Trademarks in Chinese Cyberspace
Posted April 1st, 2009
If you are like many companies, you get emails regularly from Hong Kong or China that look like this:
We are a professional Internet consultant organization in Asia, which mainly deal with the global companies’ domain name registration and internet intellectual property right protection. Currently, we have a pretty important issue needing to confirm with your company. On 2009-03-23, we received an application formally; one person named “Jacques Tits” wanted to apply for the Internet brand “[YOUR BRAND] ” and some domain names through our body. During our preliminary investigation, we found that these domain names’ keyword and internet brand is identical with your trademark. I wonder whether you consigned “Jacques Tits” to register these domain names through us or not? Or is “Jacques Tits” your business partner or distributor in Asia? Currently, we have postponed this application of this company temporarily already. In order to deal with this issue better, please let the principal make a confirmation with me by telephone or email ASAP. In addition, I must state that we have time limited for one person or one company’s registration. It is just 15 days. If your company files doesn’t resent within the time limited. We will unconditionally authorize the application of “Jacques Tits”.
We asked Hong Kong resident and all around good guy, Joe Simone to fill us in from the front lines and to provide some insights on IP rights protection. Joe is a Partner, Baker & McKenzie, Beijing/Hong Kong.
Fortunately, the legal and practical challenges faced in the People’s Republic of China (PRC) are similar in many ways to those faced in the US, Europe and other countries, and this post will focus mainly on the ways in which trademark protection in China differs from practice elsewhere.
DOMAIN NAMES
Domain Scammers
The first encounter many companies have with domain names in China are emails from unaccredited filing agents based in Hong Kong or mainland China seeking to drum up business. These emails will normally claim that another company has instructed them to file for their trademark in domain names under the .cn (China) suffix, and often under other Asian suffixes as well, including .hk (Hong Kong), .tw (Taiwan), .asia and others. These scammers are normally harmless—as long as you ignore them. But they help to illustrate a number of problems, as well as opportunities, in protecting domain names in China.
Fortunately, the scammers almost never have another customer that has instructed them to file. Web searches usually reveal that the company is a phantom. Scammers will normally only follow up on their initial emails in cases where they have received a response. So it is essential never to respond to scammers—even to complain.
Audit
Scammer emails aren’t a complete waste of time. In most cases, they stimulate the trademark owner to conduct an updated audit to confirm the availability of the more desirable .cn domains. All too frequently, audits will also confirm that other parties have already pirated valuable domains.
As explained below, Chinese regulations impose a two-year statute of limitations for the filing of Chinese UDRP proceedings against pirated names. Companies that have conducted audits and found pirated domains that still fall within the statute have only the scammers to thank, since otherwise, the recovery of the pirated names later on would normally prove much more expensive.
Audits can be conducted by trademark owners themselves through the search engine provided by the China Internet Network Information Center (CNNIC). CNNIC is China’s domain name registry, established under the auspices of the Ministry of Information Industries, but operated under the China Academy of Sciences. However, as explained below, complete information on the identity of pirates normally requires resorting to Chinese-language search engines operated by the registrar of the name. The most commercially valuable domains in China are clearly .cn and .com.cn. Registration of .net.cn and .org.cn is also desirable for defensive purposes, particularly for more famous brands and trade names that are more likely to be pirated.
“Internet Keywords” – Almost as valuable as .cn and .com.cn registrations are “Internet keywords”—a type of domain which provides access to other websites merely by typing the domain in your web browser, and without www, http:// or any suffix. Internet keywords require downloading by users of special software from CNNIC’s website. But they are increasingly popular in China, due to their obvious efficiency.
“Wireless Keywords” – Wireless keywords are similar to Internet Keywords, but they do not involve the Internet in the least. Instead, they are used with mobile phones and other wireless devices, and allow users to access information or services by keying in the keyword and sending it to a designated call center via SMS. Upon receipt of a message, the call centers then send relevant information to the wireless device. The turnaround time for the return message is about 30 minutes.
At present, internet keywords are as popular as, say, .net.cn domains, but their popularity appears to be gaining. Thus, many trademark owners are expending resources to recover them from pirates. However, only the larger consumer brands companies are registering them.
Chinese-Character Domains – China permits the registration of domains in the local language—both simplified and traditional Chinese characters. Most companies that are active in the Chinese market already have Chinese trademarks and trade names, and it is highly advisable to register them as domain names in the same way one registers English and other roman letter domains. The suffixes with which Chinese domain names can be registered differ only slightly from those for roman-letter domains.
