Newsletter

Intellectual Property Rights and China – Part 2: The Chinese Authorities

• Amazon accused of not policing knock-offs

• USTR list of “notorious markets”

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• Germany’s Puma plans move away from sourcing in Asia

• IP primer for start-ups Page 3

• China improving but new threats will emerge

Issue 14-02A

To combat the growing threat of Intellectual Property (IP) crime the Chinese government has shifted emphasis away from the development of legislation towards effectively enforcing the laws. They have also put a stronger emphasis on bringing together the various governmental bodies by harmonizing and developing their practices to help prevent and disrupt IP crime. Fundamentally China’s IP enforcement regime relies on a three-strand approach comprising civil, administrative and judicial protection. A number of Government bodies have responsibility in specific areas - specifically: • The State IP Office (or Provincial IP Office) • The Administration for Industry and

Commerce (AIC): The Technology and Science Bureau (TSB)

• The National Copyright Administration • The Ministry of Culture Two public security bodies join them: The Ministry of Public Security (MPS), and The General Administration of Customs (GAC) The Chinese IPR enforcement system is divided into three Strands: (1) Criminal, (2) Administrative, and (3) Civil. Each Strand concerns particular Governmental bodies, which carry out IPR enforcement actions only by way of the single strand of approach they deal with. To identify the correct agency, and to allow the various institutions to work efficiently, one must gather some basic information to provide to the agency – specifically:

• Who is involved in the infringement? • What is the scope and scale of the

infringement? • Is it a manufacturing, production or retail

infringement? • Where is it taking place? Chinese law says those involved in IP crime can be convicted of three types of crime. • Infringing IP rights under Articles 213-220 • Production and marketing of fake or

substandard goods under Articles 140-150 • Operating an illegal business. Note: In some cases dual offences can occur (such as trade mark infringement and the production of substandard goods). This dual offending is considered even more serious and is consequently punished more severely. Separately, those involved in counterfeiting and piracy can be prosecuted by way of the Criminal Strand of Enforcement if they have a previous record of offences or if the value of the illicit business or property exceeds certain thresholds (RMB 50,000 / USD $8,200 annually in revenue or RMB 30,000 / USD $4,900 annually in illegal gains) and is dealt with by the police. The offence of selling counterfeits with a value below the threshold is punished using the Administrative Strand of Enforcement.

In the next newsletter, we’ll take a detailed look at enforcement options in China. Adapted from UK Intellectual Property Office “China – An Enforcement Roadmap”

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February 21: While Amazon has in the past faced criticisms for hiring neo-Nazis and selling books promoting pedophilia, among other things, the company is facing fresh allegations of not doing enough to protect customers from faulty and counterfeit goods.

According to the Daily Dot investigation, products sold by third parties that have received highly negative ratings or comments have remained for sale for months or years. This is significant, as the Amazon Marketplace accounts for about 40 percent of all of Amazon's sales, a number that could easily rise given its recent earnings report.

The most infamous faulty item in the Marketplace is probably a charger for iPods. The charger's product page insists it is not affiliated with Apple, but is branded as an Apple product at the top of the page. User reviews have described the chargers as likely to overheat, melt, or sometimes not even arrive. One faulty charger was responsible for the death of 23-year-old Ma Ailun.

The Daily Dot bought one of the chargers to verify the accusations, and found that the model they purchased quickly began to melt.

There are also several other instances of this type of things happening, like:

-Johnson & Johnson removing several of its products from Amazon because it claimed the company wasn't doing enough to prevent contaminated versions of its products from being sold

- Accusations by NaturalNews.com that the site was serving as a front for counterfeit dietary supplement sales

-A report by CBS that showed some 20,000 fake InStyle hair straightening irons were sold through Amazon

The Daily Dot points out that Amazon relies heavily on users flagging offensive content.

Amazon has not responded to the Daily Dot's allegations.

Source: www.digitaljournal.com (Michael Thomas)

And most 'notorious' markets for counterfeit goods are...

