April 11, 2021

Volume XI, Number 101

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April 08, 2021

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China’s Supreme People’s Procuratorate Issues 26th Batch of Guiding Cases for Intellectual Property

On February 8, 2021, China’s Supreme People’s Procuratorate issued the 26th batch of guiding cases covering intellectual property.  This batch covers 5 cases including criminal trademark, copyright and trade secret law.  Foreign victims included Starbucks, Cisco, and HP in 2 of the 5 cases. A brief summary of the cases follow.  The full text is available here (in Chinese only).

 

  1. Counterfeit Starbucks VIA Coffee

In February 2018, the Wuxi City Market Supervision Department received a report stating that there were counterfeit “Starbucks” brand coffee being sold. An investigation determined the “Starbucks” coffee sold by Shuangshan was a counterfeit product. After verification, the market supervision department notified the Wuxi public security department. Later, it was found that the coffee sold by Shuangshan Company was not authorized by the owner of the “Starbucks” brand. Under the premise of knowing that the purchased products were counterfeit, Shuangshan still forged customs declaration documents and false authorization documents, and sold the products. The counterfeit Starbucks coffee went to more than 50 merchants in 18 provinces across China, and finally sold to end consumers.

Performance of duties by procuratorial organs

The first task is to identify the crime and subject of the crime. The coffee involved is a product with a counterfeit registered trademark. Whether the coffee is toxic or harmful or that does not meet safety standards will affect the characterization of the case. However, the evidence in the case did not provide whether the  counterfeit coffee contains toxic and harmful ingredients and whether it meets safety standards and coffee quality . In view of the unclear facts of this part, the procuratorial organ requires the public security organs to conduct sampling and identification of the multiple batches of coffee seized in accordance with the provisions of GB7101-2015 “National Food Safety Standard Beverage.” After identification, it was determined that the coffee involved in the case complies with China’s food safety standards and does not constitute a crime of producing or selling toxic or harmful food.  Accordingly the crime was only trademark counterfeiting via manufacture and sale. However, the evidence for manufacturing was not sufficient – evidence was only sufficient for the sale of counterfeit coffee.

The second task is to determine the financial amount of the crime. The public security organs gathered evidence from sale slips, buyer’s testimony, and employee chat records to determine that almost 10 million RMB of counterfeit coffee was sold among the defendants.

The third task is to determine intent – did the defendant know that the coffee was counterfeit and sold it anyway? In this case, there were forged and used false authorization documents and one seller confessed.

The fourth task is to propose sentencing recommendations based on sales amount, counterfeit product type, geographic scope, etc.

The defendants were fined up to 3.2 million RMB and one defendant received a prison sentence of one year.

The guiding significance: Severely punish crimes of counterfeiting registered trademarks in accordance with the law, and earnestly safeguard the legitimate rights and interests of right holders and consumers; Prosecutors should pay attention to subjective knowledge (intent) of both upstream and downstream personnel in the sales chain; Prosecutors should combine both public interest litigation and criminal prosecution.

2. Guangzhou Carmen Industrial Co., Ltd. Use of KM Trademark

Carmen (广州卡门实业有限公司) started using the “KM” trademark on clothing in March 2013. On October 30, 2014, Carmen Company applied to the former Trademark Office  to register the trademark for use on clothing, hats and other goods. The Trademark Office rejected the trademark application as similar to a previously registered trademark. On June 14, 2016, Carmen again applied for the registration of the “KM” trademark on clothing, hats and other goods. On February 14, 2017, the Trademark Office only approved the “KM” trademark for sleep eye masks, but Carmen continued to use the “KM” trademark on clothing. In the meantime, Carmen has gradually developed into an enterprise with nearly 600 stores and more than 10,000 employees across the country.

Beijing Jinyitang Enterprise Culture Development Co., Ltd. (北京锦衣堂企业文化发展有限公司) applied for the registration of the “KM” trademark on clothing and other goods. The Trademark Office rejected the trademark on the grounds that the trademark was similar to the previously registered trademark.  On November 22, 2016, Jinyitang Company again applied for the use of the “KM” trademark on clothing and other goods. As the previously registered similar trademark was cancelled, the Trademark Office approved the application on January 7, 2018.

