Understanding online counterfeits and Chinese intellectual property law

The following is part of the transcript of the webinar, featuring a conversation between Alex Garmon, Managing Partner at GH IP, and Joan Porta, VP of Customer Success at Red Points.

Common IP problems in China

Trademark squatting

Alex Garmon 06:03
Squatters in China take advantage of the principle of first-to-file, which basically means that the one who registers first the trademark is the one who has the rights in China and in consequence, is the one who can enforce the trademark rights.

So it is important to remark that if you did not register your trademark in China, you do not own the trademark in this country, even though you have the same trademark registered in other countries worldwide.

If you don’t own the trademark registered, you will not be able to take any action legally. And actually, squatters are a threat not only to those companies who want to sell their products in China but actually also a threat to those companies, which manufacture their products in China and then export these products from China to overseas.

Companies must be very careful because at present, many companies exhibit their approach all over the world. And they do not even consider applying for trademark registration in that country before they attend the show. The truth is that nowadays, potentially squatters are not only in China, they’re everywhere.

Partners associated risks

Alex Garmon 09:31
What we call here partners are at risk sometimes and actually is most of the time, potential squatters can be very close to you. We have experienced many cases where the squatter boss was indeed someone with a previous business relationship with the owner of the trademark in the foreign country, the foreign company and it happens most of the time, then you have to be careful with any potential partners and when I say partner I mean it in the broader sense.

It could be a business partner, a joint venture. It could be your common or long-term supplier, it could be your distributor or agent. Or it could even be your own staff in China. Actually, sometimes, these partners take advantage of the trust of the company. And they offer to register a trademark for them as a favor. But in the end, what the partner does is register a trademark under his own name, instead of under the foreign company.

So you must be careful about who you are doing business with, and I recommend you obtain some previous information about these potential partners.

Counterfeits

Joan Porta 10:39
Let’s focus now on counterfeit goods, which is a common topic these days. We’re gonna give you some numbers and some figures. And we’re going to discuss also some trends that we think are worth mentioning.

In the first place. When we talk about counterfeit goods. I want to clarify that we’re talking about fake products that are infringing either a trademark, a design, or a patent. As we probably all know, the problem of counterfeit goods has grown dramatically in the past decade. And it’s expected to keep growing in the coming years. So just to drop a few numbers.

A recent study by the International Chamber of Commerce and International Trademark Association forecasts that the value of international quantified trade could reach $2.3 trillion by 2022. So it’s obviously a huge problem and a problem that keeps growing every day.

We think it is important to consider when we talk about counterfeits in the first place, we want to say that this is no longer about luxury and very well-known brands anymore. Virtually every industry can be affected by counterfeits.

So we’ve always heard about expensive handbags, watches, footwear, and sunglasses. But we’re now hearing about counterfeited toys, food, carrier bags, pesticides, and medical equipment. We work with clients from almost every possible sector and industry. And they’re all affected by counterfeiting.

Not only this, but also counterfeiting, is harming companies of all sizes, and all countries, even regardless of the economic value of their products. We’re seeing everyday brands that have their products with a retail price of $20, or even less, and they’re being counterfeited on a large scale. So this is not only about luxury products, only anymore.

The second trend that we want to mention, is the fact that even when counterfeiting is a global problem that originates in practically all countries in the world, China stands out as the largest producing economy of counterfeit goods. So plus 80% of the world’s counterfeit goods are originating in China and Hong Kong, according to both the US Chamber of Commerce and the European Union Intellectual Property Office.

The third trend that we want to mention is the internet. And we all know that the Internet has become a major channel to promote and sell counterfeit goods. And in fact, allowing manufacturers, distributors, and retailers to reach a global audience.

And while assuming very low risks and transaction costs, this trend is of course it has been going on for a few years now. But it is clearly expanding and every day, and it’s also becoming more complex. Every day, we will have a quick look now at how counterfeiters operate online by taking a brief look at the main channels used to sell and promote fake goods on the internet.

The first category that we believe is the most relevant channel still nowadays, is what we call marketplaces. These would be sites like eBay, Amazon, AliExpress. These are platforms with multiple sellers that are usually offering a wide range of products.

There are b2b marketplaces dedicated to wholesale, where we can often find manufacturers and large distributors. And we also have b2c and auction sites where businesses are engaging with final consumers.

The second category is rogue websites. These are standalone sites operated by companies or individuals that have been created for the sole purpose of selling fake goods. These sides are usually focused on selling a specific category of products, for example, watches or footwear, or sometimes they’re even dedicated to selling products from one specific brand. And they will often lead by impersonating that brand and trying to pass us on the official website.