The PRC adopts the “simplified” font of Chinese characters, whereas Taiwan and Hong Kong, which also permit registration of Chinese domain names, use “traditional” (aka “complex”) character fonts. It is possible to separately register and use traditional character domain names in the PRC, but this is not common, and thankfully, the registration of the simplified version will preclude registration by other parties of the traditional version, thereby avoiding the need (and cost) to register both. It has been possible for several years to register Chinese character trademarks under the .cc and .tv suffixes, but few companies do so at present.
Domain Name Piracy
Once you’ve identified possible piracy of your .cn domain name or keyword, it’s advisable to file applications as soon as possible to register desirable domains that are still available. (See section below on filing procedures.) Otherwise, more likely than not, a pirate (most commonly based in China) eventually will learn of your interest and file preemptively. Pirates of .cn domains have been extremely aggressive, many making a workable business model of registering names with varying levels of fame in the US and Europe, on the expectation that the brand owner will at some point need a Chinese-language website which would likely be accessed by Chinese web users using the .cn suffix.
As elsewhere, the options for responding to piracy primarily include paying off the pirate following negotiations, the local equivalent to UDRP proceedings (Chinese UDRP), or civil action through Chinese civil courts. But after investigating the facts and available strategies, many brand owners find it most cost-efficient to simply do nothing, aside from monitoring the availability of the name around the time of its expiration and renewal.
Still other companies will ignore pirated names as long as they are not used in an offensive manner—e.g., to promote the sale of competing brands, genuine but parallel goods or counterfeits. This approach is generally advisable for just about all companies when confronted with piracy of variations of their marks, e.g., intelcpu.cn, googlesearch.cn, hpcomputing.cn, etc.
Researching Pirates – The first step in investigating piracy is to identify the registrant and other data normally available through WHOIS searches. The data available through CNNIC’s search engine does not provide the name of the actual registrant, despite the fact that search results will offer the “Registrant Name” and “Registrant Organization”. These entities refer instead to agents acting on behalf of the registrant.
The registrant’s identity can normally be confirmed only by conducting a separate search conducted through the search engine available on the website of the accredited registrar that represented the registrant in the filing process. Knowledge of Chinese language is normally useful when conducting such searches, in part to help in navigating the search engines and in part because the registrants are normally Chinese companies identifiable only by their Chinese names.
Once the name and contact details of the registrant have been confirmed, it is then advisable to conduct web searches, relying on Google, Yahoo or Baidu (the leading search engine in China itself) in order to verify whether the owner is offering to sell the domain and to otherwise generate evidence of bad faith which can be crucial to the chances of success in Chinese UDRP or civil proceedings.
Perhaps the clearest and most persuasive evidence of bad faith is that of serial piracy, i.e., registration of multiple famous (or even not-so-famous) trademarks. CNNIC does not permit proprietorship searches, which would normally be the easiest way of generating evidence of bad faith. It is now possible to conduct proprietorship searches on a paid basis through various paid services. But before commissioning such searches, it is normally preferable to simply conduct searches of the pirate’s name, email address and phone number, as in many cases, one will find UDRP or Chinese UDRP decisions involving the same pirate, as well as auction sites in which the pirate offers other pilfered names.
While rare, pirates will sometimes file applications for targeted names with the PRC Trademark Office, mainly to demonstrate they have other “legitimate” IP rights in the names. It is therefore prudent to search the domains and registrant names through the search engine of the PRC Trademark Office in order to identify such registrations and, in parallel, to assess the inherent distinctiveness of the mark (another useful basis for arguing in Chinese UDRP). However, it is now taking three to four years to register marks in China, and, as a result, domain name pirates appear to be filing fewer and fewer trademark applications.
The Personal Approach – Once online searches have been completed, it is advisable to entrust an experienced investigator or paralegal to make contact with the pirate by email and phone. The main objectives of these investigations will be to verify if the pirate is willing to sell the target domain, and for how much. If the selling price is reasonably low—say under $1000—it will normally make sense to conclude the buy through the investigator’s front company and then re-assign the name to the rightful owner later on. If the selling price is too high, the investigator should then be instructed to ensure that the pirate’s demands are obtained in written form, and not just orally. This way the offer can be used to support arguments of bad faith in future legal proceedings.
Once the investigators have done their best to negotiate and gather evidence, it will normally be advisable for the trademark owner or its lawyer to approach the pirate directly and recommence negotiations—this time in the trademark owner’s name. Another reason to negotiate directly, rather than through a front, is due to recent CNNIC rules that now require offers for the sale of pirated domains be made to a commercial competitor, rather than just anyone, in order for evidence of offer prices to be admissible for supporting allegations of bad faith.
