Is It a Plane? Is It a Bird? No It is the Bleagle! Made in China

Stan Abrams of the China Hearsay (which has been totally upgraded) reports straing from the INTA in Boston about ... Geely's Gleagle. Mr Abrams is giving his always entertaining thoughts about trademarks that consist of made-up words.

Read more here.

continue reading ...

IPR elasticity of FDI is back in China?

The last years there seemed to be no relation between the level of protection and enforcement of intellectual property rights and foreign direct investments (FDI) in China. Most companies did not let them scare by the intellectual property related challenges in China and invested massively. Of course one can argue that if China had a higher level of protection and enforcement of intellectual property rights it would attract even more FDI. So because of this China faces some opportunity costs. But China is not complaining, it is doing economically much better than the rest of the world.

Businesses always have to make the decision whether the opportunities really weigh up against the risks. Let us apply the 'price elasticity of demand' formula on this topic. In this case the level of intellectual property rights protection and enforcement is like price a more or less endogenous factor. And the outcome; the amount of FDI is just as the demand an exogenous factor. One can compare quality of a product with the opportunity of investing in China. Therefore the intellectual property rights elasticity of FDI in China might have worked all the time, but the perceived opportunities in China were just too high to show any negative impact of the IPR protection and enforcement level on the FDI in China.

For Microsoft the tipping point might just happened. It is complaining that it has a market share in China of 15 to 20 percent but which is only good for 1 percent of the revenues. All thanks to copyright piracy.

Microsoft is considering focussing more on India and Indonesia, according to Steve Ballmer, CEO of the software manufacturer from Redmond, Washington, U.S.A. Then again, Mr Ballmer's expesses himself sometimes a bit dramatic, see here. Read Alex Kennedy's article about it for the Associated Press.

continue reading ...

Geertje Hesseling's thesis about Intellectual Property Rights in Fashion in China

Geertje Hesseling wrote an interesting Master's thesis 'Intellectutal Property rights in fashion in China and the knowledge of young Chinese designers on this topic' for Cultural Economics & Cultural Entrepreneurship at the Erasmus University Rotterdam.

She develops her thesis by testing the following hypotheses:

H1. With stronger intellectual property rights law, China will attract more investments in fashion.

H2. The most useful way to implement stronger intellectual property rights in fashion is to strengthen and adjust in particular the copyright and trademark policies, but next to this also cultural and governmental adjustments are needed.

H3. Intellectual property rights strengthen the fashion cycle instead of damaging it.

H4. Younger designers care and know little about intellectual property rights concerning their designs.

H5. Young designers are in more need of IP rights protection than bigger and already established companies.

Next to do desk research Ms Hesseling did empirical research by interviewing the following people:

• Paul Smidt of Baker & McKenzie in Hong Kong;
• Paul Ranjard, co-chair of the EU China Chamber of Commerce in Beijing and representative of Unifab;
• Queenie Leung, young designer, graduate Fashion and Textile Design of Polytechnic University Hong Kong;
• Ivan Yip, young designer, third year of Textile and Design of Raffles University Shanghai;
• Gerry Ng Yuen Yi, young designer, third year of Accessory Design at Mod' Art International School Beijing;
• Yin Shu, young designer, graduate Textile and Design of International Fashion Academy, Shanghai;
• Sheila Pitigala, young designer, working on her own label in Shanghai;
• Tim Hoar, Business Development Manager Student IP, Central Saint Martins College of Art and Design;
• Dominique Simard, Marketing and Business Development Director, International Fashion Academy Shanghai.
• Yours truly.

Geertje Hesseling interviewed me in June 2009:

Geertje Hesseling: What should be changed in policies in China so that piracy is a issue of less concern?

Danny Friedmann: If you have to evaluate China's intellectual property protection it looks good in the books but on the ground it is not effective. Enforcement is not always taken seriously (massive anti-counterfeiting campaigns are not effective in the long run, and are often announced in advance so the infringers are warned), but the development of China is getting at a point where it is in the interest of China to enforce intellectual property rights. So, in case of fashion, when Chinese fashion creators, such as Shanghai Tang's copyright is infringed, it will start to enforce intellectual property rights in a more effective way, since Chinese companies demands this.

