January–February 2006, p.18). If IPR infringement occurs,however, a company faces a few critical choices. It can takeexternal action to battle IPR infringement, using eitheradministrative or judicial channels. These channels exist forpatent, trademark, copyright, and trade secret infringement,but the processes and advantages each provides differ greatly.
Administrative channels are widely viewed as the quickestand least expensive way to combat IPR infringement andremain the most popular option for dealing with violations. Administrative officials can handle cases quickly, and the fil-ing and adjudication procedures arestraightforward. In addition, companiesavoid the significant expenses associated with court cases. The administrative route isa good option for companies dealing withinfringement cases that do not involve com-plex networks.
Investigating IPR violations
To begin an administrative investigation,a company must first file a complaint indi-cating infringement of its IPR-protectedproducts to a local administrative agency—generally at the district or county level.Depending on the type of IPR, location of the alleged infringement, and type of prod-uct, the company may choose among sever-al administrative agencies. Though localadministrations for industry and commerce(AIC) are the most common choice, otheragencies—including local branches of the Administration of Quality Supervision,Inspection, and Quarantine (AQSIQ);Customs; State Food and Drug Administration; NationalCopyright Administration of China; State IntellectualProperty Office; and Ministry of Culture—may also play acritical role.In addition, the local public security bureau (PSB) car-ries out administrative investigations for possible criminalcases. PSBs can receive cases that are transferred fromadministrative agencies or, if the infringement amountmeets certain thresholds, the rights holder may contactthe PSB directly to raise a case. If the PSB finds enoughevidence to warrant a criminal case, the case is transferredto a people’s prosecutor in the court system.In some cases, local agencies may contact rights holders when they uncover instances of infringement. For example,through the recordation process, companies can registertheir intellectual property with national-level Customs inBeijing (see the
, November–December 2004, p.30)and train local Customs officials to spot infringing prod-ucts. Private investigative firms may also contact companies when they encounter infringing goods, though companiesshould verify the accuracy of these notifications and check the legitimacy of these firms before contracting with them.In most cases, however, companies must conduct theirown due diligence to find infringing products. They mustalso gather a substantial body of evidence and present acase to local officials to convince them to carry out anofficial investigation.
Administrative rulings and outcomes
After a formal administrative investigation, the localagency issues a ruling. If infringement is found, the localagency can order the infringer to stop producing and sellingthe infringing goods, seize infringing goodsand equipment used in their manufacture,and levy an administrative fine, the amountof which varies depending on the type of IPR. The rights holder or the infringer canbring an administrative suit to the SupremePeople’s Court (SPC) if either is unsatisfied with the local agency ruling.In jurisdictions where agency officialshave more experience working with for-eign companies and better understand theimportance of IPR protection, such as thedeveloped areas of eastern China, agency officials may be more willing to pursueinfringers. In recent conversations, severalUSCBC member companies cited cases in which local enforcement agencies wereeager to pursue infringers and willing toconsider a variety of punitive options.
Drawbacks of theadministrative approach
Administrative channels have drawbacks,however. Administrative agencies often issue small fines thatinfringers view as the cost of doing business rather than as aneffective deterrent. For example, fines for trademark infringe-ment are capped at either three times the illegal revenue or¥100,000 ($14,622), whichever is less, and most judgmentsissue fines of far less than the maximum amount. In somecases, goods and equipment seized during raids are notdestroyed, as PRC law requires, but instead re-enter the mar-ket via auction or back channels.Limited administrative resources also restrict local agen-cies’ capacity to carry out investigations. Administratorsmust juggle various local and national priorities and may beunable or unwilling to devote staff and resources to investi-gate a case fully. This shortage of resources is a particularproblem when a rights holder uncovers counterfeit prod-ucts sold at multiple locations—for example, at multiplestalls in a wholesale market—requiring multiple investiga-tors to conduct raids simultaneously. Local protectionismcan be a factor, especially in jurisdictions that have limitedexperience working with foreign companies.
Using administrative channels to pursue intellectual propertyrights (IPR) infringement in Chinais faster and less expensive thanjudicial channels but tends toresult in softer penalties that serveas weaker deterrents for futureviolations.
Companies should considerseveral variables when decidingwhich channel to use, includingenforcement goals, scope, andnature of IPR infringement.
Judges in major cities tend tohave more experience with IPRcases and are more likely to rule that IPR infringement hasoccurred.