How much IPR can you rip off before you are branded a criminal?

Posted by Reading Time: 3 minutes

China IPR issues unresolvable until valuations of pirated goods are agreed, while attempts to brand as “criminal” lower levels of infringement are being offset by the higher value of the pirated goods

By Chris Devonshire-Ellis

I’ve seen a lot of comment recently on the perennial issue of China IPR; however one detail seems to have eluded much of the prose – that of proving “Serious Circumstances” in counterfeiting cases. Because here, we get too much of the real nitty-gritty. China, to be frank, is poles apart in its definition of value in pirating of product takes place, and is prepared to decriminalize the level of the offense to continue its IPR protection stance.

Under Chinese law, a counterfeiting case can only be brought as a criminal action if the counterfeiter is knowingly selling goods valued in excess of RMB50,000 (roughly US$6,500). However, the problem is that this is notoriously difficult to do; counterfeiters do not usually keep records of sales, they often only manufacture to order, or keep small quantities of stock on their premises, and the Chinese tend to employ the value of the pirated goods as being the valuation benchmark and not the value of the original goods.

It’s this latter issue which puts the Chinese government at odds with its trading partners. Surely, the damage caused by counterfeiters is measurable by the loss of revenues, meaning valuation should be against the original goods and not the counterfeit product. If so, it would mean criminal charges could be brought against pirates with say just ten fake LV bags in their possession – valued at US$650 – as opposed to the existing status which suggests a market price of US$40 for such a bag, meaning criminal charges can be pursued only if the pirate is caught with 162 bags. The revenue loss to LV in this hypothetical case would in fact be US$105,300 – over 16 times the level at which China accepts a criminal act has occurred.

China’s official take is based on “actual sales prices” however, which are calculated by referring to the “value of the counterfeit goods produced, stored transported and sold in the course of the offense” as opposed to the value of the goods being counterfeited (in other words, the genuine goods). China also states, somewhat bizarrely, that “Using actual sales prices as the basis of the calculation does not prejudice against calculation based on the value of the legitimate goods.” Yet quite clearly it does in terms of assessing criminal activity. China also says that If counterfeiters sell fake goods at the same price as the genuine article then there is parity” thus neatly sidestepping the issue that the entire counterfeiting industry is based upon providing inferior copies at lower prices than the original.

The Chinese argument against using original valuations also extends to its own law enforcement, and I quote the MOC in this:

If the illegal business volume in counterfeiting activities is valued as compared to genuine goods, then most cases will meet the criminal thresholds given that in general the value of genuine goods is high. This will however blur the line between administrative and criminal enforcement, which is counterproductive to coordinated crackdown and enforcement. If the price of genuine goods had been used for calculation in any given case, accordingly the monetary thresholds for sentencing and conviction would have to be substantially raised, which would be less helpful for more aggressive enforcement.

So there you have it. To be a criminal pirate in China, if we raise the bar for prosecution in terms of value of goods pirated, then China wants to raise the bar for the amount of money stolen before you qualify as actually having committed an offense.

Anyone else find this logic a bit out of whack?