Penalties for counterfeiting in China too lenient, says study

An investigation into criminal sanctions levied on people convicted of trademark counterfeiting has found that they are often below the statutory minimum of the law.

Chuanzi Cai of South China University of Technology’s Faculty of Law in Guangzhou notes that China has incorporated counterfeiting into its criminal law since 1976, but has long been criticised for ineffectual enforcement and criminal punishment.

The study, which examined more than 800 criminal decisions in trademark counterfeiting from 2011 to 2015, found a mismatch between the scale of the crimes and the penalties imposed.

90 per cent of cases involved an illegal business value (IBV) of up to $300,000, but the same proportion of criminal fines were less than $40,000. Similarly, 90 per cent of cases resulted in jail terms of 1.6 years on average, with 70 per cent receiving probation.

“This…suggests that most counterfeiting criminals are not fined severely [and] do not stay behind bars,” writes the author.

Overall, half (50 per cent) of the criminal fines and more than a quarter (27 per cent) of the prison terms failed to meet the minimum sanction requirements in criminal law, according to the study which is published in the International Journal of Law, Crime and Justice.

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Under the current legal framework, cases with an IBV of $7,000 to $21,000 defendants should be sentenced to less than three years, but above that upper threshold the penalty should be in the three- to seven-year range, assuming more than two trademarks have been infringed.

The data reveal an increase in the IBV of trademark counterfeiting cases between 2011 and 2013, when there was a revision in the law with a slight decrease in 2014 and 2015.

Counterfeiting cases most likely to result in lenient sentencing involved apparel and bags, with alcohol and food cases most likely to attract a jail term of at least one year, followed by car parts and industrial products.

“Court decisions support the IBV claimed by prosecutors but the sanctions do not,” according to the study, which implies that courts question whether the IBV argued by prosecutors reflects the actual situation in the market.

In addition, it seems that more than half of criminal cases, Chinese courts do not calculate the IBV or fines on counterfeit products before delivering a verdict.

The report recommends that the Chinese government look at mandating the use of IBV in sentencing, and should consider modifying the statutory minimums in cases where there is a public health risk such as foods, cosmetics, and pesticides.