The third category, which is clearly becoming more relevant every day, is the social media sites, platforms like Twitter, Instagram, or Facebook. These sites and these platforms have been acquiring a lot of relevance this last year, and they’re used both to sell counterfeits directly to consumers. And also as a means to promote and advertise rogue websites and marketplace stores.

We finally have a eshopping apps like Wish or Wanelo just to name a few, which are also growing in popularity every day and are often littered with counterfeit goods, and classified ad portals like OLX, Avito in Russia that are often used to sell counterfeit goods in the smaller and more local case, scale sorry, finally, all these selling points are in channels are promoted by counterfeiters through Pay Per Click ads, social media groups, and pages, instant messenger apps, blogs, forums, etc.

So we can see that this ecosystem is quite complex. And it’s also relevant to point out that depending on the industry, your companies are the size of your company, and your problems, when we talk about counterfeits, maybe fear, and some of these channels may be more or less relevant, depending on these factors.

We will come again later on. We are actually going to see some examples of these channels that we’ve mentioned. But now that we’ve talked about the three common companies and problems that companies are facing and experiencing, we will move to the next section and discuss measures that can be adopted both preventively. So before the problems are raised, and reactively once the problems are already there.

Preventive measures to protect your brand in China

Alex Garmon 17:35
I want to start talking about preventive measures that any SME company can take in order to protect their IP rights. Actually, I think there are quite basic or easy, easy measures they any SME can take are low-cost measures. So it’s affordable for any company.

And above all, the first preventive step that any company must take is to register the trademark before approaching China. Regardless, what’s our purpose, whether selling or manufacturing. And this simple step can prevent many problems in the future and the most important is that we will be able to take legal actions in case of infringement.

Besides, I have to say that the registration process in China has become smoother. So now it may take around 9 to 12 months if there is no incident in between before due to the huge workload, the process could take one year and a half at least until you could get the approval of the trademark. But I want to remark here that the most important aspect, regardless of how long the process takes, a most important aspect is the date when the application was filed since approval will be granted from the date of application. And we can go to the next slide.

And for sure, a registered trademark is a must. But when many people think about the protection products the first idea coming to your mind is protecting trademarks, of course. But in some cases, it’s also recommended to register all their IP rights that can improve the results while we take action against counterfeits, and I’m talking about a sunrise like patents, utility models, copyrights, or designs.

In China invention patents are protected for a period of 20 years and the registration may take between two to three years. For utility models, they are protected for 14 years and the registration may take around nine months. Designs in China register as patent designs, well, I think everyone knows they protect the physical appearance of a product and they are protected for 14 years and the restriction may take around nine months approximately.

And copyrights are probably the weakest rights on this list. And even though for those who don’t know copyright there is only about it’s born just by the creation of that work. So then in practice, there is no need to register but we have to prove the show we have to prove, we created that work. So in some cases, it can be useful to perform a registration of a copyright in order to have evidence in order to enforce some actions. And they handle all the preventive actions that can be taken at the online stage and you analytically now.

Joan Porta 20:18
Yes, this is we believe quite simple preventive measures to take that any company can do, and it can help, especially it can help detect counterfeits at the right moment. So before the problem is too big, and before it’s too late.

The idea here is that you can run periodic audits on online marketplaces and online sites that are selling what they’re known for by selling counterfeit goods. And we recommend doing these because companies that are not aware of the existence of free products or have detected only various product cases, can run these audits and what we were saying, find out about the problem before it’s too late.

Online audits

Joan Porta 21:05
So how could these audits take place? There are a few questions to consider. In the first place, what we are looking for exactly? According to the definition of counterfeit goods that we gave before, we need to keep in mind that we’re not only interested in spotting fake products that are infringing our trademarks and using our trademarks.

We’re also interested in finding replicas or knockoffs that may not be using our trademarks but are infringing upon our industrial designs or patents. These may be a bit more tricky. We will see later with some searching tips how we can support these products that are not using our trademarks.

A second important topic is where should we be looking? Because obviously there are hundreds of 1000s of sites online that could have been selling counterfeits. Where should we be focusing on? Well, from the list of channels that we saw before that are mainly used by counterfeiters, we saw marketplaces, rogue websites, social media apps, classified apps, etc.