Eventually, a licensee reported Carmen’s use of the “KM” trademark on clothing to the market supervision authorities in many places across the country, and reported to the Nanhai Branch of the Public Security Bureau of Foshan City, Guangdong Province Carmen’s suspected of selling goods with counterfeit registered trademarks. The Nanhai Branch opened the case on May 31, 2018 and subsequently seized approximately 90,000 pieces of clothing marked with the “KM” trademark in the logistics warehouse of Carmen.

Nanhai District Procuratorate found that the public security organ’s reason for filing a criminal case cannot be established after review. One is the fact that Carmen has prior use. Carmen has used the “KM” trademark for a long time before Jinyitang obtained the “KM” trademark. The second is that Carmen has no criminal intent. Carmen has always used this trademark during the production and sales of clothing, and has never claimed to be a product of Jinyitang Company or Beijing-Tianjin Lianhang Company. The brand of “KM” clothing operated by Carmen has much more influence than the above two companies. There was no intention to counterfeit the registered trademark of others. The production and sale of “KM” clothing by Carmen Company does not constitute the crime of selling products with counterfeit registered trademarks. The public security organs made a mistake in filing a case and should be corrected.

On August 3, 2018, the Nanhai District Procuratorate issued a “Notice to Cancel the Case”. On August 10 of the same year, the South China Sea Branch dismissed the case and returned the seized goods. Carmen sold the goods in a timely manner and avoided tens of millions of economic losses.

The guiding significance of this case includes: 1. In handling criminal cases of infringement of intellectual property rights, 2. procuratorial organs should pay attention to examining whether there is a legally legitimate use; procuratorial organs should correctly grasp the defenses of the prior use of the trademark; and 3. organize hearings when necessary to carry out case-filing supervision work to enhance case-handling transparency and supervision credibility.

3. Pirated Movie Distribution by Chen Li

Defendant Chen Li was originally sentenced to seven months imprisonment and a fine of RMB 150,000 by the People’s Court of Hefei High-tech Development Zone, Anhui Province for the crime of copyright infringement.

Apparently feeling that crime does pay, from July 2017 to March 2019, the defendant Chen Li was entrusted by foreign personnel to recruit the defendants Lin Ying, Lai Dong, Yan Jie, Yang Xiaoming, Huang Yasheng, Wu Bingfeng, Wu Jianxing, and set up a QQ chat group to update and maintain “Www.131zy.net” “www.zuikzy.com” and many other pirated film and television resource websites. Among them, Chen Li is responsible for publishing tasks and remuneration to other members in the group; Lin Ying is responsible for recruiting some personnel, training and urging other members to complete tasks; Lai Dong, Yan Jie, Yang Xiaoming and others have obtained the pirated films through downloading, cloud disk sharing, etc., slice and add gambling website advertisements and watermarks, generate links, and finally copy and paste the link to the above pirated film and television resource websites. In the meantime, Chen Li received over 12.5 million RMB in operating expenses for pirated film and television resource websites remitted by foreign personnel, and the defendants made profits ranging from 18,00 to 500,000 RMB.

After the incident, the public security organs preserved a large number of infringing film and television works copied and uploaded by the defendant Chen Li and others from the above-mentioned pirated film and television websites, including “The Wandering Earth”, “Incorruptible Government”, “Crazy Alien” and other movies.

On September 27, 2019, the Shanghai Third Branch filed a public prosecution with the Shanghai Third Intermediate People’s Court  for the crime of copyright infringement against 8 persons including the defendant Chen Li.

The eight defendants voluntarily pleaded guilty  and accepted fixed-term imprisonment from ten months to four years and six months and fines.  Fines ranging from 10,000 yuan to 500,000 yuan were recommended.

On November 20 of the same year, the case was opened in court according to law. The eight defendants and their defenders have no objection to the charges , but they put forward their own defense opinions on the calculation of the amount of illegal business in this case.  Basically, the cost of running the criminal operation should be deducted from the business revenue (e.g., renting servers, paying wages, etc.). The prosecutors disagreed.  Further, the lack of the foreign ringmasters in the case would affect the decision. The prosecutors also disagreed stating enough evidence is provided to prove each defendant committed a joint crime.