February 13: The United States on Wednesday named China the leading place for physical markets selling counterfeit goods, while websites in Europe, South America and Canada led in online sales of fakes.

US Trade Representative Michael Froman said the Notorious Markets List for 2013 highlights markets that allegedly harm US businesses and jobs by infringing on intellectual property rights.

The markets were selected for the "notorious" label "because they exemplify concerns about trademark counterfeiting and copyright piracy on a global basis and because the scale and popularity of these marketplaces can cause economic harm to US and other IPR holders."

The "notorious" list does not reflect findings of legal violations, normally covered by the annual US Special 301 Report on unfair trade practices.

The USTR said the new list was aimed at helping the US and foreign governments prioritize enforcement of intellectual property rights.

Physical markets in China singled out as key sources of counterfeit goods include the Silk Market in Beijing and the Garment Wholesale Center in Guangzhou, which the USTR said was a key contributor to counterfeiting worldwide.

Multiple markets throughout Thailand were included in the 2013 list, including Bangkok's MBK and Pantip Plaza shopping centers. Efforts to enforce copyright protections in them "are largely ineffective," the report said.

Six markets in India were named as well as the Seventh Kilometer Market in Odessa, Ukraine, and La Salada in Buenos Aires, Argentina, as selling fakes openly and imperviously.

Online marketplaces included Sweden-based The Pirate Bay, which helps users download unauthorized copyright-protected content, the similar KickassTorrents, reportedly based in Canada, and BitTorrent aggregator Torrentz.eu, formerly torrentz.com, which reportedly operates either from Canada or Finland.

"The marketplaces identified here warrant the immediate attention of our trading partners," Froman said.

Source: www.abs-cbnnews.com (Agence France-Presse)

Amazon accused of not policing knockoffs, faulty products

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February 7: Identifying your intellectual property (IP) and developing a strategy is the first step when creating a business. Yet, many entrepreneurs delay even thinking about IP until it’s too late, because they do not believe they have anything worth protecting. But this is a mistake.

IP is a significant piece of a startup's value and being savvy ensures credibility with potential investors and strategic partners. For example, while patents are not the only type of IP, disclosing too much too soon about an invention may dramatically impact the ability to protect your product. And of course a trade secret only has value if it’s secret.

Here are three ways to start thinking about protecting your IP.

Start with the name. All companies have some IP worth identifying. For instance, a company and its products’ names are valuable assets and critical building blocks to a brand and therefore, should be protected. So do your research and secure the rights before someone else does.

Don’t rely on a handshake to transfer IP. Cash-strapped entrepreneurs often default to working with independent contractors using bids, estimates or invoices for quick, affordable transactions. Unfortunately, without a contract, a startup may not own the work even if the bill was paid in full.

Have a standard contract that clearly articulates who owns what rights.

Keeping ideas secret might slow you down. Do not mix up telling someone your idea (which entrepreneurs seem to fear more) with actually leaving valuable IP unidentified and therefore unprotected. Ideas by themselves are not actual IP. It is only after you express those ideas by means of execution that IP is created and must be identified.

Utilize a non-disclosure agreement (NDA) but if investors nix the NDA, entrepreneurs should not reveal every last detail at the first meeting. Often your secret sauce can be withheld to protect your IP while still outlining your business or product but keeping the IP safe. Source: www.reuters.com

Startups: Keeping Your Intellectual Property Safe and Sound

February 20: German sportswear firm Puma SE is looking to produce more goods closer to customers in Europe and the Americas, but will not abandon Asia in the next few years despite rising labor costs and political unrest, its chief executive said.

Puma, which has 178 suppliers in 32 countries, sources 79 percent of its goods from Asia, mostly from China, Vietnam, Indonesia and Cambodia - the latter where a violent crackdown on garment workers striking over pay has disrupted production at its suppliers.

CEO Bjoern Gulden expressed frustration that industry lead times are so long, with ranges being designed now only going on sale in autumn 2015.

