How to mitigate the effects of counterfeiting in China
With the rise of e-commerce, the counterfeit trade has boomed and targeted brands are left at risk of not only financial losses but also reputational impact.
Social media platforms are increasingly building their sales offering and counterfeiters are now able to sell fake items online, mostly without needing to verify their identity.
Many of these platforms enable sellers to list items on multiple websites simultaneously and offer low-cost account creation and listings. This allows counterfeiters to duplicate information from genuine products and push products to the top listing.
The variety of channels means regulation becomes more complex, and counterfeit attempts are more difficult to control. Infringers are continually evolving their approach, whether that’s through e-commerce or other channels and brand owners need to be reactive.
The landscape is challenging, but there are a number of actions brand owners can take to mitigate the risks. Often a multi-pronged approach is recommended to effectively disable the infringing network, including everything from online takedown to taking infringers to court in order to stop the infringement and recoup financial losses.
Taking down counterfeits listed online
One approach is online takedown, but often further action will be required. To get counterfeit items removed from online platforms is challenging, due to the number of sites they could simultaneously be on as well as the amount of evidence needed to get them investigated and removed. There are also loopholes—for example, counterfeiters can sometimes remove advertisements, but not take the fake items themselves down from a site.
In China, the government emphasises the importance of IP protection and actively guides brand owners to take innovative actions to safeguard their interests. At the same time, IP practitioners are evolving their techniques and practices to fight infringers.
Brand owners are increasingly working with governments or IP legal firms against counterfeiters, who can creatively use techniques to win cases both in the civil and criminal courts. More collaboration between the government, IP professionals and brand owners will increase innovation in the fight against counterfeiting, ideally deterring infringement over the long term.
In three recent examples of court cases in China, won by Lusheng for their clients, creative and innovative techniques were used to win in both the civil and criminal courts.
- Seeking support from the Procuratorate to win civil and criminal case
Often in counterfeiting cases criminal punishment is pursued rather than civil due to the difficulty of evidence collection, legal costs and the likelihood of damages awarded by the court not being enforced.
This can mean that counterfeiters aren’t made personally responsible for compensation. However, in a recent civil case, support from the Procuratorate (China’s Prosecutor’s Office) was sought and secured to ensure the case was taken forward in the civil courts.
The court ruled that the defendants will compensate the brand owners a significant amount for trademark infringement and the brand owners obtained the damages. It is unusual for the Procuratorate to support civil litigation, usually only getting involved in cases with those that get a lot of public interest.
The client in question is a sports company which owns many well-known international brands. It fell victim to a counterfeiter who was estimated to have made over £400,000 over the course of his operation customising apparel products with counterfeit trademarks from 2012.
Almost 5,000 pieces of counterfeit clothing were seized, with a value of more than £190,000. On December 9, 2021, the court sentenced the defendant to a four-year term imprisonment and a fine for the crime of Counterfeiting a Registered Trademark.
This case is significant, as the client was awarded the civil lawsuit damage claim on top of the criminal punishment lawsuit.
- Breaking the mould: Civil and criminal cases run concurrently
This case is an example of a breakthrough of the traditional pattern of criminal first then civil, in which both cases were run in parallel. The counterfeiters had been purchasing, upgrading, relabelling and selling second-hand switches from Lusheng’s client, a global leader in internet solutions, since 2018.
In 2020, the police seized 377 counterfeit switches, 57 semi-manufactured products among others.
The brand owner initiated a civil action in the process of the criminal trial. The court decided to hear the civil case while the criminal case was pending, rather than suspending it until the criminal case was concluded, and entered a default judgment for one defendant (the criminal investigation against him was still under process) holding that the defendant was liable for infringing the trademark.
The civil court ruled that the counterfeiters compensate the plaintiff nearly £139,000 for economic losses and right protection costs, and the criminal court sentenced one of the counterfeiters to a four-and-a-half-year imprisonment with a fine of £150,000.
- A multi-pronged approach: combining administrative, civil and then criminal action
A third case demonstrates the combination of administrative, civil and then novel criminal enforcement action. The process, which lasted over two years, resulted in lengthy prison terms and large fines for key counterfeiting gang members.
A sophisticated Chinese network was manufacturing and selling large quantities of fake and potentially dangerous toys under the guise of an internationally recognised brand. In April 2021, the People’s Court issued its judgment, convicting the 13 accused of the crime of infringing copyright and sentencing them to a combined total of 31 years of imprisonment and fines amounting to more than £160,000.
In this case, significant efforts in gathering intelligence and evidence, combined with multiple enforcement actions, effectively disabled a criminal network operating out of three cities.
These actions prevented the expansion of infringing activities, sent a clear message and ultimately safeguarded the interests of consumers. The case was recognised by the Supreme People’s Procuratorate as a model case to educate the public on criminal copyright infringement.
How brand owners can mitigate counterfeiting
The three cases above demonstrate some of the more innovative ways that brand owners can protect their intellectual property, in partnership with IP professionals. Action should be taken on a case-by-case basis, which could range from small-scale action such as online takedown to serious action such as seeking out repeat offenders.
Prevention is, of course, better than cure. There are several steps that brand owners can take to deter potential counterfeiters:
- Scoping out global platforms for potential counterfeiting to clarify who the counterfeiter is and where they are working from, and allow companies to collect evidence of fake listings to allow them to act against the more prolific and repeat offenders.
- Consider which IPR complaint mechanisms are already in place to determine whether there is a notice and takedown system covering IP issues and penalties in place for repeat offenders. It is important to note that usually IPR complaint mechanisms only deal with adverts; not the counterfeit goods themselves.
- Identify key stakeholders who are crucial in the supply chain. By investigating over the longer term and implementing a tailored strategy, companies can successfully deal with problems at the source and have a real deterring impact on counterfeiting.
To avoid becoming the target for counterfeiting, brands should have a full IP protection plan in place in advance. If more businesses are prepared for and able to take on counterfeiting offences, it will go a long way towards tackling this global problem head-on.
In the event of infringement, brands should be prepared to employ a multi-pronged approach to IP protection, utilise creative methods and implement a strategy with IP professionals.
Alice Hou is head of the Guangzhou Litigation Team at Lusheng Law Firm. She can be contacted at: ahou@lushenglawyers.com