Regarding sentencing recommendations, the prosecutors stated that the recommendations are based on the criminal facts, evidence, statutory discretionary circumstances, social harm and other factors of each defendant, and have been confirmed and recognized by each defendant. In addition, there are a large number of infringing works in this case, a wide range of dissemination, and business operations. The length of the crime is long and the circumstances are particularly serious, and the defendant Chen Li committed a crime that should be sentenced to fixed-term imprisonment of more within five years .  He is also a repeat offender, so suspended sentences should not be applied.  The Court agreed.

On November 20, 2019, the Shanghai Third Intermediate People’s Court made a first-instance judgment and sentenced the defendant Chen Li and other people to imprisonment ranging from ten months to four years and six months for copyright infringement, each with a fine of 20,000 RMB to 500,000 RMB. After the verdict was announced, none of the defendants appealed, and the verdict has taken effect.

The guiding significance includes: 1. Give full play to the procuratorial function, punish crimes of online infringement of the copyright of audiovisual works in accordance with the law, and earnestly safeguard the legitimate rights and interests of the right holders; 2. In handling criminal cases of online copyright infringement, procuratorial organs should conduct a comprehensive review of the objectivity, legitimacy and relevance of electronic data, and apply the system of guilty pleas and leniency in punishing in accordance with the law to improve the quality and efficiency of the case; and 3. Accurately grasp the certification method of “without the permission of the copyright owner” (e.g., for foreign works).

4. CISCO , HP and HUAWEI Trademarks on Fiber Optic Modules

From 2015 to April 2019, defendant Yao Changlong arranged for defendant Gu Jin to purchase printers, label paper, fiber optic modules and other materials; forged “CISCO”, “HP” and “HUAWEI” trademarks on the fiber optic modules and other commodities; and arranged for defendants Wei Zihao and Zhang Chao and Zhuang Ganxing to sell overseas. Yao Changlong and Gu Jin produced and sold more than 100,000 counterfeit optical fiber modules with the above-mentioned registered trademarks, with a total sales amount of more than RMB 31.62 million;  11,975 pieces of counterfeit optical fiber modules and switches, worth more than 3.83 million yuan were seized; Yao Changlong, Gu Jin The amount of illegal income was 4 million RMB for Yao. The sales amount of Wei Zihao, Zhang Chao, and Zhuang Ganxing were respectively 7.45 million RMB, 4.29 million RMB, and 3.52 million RMB; the illegal gains were 200,000 RMB, 185,000 RMB and 140,000 RMB respectively.

On October 10, 2019, the Donggang District Court heard the case. During the trial, defendants put forward the following defense opinions: 1. The actions of defendants Zhuang Ganxing, Zhang Chao, Wei Zihao with the defendant Yao Changlong did not constitute a joint crime; 2. The goods in this case were all sold abroad, and therefore the social harm was less. The prosecutor’s argued in response: First, Zhuang Ganxing, Zhang Chao, and Wei Zihao knew that the goods they sold with counterfeit registered trademarks were OEM produced by Yao Changlong and Gu Jin and continued to be sold. Subjective intention to sell counterfeit goods constituted a joint crime of counterfeiting registered trademarks. Second, the goods involved in this case were all sold overseas, but the infringed trademarks were all registered in China, and the crime of counterfeiting registered trademarks occurred in China. Regardless of whether the goods involved were sold overseas or not, the legitimate rights and interests of the registered trademark owner were infringed. The Court agreed with the prosecutor.

Yao received a 4-year sentence and 5 million RMB fine while the other defendants received smaller sentences and fines. No defendants appealed.

Guiding significance: 1. Counterfeit goods that have obtained registered trademarks in China and are sold overseas, and the circumstances are serious and constitute a crime,  shall be prosecuted according to law; and 2. Whether the upstream and downstream defendants in the crime of counterfeiting registered trademarks constitute a joint crime should be determined by the intentional contact between the producer and seller of the counterfeit goods, the level of awareness of the illegality, and the awareness of the difference between the sales price and the genuine price and the totality of the circumstances.

