The growing number of internet shoppers in China represents a business opportunity too good to pass for international companies. However, China’s large manufacturing base and inconsistent IP enforcement make it one of the primary sources of global counterfeit and knock-off goods.
With over 750 million online shoppers, China’s mainstream e-commerce platforms are the preferred place to launch a business operation for any foreign brand.
A concerning phenomenon is the use of e-commerce and social media sites to market infringing products to a global audience. These sales channels represent a massive risk for rights holders and offer a sharp contrast from the days before e-commerce when counterfeit and grey-market goods were largely limited to traditional domestic sales and local export-focused markets.
This problem is magnified by China’s sophisticated manufacturing base, where counterfeiters can quickly manufacture knock-off products at low cost for domestic and international distribution.
Many multinationals have quickly learned that counterfeit products spread on these e-commerce platforms just as rapidly as their business expands.
According to US customs, more than half of the counterfeit goods confiscated annually come from China.
Although China is notorious for its level of IP violations, it does provide several enforcement mechanisms for rights holders via administrative, civil or criminal channels (some more effective than others).
Administrative channels are most frequently used, but the benefits that they afford in terms of time and cost savings are often tempered by the relatively low fines assessed against pirates, which are unlikely to deter determined counterfeiters.
Just as other e-commerce platforms in the world, mainstream platforms in China provide their own mechanism for IP right holders to raise complaints against infringement.
Court and administrative procedures tend to be long and costly. However, a takedown action against those counterfeit products directly on the platform can provide an effective means for fast elimination of infringement, if it is done properly.
It may take the court between 6 to 9 months to decide a case, while a takedown decision can be reached in 1 to 2 weeks. In many cases, the takedown process is the preferable course of action to minimize losses.
The vendors who offer the counterfeit goods are not always the manufacturers. It can be complicated for the IPR holder to identify the right source and an investigation may be costly and not effective. For this reason, a takedown action is a viable option.
On the other hand, conducting test purchases from those online vendors may help locate the warehouse of the counterfeit products.
There are several steps to initiate takedown actions.
First, the company needs to register an account and upload the IPRs. Each platform offers its own independent website for takedown actions against infringement.
For example, the Alibaba Group operates four platforms: Taobao, Tmall, Alibaba, and AliExpress. When an IP right holder registers an account on the website, takedown actions against infringement can be initiated in all four platforms.
Currently, valid Chinese trademarks, patents, and copyrights are all eligible for being the legal basis to institute a takedown action if counterfeit products appear on any platform.
The second step is to make strategic preparations before initiating a takedown action, such as collecting evidential materials of infringement.
E-commerce platforms have no judiciary enforcement right. Their decisions with respect to takedown actions against infringement are made solely according to the opinions of their in-house IP experts. Therefore, when encountering complex IP matters, supporting documents and evidence may be necessary.
This information may become a deciding factor for the outcome of a takedown action. Among others, test purchase of the counterfeit products from the online vendors is an effective means.
Submitting a set of supporting documents in line with the practice and requirements of the relevant platform significantly increases the chances for a successful takedown action. This documentation should be drafted by IP experts who understand both the product and the relevant practice in China.
After collecting the evidence, the third and last step would be to initiate the takedown actions. The opposing party will be granted a 3 to 7 days to respond based on the complexity of the case, after which a decision will be made within 3 to 7 days, if facts and grounds are clear.
If the infringement is confirmed, the links offering counterfeit products will be deleted.
For prolonged takedown campaigns, it is recommended that rights holders have face-to-face meetings with the platforms to explain the nature of the problem and request tailored solutions.
To lower enforcement costs, rights holders may also consider working in conjunction with other brand owners. This could take the form of joint investigations of serial infringers or a division of labor to monitor and attack counterfeiters appearing on certain platforms.
For Chinese counterfeiters, trademark squatting remains a fertile means of adding to their profits. Although the 2019 version of the Trademark Law mandates refusals of trademark applications filed in bad faith where there is no intent to use those marks, applicants are not required to submit evidence of use or intent to use at the application stage, unlike in most common law jurisdictions.
In addition, as a first-to-file jurisdiction, trademark rights are awarded to the party that files soonest, not that uses the trademark first. Exploiting this system, Chinese trademark squatters commonly register vulnerable marks of both foreign and local companies, either using the pirated mark as cover for their own counterfeiting or hoping to extort a high assignment fee from the rights holder if it wishes to use its own mark.
These risks, along with China’s status as one of the world’s largest consumer markets, make it an essential front in any company’s global IP strategy – even if that company is not active in China.
Online counterfeiting is clearly one of the most significant issues facing rights holders in China. Counterfeiters have proven particularly adept at using the Internet to steal product ideas, by either visiting brands’ official websites or discovering new products featured on sites such as Kickstarter or Amazon.
Once a product idea has been imitated, counterfeiters can readily manufacture the product themselves or arrange for a local manufacturer to put it into production, and then use China’s increasingly global e-commerce network to promote their goods to an international audience. They may even attempt full-on identity theft, seeking to replicate the foreign company’s trademarks, visual distinctiveness and products on websites or social media accounts.
If the problem is minor, online takedowns can be pursued against counterfeiters. However, if the problem is more severe, further investigation may be necessary to pursue source manufacturers through additional civil or criminal action.
To learn more about our services in China, contact our Head of Business Advisory - Ms. Kristina Koehler-Coluccia at firstname.lastname@example.org.
DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.