If it is therefore untrue to say that China has no legislation or repressive mechanisms in this area, certain practical insufficiencies nonetheless remain.

In the event of civil action against a counterfeiter, it is for example often very difficult for the applicant to prove the existence of his rights if he did not register its trademark in China. The Chinese courts often require that all documents emanating from abroad be not only notarized, but also authenticated by the Chinese embassy of the applicant’s country.

Foreign companies thus regularly point to the loopholes in the Chinese legislation, deeming themselves insufficiently protected. In April 2007, the United States filed a complaint against China with the WTO, concerning non-observance by the latter of the TRIPS agreement. A panel of experts published its decision on the subject in January 2009. The panel upheld certain complaints of the United States but also rejected others. In the area of trademark law, the United States wanted in particular that the thresholds above which the production and the sale of counterfeits are regarded as criminal be lowered. They claim that the excessively high thresholds provided for under Chinese law serve as an incentive to the large-scale production of counterfeit goods. The panel rejected these arguments on the ground of lack of evidence.

Foreign companies are now also frequently confronted with a problem that is both difficult to detect and repress, namely when their Chinese partner distributes their products illegally, via channels other than those stipulated in their agreement or in accordance with their joint venture. The trademark is in this case diverted without being counterfeited, which raises difficulties as regards proof. This is precisely the object of the disagreement between Danone and its Chinese partner Wahaha, with the former accusing the latter of using their joint trademark “Wahaha” to distribute products outside the framework of their joint ventures.

However, it would be hasty to conclude that there is unwillingness on the part of the Chinese government as regards protection of trademarks: most disputes are between Chinese companies themselves, and it is therefore in the State’s own interest to enforce the laws it enacts.

The Chinese government has clearly undertaken to remedy the situation, publishing in June 2008 its “National IP Strategy” aimed at making China one of most innovative countries by 2020. The plan provides for stiffer criminal sentences for counterfeiters with more frequent prison sentences and terms close to the legal maximum.

The Chinese Supreme Court issued a legal opinion on March 30, 2009 relating to the execution of intellectual property reforms. It asks local courts to award more dissuasive damages, raise the amount of fines and to systematically confiscate the goods of guilty companies. The Supreme Court also calls for greater leniency towards applicants with regard to the administration of proof, a thorny problem in the area of intellectual property.

A review of the Trademark Law is also imminent. Amended twice since its promulgation in 1982 (in 1993 and 2001), new amendments are being studied to offer greater protection to trademarks. The current Trademark Law defines a trademark as a visual sign. The field of protection should be widened with the new law to encompass non-visual signs (sounds for example). The new law would also establish a maximum registration period of 12 months, limiting considerably the risk of no protection between the time when the application is filed and the actual registration of the trademark. Fines should also become more dissuasive. At present, the fine for counterfeit ranges from 1 to 3 times the amount of the illicit profit, with a maximum of RMB 100,000 if it is impossible to evaluate the amount of the profit. A new amendment would allow fines of up to 5 times the profit made or a maximum of RMB 1.000.000 in the event of an undetermined profit.

Although China can no longer be seen as a counterfeiter’s paradise, since a legal arsenal has truly been put in place, there is no denying that progress still has to be made. The Chinese authorities regularly indicate in the press that a reform is imminent but the adoption timetable remains vague.

Consequently, companies wishing to set up in China must implement a well-thought-out policy as regard the protection of their trademarks. This protection entails the systematic registration of their trademarks with the Chinese authorities, vigilance in the choice of their Chinese partners, and co-operation with the Chinese agencies responsible for the fight against counterfeiting.

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