Right before the 2023 Lunar New Year holiday break (beginning on 21 January), the Chinese trademark office and Supreme People’s Court (SPC) dropped bombshells that will create fundamental changes to China’s trademark system and should send shockwaves from the Pacific Ocean to the Atlantic. The changes show the direction that China plans to take over the next few decades, and how serious it is about becoming an IP powerhouse.
The first bombshell was the new amendment to China’s Trademark Law.
On 13 January 2023, the China National Intellectual Property Administration (CNIPA) released a draft which formally kicked off the fifth amendment to the Trademark Law. With 101 articles (including 74 new ones), it is an ambitious draft for the public’s consideration. Changes to the existing Trademark Law are certainly overdue (meaningful amendments were last made 10 years ago), and these proposed updates show the government’s determination to finally rectify the trademark chaos that is spreading beyond its borders. Not only are Chinese trademark squatters wreaking havoc on the US filing system, bad-faith filers are also causing headaches for domestic Chinese companies and the economy, making headlines and some would argue embarrassing China’s government agencies, the CNIPA included.
Although it will take another three to five years before the draft becomes law, the changes that it proposes are structural and fundamental (eg, it suggests imposing a use requirement to renew an existing registration in China) and are already drawing attention.
The second bombshell was the SPC’s Judicial Interpretation of the 2021 Amendment to the Criminal Law Concerning IP Crimes.
SPC interpretation of criminal law on IP crimes
On 18 January 2023, the SPC released its Interpretation of Several Issues Concerning the Application of Law in Handling Criminal Cases of Intellectual Property Infringement (Draft for Comments). Delayed by two years primarily due to the covid-19 pandemic, the interpretation is meant to provide guidance on the 2021 amendments to China’s Criminal Law, which became effective in March 2021.
The Criminal Law identifies seven crimes related to IP rights, three of which deal with trademark infringement and are the focus of this article. The original trademark-related criminal articles are outlined below with the changes implemented by the 2021 amendments highlighted in italic bold:
- Article 213 – Counterfeit Registered Trademark Crime:
The defendant is subject to prison time up to three years or criminal detention (change to: prison time up to three years) if it uses a registered trademark, on the same registered goods (add: or services), without the trademark owner’s consent. For serious cases, the defendant is subject to 3-7 years of prison time (change to: 3-10 years) along with monetary fines.
- Article 214 – Crime Relating to Selling Products Involving Counterfeit Registered Trademarks:
The defendant is subject to no more than three-year’s prison time or criminal detention (change to: up to three year’s prison time; detention is no longer an option) if it knowingly sells products under a registered trademark without the trademark owner’s permission. For serious cases which involve substantial sales revenue, the defendant is subject to three to seven years of prison time (change to: three to ten years) along with monetary fines.
- Article 215 – Crime Relating to the Manufacture and Sale of Counterfeit Labels:
The defendant is subject to no more than three-year’s prison time, probation or criminal detention (change to: up to three year’s prison time; probation and detention are no longer an option) if it fabricates, manufactures or sells counterfeit labels involving registered trademarks without trademark owner’s permission. For serious cases, the defendant is subject to three to seven years of prison time (change to: three to ten years) along with monetary fines.
Specific guidelines from the SPC on criminal trademark cases
In an attempt to increase the disincentives to engage in criminal trademark infringement, the 2021 amendments increased penalties and prison sentences; however, ambiguity remained. For example, what was the threshold requirement before an infringer was subject to imprisonment? What made a case ‘serious’ enough to expose offenders to 10 (as opposed to three) years of imprisonment? Fortunately, the SPC has provided clarity in its interpretation.
Penalties and prison sentences
The SPC has defined the threshold required to impose a prison sentence – namely, if the defendant’s profit (not revenue) from selling products bearing a registered trademark without the trademark owner’s permission reaches Rmb30,000 (approximately $4,500), it is enough for a court to consider imposing a prison sentence on the offender.
Defining ‘serious’ cases
The SPC has also defined the threshold required to consider a case ‘serious’ – namely, the court is free to consider the case serious if the profits exceed Rmb300,000 (approximately $45,000). Once the case is deemed serious, the offender may be subject to three to 10 years’ imprisonment, along with a monetary fine.
Key elements of IP crimes
The SPC has further provided specific guidance on key elements of IP crimes, including defining:
- the terms for “the same goods and services” (Article 2) and “the same trademarks” (Article 3) (eg, consumer confusion in everyday commerce will be considered even though literal description or names of such goods or services are not exactly the same); and
- the tier system for monetary fines in criminal cases (Article 23).
Manufacturing counterfeit products
In the context of manufacturing counterfeit products, the SPC has defined the revenue threshold for deeming a case criminal if:
- the profit from manufacturing reaches Rmb30,000 (approximately $4,500); or
- the sales revenue reaches Rmb50,000 (approximately $7,400).