Ultimately, however, the goal of most negotiations is to simply get the price down to an acceptable level, and in many cases, the pirate will respond more favorably to the trademark owner on the assumption that it has the standing to file Chinese UDRP or court proceedings. But most pirates are keenly aware that the brand owner will bear legal and other costs of between $4000 and $10,000 in pursuing most Chinese UDRP cases, and substantially more—perhaps $15,000 to $50,000—in civil actions.
In most cases, it is routine to offer Chinese pirates no more than $500 in the initial round of negotiations. If the name is within the statute of limitations for Chinese UDRP and the chances of success are over 60%, it is advisable to aim for a final purchase price of between $1000 and $3000. Where the statute of limitations has expired, assuming the chances of success are still good, a target price of $10,000 to $15,000 would be the norm.
When negotiating directly, it is sometimes advisable to send firmly worded warning letters to pirates. However, care should exercised in drafting such letters, since Chinese pirates will sometimes lose interest in negotiating if they feel conditions becoming more legalistic and adversarial.
Fortunately, it is only necessary to have investigators meet with pirates on rare occasions. Normally, the evidence gathered in the course of email and phone inquiries is sufficient for UDRP purposes.
However, it is advisable to have critical emails notarized by a Chinese notary public, since domain name disputes may end up being litigated in Chinese courts, and the courts currently give significantly greater weight to evidence that has been officially certified (if not otherwise corroborated).
What If the Pirate Is Also a Trademark Infringer? – The vast majority of domain name pirates do not operate websites that offer counterfeits or other infringing goods or services (see below for more in this regard). When they do, it is normally advisable to address the case primarily as an infringement, rather than as a domain name recovery matter.
That said, in cases where the trademark owner lacks the resources to pursue the infringer in the normal way, a UDRP action might be the most cost-effective way of responding. Quite often, however, the infringer will respond to the loss of the pirate domain by simply migrating to another domain—often one that again includes the victim’s trademark. To address this risk it is advisable to monitor migrations by periodically conducting web searches of the pirate’s phone number, address or other unique indicators.
Chinese UDRP – As indicated above, and consistent with practice globally, Chinese UDRP is substantially cheaper than litigating. But CNNIC issued rules in 2006 imposing a two-year statute of limitations on UDRP actions, with the statute tolling from the original date of registration. Consequently, if the victim does not have the resources to deal with a particular case immediately, it would always be well advised to diarize to review the options a few months prior to the expiration of the two-year statute.
Chinese UDRP proceedings can be brought through one of two bodies: the Domain Name Dispute Resolution Centre of the China International Economic and Trade Arbitration Commission (CIETAC) and the Hong Kong International Arbitration Center (HKIAC). Both are required to adjudicate disputes in accordance with CNNIC’s “Domain Name Dispute Resolution Policy”, which though modeled on the Uniform Domain Name Dispute Resolution Policy (UDRP), differ in a few significant ways, described below.
In 2001, both CIETAC and the HKIAC were authorized by ICAAN to establish the Asian Domain Name Dispute Resolution Center (ADNDRC), which permits both to offer UDRP dispute resolution involving .com disputes involving registrants based in China and Hong Kong.
Procedural Aspects – The following are the main procedural aspects of Chinese UDRP proceedings:
• Disputes are supposed to be resolved within 45 days after the arguments of both parties are filed. In reality, most cases take four to 10 months to reach a conclusion.
• If CIETAC or the HKIAC finds for the complainant, they may order the cancellation of the domain name or its transfer to the complainant. In most cases where the panel determines bad faith by the respondent, the panel will orders the transfer of the name to the complainant. In either case, the respondent may appeal the decision to a Chinese court within 10 days of the decision. If the complainant loses, it may file a fresh complaint at any time with CIETAC, but in the absence of strong new evidence, the chances of success would normally be low.
• The complainant may opt for either a single adjudicator or a three-adjudicator panel. In general, three-adjudicator panels are rare due to the higher cost (about US$600 v. US$1000, assuming only one domain name is in dispute).
• Panelists in single-adjudicator cases are appointed by CIETAC or the HKIAC secretariat from a list of appointed experts, most of who are private practitioners and law professors.
• In the event the complainant elects a three-member panel, Chinese UDRP rules allow the complainant to choose one panelist and the respondent to choose another, with the third being jointly selected by the two appointed adjudicators.
• Differences with ICANN UDRP – There are four main areas where Chinese UDRP differs from UDRP:
• UDRP only considers prior trademark rights while Chinese UDRP permits consideration of the complainant’s other “civil rights and interests”, including trade names and rights in unregistered trademarks—provided they possess substantial fame prior to the filing date for the target domain.