5. Wenzhou Mingfa Optical Technology Co., Ltd.’s Trade Secrets 

Wenzhou Mingfa Optical Technology Co., Ltd. (温州明发光学科技有限公司) was established in 1993 and mainly produces and sells magnifying glasses, binoculars and other optical plastic products. Mingfa Company has been developing ultra-thin flat magnifying glass production technology since 1997, and has developed a mass production method for Fresnel magnifying glass having high temperature resistance.

The defendant Jin Yiying applied for a job at Mingfa Company in 2005, and the two parties signed a labor contract. The final contract agreed that the work period was from July 16, 2009 to July 16, 2011. During the period, Jin Yiying successively served as a salesperson, sales manager, and deputy general manager. He had a certain understanding of the production methods of Fresnel ultra-thin magnifiers, and learned of equipment supply and marketing channels, customer lists and other information. Jin Yiying has signed a confidentiality agreement with Mingfa Company, and its confidential information includes: (1) Technical information, including product design, product drawings, production molds, manufacturing processes, manufacturing technology, technical data, patented technology, and scientific research achievements, etc.; (2) Business information, including product production, supply and sales channels, customer lists, buying and selling intentions, transaction or negotiated prices, product performance, quality, quantity, delivery date, etc. It is also agreed that within the term of the labor contract, within two years after the termination of the labor contract the above-mentioned confidential content shall not be disclosed to a third party.

At the beginning of 2011, Jin Yiying resigned from Mingfa Company. On March 24 of that year, he established Fresnel Company in the name of his brother-in-law.  Immediately after its establishment, Fresnel purchased the same rubber sheets, molds, hydraulic presses and other materials and equipment from the above three suppliers and used the same process as Mingfa to produce the same magnifying glass for sale in the market, resulting in Mingfa Tsuffering RMB 1.22 million in losses.

On August 16, 2018 the Rui’an City Procuratorate filed a public prosecution with the Rui’an City People’s Court of Zhejiang Province (Rui’an City Court) against the defendant Jin Yiying for the crime of theft of trade secrets.

The prosecutor argued: 1. the manufacturing process involved in the case was not publicly known; 2. the supplier information involved is a trade secret; 3. during his tenure at Mingfa Company, Jin Yiying had contact with Mingfa Company’s trade secrets; 4. Jin Yiying used the trade secrets of Mingfa Company; 5. the existing evidence is sufficient to rule out the possibility that Jin Yiying obtained through other legal channels or developed its own ultra-thin magnifying glass production process; and 6.the confidentiality agreement clearly stipulates that the defendant Jin Yiying should know that he has the obligation to keep confidential the technical information and business information involved in the case.

The Court agreed and sentenced Jin to 18 months in prison and a fine of 700,000 RMB.

Guiding significance: 1. To punish the crime of theft of trade secrets in accordance with the law, we must first accurately grasp the definition of trade secrets; 2. For situations where the defendant does not plead guilty, it is necessary to be good at applying the rules of evidence to exclude the possibility of the defendant legally obtaining trade secrets and form a chain of evidence for accusations of crimes; and 3. Pay attention to the review of the expert opinions, and bring in people with specialized knowledge to participate in the case.

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© 2021 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.National Law Review, Volume XI, Number 45
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About this Author

Aaron Wininger IP Attorney China Portfolio Development
Director of China Intellectual Property Law Practice Schwegman Lundberg & Woessner

Aaron Wininger is a Senior Attorney and Schwegman’s Director of China Intellectual Property. Aaron counsels both U.S. and Chinese companies on portfolio development and preparation of their patent applications and office action responses. He has worked with clients in the areas of software, networks (wired and wireless), lasers, medical devices, semiconductors and physics.

Aaron prosecutes both Chinese and U.S. trademarks. He has also drafted and prosecuted hundreds of U.S. and international patent applications in a broad spectrum of areas, including computer hardware and software,...

408-278-4059
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