Geertje Hesseling: Is IP rights protection more important for smaller companies or is it equally important for the large companies?

Danny Friedmann: Large companies in general have more famous brands. Therefore, probably in more cases, they will be targeted by trademark counterfeiters and copyright pirates. Then again, large companies can have more budget to protect (via design rights and copyrights) and enforce their intellectual property rights.

Geertje Hesseling: What do you think will be the future of fashion with little IP rights, in countries such as in China?

Danny Friedmann: Fashion trends will change even faster. I can speculate that consumers will start to look more at quality. Trends in fashion infringements: first brands and designs were copied. Now, although this still happens, a new category of infringements is becoming more prominent: only the design is infringed under a Chinese brand name. In other words, the trademark counterfeiters/copyright pirates are becoming only copyright pirates because they start to build their own brand name.

By the way: In the European Union each fashion designer who has created a design obtains (just like copyright) at the moment of creation a European Design Right for three years, which can be enforced in the EU. This is without registration! Just like copyrights.

Geertje Hesseling: What do you think are China’s most influential factors for attracting piracy when it comes to the rampant copying of the fashion industry in this country?

Danny Friedmann: China can manufacture clothes relatively much more cost-effective compared to companies in the West. And the distribution of wealth in China is uneven and much lower than in the West. Even in the West fashion is copied very frequently, or to put it differently: fashion designers are inspired by other fashion designers. And maybe fashion is not so suitable for copyright protection, because by definition fashion designers build upon the designs or remix the designs of others. And fashion trends change so quickly anyway, first mover advantage is probably more important in fashion business than intellectual property protection. Please see chapter 8 'Extra-judicial factors' of my thesis.

Read Ms Hesseling's thesis here.

continue reading ...

Don't Feed The Patent Trolls in China and Start Your Own IP Team

Tian Lipu, commissioner of the State Intellectual Property Office (SIPO) visited Samsung, according to the China Daily. Mr Tian was told by the Keun-Hee Park, president of Samsung's operations in China that patent trolls were on the rise.

One can argue that a patent troll, or more neutrally called a non-practising entity (NPE) abuses its intellectual property: the patent is only used to enforce or threaten to enforce it via litigation. This way, they do not create added value to society, because (except for lawyers and magistrates) and form an obstacle to research and/or manufacturing of some product.

According to PatentFreedom, a website providing research on and strategy about NPEs, Samsung has been relentlessly pursued and ranks sixth by the number of NPE lawsuits it was involved in in 2009. See the list at the site of PatentFreedom here.

Mr Tian was quoted saying: "Since the Chinese government adopted a national intellectual property strategy in 2008, fighting such inappropriate use of patents has been listed as one of five top priorities on our agenda."

If one reads Article 4 (Preventing Abuses of IPRs) of Chapter III Strategic Focus of the National Intellectual Property Strategy 2008 you will see: (14) Formulate relevant laws and regulations d to reasonably define the scope of intellectual property. Prevent abuses of intellectual property. Maintain fair market competition. Safeguard the public lawful rights and interests.

The fact that Samsung founded a special intellectual property team was praised by Mr Tian. It is "of demonstrational significance" to Chinese companies, according to Mr Tian. Whether Samsung's example will be followed remains to be seen.

Read the China Daily article here.

