The theft of intellectual property is estimated to cost domestic companies between $200 billion and $250 billion a year2 in lost revenues and result in the loss of 750,000 jobs in the United States.3 Counterfeit goods cause economic loss but also are likely to be of inferior quality and present the possibility of being unfit for use by the consuming public. U.S. Customs and Border Protection (CBP) and U.S. Immigration and Customs Enforcement (ICE), seized more than $196 million in Intellectual Property Rights (IPR) infringing goods in 2007, which is an increase of 26 percent in domestic value over the previous year.4
This article will explain (1) the necessity of registering trademarks in places of product manufacture or sale, (2) the process of identifying counterfeiters through investigation services, (3) the options for administrative and civil remedies against counterfeiters in China and Hong Kong, (4) Chinese and Hong Kong Customs enforcement procedures against the import and export of counterfeit goods, (5) the steps for securing a business’s supply chain, (6) utilizing U.S. Customs authorizations to prevent import of counterfeit goods.
For purposes of this article, the hypothetical example of the Acme Company will illustrate some of the anti-counterfeiting strategies. The president of Acme Company contacts you and tells you that his regional manager in Asia found counterfeit versions of the company’s portable digital music player selling on a website, as well as in a Hong Kong street market. The counterfeit products carry the Acme Company logo and the product logo. Acme registered trademarks in the U.S. covering its business name and its product names.
1. Register Acme’s Trademarks in Places of Product Manufacture or Sale
First, generally a company should register its trademarks in the countries where it manufactures and or sells its products. However, a company need not register in China if (1) it manufactures a product in China, but does not put its mark on it until it has arrived back in the United States, and (2) only sells the product in the U.S.5
Contrary to some views, China’s protection of trademarks, registered in China, is quite good and ever improving.6 But in order to gain protection, a company needs to register its IP in China.7 As is the case here in the United States, it is always cheaper for a company to register its IP than to litigate in the absence of registration.8
China has a "first-to file" trademark system that requires no evidence of prior use or ownership, leaving registration of popular foreign marks available to third parties (counterfeiters).9 However, an aggrieved party could seek to have the China Trademark Office cancel Chinese trademarks that were "acquired by fraud or any other unfair means."10
In Hong Kong, a trademark application can be based on an applicant’s intent to use the mark in Hong Kong.11 An applicant is not required to submit proof of use for the issuance of the trademark certificate or for renewal.12 However, if the registered trademark is not used in Hong Kong for any continuous period of three years, an interested party can apply to cancel the registration on the ground of non-use.13 Owners of unregistered trademarks may still use their marks in Hong Kong but it is harder to prove that the owner actually owns the mark and as such the protection is limited.14
Acme should register the trademarks it has in the United States in China and Hong Kong. Even though Acme is manufacturing its products in Asia only for export, this does not minimize the need for Acme to protect its trademarks there because Acme labels the products with its trademarks at the time of manufacture. If a third party registers Acme’s trademarks in China, that third party will have the power to stop Acme’s authentic goods at the border, prevent them from leaving China, and otherwise enforce the mark against Acme. If that occurs, Acme would need to embark upon the task of petitioning the China Trademark Office to cancel the third party registration as obtained by fraud or any other unfair means.
Acme should consider developing and registering a Chinese language version of its trademarks in China, and other jurisdictions of "Greater China," including Hong Kong, Taiwan, Macao and Singapore. If Acme does not create a local language version of their marks, such as a Chinese mark but sells in that market, the market will do so, creating a Chinese "nickname" for the product.15 For example, Starbucks registered more than 200 trademarks in China.16 The company registered Starbucks in English as well as the translation of "star" and "bucks" together in Chinese.17 In order to create a local language version of a company’s marks, it is important to engage a person who understands and speaks fluently not only the local language but the various dialects used throughout the region where registration is sought. Last, it is important for Acme to register its trademarks abroad before tipping off the counterfeiters, so the counterfeiters do not register Acme’s marks first.
2. Identify Counterfeiters
Unless Acme has detailed information about the counterfeiters, Acme should consider obtaining counterfeiting investigation services in Asia to identify the source of the counterfeits. It is reported that Chinese courts put more weight on written and physical evidence than on oral evidence.18 When investigators begin with little information, they seek initial information from the public and the internet. In some instances, offering a reward for information can be an effective means of obtaining needed information.19 Once the location of the counterfeit operation is discovered, an onsite investigation may occur. However, the investigation must occur within the bounds of local law otherwise the recovered evidence may be excluded.20 Evidence uncovered during the investigation should be notarized to evidence its authenticity.21 Here, Acme needs to have an investigation conducted by an experienced investigator in China and Hong Kong to determine the source of the counterfeit goods and to gather evidence. After the counterfeiters are identified the rights holder may seek administrative or civil remedies in China and Hong Kong.
