Peter Humphrey and the Uncertain Status of the Private Investigator

Private investigation firms are important for many aspects of commercial life in China, particularly given the weaknesses in China’s evidence gathering system and the high thresholds that exist for criminal investigations. PI firms conduct every thing from due diligence for investment projects, background checks on business partners and investigations on trademark squatters, counterfeiters and patent infringers.

Peter Humphrey and his wife Yu Jingeng, private investigators hired by GSK, were recently sentenced by a Shanghai court during a one day trial, which followed 13 months detention. According to a Reuters report, the sentences were for two and a half and two years, respectively, plus fines. Humphrey is being deported. Prosecutors charged that the couple had illegally obtained and sold more than 250 items of private information, including household registration data, real estate documents and phone records. Yu is quoted by Reuters as noting that “In other countries, we were able to conduct similar checks, including personal information and private transactions, legally through courts.”

Private investigation firms are a critical component of an IP enforcement campaign in China. Thankfully, according to noted anti-counterfeiting lawyer Joe Simone, the conviction was not for “illegal business operations”, which can carry a harsh sentence.  Ironically, illegal business operations is routinely employed in IP cases for illegal publications in lieu of the lesser offense of copyright infringement (Criminal Code Art. 225).   Joe notes that there was a 1993 Ministry of Public Security rule on the illegality of private investigation firms.   However, as this was an administrative rule it is of limited binding effect. Nonetheless the Humphrey case has led many private investigation firms to question whether their operations are legal.

The status of PI firms has been of concern to many companies and governments for some time. As I recall, private investigators have also been used for a variety of domestic purposes, including, predictably, marital disputes. Evidentiary burdens in Chinese litigation, including difficulties of compelling the production of evidence by an adverse party, can make PI firms a key component of an IP enforcement team

Here was the question that the US government asked China about PI firms two years after it joined the WTO, back in 2003:

79. We understand that China currently restricts the operation of foreign private investigation firms in IPR matters. At the same time, police and administrative authorities are frequently limited in their ability to gather evidence in criminal and administrative prosecutions, making private investigative firms even more important. Current thresholds for criminalization of counterfeiting and piracy, if applied to case initiation, create a high barrier for police or administrative agencies to refer cases to criminal prosecution, making the necessity of private gathering of information even more critical. Please advise what rules apply to the operations of such firms, as well as any plans to permit these firms to more actively assist China’s administrative, criminal and civil enforcement authorities (IP/C/W/414, 12 November 2003).

China responded to that question a year later by noting:

60. With regard to the issue of private investigating firms, [the Chinese side] said that the Ministry of Public Security of China was taking active steps to consider it. However, there was still no new regulation being issued. (IP/C/34, 9 December 2004

Prof. Don Clarke of GW law school has collected the weibo transcripts for those who want to follow this issue further.

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USPTO’s Three Exemplar Goals in Its “Five Year” Plan With China

USPTO recently released its 2014-2018 Strategic Plan (38 pp).

Three specific goals are highlighted under USPTO’s efforts to “Work jointly with the administration to improve IP protection and enforcement in China.” These include: establishing a China Resource Center, which will support more data-driven analysis of IP trends; developing/increasing IP enforcement programs aimed at building Chinese enforcement capacity; and reviewing and advising on Chinese law and regulations.

China is also referred to elsewhere in the Plan both directly and indirectly, such as in noting USPTO’s efforts to address “counterfeiting, piracy and failure to respect IP rights” in “fast growing economies such as China and India”, and indirectly in USPTO’s “collaboration with global IP partners” which will “lead to greater harmonization of patent and trademark systems, strong IP enforcement throughout the world, and IP policies that benefit the global economy overall.”

Disclosure to Readers: My “day job” is with USPTO. This blog is unofficial; please consult the Strategic Plan for more information.

The End of Year Hook in Administrative Patent Enforcement?

Along with Prof. Zhen Lei of Penn State, I have previously blogged about the late autumn surge in patent filings in China, in 2012, as well as in prior years.  This autumnal hook likely arises in response to subsidies, quotas or other support that must be exhausted before year end.

