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      China: How to Maximise Criminal Enforcement in Post-Raid Prosecution Proceedings

      Published on 25 Mar 2021 | 10 min read
      What are IP owners entitled to do in law and what should they focus on in practice in post-raid proceedings?

      Summary

      Post-raid prosecution proceedings are sometimes ignored by IP owners. Some IP owners presume that once a criminal raid has been successfully conducted, they can leave it in the hands of enforcement authorities and expect a good outcome of criminal judgement. Unfortunately, this is not always the case. The result may be far from satisfactory in the end without a close follow-up of post-raid proceedings, even though the criminal raid appears to be successful. It has been increasingly realised by many that participation in post-raid proceedings is an important component of enforcement strategy in China. Questions remain, however: What are IP owners entitled to do in law and what should they focus on in practice in post-raid proceedings? Should they engage external lawyers to maximise the benefits of proceedings? This article will consider those questions from a practical perspective.

       

      Introduction

      Post-raid prosecution proceedings are typically divided into three stages: interrogation and gathering of evidence after a criminal raid by the police from the Public Security Bureau (PSB), examination and prosecution by the People’s Procuratorate (PP), and a criminal hearing by the People’s Court. Participation in post-raid proceedings can start soon after the PSB raid, although in practice it often starts from the PP stage.

      A criminal action is usually initiated by IP owners who are generally quite active in pre-raid investigations and criminal raids. On most occasions, a successful raid means a significant seizure of the infringing goods. This is usually some of the most exciting news for the enforcement team of IP owners. For some, this outcome means that they have achieved their most important Key Performance Indicators (KPIs).

      This set-up of KPIs for the in-house enforcement team has provided little incentive for them to actively participate in the post-raid proceedings. Many enforcement teams may assume a successful raid will end with a good verdict. However, this may not be the case in certain situations and will ultimately lead to them feeling disappointed and frustrated.

      Even though a criminal enforcement is considered the toughest sanction against IP infringement, in practice it requires a huge amount of effort to achieve a desirable outcome following through the entire process. The case might end at a stage during the post-raid proceedings without a prosecution being filed or a sufficient punishment being imposed as a result of the IP owners having not closely followed up with legal and evidential issues.

      Can the post-raid participation by IP owners avoid such unfavorable results? The answer is that it is possible! Based on our experience, actively participating in the post-raid proceedings by IP owners could substantially influence the outcome in their favour assuming that they have taken the appropriate actions entitled under the law.

       

      What IP owners are legally entitled to do in post-raid proceedings

      PRC criminal procedure law grants IP owners, as the “victims” of IP criminal cases, with certain rights in post-raid proceedings. The rights include providing relevant evidence, information and statements, obtaining status updates of the case, and entrusting lawyers to represent IP owners to participate in criminal proceedings. In practice, PRC licensed lawyers entrusted by the IP owners have the legal privilege to access criminal case files, submit written legal opinions, attend court hearings, present legal arguments and demands, question defendants and participate in debates during the court hearing, file petitions against non-prosecution decisions, and/or file for private criminal prosecution.

      In the past, it used to be difficult for IP owners to participate in post-raid proceedings. It has now become more common for the PP and court to notify IP owners of their case status and their rights in the proceedings.

       

      A practical guide on what IP owners can focus on in post-raid proceedings

      Based on our experience, the following activities conducted by IP owners (or through their entrusted lawyers) in the post-raid proceedings would help achieve a better result.

      1. Submitting legal opinions

      Although the number of IP criminal cases has increased in recent years in China, they are different to IP civil litigation cases that are often heard by specialised IP courts or IP tribunals. Most IP criminal cases are heard by the Criminal Tribunals of local courts, most of which have limited experience in IP cases.

      Submitting legal opinions to the corresponding responsible police, prosecutors and judges will help them understand the key legal issues and the best practice of other regions, especially in the current environment where technologies have been quickly developed and applied to infringing activities.

      In Online to Offline (“O2O”) cases, for example, it is common that few physical products can be seized in raid actions. Therefore, it is critical to extract the online sales record in order to prove the overall illegal business turnover of the infringers. However, it is unclear how to recognise and calculate the online sales record in practice, and it  is always challenged by the defendants and their defence counsels, particularly for cases involving mixed sales of counterfeit and genuine products or other non-infringing goods in transactions. If the prosecutors or courts accept the defendants’ argument and dismiss the evidence of the online sales record, the case will probably end without prosecution or severe punishment due under the law. To minimise the risk of an unfavourable result, IP owners or their entrusted lawyers need to keep following up and communicating with the prosecutors and courts to understand the details of the case and the key issues. Based on this communication, IP owners and the entrusted lawyers can submit legal opinions to present arguments with a solid legal basis and relevant precedent cases to support their claims, and if necessary, request further investigation or reconsideration of the case. In practice, it is possible for prosecutors and courts to accept the legal opinions and this may result in the change of their decisions in the IP owners’ favour.

      2. Claiming damages

      Claiming damages during criminal prosecution proceedings will often come in the form of negotiation and settlement with the defendants. This is an option increasingly adopted by IP owners to recover costs. It also helps save time and costs, than for claiming damages through a separate civil litigation, particularly when the defendants are unwilling to pay the granted damages and the IP owners have to enforce judgment through the court.

