As business goes digital, the intellectual property (IP) protection landscape is also undergoing a revolutionary change. Latest developments in e-commerce, blockchain, artificial intelligence (AI) and other emerging technologies create IP that has never been seen before, and provide new, creative ways to protect it.
This trend is particularly apparent in China, where online shopping is booming and IT development a government-supported priority. China’s demographic change and urbanization have further accelerated the trend. The younger generation embraces Taobao, China’s biggest e-commerce platform; TikTok, a popular social media platform; Honor of Kings, an online game, and cares less about privacy comparing to their western peers. Their active use of the Internet and stance about personal data provide the ideal environment for China to thrive in big data technologies.
IP laws rooted in China only in the 1970s, much later than in the Western world. Since then IP protection methods have been constantly evolving, but never before at a pace we witness today. Businesses and the government are more than ever eager to experiment with new IP protection mechanisms.
In this article, we aim at helping IP owners, particularly brand owners and sellers outside China, to leverage innovative ways to protect their rights and combat infringers in China. We will trace back traditional methods of IP protection in China and introduce the latest digital developments explaining how it transforms IP enforcement in China. In addition, we will explain how businesses can take advantage of the new opportunities to protect their IP.
IP protection in China: from analogue to digital
Business digitalization has left no stone unturned, including in four most frequent IP protection scenarios: authentication, investigation, notarization and litigation.
1. Authentication via blockchain
In the past: Sellers historically have used authentication to distinguish its products from the fake ones. Before the arrival of social media, foreign brands relied on Chinese state-owned TV channels and local newspapers to educate consumers on genuine products. Some brands used hotlines for customers to report suspicious products. Brand owners used laser stickers or scratchable labels with security codes underneath to prevent counterfeiters from copying. Often, they entrusted third party agents or consumer associations such as the Consumer Anti-counterfeiting Code Query Center or China Commodity Information Confirmation Center to print stickers and maintain a verification database. Over time, infringers learnt the authentication methods, and brand owners had to invent new ways to protect themselves – it has become a cat and mouse game.
Past scandals of fake products, particularly in the areas of drug and food safety, have trained Chinese consumers to be extremely cautious about product source. Hence, they are more receptive to technology, which makes the origin of goods transparent.
Today: Blockchain (see more details about this technology in Dentons’ article here) has become a popular means for resolving Chinese consumers’ pursuit for transparency and tractability of origin of goods.
For example, JD.com, a giant e-commerce platform in China, has applied blockchain technology to sell free range chicken. Through blockchain, which contains information on origin, production and logistics, buyers are given access to trace the entire supply chain of the chicken they buy, and even to watch a date-stamped, location-verified video clip of their purchase running on the loose in a free range farm.
Blockchain technology is also applied to prove the origin of imported goods which have a longer logistic chain. For example, Chinese start-ups Embrazz, Vonetracer, Winsafe and CCN provide blockchain-based origin chasing solutions for companies whose consumers have concern about the source of supply. With these solutions, foreign sellers can print a QR code on products sold to China. Chinese consumers would use WeChat, the most popular instant messaging app in China, to scan the code and retrieve the whole logistic chain of the product instantly – from factory, packaging, cross-border shipping, China Customs clearance to local shipment and distribution. This boosts consumers’ confidence over the imported product, and at the end drives up sales.
2. Vetting and investigating with AI and big data
In the past: Despite sometimes being dangerous and expensive, engaging investigators used to be a popular method when a seller suspected its IP being infringed in China. Undercover agents might act as a potential buyer, a factory worker or a merchandiser to approach infringers and collect evidence. In trade fairs and wholesale markets, investigators in patrol could easily identify a handful of infringers in the same venue.
With the rise of online purchase generally, as well as due to lockdown, social distancing and event cancellation because of the COVID-19 pandemic, infringing activities are more scattered around the world or over the Internet, making them difficult to trace and on-site old-style investigations less effective or even impossible.
