I received a lot of questions about my recent post: ‘fake Samsung cell phone case in China.’  In that case, the bad guy (Mr. Quo) made and sold counterfeit SAMSUNG cell phones on Taobao.  In 2015, the court decided to accept this as a criminal case.  Quo received prison time (5 years!) and was ordered to pay around $230,000 – not high in the US standard but is definitely high in China’s standard. 

Below are several excellent questions I received:

Is this the first time a criminal sentence was ever imposed on a trademark case? If yes, what made this case special? If no, what was it that made it so special that it was eventually selected by China’s Supreme Court in its judicial report in 3/2017? 

Below are my answers and explanations:

This is not the first time a trademark case is being treated as a criminal case.  The case, however, is still a MAJOR break-through.  This is because the court finally rejected one of the MAJOR hurdles that had traditionally prevented a regular trademark case being treated as a criminal case in China.

The monetary threshold amount required in a criminal case in China is low – around US $7500.  Despite the low requirement, few trademark cases have been accepted as criminal cases.  This is primarily because China does not have the discovery system; it is therefore very difficult to provide the precise calculation of the actual illegitimate profits.  Worse, even in situations where the plaintiff is able to guess / provide info showing the defendant’s revenue, a typical Chinese defendant will argue such records are “fake” – i.e., part of the culture when doing business in China. 

Allow me to explain.

Chinese people love shopping online.  It is, however, still difficult for online retailers to establish a  footprint on an e-commerce platform.  In order to boost their online ranking (similar to increasing your  SEO here in the US), it is common practice for Chinese online retailers to ask others to place fake orders.  This type of fake transaction is referred to as: “brushing” (this is a literal translation – I’m sure a better description will come up soon). 

This Chinese “brushing” is similar to ask your friends and family to “like” your restaurant on YELP even though they prefer a McDonald meal over your restaurant food.

In the Samsung case, Quo did not deny his wrongdoing.  He did, however, argue that the sales were not as high as claimed because the sales were artificially inflated by the “brushing” practice.  The actual revenue was only half the amount claimed by the prosecutor and was therefore not enough to justify a criminal case.    

In the past, most cases stopped at this point.  Since China does not have the discovery system, it was difficult to prove the negative so even though the threshold for a criminal case was low, few cases were able to get over this hurdle.

However in Mr. Quo’s case, the court refused to accept this line of argument.  Instead, rather than insisting the plaintiff prove the actual revenue, the court decided to accept the revenue amount claimed by Samsung by relying on other third party information.  It then shifted the burden of proof to the defendant to prove the materials provided by the prosecutor were inaccurate.  Quo could not; case settled – the sales revenue was sufficient to justify a criminal case regardless of the brushing practice.

Put simply – this is a landmark case that will allow the Chinese courts to approve MORE trademark infringement cases as criminal cases.