Puma is looking into producing more goods closer to consumers to be more responsive to demand, including in Turkey and eastern Europe, and in Mexico to serve the Americas, he said, without giving further details. Over 70 percent of the firm's sales were in Europe and the Americas last year.

But the chief executive said his first priority was to revamp Puma's products before its supply chain.

"Everybody is looking at how to improve the speed and flexibility of sourcing but for the next three to four years the majority will come out of Asia because of the infrastructure," Gulden told Reuters after Puma's annual news conference.

Rising labor costs in China in recent years have prompted brands to seek lower-cost markets in Asia such as Bangladesh, Vietnam, and Cambodia, countries where demands are now mounting for better pay.

A factory collapse in Bangladesh last year that killed more than 1,100 people has put pressure on big brands to improve working conditions for those making products for the West.

Rather than shifting production to Africa to take advantage of lower labor costs, Gulden expects the future to be driven by innovative technology such as 3D printing, which the company is already using for prototype shoes.

"Technology is changing so we are more independent of labor," he said

Source: www.digitaljournal.com (Emma Thomasson)

Puma seeks to source goods closer to Western consumers

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Other Interesting Recent Headlines (please cut and paste link) 1. Hockey Canada going after jersey counterfeiters

http://www.680news.com/2014/02/20/hockey-canada-going-after-jersey-counterfeiters/#.Uwsapw2R9cc.twitter

2. Trademark counterfeiting in China and manufacturers' product liability worldwide http://www.globallegalpost.com/blogs/global-view/trademark-counterfeiting-in-china-and-manufacturers-product-liability-worldwide-64620864/

3. Can’t Find Olympic Gear? How About Some Knockoff Olympic Gear? http://blogs.wsj.com/dailyfix/2014/02/15/cant-find-olympic-gear-how-about-some-knockoff-olympic-gear/

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February 19: Corporate espionage. IP compromise. Patent infringement. Call it what you will, but it all boils down to the same common denominator — theft.

That’s the message western governments have been sending to businesses interested in doing business in China, even while promoting the importance of engaging the emerging market as the newest frontier in export development and economic growth.

Last year, the U.S. government issued a scathing report on the state of U.S. intellectual property theft, which noted quite explicitly that “For a variety of historical reasons… as well as because of economic and commercial practices and official policies aimed to favor Chinese entities and spur economic growth and technological advancement, China is the world’s largest source of IP theft.”

In quantifying the extent of the problem, the report estimated China is behind 50%-80% of IP theft cases globally, costing the U.S. economy $300-billion every year and millions of jobs.

Washington isn’t alone in pointing fingers. Canada’s federal government, while making chummy diplomatic visits to Beijing and planting seeds for future bilateral trade agreements, asks Canadian business leaders to maintain a healthy degree of vigilance when doing business in China.

The Federal Trade Commissioner Service in China notes on its website that, “China fundamentally does not believe in a Western-

Recourse for intellectual-property theft in China is improving, but new risks are emerging type rule of law system and is becoming increasingly adept at implementing one only to the extent that it can help achieve domestic objectives.”

Just how risky it is to do business in China is difficult to quantify. Given the unreliable and often self-serving nature of China’s information system, the number of IP-theft incidents is difficult to ascertain. However, according to blog China IPR, China’s State Intellectual Property Office places the number of patent disputes in 2012 at 2,510.

“It’s in China’s own self interest to develop a sophisticated IP regime and enforcement regime because they want to protect their own developing intellectual property,” says Brad White, a partner at Osler, Hoskin & Harcourt LLP.

However, Mr. White also notes that with China’s inclination toward greater patent protection, a new kind of risk emerges for western companies operating there — namely the risk of litigation by Chinese companies for patent infringement.

“As they tend to get their own IP, the flip side of the risk is you’re subject to infringement or arguably IP blocking in China by their own native patent applications,” he says, noting western firms have little choice but to apply for patents in China to ensure they can take legal action if and when necessary to protect their own IP but also to protect themselves against legal action should the need arise. Source: http://business.financialpost.com (Dan Ovsey)

Note: content edited to condense article.