Today: Although it is harder for investigators to locate the chain of infringement today, e-commerce has also given rise to new ways of enforcement. The simplest, rather low-tech method is by filtering online listings which go way below MSRP (Manufacturer Suggested Retail Price), a strong counterfeit indicator. IP owners can conduct a large-scale market sweep with much cheaper cost by leveraging the notice-and-takedown mechanism, established in the world’s IP legal system since the Digital Millennium Copyright Act in 1998, its Chinese equivalent being “the Regulation on the Protection of the Right to Network Dissemination of Information” first enacted in 2006. Once certain infringing listings in an online platform are identified, the IP owner can group them together and serve a bulk notice on the platform operator to ask for two things: takedown of the listings and disclosure of their hosts. Protected by the safe harbor provision under the notice-and-takedown mechanism, platform operators are safe to comply with the takedown request and exempt their liability, rather than shielding the infringers and taking on joint liability.
All large online retail platforms in China have their own IP protection pages, enabling IP owners to file takedown notices and supporting evidence effectively. Platform operators also have their accredited IP agents, who the disgruntled IP owners can hire to speed up the removal process and obtain the infringer identities. They can even take a further step and help IP owners to freeze the illicit gains and trace the source of infringing supply.
The latest breakthrough in online identification of infringing materials came in AI. Some IP protection service providers in China, such as simplyBrand, help IP owners to build machine-learning algorithms based on findings on the Internet. IP owners would improve the accuracy of the algorithms by input such as what is being infringed, how the verification works and why an item should be regarded as fake. IP owners are able to correct any mistakes in AI identification thus making the whole process more precise over time.
Other service providers are more IP practitioner-centric. For example, PECO, a China and US based company, developed a search engine for IP practitioners to analyze the infringement landscape of their clients and provide web-based enforcement solutions such as electronic notarization and infringer locator.
3. Evidence notarization with blockchain and time-stamping apps for verifiable evidence
Regardless of how technology evolves in China, evidence notarization always plays a crucial part in protecting IP: when the infringer is identified, the seller wants to collect evidence to be able to take action against the infringer. In China’s legal practice, notarized evidence carries a much higher evidential weight in the People’s Court. An infringing act not verified by notarization is prone to be rebutted by the infringer.
In the past: To strengthen the evidence that a physical store was selling counterfeits, IP owners could hire a notary public to accompany a secret agent to physically attend a shop. Under the witness of a notary public, the agent placed an order of infringing goods, which could be obtained over-the-counter or asked to be shipped to the notary public’s office. The notary public is a mere witness who would neither reveal nor deny his identity in the face of an infringer. Infringing evidence was recorded in writing, by photo-taking, audio and/or video recording, and presented in a printed notarized document.
Today: As infringing activities go virtual, notary public does not visit physical stores anymore, but instead provides a witness statement for Internet activities such as an online purchase or web pages with infringing content. The paper format of notarized content has also gone to the past. Notary public is experimenting with new notarization methods, in particular by deploying blockchain, and is expected to completely abandon the old-style written statements in a foreseeable future. Turning evidence into hash and allowing judges and disputed parties to verify an infringing content through blockchain is already possible today.
New tools even allow IP owners to collect verifiable evidence on their own without a notary public. Qianli Weishi (or “Rights Vanguard”) developed a mobile app for four types of evidence collection activities: photo-taking, website screen-capturing, and video and audio recording. Upon evidence collection using a mobile phone, the app would upload the evidence and obtain a timestamp from a Time Stamping Authority (TSA), confirming who collected the evidence, when it is collected and what is in it. Such evidence collection method has been enshrined in the latest amendment of the Digital Signature Law of China, and evidence found admissible to the court in some precedent cases.