• UDRP requires both bad faith registration and bad faith use. In China, the complainant need only prove one of the two, and not both.
• There is no statute of limitations under UDRP rules.
• Under Chinese UDRP, either party may initiate a lawsuit concurrently with the domain name dispute, provided a decision has not yet been issued. Under UDRP, either party can submit the case to the courts, but only before or after a determination is issued, and not during the course of proceedings.
Bad Faith – As elsewhere, the stronger the evidence of bad faith, the greater the chances of success in Chinese UDRP.
According the CNDRP rules, bad faith can take one of our four forms.
• First, bad faith can be found where there is an offer for sale, i.e., where the disputed domain name holder has registered or acquired the domain name for the purpose of selling, renting or otherwise transferring the domain name to obtain unjustified benefits. “Unjustified benefits” is not defined, but in our experience can be almost any figure over US$1000. According to one panel decision, the asking price of US$2000 (typically within the range of most of our clients) was still unjustified, when the registration costs of approximately US$20 were taken into account.
• Second, bad faith can be found where there is serial piracy, i.e., where there is evidence that the domain name holder has repeatedly registered domain names in order to prevent the owners of the name or mark from reflecting the name or the mark in a corresponding domain name. Serial piracy requires multiple instances of the registrant registering domain names that are identical or similar to registered or known trademarks. However, a key component of serial piracy is multiple identifiers, rather than multiple domains. In other words, the registration of the identical domain name identifier (Starbucks, for example), on two or more different suffixes (.cn and .com.cn, for example), is generally viewed as insufficient evidence of serial piracy, owing to the fact that registrars typically offer packaged registrations over multiple suffixes involving the same identifier for discounted rates.
• Third, bad faith is evidenced by the intention of the registrant to damage the company’s reputation, disrupt its normal business operations, or create confusion with the company’s name or existing trademarks, so as to mislead the public.
• Finally, the Rules contain a catch-all provision that grants the Panel wide discretion in examining the evidence in finding bad faith. Owing to the lack evidentiary requirements in Chinese UDRP proceedings, it is generally advisable to submit all information gleamed from the investigations, including previous CNDRP decisions the pirate may have lost, trademark searches showing dishonest trademark applications, etc. Similarity – The complainant must naturally demonstrate that the disputed domain name is identical with or confusing similar to the complainant’s name or mark in which the complaint has civil rights or interests. Trademark registrations, especially those registered prior to the registration of the domain name are clearly prior interests. Trademark applications filed prior to the domain name registration, but not registered, are alone insufficient, unless it can be shown that the domain name pirate was clearly aware of client, and the domain name registration was obviously intended to take advantage of the client’s goodwill and reputation. A simple, yet recurring technical issue in this regard is that the trademark owner of record must be identical to the complainant’s name. Therefore, if the complainants owns the registered trademark in China, but filed those applications under a different name, or through a subsidiary, documentation must be provided to the CNDRP panel showing clear ownership.
Respondent’s Interests in Name – The complainant should demonstrate, to the extent it can, that the disputed domain name holder has no right or legitimate interest in respect of the domain name or major part of the domain name. This can normally be accomplished by simply making the allegation and supporting it with limited trademark and web searches.
Complainant’s Interest in Name – The complainant must demonstrate it’s legal interest in the domain, with the most typical way being through the submission of trademark registration certificates from all jurisdictions, particularly China, Hong Kong and Taiwan (all three technically being separate for legal purposes, but each diplomatically being regarded as part of “One China”). If available, information on .com and other domain names should be provided, as well as company names. If the name is not obviously famous in China, it will be advisable to present as much material as possible to support arguments that the name is widely known and used in China.
Such evidence can be critical in cases where the complainant has not registered its mark prior to the respondent’s filing date as well as cases where the name is lacking in relative distinctiveness and/or the evidence of bad faith which has been generated is not that persuasive on its face. Such evidence should include first-use in China, newspaper clippings from local publications, evidence of coordinated advertising campaigns launched in China, and sales figures for products and services bearing the relevant mark, etc.
Civil Action? – If more than two years have passed since the registration of a .cn domain name, then the client’s only recourse will either be negotiated purchase, or civil action. A civil action is available so long as the statute of limitations has not passed – in case of domain name disputes, the client must bring a dispute to the courts within two years of discovering the alleged infringement.
