US and China Customs Data Compared

The following are some reflections on what Customs-related enforcement activity in the US and China last year.   The data generally shows the continuing problem of a high level of exports of counterfeit goods from China, difficulties in addressing online and border measures for patents, and the need to work with Customs officials to secure enforcement.

Both US and Chinese data generally showed an increase in Customs activity, especially in Sino-US trade, for 2015.  According to US  Fiscal Year 2015 data, the number of IPR seizures increased nearly 25 percent to 28,865 from 23,140 in FY 2014.  The total estimated manufacturer’s suggested retail price (MSRP) of the seized goods, had they been genuine, increased 10 percent to $1,352,495,341.  China and Hong Kong together at 87% of seizures, versus 88% for 2014.

China Customs also released its data in late April 2015.  Chinese data shows that the United States rose from the number 5 slot to the number one slot in terms of destination of batches of shipments.  However, the US was number 29 in numbers of seized items (suggesting a relatively small quantity in each batch of seizure for export to the US).   Postal shipments accounted for 84% of overall seizures, an increase of 2.7% from last year.  There was however a drop in seizures upon export from 23,019 to 22,000, which is contrary to the US experience – since increasing on-line sales in particular should likely result in more seizures, presumably at less value.

Iran was the export destination from China with the most goods seized, holding the number one place in 2014 and 2015.  As discussed last year, 2014 showed a diversification in destinations of China’s export destinations for counterfeit goods, which continued for this year.

There was also a change in the mix of China and Hong Kong origin seizures coming into US ports.  China origin seizures by US Customs dropped by 11% in 2015 and Hong Kong picked up the slack (10%).

Why was there such a dramatic “migration” of counterfeits to Hong Kong?  One other odd trend is that trademark litigation in Southern China (Guangdong)  actually dropped by 4.11%, according to data from the Guangdong High Court.   Any downward trend in Chinese IP statistics is often a warning sign – by comparison, the Supreme People’s court noted in its 2015 White Paper that national civil TM cases increased nationwide by 13.14% during this time frame to 24,168 cases.   The data might suggest that Guangdong is becoming less important as a place for enforce trademarks and/or that transshipment through Hong Kong is becoming more important, but it is too early to tell.

US data shows that the three largest categories by numbers of seizures were wearing apparel, consumer electronics and pharmaceuticals/personal care for 2015.  China reported that cosmetics, tobacco products, and machinery were amongst the major categories of seized products.  Cosmetics, jewelry, medical devices, and watches showed the greatest levels of increases in Chinese seizures.

Chinese Customs data also shows that the number of articles seized based on ex officio actions dropped dramatically (65% vs. 98%) comparing 2015 to 2014, suggesting the need for increased engagement by rightsholders with Chinese Customs to alert them to suspected infringing shipments.

Interestingly, China reported a noticeable increase in seizures on behalf of its domestic IP rights owners, which included 1939 batches with a value of more than 55,900,000 RMB.

As with the United States, Chinese Customs’ emphasized seizing trademark infringing goods over other rights.   In 2014,  TM’s occupied 96.86% of total items seized, with only 1.94% related to patent.  In 2015, TM related seizures increased to 98% of total items seized; copyright and patent combined were about 2% of the items seized.

US Customs reports that there was also a big increase in exclusion orders issues and enforced on behalf of the International Trade Commission, typically involving patents, with a 13-fold increase in shipments seized from 2 to 26.   In China, on-line enforcement against articles that infringe patents is also attracting more attention from Chinese regulators, with the Chinese patent law amendments also looking at an increased scope of liability for online service providers (Art. 63).

While on-line enforcement is getting more attention,  the Federal Circuit decided last year in ClearCorrect v. Align that the USITC Section 337 jurisdiction over the importation of “articles that infringe” does not extend to the “electronic transmission of digital data”, which may reduce the ITC’s role in the digital environment, particularly those involving patents.  This otherwise appears to be a trend that is contrary to an increased focus on on-line infringement.