In addition to verification of IP infringement, the same time stamp concept can also be applied on verification of IP ownership. The traditional way of providing copyright ownership is by producing written evidence such as early drafts, synopsis, rough recordings, sketches, news cutting of first publication, statement by author or contract of work engagement. These kinds of evidence are prone to tampering and challenge by infringers. Some companies in China, such as Meiya Pico, UniTrust Time Stamp Authority and Vonechain have developed blockchain applications for copyright ownership and transactions. In a copyright transaction scenario, buyer and seller are no longer required to describe the subject work in a sales and purchase agreement by writing and appendix. All they need to do is to record their transaction in the blockchain ledger.
4. Litigation in the Internet
When the seller has enough evidence, it proceeds with legal actions against an infringer.
In the past: IP owners filed claims in the Elementary or Intermediate People’s Court where infringing activities were allegedly conducted. Some local courts were not accustomed to cases with overseas participants. Many judges in these courts, particularly those in smaller counties, only had basic IP law background. Worse still, courts with the appropriate jurisdiction were often located in the same vicinity as the infringers. If the infringer happened to have a strong local connection or was a major tax contributor to the local government, then suing it there was like playing a game on the infringer’s home turf.
China’s local court system obviously could not catch up with the increasing number of IP litigation cases and their complexity. As the society demanded for more specialized courts to consolidate IP cases, China set up the Intellectual Property Courts in Beijing, Shanghai and Guangzhou in 2014.
In addition, in 2017, the first “Internet Court” was established in Hangzhou, where Alibaba is located and Internet transaction disputes are abundant. Two more Internet Courts have since been founded in Beijing and Guangzhou.
Today: IP courts are equipped with IP-trained judges and take exclusive jurisdiction from the local courts over certain IP cases. Among these three IP Courts, the one in Beijing plays the most central role, as it rules on all appeals of decisions made by the National Intellectual Property Administration, headquartered in Beijing, which supervises both the Trademark Office and the Patent Office. Judgments made by IP courts are archived in websites for public access, in an effort to deliver more consistent rulings. Although China is a civil law jurisdiction in which case precedents are not binding, since the launch of the database, past judgments have been frequently cited in court hearings and commented by the academia. Domestic and foreign IP owners can leverage the database to evaluate the chance of success in their claims and find out new ways to tackle infringers.
As to the Internet courts, they are not optional: according to the relevant Supreme Court regulation, 11 kinds of Internet-related disputes arisen in Hangzhou, Beijing and Guangzhou, must be ruled by the Internet Court, including the following most frequently happening:
- disputes arising from online shopping and online service through e-commerce platforms;
- disputes over loan contracts completed on the Internet;
- disputes over copyright first published on the Internet;
- disputes over Internet domain name;
- disputes arising from the infringement of the personal rights, property rights or other civil rights of others on the Internet;
- liability disputes of products purchased through an e-commerce platform.
The Internet Court not only takes on Internet-related disputes, but also take the whole litigation process online – statement of claim is filed with the court and served on the other party online. Evidence exchange is conducted over the Internet. A case is heard over the screen and camera. In addition to publishing the case hearing video and rulings online, the Internet Court also prepares statistics and publicize the chance of success in different kinds of IP claims. Such database has provided a valuable asset for lawyers and service providers to analyze and adjust their advices to clients. For example, IPhouse, a service provider, has leveraged the database to allow users to analyze the ruling pattern of a judge in the IP Court or the winning statistics of an IP lawyer.
As its name suggests, the Internet Court would readily adopt latest technologies to resolve judicial issues. In Hangzhou, its Internet Court introduced a blockchain application at its “netcourt” to convert paper evidence into blockchain and to formulate blockchain records, which can be used as evidence in the court. Similar blockchain technology has also been presented by the Beijing Internet Court, branding as “Tianping Blockchain”. According to their official websites, since the launch of their blockchain applications, Beijing and Hangzhou Internet Court have already created more than 1 billion and 34 million pieces of blockchained evidence.
