Research on Conviction and Sentencing in IPR Criminal Cases

Zhang Benyong,[Patent]

The IP-related criminal problems in China, can be summed up in six aspects: uncertain policy standard for criminal law protection, standard of proof for evidence in IP-related crimes, determination of incriminating amount, applicability of suspended sentencing, applicability of criminal penalty,  applicability of injunctive relief and non-compete order.
In 1994, the People's Court of Pudong New District of Shanghai took the lead in China by pushing for the "trinity" mechanism of civil, administrative and criminal adjudication of intellectual property cases. Over the past twenty-five years, the courts in Shanghai have had an annual caseload of 300 to 500 IP-related cases, accumulating tremendous trial experience, and conducted in-depth studies of relevant issues. This article will introduce some relevant problems in IP-related criminal cases.
The author is of the opinion that the IP-related criminal problems in China, from the perspective of judicial adjudication, can be summed up in six aspects: uncertain policy standard for criminal law protection,standard of proof for evidence in IP-related crimes,determination of incriminating amount, applicability of suspended sentencing,applicability of criminal penalty,applicability of injunctive relief and non-compete order.
Recognition of criminal law protection policies and comparison of IP-related criminal law legislation
Over the past twenty years, China has, through legislative and judicial interpretation, been continuing to intensify IP protection and to increase the striking range for IP infringement activities. By now, some say that China already has pretty tough criminal law protection of IP, but others say that it still has a gap with other countries. From a policy standpoint of criminal law protection, how to recognize and understand "strong protection of IP"?
For comparison, the US adopts a scheme of combined private and public prosecution for IP-related criminal cases, with heavy penalties for the perpetrators and heightened protection of IP, resulting in up to twenty years of prison term for trademark crime. Germany also has a scheme of combined private and public prosecution in IP-related criminal cases, yet with sentencing lighter than the US and even China. France imposes even lighter sentencing than Germany. There isn't much difference in sentencing among China, Japan and Korea.
The above disparities are due to the different legislative regimes. The US, Germany and France all have comprehensive codification of intellectual property laws where civil infringement, administrative wrongdoing and criminal violations are all provided in the same codified statutory laws; whereas in China, civil infringement, administrative wrongdoing and criminal violations are separately provided in various individual statutes.
The standard of proof for IP-related criminal evidence
Different from the preponderance of the evidence rule in civil cases, the standard in criminal cases is beyond reasonable doubt. But some IP judicial organizations do not recognize or comprehend this, so that certain criminal cases occur which should not have been so. Besides, the authentication problems in some IP cases (such as trade secret cases) also pose greater challenges for clarification of criminal evidence in IP-related cases.
As to general types of evidence in IP-related cases, there are certain uncertainties and disputes in current judicial practice, which focus mainly in the issues of retention of attachments, inventory, photographing, and the authentication of the genuine goods.
In trademark crimes specifically, questions remain as to evidence. For example, whether in the US or in Europe, crimes could be committed against either service marks or trademarks. Yet in China, there has not been a single case of crime involving a service mark. Furthermore, could collective marks or certification marks become targets of crimes? Would a multiplicity of individual marks or the combination constitute infringement of a particular mark? Would infringement of a trademark become a crime if it is a result of exceeding authorization? How to identify goods of similar kinds? And how should a proprietor conduct authentication as to genuineness of a product or a mark? All these questions need to be properly addressed.
Evidentiary problems for copyright infringement mainly include: how to determine standard of proof for criminal infringement of a work of drawing? How to determine the nature of a simple act of selling copyrighted work? How to determine the nature of non-uploaded work for profit that infringes the Internet dissemination right? And what is the relationship of sales of infringing reproduction with criminal operation of business, viz., how to understand Article 15 of the Interpretation on the Several Issues of Application of Law in Adjudicating Criminal Cases of Illegal Publications of Supreme People's Court?
The authentication problems in IP-related crimes mainly include: how to determine the scope of technical information? Should materials submitted for authentication include defense argument of accused criminal suspects? Should the authentication cost be borne by the proprietors or by law enforcement? How to recognize multiple authentications?
Accounting of the criminal amount of money
The accounting of the criminal amount of money relates to determination of a crime. As far as Shanghai is concerned, 85%-90% of IP-related crimes are crimes against trademarks (trademark counterfeiting crime, sales of goods bearing counterfeited marks, etc.), all of which involve accounting of the criminal amount of money.
The Interpretation of the Supreme People's Court and the Supreme People's Procuratorate Concerning Some Issues on the Specific Application of Law for Handling Criminal Cases of Infringement upon Intellectual Property Rights requests in Article 12, "The amount of money in illegal business operation refers to the total amount of money relating to the infringing products of an actor in his/her illegal business operation, which includes the accounting of illegal making, storing, transporting and selling, etc. The accounting of infringing products already sold shall be made by the actual sales price, and the accounting of infringing products under manufacture, in storage, in transportation or not sold yet shall be made according to listed price or verified average price of actual sales. In the absence of listed price or if the actual sales prices cannot be verified for infringing products, accounting shall be made by the average market price of such infringing products."
