As a market, China’s massive population of more than 1.4 billion people should be on the radar of every e-commerce vendor across the world as the nation’s thriving middle class has developed a taste for foreign goods: streetwear, electronics, jewelry, and more.
According to a report by management consulting firm Bain & Company, China’s consumer spending saw a significant increase in 2020, in defiance of the global COVID-19 pandemic.
Despite China becoming an e-commerce powerhouse and a lucrative market for vendors on Amazon, eBay, AliExpress, and other leading online marketplaces, there has long been a caveat for international e-commerce businesses when it comes to China: the nation’s reputation for failing to protect international intellectual property rights. However, China has made some major strides in this area over the past few years.
The protection of IP rights in China is making steady progress with key amendments being made to the country’s copyright laws, and several high-profile cases setting a legal precedent.
As an example of China’s progress in this area, in December 2020, a landmark case saw the Shanghai Higher People’s Court upheld an unprecedented verdict in a case involving nine people forging 330-million-yuan (~42.2 million Euros) worth of Lego toys.
The accused were replicating Lego toys and selling them online since 2015 under the brand name Lepin without authorization from the Denmark-based company Lego. The defendants received sentences ranging from six months to three years in prison and fines of up to 90 million yuan (~11.5 Euros).
On November 11, 2020, the Standing Committee of the National People’s Congress passed the first amendments to China’s copyright law in more than 10 years. With Chinese copyright law last amended in 2010, the new amendments will take effect on June 1, 2021.
The amendments to China’s copyright law represent another large step forward for the protection of intellectual property rights in the country. Here are some of the key changes to China’s copyright law that e-commerce businesses looking to tap into the Chinese market should be aware of:
Statutory Damages to Increase Significantly
The amendments to China’s copyright law are heavily focused on deterrence. As such, infringing parties will now face hefty payouts to victims for statutory damages caused by violating other’s intellectual property rights. The amendments will see maximum statutory damages being increased from roughly 68,000 Euros to more than 640,000 Euros.
Further, the amount of damages to be paid by an infringer will be calculated based either on the actual loss suffered by the rights holder or the illegal income received by the infringer. This calculation will at the discretion of the rights holder. In cases where it may be difficult to calculate the actual losses or the illegal income, royalties can be used to calculate the damages. It is hoped by the Chinese government that the introduction of punitive damages to the law will serve as a heavy deterrent against copyright violations.
The Burden of Proof Lies with the Infringer
In a major shift in the legal process, the amendments will see that the burden of proof in matters of copyright infringement will lie with the infringing party. For example: if the rights holder has sufficient evidence of infringement, it will be up to the alleged offending party to produce the claimed materials, or face damages.
What’s more, the court can now order the destruction of infringing materials along with the facilities, tools, and equipment used to produce them. In short: alleged infringers who claim irresponsibility will need to produce evidence that they have obtained permission from the copyright holder to reproduce the material.
More Power for Authorities to Investigate Claims
When it comes to the investigative powers of Chinese authorities in copyright matters, the amendments will add some key powers, which they can use to investigate infringements with a heavier hand. With the amendments, Chinese copyright law authorities can launch inquiries into the parties concerned and conduct on-site inspections of facilities alleged to produce illegal materials.
Another key power granted to authorities is that they can inspect and make duplications of relevant materials including contracts, account books, and invoices. They can also seize premises and articles related to suspect infringement.
The Bottom Line
For many years, the Chinese government has been under heavy scrutiny by the international community to crack down on the infringement of copyrights and intellectual property. It has been a major area of concern in the e-commerce space. For example, in a previous blog post, GreyScout noted how a European Anti-Fraud Office (OLAF) report identified more than 340 companies “acting as intermediaries or traders of counterfeit or substandard products linked to the COVID-19 pandemic.” Many of these companies were found to operate within China. However, the amendments are a very big step forward.
Following June 1, Chinese law will include an unprecedented system of strict fines for infringements, while strengthening the ability of Chinese authorities to uphold copyright laws to strengthen the protection of IP holders in a nation e-commerce vendors were previously hesitant to do business in.