      However, IP owners will need to balance the economic benefits of a damages claim during criminal proceedings with the potential outcome of a reduced sentence, as the damages payment by defendants would become an element for the court to grant a mitigated punishment.

      The decision of whether to claim damages during criminal proceedings or in a separate civil action after the criminal case has been concluded will be based on the specific situation of the case. Usually where a case involves serious infringement, such as repeat infringers or the purpose of the case is to pursue severe punishment or to pursue other strategic goals, IP owners may choose to file a civil action to claim damages once the criminal judgement is issued, instead of settling with the defendants during criminal proceedings in order to send a strong message to the market and to deter other infringers. However, where the case is not particularly serious or the case is not so strong in merit (for example, the case is not clear-cut and involves borderline issues), the case would be likely ended with an insignificant punishment such as no custodial sentence granted or even no criminal offence would be established. In such situation, it is advisable for IP owners to consider settling during criminal proceedings, which will make the damage claim more efficiently, and will not cause substantial change of the criminal case outcome.

      3. Filing a petition against unsatisfactory decisions and judgements

      Under criminal procedure law, IP owners are entitled to file a petition against unsatisfactory decisions or judgements, or to file for a private prosecution against the infringers, although in practice, it is often difficult to overrule a decision or a judgement in criminal proceedings. It is still worth the effort of trying if the case is critically important to IP owners. In recent years, the prosecutors and courts have become more open in handling such cases, and there have been breakthroughs reported such as a private prosecution being accepted by the court and IP offenders being successfully prosecuted by this avenue.

      4. Collecting information on the counterfeit network

      Collecting available information in criminal files can help IP owners better understand the big picture of the counterfeit business. These case files may not only provide information on the ongoing case, as well as on some of the clues of other connected cases or targets. These connections could be the business transactions among certain targets, or the relationship of suspects in different cases. They may help lead to some interesting findings relating to a complex network such as the hotspots of counterfeit products, potential big fish, and the trends around infringing activities. It may also help to connect with the applicants of bad faith trademark registrations or the defendants of other cases. It is possible to find some counterfeiters who are changing their business (to copycat) after a certain period of time, especially when they have earned enough money and wanted to run a less risky business. It is also possible to encounter an ‘old friend’ in different types of cases, and the information collected in those cases could be used as evidence to prove their bad faith, which may further enable you to secure a higher compensation or push for a more severe punishment.

       

      When IP owners should engage external lawyers in post-raid proceedings?

      IP owners can participate in post-raid criminal proceedings either through their in-house or external lawyers. The latter plays a particularly important role given the complexity of criminal proceedings and the expertise required. However, due to concerns regarding costs, IP owners need to evaluate in which situations they should engage external lawyers to participate and conduct close follow-ups of post-raid prosecution proceedings. The key issues to consider include the following questions.

      1. Is it a “criminal campaign case”?

      “Criminal campaign case” (Ji Qun An jian in Chinese Pinyin) is a specialised term in criminal enforcement practice in China. It refers to criminal cases where various criminal targets located in different provinces have been discovered and may involve more targets within their counterfeit network. Usually, running criminal campaign cases is a top priority for PSB and it often involves complex issues. External lawyers can assist with the intensive communication required with the PSB officials, prosecutors and court on critical issues such as evidence collection, illegal business turnover and calculations, and checking whether any suspects or evidence have been overlooked in the case.

      2. Does the case involve complex legal issues?

      Criminal cases against counterfeiters are not always straightforward. Cases can become legally complex if they involve borderline issues such as refurbishing products, OEM manufacturers and service marks. It may trigger debate regarding whether a criminal offence is established when minor changes have been made on the counterfeit trademarks or the counterfeit trademarks have been used in slightly different products, leading to questions on the “identical mark” or “identical goods” required under the criminal laws. Often, the ambiguity of law may also lead to arguments and defence by the defendants’ counsels. The cases involving new technology may bring more questions, such as online infringement and O2O cases, as mentioned earlier.

      External lawyers will help with intensive communication with the prosecutors and the court on those substantial and procedural issues involved in the case. They can stand in the victim’s shoes to consider those complex issues and provide legal opinions and precedent cases to the prosecutors and the court. In practice, the prosecutors and courts may welcome to review information and analysis on legal issues as summarized by lawyers for clarity of status and practice.

      3. Do you need lawyers to negotiate for damages claims?

      As mentioned earlier, IP owners may claim damages against the infringers during or after the criminal proceedings. External lawyers can assist to evaluate if it is worth pursuing based on the merits of the case and the asset status of the defendants and advise at which stage is the best timing to claim and how much is possible.

      4. Is the case valuable for data and information purposes?

      Collecting information is necessary for IP owners to find a broad connection of the counterfeit network, as discussed earlier. Under the law, only licensed lawyers have privilege to access criminal files. Engaging external lawyers could help obtain useful information by reviewing criminal files, enabling IP owners to build a sophisticated database of counterfeits that will be a valuable tool in IP protection exercises and enforcement strategies.

       

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