UPDATE: Anonymous wrote a very interesting comment:

"As many Chinese commentators have noted, what constitutes patent "misuse" or "abuse" is unclear in China. Also, what constitutes an "NPE" or "troll" or (in Chinese) "cockroach" is also unclear. If it is simply a "non-practicing entity" then all research institutions may be trolls. The concept of "abuse" in Chinese (lanyong) likely encompasses "abuse" under the Chinese antitrust law (Art. 55) and may also encompass "misuse" - which is typically a defense to infringement and not an affirmative claim in the US. Moreover, there are aspects of the issue which involve patent examinations/grants/novelty requirements and patent litigation (damages/availability of injunctive relief). A country, such as China can have a relatively high level of NPE's (or non-service inventions), esp. in patents that are not examined for substance (utility model and design patents), or in patents that were once examined only on grounds of "relative novelty" (under the former patent law), but the patents may have a low value for litigation (damages or injunctions, or preliminary injunctions). Moreover, there may be limited means of compensating a victim for abusive assertion of rights - under US "Walker Process" type remedies, or "Rule 11" or other doctrines."

continue reading ...

Would You Tell A Stranger On The Phone Whether You Have Pirated Software?

China Daily has an optimistic article about the declining software piracy rates in China. At least according to a survey by Chinalabs.com commissioned by the State Administration for Industry and Commerce. The surveys were done by phone and one can question the reliability of the answers. Even though the anonymity of the respondents might be guaranteed (Was this the case?), many people give social acceptable answers, especially in China where the government keeps tight control over all things related to the internet, computers and copyright. So this could mean that at least the respondents are aware that pirated software is illegal. Or, best case scenario, they speak the truth.

Business Software Alliance (BSA) has commissioned IDC to do an annual survey about software piracy in China as well. The difference between the BSA/IDC and SAIC/Chinalabs.com results is significance. In 2005 there has been a controversy about BSA's statistics (see the Economist article, “BSA or just BS”, about dodgy piracy data, so this year a video of John Gantz, Chief Research Officer of IDC is posted where he explains the methodology for the BSA/IDC Global Software Piracy Study.

"There are three kinds of lies: lies, damn lies and statistics" (19th century British Prime Minister Benjamin Disraeli)

• 2005 66 percent (SAIC/Chinalabs.com); 86 percent (BSA/IDC);
• 2006 63 percent (SAIC/Chinalabs.com); 82 percent (BSA/IDC);
• 2007 56 percent (SAIC/Chinalabs.com); 82 percent (BSA/IDC);
• 2008 47 percent (SAIC/Chinalabs.com); 80 percent (BSA/IDC);
• 2009 45 percent (SAIC/Chinalabs.com); 79 percent (BSA/IDC).

Unsurprisingly Chinalabs.com questions BSA's methods. And IP Dragon questions's Chinalabs.com methods. So if you question my methods, please send your comment below.

See the China Daily article here.

continue reading ...

June 25, Seminar: 'Managing IPR As A Business Asset in Greater China'

IP Dragon is delighted to invite everyone interested in IPR in China to a seminar called 'Managing IPR as a Business Asset in Greater China' organised by EUBIP and China IPR-SME Helpdesk. (Take note: some speakers still need to confirm). I confirmed.

When? Friday 25 June, 2010

Where? HK Convention & Exhibition Center

What is the programme?

8:30-8:50 Registration and Coffee

8:50-9:00 Welcoming remarks

Morning: General China IPR Overview for European SMEs

9:00-10.00 Session 1:

Protecting your intellectual property in China? Why it is so important.

• Is IPR protection in China possible and how?
• China IPR environment and what businesses need to know?

Speaker presentation 2x20 min + Q&A

• Elliot Papageorgiou, Rouse & Co (speaker)
• Other speaker (to be confirmed)

10.00-10:15 Coffee break

10:15-11:15 Session 2:

• How to identify and leverage your IP assets?
• Working with Chinese business partners - how to structure relationships to protect your assets?

