infringing goods if he discovers that the suspected infringing goods are about to be imported or exported.[11] Article 13 provides for the procedure for such applications.[12]

3. Recordation of IP Rights with the Customs Authority

Another benefit afforded to owners of intellectual property rights by the Customs Intellectual Property Protection Regulation is the recordation with the Customs. In order to do so, the IP owner must file, together with the application, certain information and evidence regarding the IP right.[13] The benefit of doing so is that once the Customs discovers that a shipment of imported or exported goods is suspicious of infringing an intellectual property right on record, it shall immediately notify the owner of intellectual property right in writing. The owner then shall have the option to file within three working days an application to detain the goods. After the IP owner files such application and posts a surety bond, the Customs may then detain the suspected infringing goods with notice to the consignee or consignor. [14]

Once the infringing goods are detained by the Customs, the intellectual property owner has the option to apply for administrative protection to local intellectual property offices or commence an infringement action in a court of appropriate jurisdiction, possibly with an application for pre-litigation injunction. If the consignor or consignee of the goods believes that the goods do not infringe the intellectual property right, he has the option to apply for the release of the goods after posting a surety bond double the amount posted by the IP owner.

The following statistics illustrate the effectiveness of customs protection of intellectual property rights in China. In 2003, the Chinese Customs Authority received 1,240 applications for recording intellectual property rights and approved 1,353 applications, including those filed in 2002. Meanwhile, customs offices across the country seized infringing products in 756 cases, including 9 involving imported goods and 747 involving exported goods. Of these cases, 741 involved trademark infringement in the amount of 66,930,000 yuan RMB and 14 involved patent infringement with a value of 1,040,000 yuan RMB. [15]

C. Criminal Prosecution of Patent Counterfeiting

While there is no criminal liability for ordinary infringement of patent, Article 58 of the Chinese Patent Law provides that where any person “passes off the patent of another person as his own” and “the infringement constitutes a crime,” he shall be prosecuted for his criminal liability. As to what constitute the criminalized conduct of “passing off,” Article 84 of the Implementing Regulations of the Patent Law of the People's Republic of China lists four categories of acts.[16]

Article 216 of China Criminal Law provides that where the offense of passing off is “serious,” the offender shall be sentenced to a fixed term of imprisonment of not more than three years, and/or a fine.[17] Article 64 of the Regulations on Prosecution Standards for Economic Crime Cases issued by the Supreme People’s Procuratorate of the People’s Republic of China (the national prosecutor’s office) and the Ministry of Public Security provides detailed definitions as to when the counterfeiting offense becomes “serious.” Pursuant to this document, four kinds of offenders will be prosecuted as serious offenders, i.e. 1) those who received illegal gains in an amount exceeding 100,000 yuan; 2) those who caused direct damages to the owner of the patent in an amount exceeding 100,000 yuan; 3) those who pass off the patent of another person as their own after having been fined administratively twice for the same offense; and 4) those whose conducts have caused bad influence.[18] Criminal patent counterfeiting cases are investigated by the Chinese police. Between 1998 and 2003, Chinese courts heard 1,273 criminal cases involving intellectual property rights.

Conclusion

While there remain problems to resolve and obstacles to overcome before China’s patent enforcement system can match those in the most advanced industrialized nations, much progress has been made from scratch within a short period of twenty years. A healthy trend has been set. The pace of positive change will only accelerate as China enters its second decade of sustained economic growth. It is reasonable to anticipate that, as its integration with the global economy intensifies, China will show more respect to and provide more effective protection of intellectual property rights, including Chinese patents owned by foreign parties, because it is in the best interest of both China and the World.