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June 2019
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Working with Chinese Customs Authorities

By David Lee and Fan Qiu

1. The Importance of Working with Customs Authorities

For many years, China remains as the main provenance of IPR infringing goods, and such undesirable situation may not be significantly changed in the near future. As shared in the Report on the EU Customs Enforcement of Intellectual Property Rights in 2018, “China is the main source country (73%) from where suspected IPR-infringing goods arrived when they were detained, and were where those goods were subsequently not released”.[1] As shared by US Customs and Border Protection, in 2017, China (46%) remains at the top and Hong Kong (32%) remains at the second place as the main provenances of seized suspected IPR infringing goods in terms of MSRP (manufacturer’s suggested retail price)[2]. Considering that the place of origin may not be the place where the goods are manufactured[3] and Hong Kong handles USD 285 billion Chinese mainland's external trade in 2017[4], abovementioned seized goods which were actually manufactured in China might be significantly more than 46%, in light of the small volume of the manufacturing industry in Hong Kong.

Given that China is regarded as the “world factory” and it has become the main provenance of IPR infringing goods, banning exports of infringing goods from China is probably the most efficient and cost-saving way for IPR holders to deal with intellectual property infringement at the international level, especially for transnational enterprises. In fact, Chinese customs have been paying increasing efforts in intellectual property, including developing the IPR Registration System for Customs Protection (hereinafter referred to as “the Registration System”). As disclosed by General Administration of Customs of PRC (hereinafter referred to as “GACC”), in total 44,500 shipments containing nearly 23 million pieces of infringing goods were seized by local customs all over China during 2018.[5]

On the other hand, outbound shipments of OEM (Original Equipment Manufacturer) products may also be detained by local customs. The OEM concept in China usually is restricted to the field of trademarks, and OEM products refer to products using foreign registered trademarks which are identical or similar to trademarks registered in China and recorded with GACC by others. Filing OEM claims before local customs to indicate that, the detained goods are shipped to foreign IPR owners only and do not enter into the Chinese market to cause trademark infringement, may help to release the shipments.

On grounds of reasons above, working with customs authorities in China is of vital importance.

 

2. Working with General Administration of Customs

GACC established the Registration System in 2004, and has been continuously improving the system to make it more efficient and convenient. IPRs and relevant information registered and recorded in the system can be shared with local customs all over China.

By using the system, IPR holders can record their IPRs on the system for local customs to take ex-officio actions, which are also referred to as proactive protection. Once shipments of suspected infringing goods are detected by local customs, the suspected infringing goods will be detained and IPR holders may decide to seize or release the goods. Moreover, IPR holders may record their own suppliers in China as authorized users of the IPRs, so that goods using relevant IPRs shipped by such recorded suppliers will not be detained by the customs. In this way, border protection of customs can provide very efficient protection for IPR holders but it will not cause inconvenience for goods shipped by authorized suppliers.

Working with GACC to have border protection in all local customs apparently saves much time and cost for IPR holders. Furthermore, by working with GACC, including using the Registration System, helps IPR holders to obtain data related to border protection of their IPRs. In this information technology world, such data will be very helpful, and IPR holders may review and improve their strategy regarding IPR protection.

 

2.1 Recordation of Trademarks

For the reason that trademarks are easier to be detected and identified, recording trademarks on the Registration System for border protection is highly effective and a large number of trademark owners adopt this way for efficient protection. In this regard, a dominant majority of IPRs recorded in the Registration System are trademarks. So far, there are in total 48,007 IPRs recorded, and 42,609 of which are trademarks.[6]

For international brand owners, recordation of trademarks in the Registration System may probably the most efficient way to stop counterfeit products being shipped from China to other markets. Furthermore, it is also an easy way to uncover infringers, inter alia, counterfeit manufacturers in China.

 

2.2 Recordation of Design Patents

Patents can also be recorded in the Registration System. By 26 June 2019, there are in total 2,621 patents recorded in the Registration System, and 1,285 of which are design patents.[7]

For the reason that utility models and inventions are usually complex and infringements on such patents are difficult to be detected, most of recorded patents in the Registration System are design patents, which are much easier to be detected and identified. For the same reason, the possibility for local customs to detect and detain products infringing upon design patents is relatively higher.