In our opinion, marketplaces are the most relevant channel to consider. And this is particularly the case for small and medium companies that are being counterfeited on a smaller scale. So you should definitely be auditing the top-ranking marketplaces globally. And we’re actually going to see some specific examples of Chinese marketplaces in a moment that are worth listing in your monitor charts.

But besides marketplaces, and if you want to go a bit further, you should definitely keep a close eye also on social media platforms. And not only running searches through them on Twitter and Facebook but particularly trying to identify and engage on groups that are dedicated to posting reviews and suggestions about counterfeit goods.

And you will see that there are hundreds of groups out there. And specifically, if you can try to find groups that are dedicated to products of your same category or industry, these will, for sure, be irrelevant.

A third issue that we can consider when running these audits, is how often should we look? How often should we be searching every day for potential counterfeits? Should we do it once a year?

Well, we usually recommend, and again, we’re talking about brands that have not yet detected the existence of counterfeit or have only spotted very sporadic cases, we recommend running a complete audit of about and this could take 10 to 15 marketplaces every two months.

If we consider that one of these audits could take us around two hours, we’re talking about dedicating 12 hours a year to this show what we see it’s a very little effort that can report great benefits because again, if we’re able to detect counterfeit when they’re just starting to appear, we will have a huge advantage that can help us save a lot of money.

3 tips to run online searches

Joan Porta 24:05
Finally, a few tips to run these searches on online marketplaces or even social media sites. First of all, you will usually be running searches using your brand’s name, but go a bit further look also for the name of your most successful products or collections. Sometimes your brand will not be used. But these product names will be used by counterfeiters on their product listings.

The second tip is you could type the brand using common misspellings or write it phonetically as it sounds because that’s the way it’s reproduced very often on counterfeit listings. Also, in some cases, counterfeiters are using specific keywords to refer to a brand. So instead of using the official name, they have a keyword to talk about that brand in order to make monitoring a bit harder and detection of counterfeits a bit harder.

You can usually find these lists of brand keywords in specialist blogs about marketplaces about counterfeit. And these blogs are easy to find through Google. So we recommend searching whether your brand is on any of these blogs, it will also mean that you clearly have a problem with counterfeit goods.

The third tip, when we’re trying to spot replicas, as we said, so product listings and they’re not using your trademarks, we should do this. The way to do this is by running searches using generic words that are commonly used to refer to your category of products. So for example, if we’re looking to see if we’re a manufacturer of design lamps, try using tags like pendant lighting, or table lamp.

And for other categories, tags that are used like soccer jerseys, or cleanser devices, silicone mold, and trying to run searches on obviously, the accuracy of the results, you will have to go through many more results. But it’s the way to spot replicas that are not using your brands. And this is a very common practice based on our experience.

Finally, it is very important when you search in Chinese marketplaces, specifically on domestic Chinese marketplaces that are only on Chinese like Taobao, for instance, you should make sure that you run searches in Chinese, you’re going to be missing for sure, a lot of listings, a lot of stuff if you’re only searching in English, or with the Latin alphabet.

So you can run these searches and either with the assistance of someone who speaks Chinese, if you don’t have that possibility, you can always try simply using an online translator and translating your brand’s name or these generic tags that we were mentioning, and trying to run searches with these tags in Chinese.

Online marketplaces brands should watch

Joan Porta 26:53
We’re gonna see now, some relevant list. These are marketplaces that you should definitely keep an eye on and keep your radar on them. We have classified them in four categories according to the first list that we presented. So b2b marketplaces, these are wholesale marketplaces, you will often only find the manufacturer or very large distributors here, with very large stocks on b2c and c2c marketplaces are addressed to final consumers.

We have the longest list here, a few social media platforms that are worth keeping an eye on, Yupoo and Weibo especially you pull this past year has become very, very well known and very, very used by counterfeiters, especially to promote their store shops and their websites. And finally, if we want to have an instant messaging app like WeChat, it’s also worth it keeping an eye on this.

So we would recommend picking up five or 10 of these sites here, maybe a few from each category. And then complementing these with sites from other countries, especially, we should consider where our consumers are, and then pick up marketplaces and sites that attract a lot of traffic from those countries.

So if your main market is in South America for instance, make sure that you’re monitoring Mercado Libre, or other Mexican and South American sites that are very relevant there and may not be so relevant in other countries. So running audits in this time, we saw a little effort and can report high benefits. It’s something that anyone can do.

Steps to take with partners

Alex Garmon 29:26
As we said before, we have to be careful with our partners. And one way of keeping some control over them is to sign with them some key agreements contracts through different kinds of contracts like nondisclosure agreements or noncompetition, or trademark license agreements.