3. Pursue Administrative Remedies or Civil Litigation Options
Administrative Remedies in China. One administrative remedy available in China is through the State Administration on Industry and Commerce (SAIC).22 The benefits of administrative adjudication of trademark infringement include: the investigations can occur quickly after a complaint is filed, the rights holder may be able to participate in the investigation, SAIC may take raid action on counterfeiters, and a determination of infringement and an imposition of a remedy can occur in a short timeframe, sometimes in a matter of weeks.23
Some disadvantages of administrative adjudication include: (1) the administrative agency does not award compensation for infringement, (2) occasionally local corruption or lack of resources influence administrative agencies to refuse to investigate a complaint, and (3) fines available may be insufficient to put the infringer out of business.24 Here, if Acme is not concerned with recovering money damages, but instead prefers to stop infringement and prevent infringement from reoccurring in China, it should seek raid action against the counterfeiters through SAIC.
Civil Litigation China. A rights holder also has the option of filing a civil suit against a counterfeiter. These suits cost more than administrative adjudication. In a civil suit, the rights holder is required to show "(a) the alleged infringing act involves a mark that is identical or similar to a registered trademark; (b) the infringing representation of a registered trademark was used in connection with or affixed to similar goods or services; (c) the unlawful act interfered with the registered trademark holder’s right of exclusive use or caused the registered trademark holder economic loss."25 The court may grant damages and an injunction stopping the infringer from making or selling infringing goods. It is reported that the Chinese courts located in more industrialized or commercialized regions are willing to enforce China’s trademark laws, even for foreign companies.26 Here, Acme does not what to incur the expense of civil litigation, but instead seeks to stop the counterfeiting. Therefore, it is likely that Acme will not purse civil remedies.
Civil Litigation in Hong Kong. In Hong Kong there are two avenues of IP enforcement one is through the Customs and Excise Department and the other is via civil litigation in the courts.27 Civil litigation begins by filing a writ of summons with a general endorsement of claims or a detailed statement of claim of infringement. Interim injunctions can be obtained if the plaintiff can show (1) there is a serious question to be tried; and (2) a likelihood of irreparable damage to the plaintiff exists if the defendant’s infringing activities are not stopped immediately.28 An ex parte injunction may be obtained on a showing that (1) the plaintiff has a strong prima facie case; and (2) there is a real possibility that the defendant may destroy the evidence of infringement.29 As stated above, Acme may prefer to avoid the cost of litigation and seek Customs enforcement, if counterfeiter operations are subject to the jurisdiction of the Customs authorities.
4. Register Chinese Trademarks with Chinese and Hong Kong Customs
After the trademarks are registered in China and Hong Kong, Acme should apply to the Customs agencies of each country to impound and destroy any counterfeit goods found passing through import/export ports. In order for customs authorities to impound counterfeit goods, Acme must record its trademarks with the Customs authorities.30 Acme should notify the Customs of suspected points of entry or exit of counterfeit goods.
Regarding Hong Kong, the Office of the U.S. Trade Representative provides that "Hong Kong has strong laws in place, a dedicated and effective enforcement capacity, and a judicial system that supports enforcement efforts by sentencing those convicted of IPR violations to prison."31 According to the Trade Representative, Hong Kong Customs routinely seizes IPR infringing products entering mainland China and elsewhere. The Trade Representative reports that a new program called "E-Auctioning with Integrity," was lunched to prevent and stop piracy activities at auction sites. Under the program, Internet Service Providers (ISPs) intensified their monitoring of goods auctioned on their sites and removed counterfeit items when the rights owners alert the ISPs of the suspected counterfeit goods.32 Moreover, Hong Kong Customs authorities have power exceeding those Customs authorities in other countries. Customs has broad search, seizure, and arrest powers as well as the power to prosecute an infringer.33 The Hong Kong Customs authorities can seize counterfeit goods not only at border areas but from anywhere in Hong Kong.34
Here, Acme can seek remedies with the Hong Kong Customs to stop the movement of counterfeit products into and out of Hong Kong. Also, if the counterfeiting website’s ISP is located in Hong Kong, Acme can seek relief under the E-Auctioning with Integrity program to stop piracy at the auction website.
5. Secure Acme’s Supply Chain
While many aspects of anti-counterfeiting solutions require government assistance, businesses should take action in areas where they can exert control, such as over the security of their supply chain. While a detailed discussion of procedures to secure a supply chain are outside the scope of this article, in brief, businesses should: (1) secure legitimate inputs by ensuring the authenticity of raw materials and component parts, (2) verify the legitimacy of customers and distributors, (3) manage production waste and damaged or unusable inventory, (4) ensure legitimacy of purchased products at retail level, and (5) monitor brand integrity. 35 For a detailed discussion of these topics see page 11 of "Intellectual Property Protection and Enforcement Manual: A Practical and Legal Guide for Protecting Your Intellectual Property Rights" published by the Global Intellectual Property Center at http://www.thetruecosts.org/index.php/component/content/article/73-brandprotectionmanual/146-brandprotectionmanual.