 

2.3 Recordation of Copyrights

Similar to trademarks, copyrights are relatively easy to be detected and identified, and recording copyrights can also provide border protection for IPR holders. Nonetheless, in the field of border protection, which is primarily about preventing infringing industrial goods other than counterfeit art works from being shipped from China, the function of recording copyrights is for ceasing shipments of goods bearing certain marks/logos, which is more akin to recording trademarks. For this purpose, a trademark has always been considered to be more direct, effective and of more probative value with respect to protection. So far there are 2,777 copyrights[8] recorded in the Registration System, and this much smaller number (compared to trademarks) supports our aforementioned view.

In addition, recording copyrights can be significantly helpful in the event that the brand owner has copyright over certain logo which is not registered as a trademark and the certain logo is similar to a trademark registered in China by others. Under this circumstance, if the trademark owner has recorded its similar trademark in the Registration System, the copyright owner may have their shipments released based on its recordation of the copyright. Such recordation is considered as a “defensive” or “passive” measure for avoiding detention or seizure of their shipments.

 

2.4 Acquisition of Helpful Data

In this era of data, collecting data regarding border protection, especially data specifically related to the IPR holder, is very helpful. Based on a period of time of border protection, the IPR holder would be able to figure out certain useful data which is specifically related to its IPRs, such as ports where most infringing products are seized, cities where most infringing products are from and main categories of infringing products, etc.

Based on foregoing data, the IPR holder will be able to decide the customs that for which they would like to hold more training sessions or cities where they would like arrange more through market sweep. In short, the IPR holder will be able to come up with more customized and specially adapted overall strategy by analysing such border protection data.

 

3. Working with Local Customs

In addition to setting up border protection at the national level, IPR holders may more frequently work with different local customs because protection actions are taken by local customs.

 

3.1 Training Sessions for Customs Officials

In order to improve the chance for customs officials to detect and detain infringing products, especially for patents, it would be helpful if they would have the opportunity to know more about the IPRs and features of relevant products. Thus, training sessions for customs officials are beneficial.

Training sessions for customs officials are usually held during two seasons of Spring and Autumn, and a large number of customs, especially those in key ports, will hold such training sessions. IPR holders may apply for their own seminars. If border protection is an important part of the IPR holder, training sessions should be considered as an integral part of customs enforcement strategy, especially for coastal area key ports where infringing goods may most likely be exported in a larger quantity.

 

3.2 Detaining Infringing Products Based on Unrecorded IP Rights

Detaining infringing products based on unrecorded IP rights refers to the measures taken by local customs to detain the goods which are suspected of infringement at the request of the IPR holder.

In accordance with Article 12, Regulations of the People’s Republic of China on Customs Protection of Intellectual Property Rights (hereinafter referred to as “the Regulations”), where discovering the suspected infringing goods pending importation or exportation, the holder of an intellectual property right may present an application with the Customs at the port of entry or exit for detaining such goods.[9]

However, given that customs is not the authority to decide whether the detained goods are infringing proucts, the IPR holder will have to file a lawsuit before the courts for the infringement dispute after the local customs detains the suspected infringing goods. Because the customs takes actions based on request of the IPR holder, from the perspective of the customs, such actions are usually referred to be as “passive protection”.

 

3.3  Ex-Officio Actions

Ex-Officio actions refer to actions taken by local customs during their supervision on import and export, and the basis for such proactive actions taken by local customs is recordation in the Registration System.

If a shipment is found by the IS (Inspection Section) of port customs to contain goods suspected of infringing the IPRs recorded with the GACC and there is no recorded information regarding the authorised use of the IPR by this importer or exporter, the IS may require the consignee or consignor to provide proof or evidence of IP rights to the goods in question. Whereafter, if the IS does not receive a reply from the consignee or consignor or it has reason to believe the goods are suspected of infringing an IPR recorded with the GACC, the IS shall report the issue to IPS (Intellectual Property Session) to build a case.  Consequently, the port customs will suspend the release of the goods and will issue a formal notification to the involved parties (i.e., the IPR holder and consignee/consignor). Within the three working days allowed by the GACC, the IPR holder may prepare an application for further detention and facilitate a bond payment.

With respect to Ex-Officio Actions, local customs, based on customs recordation information shared by GACC in the Registration System, will take actions proactively and they are entitled to investigation and imposing penalties on the infringers, which is different from the “passive actions”.

 

3.4 Release of Detained OEM Products

As mentioned in the first part, outbound shipments of OEM products may be also detained by local customs in China. There is a visible trend demonstrating that the goods are manufactured for export by a Chinese manufacturer based on a foreign registered trademark, while the foreign trademark right is identical or similar to a registered Chinese trademark which is recorded with China Customs, the China courts will determine the OEM is a non-infringing act.