Civil actions are a far less appealing when compared with Chinese UDRP. First and foremost, on paper at least, the courts impose higher and in some ways more ambiguous standards for imposing legal liability against domain name squatters. In 2002, the Supreme People’s Court (SPC) released the Interpretations of the Supreme People’s Court on Several Issues Concerning the Application of the Law to the Trial of Civil Dispute Cases Involving Trademarks, which regrettably require plaintiffs to show that the pirate was engaged in e-commerce for related goods in order to trigger liability.
Plaintiffs can also rely on violations of China’s Anti-Unfair Competition Law. However the Anti- Unfair Competition Law is silent on the issue of domain name registrations, and there are no SPC Interpretations that clarify how this law is specifically to be applied in typical domain name piracy cases. There have been several high-profile domain name cases decided by the Higher People’s Court of Beijing, e.g., in cases involving CARTIER and IKEA, but as China is a civil law country, one cannot say for certain that all future cases alleging violation of the Anti-Unfair Competition Law will follow a similar line.
What is particularly clear for now is that the courts will attempt to avoid recognizing foreign trademarks as “well-known” (chi ming) if at all possible, as there appears to be an informal policy of requiring resort to other legal grounds whenever possible. This seems to be due to continuing debates within the SPC and Trademark Office over the standards and procedures for recognizing well-known marks. The SPC is currently drafting a new judicial interpretation that might be issued in late 2009 to resolve these debates.
As noted above, civil actions are uniformly more expensive than Chinese UDRP proceedings, and cases will drag on from a year to 18 months in most cases. The evidentiary standards are likewise far stricter for civil actions than for Chinese UDRP. Under current law, evidence obtained outside China should be notarized and legalized in the source country. These procedures are not applicable to Chinese UDRP, although as suggested above, it may still be advisable in certain situations.
Most domain name cases will be dealt with in the Beijing courts, based on the fact that CNNIC is based in the city. The other option is to sue in the defendant’s jurisdiction—although this is rarely advisable due to the risks of protectionism and the lack of experience of local judges. The exception in this regard would probably be the courts of Shanghai, which have an equal if not better reputation for legal knowledge and independence as compared to Beijing.
Finally, courts have the power to award compensation of legal costs to the plaintiff in domain name recovery cases brought before the courts, although in practice such awards are normally negligible. The SPC’s 2002 judicial interpretation confirms that compensation for harm other than costs is available to plaintiffs, provided domain name piracy is accompanied by serious infringement of trademark rights or other civil violations.
What About Doing Nothing? – As noted above, many companies have fixed policies under which they will forego any action at all against “non-core” names pirated by others, unless they are being used in an objectionable manner. Still, trademark owners are advised to monitor Chinese domains and websites through appropriate watching services to maximize the chance of identifying all infringements before the two-year statute of limitations expires.
In the event that the statute of limitations has passed, companies are advised to monitor the registration status of the offending domain names in hopes that the pirate neglect to renew the domain name before the deadline. Renewal periods can last from between one to ten years, and deadline for renewal is the same as original registration date. If renewal does not occur prior to the deadline, the domain name will be suspended for a period of 15 days. If the domain is not renewed after 15 days, then CNNIC will delete the domain name, after which others can register it.
Case Studies
Like elsewhere, Chinese UDRP and court decisions are normally decided in favor of the brand owner, and this is due in part to the fact that the adjudicators are experienced IP practitioners who have a good nose for “bad faith”.
The following are summaries of a few of the more interesting Chinese UDRP and civil court decisions issued over the last several years which illustrate the limits of protection in more borderline cases.
RobertHalf.com.cn – Chinese UDRP
Claimant’s rights:
- No PRC registrations
- No evidence of use in the PRC
Pirate:
- Evidence it was a professional serial pirate
- Domain inherently distinctive
- But no other evidence of bad faith
Panel Decision:
- Claimant denied.
- Claimant enjoyed no prior rights in China
- Claimant’s ownership of the .com domain deemed irrelevant due to insufficient level of fame / influence in China
Lesson:
- It is critical in cases where the claimant has no prior trademark rights in China to demonstrate as much reputation and use of the brand in the PRC as possible.
- Even persuasive evidence of bad faith insufficient on its own
Celgene.cn – Chinese UDRP
Claimant’s rights:
- No prior PRC TM registrations
- Some TM registrations globally
- Limited evidence of use in the PRC
Pirate:
- Professional serial pirate
- Domain inherently distinctive
- Pirate offered to sell name for US$110,000
Panel Decision:
- Transfer to claimant!