6. Prevent U.S. Imports of Counterfeit Goods by Recording Trademarks with U.S. Customs
The U.S. Department of Customs and Boarder Protection (CBP) provides an Intellectual Property Rights (IPR) Enforcement36 program designed to stop the flow of fake goods into the United States. The first step in obtaining IPR protection by CBP is to record Acme’s federally registered trademarks with CBP through the Intellectual Property Rights e-Recordation (IPRR)37 online system.38 If a company has not registered its marks with the U.S. Patent and Trademark Office, it should do so before registering with CBP. In order to record Acme’s trademarks with CBP, Acme must provide CBP with the following information: (1) the places of manufacture of authentic goods bearing the recorded trademark; (2) the name and principal business address of each foreign person or business entity authorized or licensed to use the trademark and a statement as to the use authorized; and (3) the identity of any parent or subsidiary company or other foreign company under common ownership or control which uses the trademark abroad. 39
The recording makes the information readily available to CBP personnel and facilitates seizure of counterfeit goods by CBP.40 CBP will actively monitor shipments and prevent the importation or exportation of infringing goods based on the information.
While enforcement of intellectual property rights in foreign countries may not be on the level of enforcement available in the United State, the intellectual property protection abroad is improving. Securing the supply chain and registering trademarks in countries in Asia where a business manufactures or sells its products is a prudent measure in protecting the business’s brand. If counterfeiting operations are discovered, an investigation followed by the appropriate enforcement actions taken abroad provides a means to stop the counterfeiter and protect the business’s reputation.
2 Federal Bureau of Investigation, U.S. Customs, FBI National Intellectual Property Rights Center Holds Industry Outreach Conference, Press Release, (2002); Intellectual Property Protection and Enforcement Manual: A Practical and Legal Guide for Protecting Your Intellectual Property Rights", Global Intellectual Property Center, page 11 (last accessed 06/30/2009)
3 The U.S. Customs Service, U.S. Customs Announces International Counterfeit Case Involving Caterpillar Heavy Equipment, Press Release, (2002).
4 U.S. Customs and Border Protection IPR Fact Sheet (07/07/2008).
5 Dan Harris, When Not To (And When To) File Your China Trademark, The China Law Blog (Dec. 21, 2007).
8 See Id.
9 IPR Toolkit, U.S. Embassy in China (2005).
10 Trademark Law of the People’s Republic of China, Section V, Article 41.
11 Honk Kong Trademark Ordinance Chap 559, s 38(3) (2003).
13 Honk Kong Trademark Ordinance Chap 559, s 52(2)(a) (2003).
14 For an overview of the trademark registration process in Hong Kong see "Trademark Protection in Hong Kong", The Government of Hong Kong Special Administrative Region, Intellectual Property Department (Last Accessed June 29, 2009).
15 IPR Report, U.S. Embassy in China.
16 Dan Harris, China’s Trademark Laws: Simple and Effective, World Law Direct (June 29th, 2008).
18 Chan, George, Li, Celia, Investigating Anti-counterfeiting in China, World trademark Review (March/April 2008).
22 IPR Toolkit, U.S. Embassy in China (2005).
25 IPR Toolkit: Trademark, U.S. Embassy in China (2005).
26 Dan Harris, China’s Trademark Laws: Simple and Effective, World Law Direct (June 29th, 2008).
27 Ai-Leen Lim, Hong Kong chapter of the World Trade Review Anti-counterfeiting Guide 2008, Bird & Bird (Nov. 18, 2008).
30 IPR Toolkit: Trademark, U.S. Embassy in China (2005).
31 The 2004 National Trade Estimate Report on Foreign Trade Barriers, The Office of the United States Trade Representative (2004).
32 The 2007 National Trade Estimate Report on Foreign Trade Barriers (NTE), Office of the U.S. Trade Representative (2007).
33 Ai-Leen Lim, Hong Kong chapter of the World Trade Review Anti-counterfeiting Guide 2008, Bird & Bird (Nov. 18, 2008).
35 No Trade in Fakes Supply Chain Tool Kit", U.S. Chamber of Commerce and the Coalition Against Counterfeiting and Piracy (CACP) (2006).
39 19 C.F.R. 133.2 (2008).
Eric R. Waltmire is a registered patent attorney at the Erickson Law Group in Wheaton Illinois, where he assists businesses in protecting their intellectual property. Eric handles a range of intellectual property matters with an emphasis on Internet, computer science, and electronic technologies. He served as the chairman of the Internet and Computer Law Subcommittee of the Illinois State Bar Association's Intellectual Property Section Council in 2008-2009. Eric has a B.S. in Computer Science. He graduated magna cum laude from Southern Illinois University School of Law where he served as an articles editor on the Southern Illinois University Law Journal. Before joining the Erickson Law Group, he clerked for the judges of the Eighteenth Circuit Court of Illinois. He can be reached at email@example.com.