CHINA: Heavier Penalties for IP Crimes

The 11th Amendment to the Chinese Criminal Law (Amendment), which became effective on March 1, 2021, makes significant changes to the rules for crimes associated with intellectual property (IP), including strengthening punishment for IP crime and an expansion of coverage.

The Amendment indicates the Chinese government’s commitment to continuously improve IP protection, particularly in compliance with the U.S.-China “phase one” trade deal signed in early 2020, which provided general direction for increasing criminal penalties for IP infringement.

1. Maximum prison term increased

The Amendment removes the two existing lenient penalties (detention up to six months and public surveillance) for all IP crimes and increases prison terms.

Chinese law has a threshold for an IP infringement to be a crime, based on whether the infringement is “serious.” There are specific criteria to determine if an infringement can be considered “serious,” such as when the infringer’s illegal income from the infringement has exceeded certain amounts. For instance, for trademark counterfeiting the base level income is RMB 50,000 (about US $7,730).

For regular “serious circumstances,” the penalty is still up to three years in prison. However, punishment can now be up to five years’ imprisonment for knowingly selling pirated goods with significant illegal income (Art. 218 of the Criminal Law) and for the crime of “commercial espionage” (Art. 219.1 of the Criminal Law). For “especially serious circumstances” the maximum prison term is increased from seven years to 10 years. In addition, the Amendment narrows the possibility for granting probation (only applicable for detention or sentencing of three years or less) so serious infringers will be unable to avoid jail.

2. Counterfeiting extended to service marks

The Amendment adds service marks to the scope of protection. Previously only trademarks relating to goods could be prosecuted under Chinese criminal law. This is great news for companies in the service industry.

3. Revisions to copyright-related crimes

In another expansion, the Amendment has replaced the language “film, television and video works” with the broader term “audiovisual works” to align with the Chinese Copyright Law, which was revised in November 2020. In addition, “intentionally avoiding or destroying the technical measures for copyright protection taken by the right holder without the permission” now can be subject to prosecution under the crime of copyright piracy. This change may be particularly encouraging for the software industry.

4. Revisions to trade secret–related crimes

The Amendment also revises the criminal threshold for trade secret–related crimes from “causing significant losses to the right holder of trade secrets” to “if the circumstances are serious.” With the revision, the penalty is based on the severity of the circumstances rather than just the amount of the monetary loss. This is to be further defined by subsequent legislation.

This is a significant change that paves the way to eventually switching the crime of trade secret infringement from a consequence-based one to a behavior-based one, which has long been urged by the industry. It is also consistent with the new judicial interpretations issued by the Chinese Supreme Court late last year. These included new measures to make criminal enforcement easier against trade secret misappropriation, such as lowering the monetary loss threshold and adding reasonable royalties and remedial costs (such as upgrading the information security system) into the basis for the calculation of losses incurred.

5. New “commercial espionage” crime

The Amendment introduces the offense of “commercial espionage,” which is similar to the “economic espionage” defined by the U.S. Economic Espionage Act of 1996. According to the Amendment, anyone in China stealing trade secrets for foreign agencies, organizations, or individuals can be prosecuted under criminal law with no requirement of “serious circumstances.” While it remains to be seen how this will be applied in practice, all Chinese or foreign companies or individuals in China that exchange information abroad should adopt a higher compliance standard and implement stricter export control measures to minimize the relevant risks.

Although every effort has been made to verify the accuracy of this article, readers are urged to check independently on matters of specific concern or interest. Law & Practice updates are published without comment from INTA except where it has taken an official position.

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