China: Strategic use of China Customs detention to solve complicated IP disputes

Published on 05 Jul 2022 | 3 minute read
A case study which started with a customs detention, to civil litigation and concluded with negotiation and settlement.

When it comes to IP protection, China customs can detain import and export shipments suspected of infringing trade marks, copyrights and even patents, although it has limited IP expertise to decide on IP issues which may not be so straightforward. Intercepting infringing goods through China Customs can be an effective means to stop the goods from moving onto global markets, as well as providing critical evidence preservation for potential litigation to resolve complicated IP disputes. These can become significantly more complex when the disputes evolves further into a bad faith registration case, which would have been infinitely more difficult to solve if treated as a routine procedural case.

We have successfully handled such a case recently which started with a customs detention, which was followed by filing a civil litigation and concluded through an efficient negotiation and settlement.

The IP holder is a global leading manufacturer of electronic goods, who’s trade marks and commercial logos enjoy a strong reputation. In particular the packaging and decoration of its electrical switches and circuit breakers are unique, distinctive, and influential in international markets.

Through effective intelligence gathering, the IP holder identified the container number of a shipment of infringing electronical swathes/circuit breakers (“accused goods”) and instructed Rouse to apply to China customs to intercept the goods. On 25 October 2021, Ningbo City Beilun Customs successfully detained 30,400 pieces of the accused goods suspected of infringing the recorded word of the IP holder to be exported to the Republic of Sudan. The exporter is an individual who hired an import and export company in Yiwu to handle customs clearance procedures.

One of the core issues in this case was that the infringer had registered a mark which was very similar to that of the electronic goods manufacturer’s trade mark, with only one letter difference. The individual responded to the China Customs that they had registered their trade mark in the same class as electronics company and also had been recorded in the customs. As Customs’ major role is border control, it lacks the ability to handle complicated IP disputes like this. This case had now evolved into a bad faith registration issue.

On 18 November 2021, Customs notified to us saying that they cannot determine if the accused goods have infringed the trade mark rights of the IP holder who should then file civil litigation in the courts to solve this dispute. Failing this, Customs would have to release the goods if it does not receive the court’s order to keep the goods detained as evidence within 50 working days from the detention date.

When facing these sorts of infringements against their rights, IP holders usually turn to either administrative enforcement through the Market Supervision Administration ‘MSA’. However, this was not an option under the current enforcement practices being adopted by the MSA as there is no chance of evidence collection in a factory or warehouse.

As follow up strategy, we conducted legal analysis into the case and immediately filed litigation based on trade mark infringement, with malicious registration of the bad faith trade mark which was at the same time in cancellation proceedings as evidence. To improve the chances of successful invalidation, we needed evidence to demonstrate how the bad faith registration misled consumer. This was particularly complicated as it is difficult to collect evidence when no infringing goods are being distributed domestically in the China market, as all goods were for export.

Normally to remove a bad faith registration, IP Holders need to file for an invalidation which can take a very long period of time. These delays can sometimes lead to the case being lost.

The Customs seizure was the only way to collect evidence of this nature and became a key opportunity for the IP rights holder, as we were able to solve both the registration, the pending application, and the shipment issue all in one. Many IP rights holders face fighting well prepared infringers like this in Court.

We also filed litigation based on unfair competition, imitating IP holder’s influential design of packaging and decoration, claiming RMB500,000 (US$76,925) as damages. With a large quantity of goods seized and facing paying damages, the defendant was forced to negotiate a settlement of the case. Finally, on 23 March 2022, an agreement was reached with the following terms:

1. The defendant admits he had infringed the trade mark and design of the packaging and decoration of plaintiff’s well-known product and promises to stop infringement in any means immediately.

2.The defendant assigns his registered trade mark to the plaintiff unconditionally.

3. The defendant withdraws customs recordal of the trade mark to be assigned.

4. The defendant removes the labels on the accused goods and destroy all the infringing packaging with plaintiff representative’s supervision.

5. The defendant pays damages of RMB45,000(USD6,933).

6. The defendant pays liquidated damages of RMB500,000 (US$76,925) in case of breaching the agreement.

7. The plaintiff will cooperate with customs to release the remaining unbranded goods upon receipt of damages payment.

The case was successfully concluded with the court’s issuance of the Civil Mediation Paper.

Simple Customs detentions like this can quickly evolve into much more complicated IP disputes, where it’s of crucial importance that these are solved in the quickest and most efficient way and not treated as routine procedures.

 

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Principal and General Branch Office Manager at Lusheng Law Firm (Rouse's strategic partner)
+86 20 8559 8098
Consultant
+86 20 85955855
Principal and General Branch Office Manager at Lusheng Law Firm (Rouse's strategic partner)
+86 20 8559 8098
Consultant
+86 20 85955855