It is worth bearing in mind that although China does not have a discovery process, these are relatively low thresholds and are not difficult to establish. The offender may be punished with up to three years’ imprisonment along with a monetary fine of up to Rmb1 million (approximately $148,000) or five times the illegal profits.
Repeat offenders
The SPC has confirmed that the courts can address repeat offenders by lowering the monetary thresholds for finding criminal conduct if the offender:
- is involved in counterfeiting more than two trademarks at one time; or
- has received administrative penalties within the past two years relating to manufacturing or selling counterfeit products.
In these repeat offender cases, the SPC allows the courts to reduce the profit requirement to Rmb20,000 ($2,950) and the sales revenue requirement to Rmb30,000 ($4,500).
Counterfeit service marks
The SPC has set the monetary threshold for criminal counterfeiting of a service mark as higher than that for counterfeiting of a registered trademark. The SPC has confirmed that for service marks, the threshold profit must exceed Rmb100,000 ($14,800) for the offender to be subject to imprisonment, and that, for repeat offenders, the courts can reduce the threshold from Rmb100,000 to Rmb50,000 if the offender counterfeits two or more service marks or has been subject to prior administrative counterfeiting penalties.
Severe punishment
The SPC has also confirmed that the courts can consider severe punishment if the illegal profits or sales revenue are 10 times greater than the threshold criteria discussed above. In such cases, the SPC notes that the courts can consider imposing longer criminal sentences (eg, up to 10 years’ imprisonment) and higher monetary fines up to Rmb5 million (approximately $737,000) or five times the illegal profits.
The changes are not lip service – they have already happened
One of the questions that I receive most often when speaking about updates in China is, should we expect real change or is this simply lip service? The good news is that we have data to evaluate how seriously the criminal amendments are being taken.
Significantly, Chinese courts have been handing out steep damage awards in recent civil trademark cases.
Litigation proceedings in China have never been popular, largely because damage awards are simply too low. Although the average cost to initiate trademark litigation in China is lower than in the United States and the winning prospect is decent, Chinese trademark plaintiffs rarely break even (even when they win) because the damage awards, if any, are barely enough to cover attorneys’ fees.
More recently, however, courts across China have started to hand out higher damage awards that exceed $1 million for trademark litigations (see table below). With the courts willing to consider and grant higher damage awards and to impose civil liabilities for repeat bad-faith filers, we anticipate seeing more and more trademark infringement cases in 2023 and beyond.
Notable cases handled by Chinese courts, where damages awarded exceeded $1 million
| Case name | Court | Damage award (Rmb) | Damage award ($) |
| Lafite | Jiangsu High Court (first instance) | Rmb79.17 million | $11.67 million |
| AWS | Beijing High Court (first instance) | Rmb76.44 million | $11.27 million |
| Xiaomi Life | Jiangsu High Court (second instance) | Rmb50 million | $7.37 million |
| De Lu | Jiangsu High Court (second instance) | Rmb50 million | $7.37 million |
| Wyeth | Zhejiang High Court (second instance) | Rmb30 million | $4.42 million |
| Xiaomi | Shenzhen Court (first instance) | Rmb30 million | $4.42 million |
| New Balance | Jiangsu High Court (second instance) | Rmb18 million | $2.65 million |
Moreover, the prospect of receiving more substantial damage awards appears to have made Chinese courts a more popular choice for trademark disputes. First-instance IP criminal cases increased by 65% from 3,799 in 2016 to 6,276 by 2021, showing that brand owners are once again confident in the court system as a way to address trademark disputes. The SPC’s interpretation would only continue this trend as a strong (and welcomed) endorsement to the lower courts that trademark offenders should be punished in a way that will inflict meaningful financial pain, rather than just a slap on the wrist.
Future predictions
The 2021 amendments to China’s Criminal Law were meant to send assurances to brand owners worldwide, but doubts remained. The major changes centered on increasing the penalties associated with IP crimes (eg, increasing the maximum sentence from seven to 10 years, and removing detention as an option for milder cases in favour of prison sentences). However, courts and law enforcement across China needed guidance from the highest court on how seriously to take the 2021 amendments; the SPC gave this to them in January 2023.
The SPC’s interpretations are a strong endorsement that IP crimes should be taken even more seriously in China. The direction that the SPC is taking is a welcomed sign but it is not a surprise; it echoes the overall sentiment from China’s central government, as well as strategies released by China’s State Council designed to make China an IP powerhouse.
Relaxation of the zero-covid policy is another welcomed policy change. As millions of Chinese citizens finally go home to celebrate the Spring Festival after three years of lockdown, brand owners around the world are watching from the sidelines, wondering whether China is still a smart choice for investment. In fact, many foreign companies have begun to move their manufacturing plants elsewhere (eg, to Vietnam or Mexico). The messages from the SPC and from China’s trademark authorities provide assurance to the world that the long-awaited, positive changes are coming.
