USTR in 2008 Report to Congress On China's WTO Compliance: Still Not Satisfied After All These Years

One of the priority issues in the 115 page 2008 Report to Congress On China's WTO Compliance, released by the United States Trade Representative (USTR) in December is, unsurprisingly, the protection and enforcement of intellectual property rights in China. Below you will find a selection of the USTR report which shows where China has room for improvement:

Pg 3. "In two other WTO cases, a challenge to key aspects to China's IPR enforcement regime, along with a challenge to market access restrictions affecting the importation and distribution of copyrighted-intensive products such as books, newspapers, journals, theatrical films, DVDs and music, ..."

More surprisingly, however, is the statement in bold:

Pg 4. "..., including the setting of unique Chinese national standards, the tremendous expansion of the test market for China's homegrown 3G telecommunications standard, China's government procurement practices, an array of policies promoting and protecting "pillar industries,", the promotion of famous Chinese brands of merchandise using what appear to be prohibited forms of financial support, ..." Read IP Dragon's 'Well known and Less Known Aspects of Well-Known Marks.

IP Dragon has dealt with the subject of China's homegrown 3G standard and hopes to interview the government procurement in China specialist and president of the China-Mekong Law Center professor Daniel Mitterhof about the intellectual property in China aspects, this year. After some compliments to China steps to protect IPRs the USTR writes:

Pg 4. "However, some critical reforms are still needed in a few areas, such as further improvement of China's measures for copyright protection on the Internet following China's notable accession to the World Intellectual Property Rights Organization (WIPO) Internet treaties, .and correction of continuing deficiencies in China's criminal measures."

Pg 5. "In addition, effective enforcement of China's IPR laws and regulations remains a significant challenge. Despite repeated anti-pirated campaigns in China and an increasing number of civil IPR cases in Chinese courts, counterfeiting and piracy remain at unacceptably high levels and continue to cause serious harm to US businesses accross many sectors of the economy."

To measure whether China's enforcement of intellectual property rights improves IP Dragon has proposed the use of the Enforcement/Infringement ratio.

Pg 5. "The United States also continued to prosecute a WTO case challenging specific deficiencies in China's legal regime for protecting and enforcing copyrights and trademarks. Following the establishment of a WTO panel last year to hear the case, 12 WTO members joined in as third parties. Proceedings before the panel took place in April and June 2008, and the panel is expected to make its decision public in 2009."

Pg 72. "For example, one major weakness is China's chronic underutilization of deterrent criminal remedies. In particular, legal measures in China that establish high thresholds for criminal investigation, prosecution and conviction preclude criminal remedies in many instances of commercial-scale counterfeiting and piracy, creating a "safe-harbor" for infringers and raising concerns that China may not be complying with its obligations under the TRIPs Agreement."

Pg. 74. "..more work is needed at b the national level and the provincial level to meet the challenges of Internet piracy and fully implement the WIPO Internet treaties."

Pg 75. "...the lack of criminal liability for certain acts of copyright infringement, the profit motive requirement of identical trademarks in counterfeiting cases, and the absence of minimum, proportional sentences and clear standards of initiation of police investigations in cases where there is a reasonable suspicion of criminal activity."

Pg 76. "...China could clarify that certain Internet "deep linking" and other services that effectively encourage or induce infringement are unlawful."

Pg 76. "Disposal of confiscated goods remains a problem under the implementing rules, which appear to mandate auction following removal of infringing features, rather than destruction of infringing goods not purchased by the right holder or used for public welfare."

Pg 76. "The United States also remains concerned about a variety of weaknesses in China's legal framework that do not effectively deter, and may even encourage, certain types of infringing activity, such as "squatting" of foreign company names, designs and trademarks, the theft of trade secrets, the registration of other companies' trademarks as design patents and vice versa, the use of falsified or misleading license documents or company documentation to creat the appearance of legitimacy in counterfeiting operations, and false indications of geographic origin of products."

Pg 76. "The United States has urged China to provide greater protection against unfair commercial use of undisclosed test and other data submitted by foreign pharmaceuticals companies seeking marketing approval for their products. The United States has also encouraged China to undertake a more robust system of patent linkage and to consider the adoption of a system of patent term restoration. In addition, built-in delays in China's marketing approval system for pharmaceuticals continue to create incentives for counterfeiting, as does China's inadequate regulatory oversight of the production of active pharmaceutical ingredients by domestic chemical manufacturers."

Conform the conclusion of my thesis, the USTR points to some extra-judicial factors that influence the enforcement of IPR negatively:

Pg 77. "IPR enforcement is hampered by lack of coordination among Chinese government ministries and agencies, lack of training, resource constraints, lack of transparency in the enforcement process and its outcomes, and local protectionism and corruption."

Pg. 77. "Trade in pirated optical discs continues to thrive, supplied by both licensed and unlicensed factories and by smugglers. Small retail shops continue to be the major commercial outlets for pirated movies and music (and a variety of counterfeit goods). Piracy of books and journals and end user piracy of business software also remain key concerns, although improvements have been seen in business software piracy rates, as discussed above. In addition, Internet piracy is increasing, as is piracy over enclosed networks such as universities."

Pg. 77. "...right holders have monitored China's efforts and report little meaningful improvement in piracy of pre-release titles in several major cities."

Appendix 3 shows a fact sheet of the 18th US-China Commission on Commerce and Trade Meeting, December 11, 2007, was given:

It states about Intellectual Property Rights:

• China reported on steps it has taken since the previous JCCT meeting in April 2006 to improve protection of intellectual property rights in China, including accession to the WIPO internet treaties, a crackdown on the sale of computers not pre-loaded with legitimate software, enforcement efforts against counterfeit textbooks and treaching materials, and joint enforcement raids conduct by the Federal Bureau of Investigation and Chinese security agencies.
• China and the United States agreed to exchange information on customs seizures of counterfeit goods in order to further focus China's enforcement resources on companies exporting such goods.
• China agreed to strenghten enforcement of laws against company name misuse, a practice in which some Chinese companies have registered legitimate US trademarks and trade names without legal authority to do so. The two sides also agreed to cooperate on case-by-case enforcement against such company name misuse.

Appendix 4 shows a fact sheet of the 19th US-China Joint Commission on Commerce and Trade Meeting, September 16, 2008.

It states about Intellectual Property Rights:

• China and the United States noted the importance of ongoing dialogue and cooperative efforts taking place under the JCCT IPR Working Group, which met September 4-5 in Beijing, and agreed to hold regular meetings of the IPR Working Group in the future.
• China and the United States agreed to continue pursuing cooperative activities in addition to formal meetings of the IPR Working Group, on such issues as: IPR and innovation, including China's development of guidelines on IPR and standards; public-private discussions on copyright and internet piracy challenges, including infringement on user-generated content sites; reducing the sale of pirated and counterfeit goods at wholesale and retail markets; and other issues of mutual interest.
• China and the United States welcomed plans to conduct further cooperative meetings between responsible officials regarding: China's patent law amendments now under consideration in the National People's Congress; pharmaceutical data protection; and the Memorandum of Cooperation on Strenghened Cooperation in Border Enforcement of Intellectual Property Rights.
• China and the United States agreed to sign two IPR memoranda of understanding (MOUs) on strategic cooperation to improve the administration and effectiveness of copyright and trademark protection and enforcement, as soon as possible but no later than the end of 2008. The MOUs will be signed between the US Patent and Trademark Office, the US Copyright Office, China's National Copyright Administration and the State Administration for Industry and Commerce.