We can regulate the terms of use of the IP rights or we can even prevent someone from disclosing some confidential information by signing a trademark license agreement understanding very clearly the terms of the license, terms of Use, and the penalties in case of reach.

In parallel, we also advise clients to run their own factories in order to check not only if they are making proper use of the trademark, we have a license to them, but also to find out if these factories are producing an excess of stock. It is very common that official suppliers of well-known brands overproduce and then the excess is sold through different counterfeit channels.

We also advise investigating the main exhibition first of your sector to check whether they are offering counterfeits for sale. Besides, major organizers in China have special procedures to report and to act against the infringers. And we could get results like closing the booth and even seeing the goods.

And once the infringement has happened, then we need to act as fast as possible if we need to start reactive measures. There are different actions that we can adopt at different levels. And depending on the results that we are looking for, for example, on trademark disputes, we can before the trademark office as we might call this we could file actions like a position action, position action is filed against the trademark police by the Chinese Trademark Office during the publication period of three months.

Another action we can follow is the non-US cancellation against dreamers who have not been used in the market for three years. Or we could even file an evaluation action when we want to cancel a tournament that has been registered in bad faith. We have had some recent cases where we could invalidate one trademark register, which was owned by a client in another country, but our client didn’t even register in China.

On the other hand, we think it’s also useful to register the trademark before the China customs in order to be able to block exports of any counterfeit products and have to say that normally customs authorities are very into helping companies they show very good attitude in order to stop any counterfeit goods and they can even be trained and ready to attack the counterfeit goods in an easier way.

And in the case of counterfeits normally, the first goal of the trademark owner for sure is always to stop the infringement as soon as possible. In that case, once we know a lot of infringement, well, we have a dissatisfaction with the proceeding which is aimed to do a rate and the result of the rate will be to cease and destroy the infringing product, there will be a penalty for the infringer.

But the most important thing before reporting infringement to the relevant authority, which is the administration of industry and commerce, most important thing is to perform before an investigation and collect as much evidence as possible, even though Chinese authorities.

Now I also have a very good idea to pursue IP infringement. I recommend I say it’s crucial to make a good investigation and the investigation is going to be made mainly by the company, you have to be proactive, you need to collect evidence. And only this way, we can ensure that the right action can be successful.

On the other hand, investigations take time, sometimes they can take several months depending on each case because it is important to choose the right moment to start the right time to start a reduction. And as an SME, see we don’t have a very big button for this kind of IP protection action. We have to choose the target very well and we have to be effective in the actions that we perform.

And then in the initial stage, after resetting the action, we could also file a civil or criminal lawsuit against the infringer. Basically, yes, to make a difference civil action is aimed to obtain compensation of the artist by the infringer.

And the criminal action is to take the infringer to jail which for sure is the most persuasive action we can take. Because we can only open a criminal case we can only open a criminal process depending on the volume of infringing goods, for these reasons those authorities can be a bit restrictive when deciding whether infringement can be taken to criminal estates or not. And now Joan is going to introduce the reactive measures that can be thought of or can be taken on the online stage.

Reactive measures to protect your brand in China

Joan Porta 34:49
There are in fact many different possibilities when it comes to online enforcement. But we will focus on now and name two that are perhaps the most significant and that can be carried out at reasonable costs. Although some of these actions can be undertaken directly by some of the company’s employees, we strongly recommend seeking legal advice before engaging in any of these activities.

Takedown tools

Joan Porta 35:32
Regarding takedown tools and reporting tools. When we detect the counterfeit listing online, we should explore whether a specific site or platform or the listing has been detected, as any system in place to report intellectual property infringement. That’s because almost all of the platforms that we saw before, and all the Chinese marketplaces that we saw before, have built systems for right holders to report quantifiers or other content infringing their intellectual property.

Using these tools can be an effective way to tackle counterfeit listings quickly and at a very low cost, especially when the volume of infringing listings is still low. So if we’ve detected a few dozens of counterfeit listings for instances on Taobao and Alibaba, a possibility is just to find out how the reporting system on Alibaba works, you need to register, you need to submit some documentation in about one or two weeks, you should have a valid registration.

And then in about one or two weeks, you could have those listings removed. So this could be as we say, a quick and efficient way to report listings, especially when the problem is still not too big.

Cease and desist letters

Joan Porta 37:06
Another possibility, as an alternative is drafting and sending cease and desist letters to sellers that are offering counterfeit goods, we can send legal requests to the seller, or to from marketplaces, for instance. Or we can also send them to administrators of specific websites, or social media pages.

