Intellectual Property

The Soaring IP Dragon: China Cracks Down...

There is perhaps no bigger story right now in the IP world than the Chinese government’s current efforts to combat counterfeiting.

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Back in August, I wrote about the outsized impact China intends to have in the IP world, starting with the country’s renewed focus on its domestic IP scene. Now, news is starting to come out about some of the fruits of the initiatives announced by Chinese president Xi Jinping, as seen in recent press coverage of China’s efforts to crack down on illegal counterfeiting. For example, just this past week authorities discovered 14,000 bottles of counterfeit pricy Penfold’s wine in Shanghai and Xiamen warehouses. While developments like these will give succor to those hoping to avoid spending their hard-earned yuan on fake Shiraz, they also prove the depth and breadth of the problem China faces with respect to its robust counterfeiting industry. Add in the frequent exhortations by US officials that China take stronger steps to stop counterfeiters, and it becomes clear that we are likely to see even more announcements of this type in the future.

When you hear that Chinese car manufacturers are actually counterfeiting full-size pickup trucks like the Ford F-150, to go along with the usual counterfeit standbys like handbags and sneakers, it is not hard to see the truth in the statement: “If you can make it, China can fake it”. At the same time, it would be folly to assume that when the Chinese government announces a renewed focus on strengthening IP rights that it is using empty words. In fact, China’s General Administration of Customs announced recently that they “have detected more than 1,560 cases of intellectual property infringement involving goods exported to the United States”. Over 1,500 cases of infringement is an even more impressive number when you consider that they were uncovered in just two joint investigations involving US and Chinese customs officials.

On top of the trademark seizures, Chinese customs officials are also getting into the act of patent-based seizures as well. Colorfully code-named “Soaring Dragon,” this initiative is noteworthy because it focuses on stopping exports of products that infringe on domestic Chinese patents. In other words, the Chinese government is taking steps to incentivize local innovators by cracking down on infringing exports to foreign markets. The message is a clear one. Domestic factories that choose to manufacture products without regard to Chinese patent holders will no longer have free rein.

The recent announcements by China’s customs officials are interesting on a number of levels. For one, it shows a greater willingness of China to specifically police counterfeits and patent-infringing products aimed for the US market. Considering the importance of Chinese exports to the US to the economies of both countries, it is understandable that China may be more concerned about not giving the US more reasons to complain about IP theft by Chinese factories than it is about halting counterfeiting activities aimed at its domestic market. At the same time, Chinese factories will no longer be able to ignore the patents of innovative domestic competitors.

Another interesting aspect of the recent customs announcements are the continued highlighting of efforts to stop counterfeiting of well-known brands, such as Nike and Louis Vuitton, as well as the announced focus on protecting domestic Chinese innovators. With respect to the trademark counterfeiting crackdown, while pointing out successes in that area may be good press, it does little to reassure smaller brands looking to operate in China that their products won’t be counterfeited. To that end, it remains good practice for smaller companies (and larger ones for that matter) to register their trademarks in China — and then to register those Chinese trademarks with Chinese customs. This can help companies enlist the aid of Chinese customs officials to stop known counterfeiting efforts. As a bonus, having a registered Chinese trademark can be crucial to getting counterfeit items taken down from websites like Alibaba. Investing a bit more to have a Chinese lawyer conversant in English to assist with those steps can be very helpful. Indeed, Alibaba itself has proven helpful to China’s anti-counterfeiting efforts, so complying with both government and private regulations regarding trademarks is a useful exercise for brand owners.

On the patent front, we will have to wait and see whether Chinese authorities evince a similar willingness to crack down on infringing exports when the patent holder is a foreign company holding Chinese patents. In the absence of that evidence, factories keen on producing cheaper knock-offs could learn to avoid infringing on the patents of the big Chinese tech companies, in favor of attacking foreign companies with cheaper versions of products manufactured (and even patented in) China. This may seem like a continuation of the status quo, but it would be folly to disregard the statement of intent the Chinese government is clearly making when it follows through on its promise to build IP value in the country. Keeping counterfeits and knock-offs from getting on the boats leaving Chinese ports is a solid start.

It is well-known that coordinated activity by customs officials both at the source and the destination for counterfeit goods could be a game-changer in terms of slowing down the flood of counterfeit products that continue to make their way to the US. The bigger challenge remains changing the culture of counterfeiting that pervades the Chinese economy, which can only be done by a combination of education and enforcement. Ultimately, while China may have a ways to go to fully shed its “IP Wild West” reputation, there is perhaps no bigger story right now in the IP world — as a potential harbinger of a critical paradigm shift —  than the Chinese government’s current efforts to combat counterfeiting and infringing products from soaring out of China’s borders.

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Please feel free to send comments or questions to me at gkroub@kskiplaw.com or via Twitter: @gkroub. Any topic suggestions or thoughts are most welcome.

Gaston Kroub lives in Brooklyn and is a founding partner of Kroub, Silbersher & Kolmykov PLLC, an intellectual property litigation boutique, and Markman Advisors LLC, a leading consultancy on patent issues for the investment community. Gaston’s practice focuses on intellectual property litigation and related counseling, with a strong focus on patent matters. You can reach him at gkroub@kskiplaw.com or follow him on Twitter: @gkroub.

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