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Fighting Counterfeits in China – Light at the End of the Tunnel?

While many foreign companies believe that China represents an exceptional business opportunity, concerns over patent, trademark, and copyright protection have long been viewed as a barrier to moving forward. While knock-off and copy-cat products originate in many countries, China was for years – and still is – considered the most flagrant offender.

In a private conversation with the Technical Services Bureau (TSB) of the Administration of Industry and Commerce (AIC), it was estimated by a senior official that perhaps as much as 6% of the Chinese GNP has some link to “unauthorized production of products”. This is a staggering number in view of the fact that China is the world’s number 2 economy. Because it is an industrious and capable nation, churning out more college graduates per year (6 million plus) than the entire population of Norway (according to CBS Interactive, Inc.), with a knack for re-engineering products and a relatively cheap labor pool, it doesn’t take much for a factory to replicate genuine articles sourced abroad.

Stamping out counterfeits in China for many companies has been a frustrating and unrewarding game of cat and mouse. Just when you think it is wiped out another infringer surfaces to take its place. Is there a smart and cost effective way of dealing with counterfeits in China?

The answer is “yes”, and it starts with a carefully thought-out and smartly implemented strategic brand program that involves both defensive and offensive measures designed to protect, preserve and enhance the value of intellectual property. One of the significant components of this strategy is for companies to determine exactly what their trademark status is in China, whether they are actively working or selling in China or not. Hundreds of products with well-known brand names that have historically only been sold outside of China may already be registered inside China by other parties. It is therefore conceivable that an unsuspecting foreign manufacturer doesn’t even know that similar products, often of inferior quality, are already being sold under its brand in China. As China is a “first to register” country, having your key trademark rights properly registered early on – even before you enter the market – is an important component of a sound IP protection strategy.

When piracy cuts into a manufacturer’s bottom line, aggressive measures should be taken to protect the value of the brand. This entails detailed investigation of suspected infringers with informants, working side by side with local authorities with raids and seizures of infringing products and their molds, and filing administrative litigation against the infringers for civil penalties when substantiated. When infringing or unauthorized products are sold to buyers outside of China, registering the brand with China Customs with instructions to seize suspected products right at the border could save the brand owner a lot of time and costs.

Whether or not you are planning to market or manufacture in China, you should be sure to check with an experienced professional to ensure your company’s hard-earned reputation is safeguarded. Like so many other facets of doing business in China, there are some unique aspects of IP protection that companies need to be aware of. Notwithstanding the historical problems associated with IP infringement in China, IP legislation and enforcement is changing for the better. Companies should understand that their IP risk in China is manageable provided it is professionally and diligently administered. There is light at the end of the tunnel, and that light is brighter and the tunnel is shorter with a proper strategy.

© Copyright 2014 Dickinson Wright PLLC

TRENDING LEGAL ANALYSIS


About this Author

Of Counsel

Mr. Pang specializes in helping multi-national companies in establishing a foothold and making an investment in China. He has substantial corporate and transactional experience, including M&A, foreign direct investments, corporate formation and government contracts, particularly as they relate to cross border transactions with China and Chinese state-owned enterprises. His expertise includes international distribution, retail distribution, vendor/supplier contracts, marketing agreements and joint ventures, both contractual and equity, particularly relating to China or with Chinese...

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