Although these letters may be a bit more time-consuming and expensive to prepare and send. It may also be more effective in some cases, especially when we’ve detected relevant sellers, sellers with large stocks, or a wide variety of products. And we want to make sure that we eradicate the problem that we don’t just close the listings and find them again the next day.

And also it’s a way to go a bit further with the simple removal of the listing. So for instance if we want to seek compensation, or if we want to obtain information from that seller on where he has, what he shows where he has obtained the products, how many sales, and did he have how many revenues, and approaching this with a cease and desist letter can allow us to obtain this other information.

There are, as we said, other ways, it’s always having a comprehensive and accordion strategy when you’re enforcing online is critical to be successful, knowing all the actions available, and combining them depending on the type of infringement it’s not the same fighting counterfeit goods then fighting patent infringement or design infringement.

And it also depends on the type of channel that you’re addressing. It’s not the same as removing listings from a marketplace than from a social media page from a rogue website. And this can be fear, and you really need to know how to address each of these issues.

IP registration in China

Last point that I wanted to make here, is the importance of having Chinese IP registrations to fight online counterfeits. This is because even in some of the marketplaces that we saw before Chinese marketplaces, they will process complaints based on a European or US IP registration.

Many others and especially the ones that are what we call domestic Chinese marketplaces like Taobao, for instance, are only in Chinese and are mainly addressed to the Chinese market. They will only accept complaints based on registered Chinese trademarks or IP registrations.

So basically, without them, our possibilities to remove listings from these platforms will be very narrow. It won’t be, we may have alternatives but very few. So this is another reason to have your trademark and your intellectual property registered in China. Because as we said also, some of these many marketplaces are often the source, the origin of the counterfeits. So you really want to make sure that you’re able to enforce there.

And finally, and this is a bit as a way to close this webinar, we’ve been talking a lot about online and offline both problems and reactions or strategies. And we’ve been talking about online and offline separately, Alex has been covering the offline. And I’ve been covering the online channels.

However, we want to end up making a point on the importance of coordinating our offline and offline, offline and online actions and strategies when it comes to protecting and enforcing intellectual property rights. So making sure that both strategies are aligned is a key to success in the fight against counterfeits and other forms of IP infringement.

For instance when we’re talking about when we’re monitoring online sellers, and we’re detecting online counterfeiters. And it’s critical to have a system and be able to identify top offenders, these are sellers that might be the large distributor, sometimes you can even spot the actual manufacturer, and producer of the fake goods.

These are sellers that often have very large stocks or very, very low prices, or they have multiple sales channels, large traffic, or consumer engagement, you want to make sure that you identify these top offenders.

And instead of just taking down their listings, you may want to coordinate offline and check whether they have factories, whether they have physical stores, you may want to build cases against them, you just you don’t just want to take down their listings, maybe you want to take them to court, you want to ask for compensations, make sure that they don’t infringe upon your IP again, in the future.

So this is online to offline. And again, when we’re spotting counterfeit goods offline, either on raids, or detecting physical stores, customs controls, it’s also critical not just to stay offline, but to investigate these companies’ online presence.

And if we have named from individuals, if we have names from companies, we may have phone numbers, physical addresses, we can use these to investigate online and see whether these companies or individuals also have online selling points that are worth closing down or detecting, we can use reverse who is for these searches, engine searches, social media, etc.

So we just wanted to end up with this point about the criticality and the importance of coordinating when you have a problem with quantified and with IP infringement, coordinating both your online and your offline strategies.

And when we left here, some of our takeaway messages, we’ve been going through these topics again, and again, the importance of adopting IP protection strategies, securing your IP rights as a first step. So making sure you register your trademark, I wanted to complement what Alex said. We were working with many companies that are small, medium-sized companies from the US, from Europe, they are young companies that have had a lot of success in a very short period of time.

And many of them have had the same problem of trademark squatting that Alex was mentioning at the beginning, they found their trademark has been registered in China. And now they need to go through the whole process of trying to file an opposition to this trademark. And meanwhile, they have problems trying to export products from there, they cannot enforce their rights on specific marketplaces. So it is a very serious issue for them.

Running periodical online checks as we saw, and when you detect infringement, unless it’s something very punctual, very sporadic, seek legal advice and legal professionals. There are solutions both offline and online, counterfeits that may assist you when the problem has become too large for you to deal directly with it.