NEWS

Who are the protectors of intellectual property in China? Most would immediately think of the China National Intellectual Property Administration (CNIPA), copyright offices, trade and industry bureaus, public security agencies and the courts. But few bother to understand the critical role played by customs.

Take trademark rights for example. The number of active registered trademarks has long surpassed 10 million, but as of mid-April 2023, a mere 77,993 trademarks are registered with the customs IP protection system at the General Administration of Customs (GAC). So, what is there to know about IP protection concerning customs?

GENERAL INFORMATION

Customs protects what is commonly referred to as the “3+2” types of IP, namely trademark, copyright and patent, as well as exclusive rights to the Olympic and World Expo logos. In practice, cases mostly concern easily identifiable trademarks.

For customs to be involved, the case must concern imported and/or exported goods. Only when goods carried or posted across the border exceed the reasonable amount for personal use, and violate the above-mentioned IP rights, will customs authorities deem it an infringement and intervene.

Risk of infringement further extends to the import and export of second-hand and used goods. Xiamen customs once seized more than 1,000 used sewing machines labelled with four different trademarks, which were identified as infringing goods by the rights holders. The owner of the goods claimed the machines were acquired from a bankrupt factory, and the plan was to sell them to local clothing manufacturers in South Asia. “We were careless and didn’t realise that used equipment can also infringe IP rights,” he explained.

ARCHIVAL FILING IMPORTANCE

Customs will proactively protect IP archived at the GAC on the basis of their authority, while for those not archived the rights holder will have to apply to customs for ad hoc protection. The situations are more than a little different.

Difference in rights holders’ pressure to provide guarantee

Rights holders of archived IP may request customs to seize goods suspected of infringement by providing a single guarantee amount of not more than RMB100,000 (USD14,513). If the IP is unarchived, the rights holder will have to provide customs with a guarantee amount equivalent to the value of the goods.

In addition, by submitting a letter of general guaranty to the GAC, rights holders of archived IP may apply for the provision of a general guarantee effective until the end of the year.

Companies with a high risk of potential infringement will find the option easily more desirable, due to superior form and time requirement of the guarantee, as well as greater lengths that customs will go to protect their rights.

Difference in the requirement to submit evidence

Rights holders of archived IP need only confirm infringement in writing, and leave customs to carry out the investigation. Without archival filing, however, rights holders have to provide the specific time of import and export of the goods, the name of the ship and number of voyages, and evidence sufficient to substantiate the infringement. Only then can the application for protection be made.

Even then, customs will not be responsible for the investigation, and can only detain the suspected goods for 20 working days after which, without a notice of court-assisted detainment, it would have to release the goods.

OEM TRADEMARK RISKS

Original equipment manufacturing (OEM) refers to scenarios where domestic processors apply trademark logos provided by foreign clients to their processed goods, then export all such products to be sold overseas.

In most cases, the logos are legally trademarked in the clients’ origin countries/regions, but may not be registered in China, leading to risks of infringing identical or similar domestically registered trademarks.

Regarding infringement of OEM goods, it is also noteworthy that courts are increasingly inclined to dismiss OEM as not constituting trademark use within the meaning of the Trademark Law, which means there can be no infringement. However, this rule is not yet clarified so customs will generally seize first and leave the court to make a follow-up judgment.

In view of this, OEM processors should take the time to find out if brands they are dealing with have been registered in China. When necessary, they are encouraged to communicate and confirm with customs lest, after all the cost and effort put into their production, the goods are detained during export or even found to be infringing.

BEWARE OF SCAMS

Usual infringement scams mainly target foreign brands without registration in China. After pirating a foreign trademark by way of “squatting”, the infringer often makes an archival filing with customs so as to “snipe” all products of the original brand and demand authorisation fees or settlement fees.

For this reason, foreign brands are strongly advised to register for trademark protection as soon as they enter the Chinese market. If their trademark is pirated, they may seek recourse by applying for invalidation. Even if the goods are wholly exported, they can still benefit from the protection accorded by domestic registration, which is something companies should, but often fail to, consider.

In recent years, the author has also noticed a new form of infringement scam during the provision of import/export legal services.

In this case, while the trademark is already registered, the infringer further registers the text/image from the company’s trademark as copyright, then files for archiving with customs. When products of the relevant brand are to be exported, the infringer requests customs for copyright protection, prompting the customs to temporarily seize the goods.

While a cursory investigation would be sufficient to release the goods, it could still take a few days, during which the infringer will claim “authorisation fees” to the company.

In these situations, companies should never give in to infringers’ demands. Instead, they only need to co-operate with customs calmly and actively, provide all material as required, and wait for the goods to be released with the shortest delay. Naturally, in order to solve the problem once and for all, they can likewise apply for invalidation to eliminate the infringers’ unjust copyright.

Published on #China Business Law Journa#  10 May 2023