During a recent visit to China, I had an opportunity to talk about similar trends in patent administrative enforcement.   For the past two years, there appears to be a year-end uptake in patent enforcement:

  Infringement Disputes Other Disputes Patent Passing-off Total
2004 1414 66 1689 3169
2005 1360 132 2409 3901
2006 1227 43 966 2236
2007 986 27 713 1726
2008 986 27 713 1726
2009 937 26 578 1541
2010 1077 18 728 1823
2011 1286 27 1704 3017
2012 2225 268 6512 9005
2013 (mid-year) 1074 129 2633 3836

Here is what it looks like in graph form, with data ending at September 2013, on an annualized basis the totals would be 19,118:

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Why has there been such a sudden uptake in year-end administrative enforcement?  One explanation is an end of year rush to accept or resolve cases to show increased efficiency and impact.  On the converse side, the data also shows a significant drop in activity around holiday seasons, especially spring festival in January/February.    These factors may apply across the board to many forms of Chinese government activity.

Looking to policy factors, on June 28, 2011, SIPO announced a special campaign involving patent administrative patent enforcement.   However, the campaign did not immediately result in a significant uptake in administrative actions.

What may be more significant is the  August 2012 publication by SIPO of proposed patent law amendments, which provide for an expansion for administrative enforcement and greater involvement by SIPO with IPR as an instrument for “market order”.  These new policies may have precipitated a major uptake in administrative patent enforcement actions, on the assumption that “if you enforce it, they will legislate it”.  In fact, October 2012 was one period of high rapid increase – with enforcement actions increasing 112% from September 2012, followed by a drop in November 2012.

The rapid increase in patent “passing off” (counterfeit patent) cases similarly may also be timed with the patent law amendments.  The amendments contemplate an increased role for SIPO in policing “market order”. Since such cases may be initiated by self -initiated by parties other than the infringer, they may also be more responsive to policy changes by SIPO.  Local governments, such as Guangzhou, may also offer rewards for reporting these activities.  Moreover, the change in the mix of administrative enforcement actions is striking.  From 2006 to 2011 infringement cases dominated. Now patent passing off cases are approximately twice infringement cases.

There may be other factors contributing to this rapid increase, such as enhanced authority of local enforcement agencies.  In addition newly empowered agencies may now be engaged in rent-seeking behavior, such as by seeking revenue from filing fees. Indeed, Premier Li Keqiang identified excessive fee taking as a potential issue in IP administrative enforcement (http://www.gov.cn/ldhd/2013-11/20/content_2531230.htm).

One comparison that does not appear highly relevant is with overseas trends.  An influential article by Zhao Meisheng of SIPO Management Division Enforcement Administration Department  “An Analysis on the Trend and Reasons That US Government Agencies Strengthen Intellectual Property Rights Enforcement” ( 试析美国政府机构加强知识产权执法的态势与原因 – 赵梅生 (国家知识产权局管理司执法管理处)电子知识产权 (Electronics Intellectual Property) (2013, 4)  suggested that administrative patent enforcement is on the increase globally, including the United States.   Comparing “civil” or “administrative” actions in one country to another is often an “apples to oranges” type comparison, nonetheless, “Section 337” actions in the United States, which involve US administrative procedures, are only a very small fraction of Chinese patent administrative enforcement actions, and have been relatively constant over the past several years.
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The growth in administrative litigation does not seem to be linked either with Chinese domestic IP litigation, which has shown steady growth over the past several years.
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(The preceding was adapted from a presentation I gave at the recent Asia Pacific IP Forum sponsored by Renmin University in Suzhou.  The opinions in this blog are my own).

China IP Diplomatic Comings and Goings

It has been about one year since I last reported on the foreign IP diplomatic community in China – those individuals who are posted by their respective patent, trademark or copyright offices to China.   This year, I would like once again to introduce some of the changes in that specialized community in China. Continue reading