Multinational companies (MNCs) with valuable trademarks in China seek criminal enforcement against counterfeiting because other available avenues of relief, such as administrative and judicial remedies, have proven to be ineffective. While MNCs prefer enforcement through China’s Police, the Public Security Bureau (PSB), many MNCs are unaware of the significant hidden dangers of using the PSB.

Most MNCs will delegate enforcement of trademark rights to their Chinese subsidiaries. These subsidiaries are known to make illegal payments to the PSB that may violate the laws of the PRC as well as the United States Foreign Corrupt Practices Act (FCPA). These acts expose MNCs to draconian penalties under PRC law and the FCPA. MNCs can be unaware of these illegal practices because many MNCs organize their business structures and intellectual property (IP) management strategies in ways that shield MNCs from reviewing some of the on-the-ground actions by their Chinese subsidiaries. This Article exposes these risks, explains how some of these risks arise, and makes suggestions on how MNCs can structure their business organizations and IP management structures in China to eliminate or mitigate these risks.

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