Five steps for foreign IP owners to catch the digital wave in protecting their rights in China
1. Get familiar with new IP tools and work with tech-savvy people
When China’s government, law enforcers, courts and businesses all embrace new technology, foreign IP owners follow the trend. Riding the digital wave smartly, in addition to protecting their IP, they also drive up their sales in China. While replacing verification stickers with blockchain is not expensive for a large business, it enhances the hi-tech appeal of the product, thus giving a marketing benefit to the brand owner, and at the same time driving up the faking cost for the infringers.
IP owners should work with like-minded agents, investigators, notaries public and lawyers who are tech-savvy and ready to use new tools to enhance productivity. Many of these service providers in China offer competitive rates and services. Like start-ups, these providers do not aim at profit making at this stage, but to attract more clients, build their big data and improve their products through more frequent usage.
2. Build up your own big data
IP owners can build their own big data too. With the help of service providers, IP owners can contribute past enforcement history, types of counterfeits, ways to identify counterfeits, trade secrets and other data to assist AI to learn from past infringement patterns and improve its accuracy in counterfeit identification.
3. Digitalize your IP protection achievements
Adopting technology in IP protection allows in-house counsels and anti-counterfeiting managers to present achievement in a digitalized and numerated way. The input and output of IP enforcement can be visualized. Combining IP achievements with sales figures, general counsels in brands can route enforcement resources to areas that are more needed, and justify their spending in a more statistical way.
4. Maintain good term with China’s e-commerce platforms whilst staying alert
China’s e-commerce platforms like JD.com and Taobao were heavily criticized for harboring counterfeiters in the past. However, as they grew bigger and started to go listing, they are more keen to portray an IP conscious image and lure big brands to do business with them.
Alibaba took a step further to run an association, namely AACA (Alibaba Anti-Counterfeiting Alliance), with brand owners to promote joint effort. In the year of 2020-2021, big names such as Volkswagen, Unilever, Nestle, New Balance, Novartis, Burberry have chaired committees of their respective industries in AACA, which has 179 members in total, according to their official site.
Being a member of association as such would allow brands to draw more attention and resources for IP enforcement from the platform. In return, the platform would take the brands’ participation as an endorsement to its IP accomplishment. It is a brand’s liberty to join if the platform does a good job. However, if the platform is not responsive to takedown and other IP enforcement requests, brand owners would better think twice before joining.
Shopping platforms are in a potential conflict of interest when they wish to obtain the biggest number of sellers, genuine or counterfeit, on one hand, and to retain the best brands on the other hand. Brand owners can tip the balance by working closer and showing their value to the platform over counterfeiters. Establishing an official shop to sell genuine products in the platform, or a “flagship store”, is a good start to channel sales from counterfeiters, individual importers and distributors, to the brand itself. Seeing an improvement in sales and IP protection, the brand may then consider whether to join an IP alliance or not.
5. Don’t forget the fundamentals about IP protection in China
Despite all new IP tools introduced in this article, one should bear in mind that the fundamentals of China’s IP protection framework have remained unchanged, particularly when a case ends up in the court. It is worth noting that compared to other jurisdictions, China’s judicial system has the following special features, which affects the choices of tools and methods when conducting IP enforcement:
- skepticism about testimony or witness evidence;
- high evidential burden of proof for claimants;
- priority to notarization; and
- formality over substance in some areas, especially for foreign claimants initiating lawsuits in China.
New tools such as digital notarization, the Internet Court, or blockchain as a way to add credibility to a piece of evidence assist IP owners in overcoming some of these hurdles, but they do not dispense with burden of proof in a Chinese court. When choosing a new tool, IP owners are advised to consider whether it helps or backfires a case. If there is any doubt, IP owners should consult an expert and see if a tool is suitable or may produce any prejudicial effect to a case.
Disclaimer: names and brands introduced in this article are for reference only. By introduction, neither the author nor Dentons endorses the creditability of any of them, and is not responsible for any liability resulting from engagement of their service.