The above judicial interpretation may lead to identical sentencing for both completed and unaccomplished crimes, effectuating confusion of the different social harms of a crime that is completed or unaccomplished, resulting in inaccurate accounting of the criminal amount of money. The author thinks that the accounting of the amount of money involved in IP-related criminal cases should first be made according to sales price. Where the sales price cannot be determined, it can be presumed on the basis of witnesses' testimonies. Moreover, it may also be determined by the pertinent organizations' estimation of the price of infringing products so as to make a reduction or alleviation in combination of non-accomplishment doctrine in Criminal Law for who have not sold the infringing products yet.
Application of suspended sentence
The main problem with suspended sentence in IP-related criminal cases is its excessive use. In national scale, the rate of applying suspended sentence in IP-related crimes is on average 50%-90%, way above the application rate for making and selling counterfeit goods and illegal business operations.
Excessive application of suspended sentences will not only let IP criminal perpetrators off the penalties, but also result in judicial corruption, particularly during the bail period. Therefore, how to set up a scientific probationary system in IP-related criminal cases is a problem deserving heightened attention.
Application on imposition of fines
The Interpretation II of IP-related Criminal Matters promulgated by the Supreme People's Court and Supreme People's Procuratorate in 2007 provides in Article 4, "Where a crime against intellectual property is established, the people's courts should impose a fine in accordance with laws, by taking into comprehensive consideration of the illegal gains, the amount of money for the illegal business operation, loss incurred to the proprietors, and injury to public interest. The amount of fine shall be set to more than the equal amount but less than five times of the illegal gains, or more than 50% but less than equal amount of money for the profits of illegal business operation.
But due to lack of maneuverability in judicial practice of the above provision, especially in connection with crime of counterfeiting luxury goods, imposition of fines is rarely made in any case in accordance with the rule of more than equal amount and less than five times of illegal gains, or more than 50% or less than equal amount of money for the profits of illegal business operation. In a typical counterfeiting luxury goods case, for instance, the profits of illegal business operation is 70 million Yuan, but the fine imposed is merely 100 thousand Yuan.
Application of restraining and non-compete orders
The Criminal Code, as Amended (VIII) provides in Article 11(2), "When probation is announced, in light of the crime committed, the convict may also be prohibited from engaging in certain activities, entering certain areas or places or contacting certain persons during probation." The Criminal Code, as Amended (IX) provides in Article 37(1), "For those committing a service crime, or a crime breaching particular occupational duties, who are given a criminal punishment, the people's court may, on the basis of the circumstances of the crime and as needed to prevent recidivism, restrict them from engaging in the relevant profession, for a period of 3 to 5 years, beginning on the day that enforcement of the criminal punishment is completed or the start date of suspended sentence."
By the above provisions, how should courts utilize the restraining orders and non-compete orders in IP-related criminal cases to play the warning power and to implement strict protection in IP-related criminal cases? That is a serious question worthy of consideration.
In sum, the author offers the following five proposals for establishing sentencing norms:
First, to establish a norm for scientific standard of proof for IP-related crimes, clarifying the problems for general recognition, retention, certifying and transferring of evidence, admission of Internet platform evidence, authentication and administrative evidence, etc.
Second, to establish a scientific and normative system for accounting of the amount of criminal money, including setting up a method for basing accounting by the sales price, setting up a mode for reduced sentencing for unaccomplished crimes, as well as a mode of sentencing based on price and piece.
Third, to establish a system of suspended sentences, by correctly handling the criminal law policies for suspended sentences for IP-related crimes, to set up sentencing standards for IP-related crimes, and to finalize the sentencing conditions for perfection of the application process of suspended sentences for IP-related crimes.
Fourth, to establish an application system for IP-related crimes' fines, taking into full consideration of IP's value, and to formulate fines on the basis of such factor, in combination of the illegal gains of the crime, the amount of profits from illegal business operation, the damage to the proprietors, and injury to public interest.
Fifth, to establish ordinary penal codes for restraining orders and non-compete order for IP-related
(Translated by Zheng Xiaojun)

Member Message

  • Only our members can leave a message,so please register or login.

International IP Firms
Inquiry and Assessment

Latest comments

Article Search


People watch

Online Survey

In your opinion, which is the most important factor that influences IP pledge loan evaluation?

Control over several core technologies for one product by different right owners
Stability of ownership of the pledge
Ownership and effectiveness of the pledge