Success against Counterfeiters in China

17 Sep 2015

We have been taking action to enforce our legal rights in China on behalf of the Scotch Whisky industry for more than a decade. But a recent decision of the Anqing Intermediate People's Court, in the Anhui province in eastern China, can be heralded as an important breakthrough for a number of reasons.

In 2013, we became aware that a Chinese company, Anhui Guangyu Packaging Technology Company Ltd, was manufacturing bottle caps imprinted with the words "Scotch Whisky". These caps were used on bottles of fake "Scotch" appearing on sale more than 1,000 miles away in Myanmar.

As far back as 2008, the SWA had registered the words "Scotch Whisky" as a collective trade mark in China which means they may only be used on the genuine product, distilled and matured in Scotland. Relying on these intellectual property rights, we sued Guangyu and its main shareholder and director in the Chinese civil courts.

Both Guangyu and its director defended proceedings. They argued that they were unaware they were doing anything wrong and any harm they caused was minimal. The court dismissed these claims noting that 100,000 caps had been seized in a raid and they continued to be advertised online even at the time of the hearing. Perhaps the strongest argument was put forward by the director who maintained that he should not be liable for acts committed by the company which was a separate legal entity. However, as a result of documents recovered during proceedings it was established that funds received by the company were transferred directly to his personal bank account and the court was satisfied that under Chinese law he should be jointly liable for the infringement.

Having considered the evidence, the court, at the end of July, upheld the Association's complaint, granted an injunction ordering Guangyu to cease infringement of the "Scotch Whisky" trade mark and ordered the company and its director to pay damages and costs.

The case was a first for us in China in a number of respects. To begin with, although we have obtained many favourable administrative decisions against infringers, this was the first time we had concluded proceedings in the Chinese civil courts. Not only were the penalties greater but also, after subjecting our evidence to careful scrutiny, the protected legal status of Scotch Whisky was upheld, sending a clear message to other would be counterfeiters.

It was also interesting due to its international aspect in that we had disrupted a cross-border supply chain. Previously we had only taken action against products manufactured and sold in China.

Finally, this was the first case where we had successfully taken action against a manufacturer of packaging. Normally we sue after demonstrating that the liquid inside the bottle is not Scotch. In this instance we were able to convince the court that the caps were going to be used illegally even where no complete bottles were discovered. This is helpful as increasingly manufacturers of fake spirits split the production process between different locations to reduce the chance of being caught.

Now that the appeal period has expired and the judgement has become final, we are focussing on enforcing the award of damages against property secured at the outset of the case. There is also a possible criminal case against the director and discussions are ongoing with the public prosecutor.

Lindesay Low, Scotch Whisky Association senior legal counsel