- Bad faith existed based on pirate’s apparent prior knowledge of brand
- Claimant’s business covered in PRC press articles
- Claimant had legitimate right in its foreign company name / trade name
Lesson:
- Offer to sell domain useful for proving bad faith
- Even a little evidence of reputation in China can go a long way
Dell-drivers.com – UDRP in China (ADNDRC)
Claimant’s rights:
- Numerous PRC trademark registrations
- Extensive use of the mark in the PRC
Pirate:
- Operated a website offering free driver downloads, some linked to Dell sites
- Arguably copyright infringer
Panel Decision:
- Transfer to claimant!
- DELL mark deemed” famous”
- Bad faith found based on pirate’s mere $2,000 selling price
Lesson:
- Demonstrating fame can be very useful
- Asking price of $2,000 may be sufficient to qualify as bad faith, but not necessarily in all cases
Tide.com.cn – Beijing Higher People’s Court Decision
Claimant’s rights:
- P&G registered mark in China first
- Extensive use in the PRC
Respondent:
- Good faith use and interest in the mark
Panel Decision:
- Claimant denied.
- First-to-file rule prevails
- No bad faith by registrant
Lesson:
- If there is a whiff of bad faith, dig deeper to ensure it is demonstrated to panel
Domain Name Applications and Management
Costs – The official fees for each domain name are around US$40. This does not include the services of middlemen, including law firms and other service providers.
Accredited Agents – CNNIC grants accreditation to companies, most based in Hong Kong and mainland China, to act as “registrar” in the filing of domain name applications, assignments and other matters. Accreditation requires adherence to the CNNIC Registrar Accreditation Policy, which includes ethical guidelines.
CNNIC maintains a website of approved registrars, which includes both China-based as well as overseas registrars (http://www.cnnic.net.cn/en/index/0L/02/index.htm). There are currently 11 accredited overseas registrars and 56 domestic registrars. The service levels of registrars vary dramatically, with the better service generally being provided by the larger companies.
Very often, procedural issues will arise in the course of registration, assignments and renewal that can best be resolved by speaking with registrar representatives in Chinese language.
Not all of the reputable global domain name service providers work with reputable Chinese registrars. Buyer beware!
Local Presence Required? – Thankfully, there is no local presence requirement for any .cn domain names. Such requirements still exist for certain domains in Hong Kong (.com.hk).
Transfers – When transferring domains—particularly from pirates who rely on less reputable registrars—difficulties often arise in the course of organizing transfers. It is believed these problems arise due mainly to the reluctance of the pirate’s registrar to lose a client. These problems can often be resolved by agreeing to use the same registrar to record the assignment, and thereafter requesting a change in the registrar responsible for management of the domain.
Transfers can also be delayed by the requirement in some cases that copies of business licenses for the assignor or assignee be provided in notarized/legalized copy or bearing the company’s corporate seal.
ADVERTISING AND KEYWORDS
There are no statutes or other binding legal authority in China which explicitly prohibit the registration, use or sale of a trademark by someone other than its owner as an advertising keyword, including those used in the context of sponsored link advertisements appearing in search pages. While the PRC Trademark Law and its Implementing Regulations address the use of trademarks in advertising, as well as secondary liability for facilitating trademark infringement, Chinese courts are split over whether Internet search engine operators can be found secondarily liable.
In recent years there have been civil actions involving both Google and the leading Chinese search engine Baidu in which the courts in Shanghai and Guangzhou suggested that the knowing sale of a keyword to a competitor would constitute a form of trademark infringement, as well as unfair competition. In the case involving defendant Google, the court refrained from imposing liability, apparently due to Google’s decision before the case arose to cancel the keyword. In the other case, Baidu was explicitly found liable, as it was apparently seeking validation from the court that the registration and use of keywords by competitors should be deemed legal. In practice, warning letters to users, ISPs, and search engines are normally successful where the keyword is used to promote obvious counterfeits. However, the response to warnings is not uniformly positive in other cases.
COUNTERFEITING AND IDENTITY THEFT
Counterfeiting
Counterfeiting of nearly all categories of consumer and industrial goods has become an epidemic over the last decade, and as the “Factory to the World” and one of the fastest-growing economies on the planet, there is ample evidence suggesting China is the single largest source of fakes. Chinese and foreign traders in fakes have, not surprisingly, begun exploiting the Internet as a tool for promoting sales, with the most famous B2B platform being Alibaba.com.