The courts have held that the main function of a trademark is to distinguish the source of goods and services, and a trademark only functions when the goods enter the Chinese market. Accordingly, if goods manufactured with a foreign trademark are for export only and would not be sold in China, no confusion would be caused in the Chinese marketplace. Thus, OEM manufacturing would not jeopardise the interests of the registrant of a Chinese trademark. In the meantime, the buyer of the OEM products must make efforts to monitor its own supply chain as well as the China market, to ensure that the shipped OEM goods never appear in China for selling purposes via whichever channel.

To file an OEM claim, the consignor or the exporter shall submit a full set of documents evidencing the OEM nature of the detained goods.

 

3.5 Collaboration with Customs on Criminal Cases

The quantity of infringing goods being shipped outbound is usually large, and it is possible that a customs detained case will develop into a criminal case.

According to Article 26 of the Regulations, where discovering any suspected criminal offence in providing protection for IPRs, the customs shall transfer the case to the police for handling according to the law.

Clearly, customs is not the authority to initiate any criminal investigation. However, the basis of such criminal cases is that the customs detains suspected infringing products and the IPR holder promptly follow up with the customs (applying for further detention and paying bonds). Moreover, the customs is the first authority collecting and handling evidence related to the subsequent criminal case. Therefore, working with customs on criminal cases is one important part which should not be ignored by the IPR holder as the victim in the criminal case.

 

3.6 Support in Court Related Measures

With respect to ex-officio actions, after the IPR holder confirming the infringement and paying requisite bond, if a consignee or consignor presents customs with a written explanation and evidence as to why its goods have not infringed any IP rights.  In such a case, the IPR holder will have to apply for an injunction or property preservation order from the relevant People’s Court. If the application for injunction or property preservation order is approved and the order is presented to customs, the customs must provide assistance in the execution of the order. On the other hand if the application for injunction or property preservation order is denied, the detained goods will be released and the bond returned after the IPR holder pays off the related storage expenses.

With respect to “passive protection”, the customs is not entitled to further investigation and the IPR holder will have to file a lawsuit before the courts for the infringement dispute.

Considering that the IPR holder does not have direct access to detained products and relevant materials and information, in court related measures, supports from the customs can be rather important.

 

4. Conclusion

When talking about enforcement of IPRs, infringement lawsuits, administrative raid actions and police raid actions may always be mentioned, but customs protection may not be considered as important as aforementioned measures. However, on grounds of introduction and analysis above, it is obvious that working with Chinese customs is of great value for IPR holders.

Undoubtedly, thorough customs protection strategy and good management of customs protection actions can so significantly contribute to efficient and cost-saving cease of infringement at the international level. The value and importance of customs protection in China should be taken seriously by IPR holders all over the world.



[1] European Union, Luxemburg: Publication Office of the European Union (2018), Report on the EU Customs Enforcement of Intellectual Property Rights: Results at the EU Border, 2017. Pp. 15.  https://ec.europa.eu/taxation_customs/sites/taxation/files/report_on_eu_customs_enforcement_of_ipr_2017_en.pdf

[2] U.S. Customs and Border Protection, Office of Trade, Intellectual Property Rights: Fiscal Year of 2017 Seizure Statistics. Pp. 26.

https://www.cbp.gov/sites/default/files/assets/documents/2019-Apr/FY%202017%20Seizure%20Stats%20Booklet%20-%20508%20Compliant.pdf

[3] Ibid.

[4] “Hong Kong handles a good portion of the Chinese mainland's external trade. In 2017, about 13% of the mainland's exports (valued at US$285 billion) and 15% of imports (US$268 billion) were handled via Hong Kong and 58% of Hong Kong's re-exports were originated from the mainland.”

Doris Fung, Hong Kong Trade Development Council (HKTDC) Research, Import and Export Trade Industry in Hong Kong.

http://hong-kong-economy-research.hktdc.com/business-news/article/Hong-Kong-Industry-Profiles/Import-and-Export-Trade-Industry-in-Hong-Kong/hkip/en/1/1X000000/1X006NJK.htm

[5] GACC, Xinhuanet: Chinese Customs Seized Infringing Goods Worth 200 Million CNY in 2018. http://www.customs.gov.cn/customs/302249/mtjj35/2278150/index.html

[6] Official statistics disclosed in the IPR Registration System for Customs Protection on 26 June 2019.

[7] Ibid.

[8] Ibid.

[9] Article 12, Regulations of the People’s Republic of China on Customs Protection of Intellectual Property Rights.

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