Developments in Online Civil Copyright Enforcement in China: NCAC’s Analysis

The National Copyright Administration of China (NCAC), in its 2014 Annual Report Online Copyright Protection in China (2014年中国网络版权保护年度报告), analyzed published opinions on online civil copyright cases involving the “right of transmission to the public” (making available right)  drawing on three public databases (the Supreme People’s Court’s “中国知识产权裁判文书网” 、 “中国裁判文书网” ,and Peking University’s “法宝数据”).

There were 1650 reported civil opinions on online infringement in 2014, an increase of 18.8 percent from last year. Audiovisual cases occupied first place, at 44.5 percent of these opinions.  Literary works constituted 390 cases, or 23.6 percent. This was an increase of six times over last year. Graphical works were 363 cases, a 3.3 times increase. Video games totaled 56 cases and music was last of these major categories with 20 cases, or about 1 percent, a decrease from last year of 80 percent. In total these categories constituted 98 percent of reported cases.

The report identifies that were 86 cases involving 11 of the 20 websites that were subject to supervision by China’s copyright administrative authority (NCAC), and were 5.2% of the total cases.  These cases were a declining percentage of online infringement cases compared to past year.  It appears that NCA is using this data to show the effectiveness of its administrative mechanisms.

The decline in music cases, in my estimation, likely reflects the great difficulty the music industry faces.  Music is a priority area for NCA this year.  Improvements in administrative IP protection planned at the beginning of 2015, including a recently launched campaign,  will also hopefully reduce the level of infringement by key internet companies and/or support more effective civil enforcement in this sector.

Plaintiffs in online copyright cases were mostly enterprises, and defendants were mostly internet companies. Individuals were a small number of the plaintiffs (about 6.4 percent), which was about the same as last year. Online media companies were principal defendants (87%).  The remaining 13 percent consisted of traditional media companies, including traditional publishers, newspapers, motion picture studios, and television stations.

Civil online cases were principally heard in Guangdong, Beijing and Zhejiang with about 70 percent of the cases.  Zhejiang jumped from fifth place last year to third place.   Fujian also showed a significant increase.  A large share of the audiovisual infringement cases in Guangdong involved Kuaibo (www.qvod.com).  The regional distribution of the cases also shows that there was a drop in audiovisual cases in Beijing, but an increase in other areas such as written works.  Most of the plaintiffs in Beijing were well known companies in such fields as motion pictures, cultural product distribution, and internet technologies, which in NCAC’s view could suggest a maturing of the Beijing environment towards protecting a greater variety of content owners.

The increase in cases in Zhejiang in online cases is due to the rapid increase in online industries in that province, which also has consequences for trademark counterfeiting. As I recently reported, online counterfeiting has also become a priority for China Customs in China, with Zhejiang also figuring prominently in seizures of exports at such ports as Hangzhou and Ningbo.

The report also notes that there were 30 online criminal copyright cases as well, and that fines and punishment had increased, with one fourth of the cases involving fines over 500,000 RMB.

Note that I tried to compare this data with the data that is available on www.ciela.cn.  Unfortunately the data sets do not match well.  CIELA analyzes data by cities and provides more granular detail on proceedings and outcomes (length of time, damages, “win” rates, etc.).  Moreover, CIELA does not breakout on-line copyright cases.  I was thus unable to reliably further validate NCA’s observations in this report.

The NCAC report was released on April 22, 2015.  However, with only 219 hits since it was placed on line as of today, it remains a “sleeper” of a report, notwithstanding the dramatic growth in online copyright issues in China.