The Internet has also provided a platform for “online” sales, mainly among local buyers and sellers, with the most well-known of vehicles being the (primarily) B2C and C2C auction sites Taobao.cn and Eachnet.cn (an eBay affiliate). Indeed, many brand owners in the luxury, apparel, electronics and pharmaceutical sectors are finding that the average amount of fakes seized by Chinese customs has gone down dramatically in the last few years. Instead of finding large quantities of fakes in large containers, customs is finding much smaller quantities being sent by post or air courier services—but in dramatically higher numbers of seizures than in years past.
Investigators representing brand owners are normally grateful for the fact that counterfeiters operate as openly as they do on the web, as this supplies them with a rich source of leads. However, actually tracking down the identity of the individuals and companies responsible and the location of significant quantities of fakes normally requires an enormous amount of time and resources, as the infringers are no fools and they are normally able to reduce their risks of detection through a number of simple measures.
Government authorities should in theory find it easier to investigate and take enforcement action against infringers that expose themselves on the web, as they can rely on more sophisticated phone and internet tracking technologies. However, these more advanced investigation techniques are possessed only by Chinese police (the “Public Security Bureaux” or “PSBs”) and not by the main administrative enforcement authorities that handle 99% of trademark enforcement in China—the Administrations for Industry and Commerce (AICs) and Technical Supervision Bureaux (TSBs).
There are however encouraging signs for the future. Involving Chinese police in counterfeiting cases even today is much easier than it was five years ago, as the Ministry of Public Security (MPS) has taken a more prominent role in the area. The MPS actually operates three different divisions which focus part of their resources on counterfeiting crimes—the Economic Crimes Investigation Division, the Public Order Division and the Computer Crimes Division—and each has gradually become more adept at investigating cases that involve the internet in some way.
As in other countries, the key challenge for the future will be to ensure local police are adequately resourced and trained to handle a much larger number of counterfeiting cases—including those involving the Internet. But China will also clearly need to consider amending the Trademark Law and Criminal Code provisions on IP violations in order to more effectively address the explosive use of the Internet to promote trade in counterfeits.
WTO Dispute – China’s current Criminal Code and related judicial interpretations impose a minimum threshold of RMB50,000 (currently about $7200) for determining whether an act of counterfeiting constitutes a crime. Trademark owners—and indeed many Chinese companies and experts—have for years criticized this threshold as a “safe harbor” for infringers—one that is particularly well-suited to infringers operating on the web.
The Chinese government responded to these concerns by reducing relevant thresholds in 2001 and 2007 to the current level , each time promising that the reduction would lead to significant increases in criminal prosecutions and a reduction in the overall level of counterfeiting. Regrettably, the impact of these reductions seemed insufficient, and USTR decided in April 2007 to file a dispute with the WTO, arguing that China’s Criminal Code and judicial interpretations establishing thresholds were inconsistent with Article 61 of the TRIPS Agreement, which requires that criminal enforcement be applied in cases of willful counterfeiting and copyright piracy conducted on a “commercial scale”.
The main question posed in the dispute—which was the subject of a panel decision issued on January 26, 2009—was whether the RMB50,000 threshold inappropriately excludes a range of “commercial scale” violations that fall under the threshold.
The WTO panel’s decision implied that the argument of the U.S. presented viable questions for determination, but in its 134 page highly technical ruling, it concluded that the arguments and evidence presented by the U.S. were insufficient in key respects. The decision ultimately appears to provide a clear “map” for the U.S. or another country to either appeal or file a new complaint which can address the panel’s concerns, but it remains unclear at this point in time whether the Obama administration will be content with the panel’s positive findings, or whether the ultimately negative holding merits fresh action.
In its response to the WTO case, the Chinese government provided a sympathetic explanation for the current threshold system—including the fact that similar approaches are used for almost all economic crimes in the PRC. However, brand owners and their industry associations are hopeful that the Chinese and US governments will look more deeply at both the legal and practical circumstances, and perhaps look for ways to cooperate in devising more effective solutions—including improvements to the Criminal Code as well as the Trademark Law—that would obviate the need to resort to further drawn-out disputes before the WTO.
Targeting ISPs – Given the limited tools for tracing and enforcing against the producers and distributors of counterfeits themselves, trademark owners have over the past few years begun tentative steps towards reducing the visibility of advertisements for fakes by targeting the portals and internet service providers (together, “ISPs”). While the law on ISP “take-downs” of material violating copyright is fairly well-developed, there is still scant regulation, binding precedent or indeed case decisions of any kind in China focused on counterfeits.
Globally, there is precious little legislation on the issue. But the cases brought over the last few years against eBay by Louis Vuitton and others have generated enough leverage such that more reputable ISPs globally are now willing to cooperate with take-down notices supplied by brand owners.
