China’s campaign to strengthen IP enforcement: What’s going on and what will impact foreign rightsholders
In recent years China’s top leaders have urged a whole-of-government push for strengthened IP protection at an almost unprecedented scale. As a result of endeavors across the courts and other government agencies across the country, rightsholders are enjoying stronger enforcement of their intellectual property (IP) rights, whether in civil lawsuits, criminal proceedings or administrative actions. What’s more, we expect further improvements in this ongoing campaign. Foreign rightsholders are in no way outsiders in this initiative, but rather the beneficiaries of the opportunities that will emerge from less burdensome legal procedures and the higher damages and fines that await violators.
A glance at the changing landscape
Civil IP lawsuits in China have undergone significant changes in recent years. Low damage awards and lengthy legal procedures are often the top two issues that dissuade rightsholders from pursuing civil lawsuits against IP infringements in China. However, damage awards are soaring now. In Guangdong province (which receives around one third of all civil IP cases nationwide), for example, the average damage award for patent infringements went from about 338,000 RMB in 2018 to about 633,000 RMB in 2020, an 87% increase.
At the same time, civil IP lawsuits are moving faster. With the establishment of the IP Court of the Supreme People’s Court in 2019, the average length of appellate procedures of technology-related civil IP cases (mainly invention and utility model patent infringement cases) went from over a year to 121.5 days in 2020. These positive changes have brought an increasing number of rightsholders to the courtroom to enforce their IP rights—the number of first instance civil IP cases received by all courts across China surged from 283,414 in 2018 to 443,326 in 2020.
Criminal enforcement is also growing stronger. In 2018, public security bureaus across China seized 27,966 suspects for IP infringement crimes and fake and substandard commodity crimes, with the involved products/services valued at 9.87 billion RMB. The numbers climbed to approximately 32,000 suspects and 18 billion RMB in 2020. The number of IP crime cases that went to court also rose from 4,458 in 2018 to 5,848 in 2020, while the number of prosecuted suspects rose from 8,325 to 12,152.
State and local Administrations for Market Regulation (AMRs) and China customs have intensified their actions against IP infringements. In 2018, AMRs across China investigated 515 million RMB worth of products/services in trademark infringement and counterfeit cases and imposed fines and confiscation orders of 493 million RMB. In 2020, the numbers climbed to 765 million RMB and 678 million RMB respectively. The number of trademark infringing goods seized by China customs also increased by 133% from 23.98 million items in 2018 to 55.83 million items in 2020.
Administrative and criminal enforcement agencies have also begun collaborating much more closely. In 2020, 811 trademark infringement cases that were initially investigated by the AMRs in administrative actions were criminally prosecuted. This far outpaces the 236 cases that were criminally prosecuted in 2018.
What’s going on behind the scenes?
The improvements discussed above did not come out of nowhere. We are in the midst of an enhanced IP protection campaign that China kicked off in 2019. The campaign is not only part of China’s continuous endeavors to improve its business environment and build a “strong IP country,” but is also a response to IP-related concerns repeatedly expressed by the US during the trade war. The campaign is a comprehensive implementation of China’s commitments made in the Phase One trade deal.
A milestone that marked the start of the campaign was the release of the Opinions Concerning Enhancing Intellectual Property Rights Protection (Opinions) on November 24, 2019, by the General Office of the Chinese Communist Party and the General Office of the State Council, two of China’s top political agencies. The Opinions set out two key goals: 1) By 2022, the country will curb the ease and frequency with which IP is infringed. The country will also rectify problems with IP enforcement, including difficulties in producing evidence, time-consuming proceedings, high costs and low compensations. 2) By 2025, social satisfaction with IP protection in China will reach and maintain a high level.
To reach the two goals, the Opinions set out several key action items, covering nearly all China’s commitments made in the Phase One trade deal and more. To name a few, the action items include: 1) increasing the amount of damages, introducing punitive damages and substantially increasing the maximum statutory damages; 2) lowering thresholds for initiating criminal enforcement, increasing criminal penalties and improving coordination between administrative and criminal enforcement; 3) increasing administrative penalties and conducting special administrative actions against key areas; 4) strengthening trade secret protections; and 5) promoting destruction of counterfeit and infringing goods.
Following this roadmap, we have seen a series of drastic changes to China’s IP legal framework since 2019. The Trademark Law, Patent Law and Copyright Law have all been revised to introduce punitive damages, increase the maximum statutory damages and ease the rightsholders’ burden of proof for damages. The Criminal Law was revised to extend criminal protections to more IP rights, such as service marks and the right to disseminate works on information networks, as well as to increase criminal penalties. In addition, the Supreme People’s Court (SPC) has issued several judicial interpretations to implement the action items, including provisions that ease difficulties in producing evidence and facilitate the imposition of preliminary injunctions and punitive damages.
Many of these legal changes are recent (for example, amendments to both the Patent Law and Copyright Law became effective on June 1, 2021), and some are pending. One can expect further improvements in the near future, such as a continued increase of damage awards.
Despite all the encouraging changes, some of the long-standing issues with IP enforcement in China would not and could not be resolved overnight. For example, while the SPC’s amendment to a judicial interpretation in 2020 has removed the notarization and legalization requirements on most types of foreign evidence, most Chinese courts still adhere to the old onerous requirements, which causes major inconvenience to foreign IP rightsholders.
As another example, although the SPC has long pushed for more preliminary injunctions in IP litigations, the courts have yet to develop effective levers to enforce such injunctions in cases of an uncooperative defendant. At the same time, the level of damages in IP cases, albeit on a rapid rise, remains far below other jurisdictions. China’s grand campaign to strengthen IP enforcement is still a work-in-progress, despite all the notable successes.
What’s there for foreign rightsholders?
Foreign rightsholders have largely received fairly equal IP rights protection compared to Chinese rightsholders in almost all aspects, particularly in civil enforcement of their IP rights. According to research conducted on all (1,663) publicly available final patent infringement cases decided by the Chinese courts in 2014, when compared to Chinese plaintiffs, foreign plaintiffs enjoy a slightly higher win rate (84.4% vs 79.8%) and an average damage award three times as high (201,620.5 RMB vs 66,217.9 RMB).
Foreign plaintiffs typically also get a higher ratio of claimed damages awarded. For example, the Beijing IP Court awards around 40% of claimed damages on average in patent infringement cases, while the ratio in foreign-related cases is 87.4%.
Under the enhanced IP protection campaign, Chinese courts, especially those in which most foreign-related cases are decided, including courts in Beijing, Shanghai, Guangdong, Jiangsu and Zhejiang, are aiming to become the “preferred venues” for international IP disputes, and have made commitments to further strengthen the enforcement of foreign rightsholders’ IPs, including to increase damage awards.
We have seen signs of foreign rightsholders becoming more confident in using the Chinese court system – the number of foreign-related civil IP cases received by the courts across Guangdong more than tripled from 317 in 2018 to 1,018 in 2020. Foreign rightsholders should reasonably expect to benefit equally, if not more, from China’s enhanced IP protection campaign. We are hopeful that the enforcement of IP rights will continue to get easier with less burdensome formalities, and that damages and fines will continue to rise. We are optimistic that the entire IP enforcement regime will become more effective and user-friendly as China continues to improve and perfect its IP enforcement regime.
