The State continues to deter counterfeiters with the threat of criminal liability and imprisonment, as opposed to civil penalties. Before a criminal prosecution can be brought, however, a counterfeiter's illegal gains must exceed RMB 50,000 (US $6,000). If the quality of the contraband cannot be shown to be inferior, the illegal gains must be even higher: RMB 100,000 (US $12,000) if the infringing party is an individual; RMB 500,000 (US $60,000) for crimes committed by a company. Therefore, small-scale counterfeiters often escape with low fines that offer minimal deterrent, and the IPR holder receives minimal compensation for the loss.
Moreover, the court system has a shortage of adequately trained judges. The few cases that are brought before the court can take up to a year before being resolved. A real effort is being made to train more judges, with training programs like the EU-China IP Program and through better funding of university law departments. Improvements to the existing alternatives to litigation would further help to relieve the pressures faced by the legal system.
New regulations on the transfer of cases from the administrative level to the criminal level reflect government concerns in the present weakness of the deterrence for counterfeiters and producers of poor quality goods. In addition, the main government ministries concerned with product quality and counterfeiting have issued a "notice" on the transfer of such cases that emphasizes the serious danger poor quality goods pose to the public and calls for increased cooperation in the fight against them. Those goods that are not only of poor quality but also infringe third party IPRs, will be dealt with even more severely.
The new regulations define in detail how the Public Security Bureau (PSB) and the administrative authorities are to coordinate the transfer of cases. While the decision as to whether a case of production and sale of poor quality goods constitutes a crime remains with the authorities, the decision is subject to review by the People's Procuratorate or higher administrative authorities. Those who abuse or neglect the system may be criminally liable.
The legal threshold for criminal liability has been lowered by the Supreme People's Court and Supreme People's Procuratorate's "Explanation of Certain Questions on the Specific Application of Laws in Criminal Cases of Production and Sale of Poor Quality Goods", which came into effect on March 30, 2001.
The joint explanation states that if poor quality goods with a total value of more than RMB 150,000 (US $18,000) are found prior to sale, the owner will be held criminally liable for the attempted production and sale of poor quality goods. The penalties are not outlined specifically, but are likely to be similar to those for the actual production and sale of such goods, as outlined in Article 140 of the Criminal Law: a two-year prison sentence and a fine of between 50 and 200 percent of the estimated profits of the illegal sales.
Parties investing in, who have registered a company producing poor quality products or are providing transportation, storage facilities or in any other way facilitate the production of poor quality goods will be held responsible as accomplices.
Liability hinges on the illegal sales amount of the infringing party. The joint explanation has further defined "sales amount" to include profits from all infringing goods sold but not delivered. Furthermore, the sales amount is not to have the infringing party's own costs deducted from it. However, the issue whether infringing goods contracted to be produced but are not yet made are also to be counted towards the sales amount remains unclear.
The expected overall result of the joint explanation will be an increase in the level of criminal prosecutions. Yet despite a considerably tougher stance on poor quality goods and counterfeiting, doubts remain whether local protectionism can be eradicated.
Illegally manufactured drugs and drugs that are earmarked for domestic consumption are strictly regulated. However, no equivalent regulations currently exist for drugs planned for export.