The same is true in China, despite the fact that the only leading case in this area was decided against the trademark owner. In a 2001 decision by the Pudong Intermediate People’s Court in Shanghai, it was held that eBay China could not be held liable to the Danish plaintiff Aktieselskabet Af 21, owner of the international apparel brands “ONLY”, “VERO MODA” and “JACK & JONES”, as eBay China merely provided a channel for buyers and sellers to meet, it was not in a position to verify the information on goods supplied by users, and it was not a facilitator of specific transactions in fake goods.
As China is a civil law system, the 2001 eBay China decision has no precedential value, and its holding seems to now be eclipsed by more recent decisions in the copyright area. In any case, major portals—including eBay China, Taobao, DHGate, Alibaba, China Telecom and others have over the last few years become increasingly open to cooperation with victims of counterfeiting—offering not only relatively prompt take-downs, but also information on the identity of their clients. More encouragingly, some portals have recently implemented filters that effectively prohibit promotion of specified brands, while eBay China recently began offering assistance in financially supporting private investigations and assistance in attracting police intervention in more complicated cases.
What Next? – Brand owners appear reticent to litigate against ISPs to help in clarifying the law, at least as long as appeals remain unresolved in the eBay disputes involving Tiffany in the US and Louis Vuitton in France. In the meantime, companies and industry associations, including INTA, the Quality Brands Protection Committee (QBPC) and others will need to consider the options for introducing innovations recently introduced in Germany, Japan and elsewhere, and testing their utility in China.
Consideration should likewise be given to promoting greater research on these critical issues by Chinese academics, judges and other policy makers. Such research could involve the organization of seminars that would provide a forum for more productive exchanges with China-based ISPs, thereby hopefully leading to the more “experiments” in cooperation.
Fortunately, Chinese brands suffer just as much, if not more, than foreign brands. So while there are clearly language and cultural barriers to cooperation, there is every reason to be optimistic that cooperation will yield positive results.
Other Types of Identity Theft
Traders in China are also increasingly using their websites to promote the sale of genuine goods—including parallel imports and goods otherwise sourced and distributed in violation of distribution agreements between the producer and its authorized distributors.
Very often, these websites will include logos, stylized word marks and otherwise prominent placement of trademarks that can mislead consumers into believing the trademark owner has approved the promotion and sale of the goods. In some cases, infringers have gone to the extreme of registering and using domain names that include the trademark owner’s brand together with another term, such as a regional designation–e.g., “dellbeijing.cn”–and/or used trade names and made claims which suggest the operator is an authorized distributor or licensee of the trademark owner.
In more egregious cases, the operator explicitly holds itself out as a subsidiary of the trademark owner, and may have even established a company in China using the trademark owner’s Chinese-language name. Very often, the goods being sold by such companies are mainly marketed under the infringer’s own brand, but an infringing trademark is prominently used as a secondary brand, even if only as a short-term tool for facilitating the launch of the infringer’s own product.
Ultimately, these other forms of identity theft can prove much more damaging, as well as more costly to enforce against, as infringers are often concurrently using marks in multiple ways—domains, trade names, company names, trademarks, and in other misrepresentations—each of which may require argument based on different laws and regulations—including the Trademark Law, regulations on the protection of well-known marks, the Anti-Unfair Competition Law, and Chinese UDRP—each of which is normally enforced by a different government body. As a consequence, it can sometimes take years to stop such infringements, whereas by contrast, simple counterfeiting cases can often be resolved within a few weeks or months.
Future Challenge Based on “Fair Use”? – In general, brand owners have been able to convince ISPs and infringers themselves to stop the simple use of their registered logos and stylized word marks to sell genuine goods based on normal trademark law principles. There is fear among many brand owners that a feisty infringer will one day seek its day in court and argue that the use of such marks to promote genuine goods in good faith should amount to “fair use”. To the extent brand owners acquiesce to this sort of infringement, it may make the job of plaintiff brand owners in such cases all the more difficult, as defendants will again be able to claim such fair use has become an industry convention.
Joseph T. Simone, Partner, Baker & McKenzie, Beijing/Hong Kong
Tags: ADNRC, AIC, ALIBABA, BAIDU, China Telcom, Chinese UDRP, CIETC, CNNIC, DHGATE, EACHBNET, eBay China, HKIAC, INTA, keywords, PRC Trademark Office, PSB, QBPC, TAOBAO, TSB, wireless keywords
Posted in Anti-Counterfeiting, CCTLD's, Cybersquatting, Domain Sales and Auctions, Enforcement, ICANN, INTA, Internet Security, UDRP, WIPO by Joe Simone