Chinese Customs’ Annual Report and What It Suggest for Corporate IP Strategies

Chinese Customs published its 2014 Report on the Situation for IP Protection last month. The report summarizes the current situation for Customs protection of IP in China as follows:

  1. The vast majority of seizures were initiated on an ex officio basis by customs (98% or higher)
  2. Nearly 97% of the seizures by quantity involved infringement of trademark rights. Chinese Customs can also seize goods that infringe copyright and patents. The low level of copyright seizures likely reflects the increased incidence of on-line infringement.
  1. About 96.5% of the product seizures were on exports.
  2. Consumer Goods Dominate Seizures. Amongst suspected infringing goods, tobacco products, light industry, cosmetics, clothing, etc. dominated. There was also an adjustment in product mix compared to last year, with a decline in hardware goods, pharmaceutical, hats, telecommunication equipment, toys, and food products. Note that 44 percent of the seizures were tobacco related. The next largest single category was cosmetics and personal care products. Less than one percent was pharma products.
  3. Postal and sea shipments are principal channels. Postal shipments accounted for 80.2% of seizures, with an increase of 33% from past year. 96.3 percent of the seizures were made involving shipments by sea.
  4. Greater Diversity in Destinations of Seizures. Chinese Customs seized goods involving 153 countries and territories. Amongst these, the Middle East and Latin American had significant increases.   By value the US was the second largest destination of seizures after Hong Kong. However many third world countries in Africa and elsewhere were in the top ten by value, quantity of products, and/or numbers of shipments. Brazil for example was number one for seized shipments.
  5. Seizure Activities Are Dispersed, but also Concentrated in Several Ports.  Shenzhen, Shanghai, Ningbo and Hangzhou regions dominate by value of seized shipments.

Based on this report, here’s my takeaway of steps US rights holders can take to improve cooperation with Chinese Customs:

A) Train Chinese Customs on product identification. As most of Chinese customs seizures are ex officio, the report underscores the importance of advising Chinese customs on how to identify infringing products. Of course, the prerequisite to these activities is recording your rights with Chinese Customs.

B)  Work with on-line e-tailers. There are an increasing number of seizures coming from inland ports, where goods are likely being booked on line. Moreover, goods are being shipped to a diverse number of ports. The report suggests the importance of working with on-line e-tailers, like Alibaba, to take down shipments.

C) Leverage cooperative agreements. Chinese Customs has numerous agreements with foreign countries, and has also been involved in several agreements to improve domestic enforcement, such as between Chinese customs and public security (police) authorities. Leveraging these cooperative agreements may help facilitate enforcement activity.

D) Use enforcement resources strategically. Clearly some Chinese ports are more active than others. In addition, some products seem to be attracting more attention than others. Although seizures of counterfeit pharmaceuticals, auto parts and other health and safety items are relatively low, I believe there is still room to encourage Customs to focus on items where public health or safety are affected.

Honey Laundering Comes to Texas

Honeylaundering

It’s substandard, it may be unhealthy and it misstates the country of origin, and it may be counterfeit.  Due to high tariffs, the United States appears to be targeted for diversion of Chinese honey through misstating the country of origin.   The Department of Homeland Security just completed a big bust in Houston on this “counterfeit” honey, some of which may contains a banned antibiotic.

Other perspectives on Apple/Proview

Last week, we had a group of Chinese IP officials visiting Fordham – from Chinese Customs, a local Administration for Industry and Commerce and the Supreme People’s Procuratorate  – it was a perfect combination of officials to ask about the Apple / Proview case from the perspective of different Chinese government agencies, other than the courts. Continue reading

The Proview and Apple Controversy – An Increasingly Tangled Web

The ongoing trademark dispute between Proview and Apple, which has now reached Apple’s home state of California, continues to draw attention around the world.  A court in Pudong, Shanghai refused to grant the injunction against sales of iPads, while Huizhou intermediate court has granted such an injunction. An appeal from the first judicial decision from the Shenzhen Intermediate People’s Court, which was adverse to Apple, to the Higher People’s Court of Guangzhou has just been heard, a ruling at this level is usually final in China. The Chinese central government has, thus far, properly abstained from declaring a position in this dispute and it is too early to tell whether Supreme People’s Court will hear a further appeal.

Continue reading