Speaker presentation 2x20 min. + Q&A

• Serena Tierney, Consultant at Wragge & Co LLP (speaker)
• Willi Vett, Beiten Burkhardt Hong Kong (speaker)
• Dr. Christopher Heath, member of the Boards of Appeal of the European Patent Office, former head of the Asia Department of the Max Planck Institute for Intellectual Property law, Munich (moderator)

11:15- 11:30 Coffee break

11:30-12:30 Session 3

IP Management and Enforcement

• How to prevent IPR infringements and steps to take if you discover infringements
• IPR Enforcement process in China

Speaker presentation 2x20 min. + Q&A

• Danny Friedmann, Chinese University of Hong Kong / IP Dragon (speaker)
• Henry Wheare, Partner Lovells Hong Kong (speaker)
• Professor Anselm Kamperman Sanders (moderator)

12:30-13:30 Lunch

Afternoon Panel Discussion / Clini Sessions + Networking

13:30-14:30 Panel Discussion

• Dr. Christopher Heath
• speaker
• Serena Tierney
• Elliot Papgeorgiou
• Anselm Kamperman Sanders (moderator)

14:40-15:00 Clinic Session 1/Networking

15:10-15:30 Clinic Session 2/Networking

15:40-16:00 Clinic Session 3/Networking

16:00 Closure

continue reading ...

What is so special about Special 301 vis-à-vis China? Part IV

Previous parts can be seen here: Part I, Part II, Part III.

What was said during the Special 301 hearing about Intellectual Property in China?

So who were the four witnesses that spoke about IPR in China?

Ambassador Shaun Donnelly (Senior Director for International Business Policy of the National Organization of Manufacturers) proposed to use both a carrot and a stick. Carrot: the U.S. is already involved in capacity building, training, exchange and industry has been involved a s trade partner. "We have to convince the Chinese to deliver results. To make them clear that we hold them in IPR to a much higher standard." Stick: "If they don't that it has concrete consequences." He urged the USTR to start an Out-of-Cycle review, which involves a systematic evaluation of China's entire IPR enforcement regime, supported by submissions from U.S. manufacturers and businesses to document IPR infringement to the extent possible. This way a strategy could be devised, and a decision be made about benchmarks and on the implications of failure to deliver on the set benchmarks.

Eric Smith (International Intellectual Property Alliance (IIPA) pointed out that although physical copyright piracy remains a problem, for most industries, the internet has taken over as the means to distribute content, including pirated content. China, with its 750 million mobile device users and where 3G broadband has just been introduced, poses a huge problem. For the IIPA criminal action against piracy is the holy grail: "We should ask our trading partners too, first, undertake more criminal actions against piracy of software in the corporate environment, against growing online and mobile device piracy of music, motion pictures, software, video games and books and journals, against continuing piracy of optical disk products and the unauthorized printing and commercial photocopying of books and journals and against the manufacturing and trafficking and circumvention devices."

Mr Smith's wish list continues:

• Enough enforcement resources and training commensurate to the problem;
• To remove onerous and unnecessary procedural barriers to the judiciary acting in civil and criminal cases;
• Impose deterrent penalties in criminal cases and adequate and deterrent damages and remedies in civil cases;
• U.S. government should ask its trading partners to encourage cooperation of ISPs with all content owners so that workable and fair notice and takedown systems and a graduated response mechanisms (3-strikes) to deal with repeat infringers online can be implemented;
• Government agencies, contractors and educational institutions should be urged to use only legal software and legal copies of textbooks and it should be ensured that their networks and computers are not used for infringement of any copyrighted content;
• That laws against camcording motion pictures are enacted and enforced.

Michael Mellis (Senior Vice President and General Counsel of MLB (Major League Baseball) Advanced Media L.B.) testified that his company was affected by an emerging type of telecast IP infringement: unauthorised streaming over the internet of live television programming of all types including live sports telecasts and related programming. The number of sites and services involved in this phenomenon is significant (on an annual bases tens of thousands of hours of live television programming from networks around the world are being pirated) and has grown rapidly. "Many are open doors permitting any type of television programming to be streamed live persistently and globally without authorization from copyright owners." This can be accomplished through the use of this $70 device and some software. "In our rights enforcement efforts through the past several years, during which we have identified and logged thousands of piracy incidents, the dominant pattern we have seen is piracy occurring through a streaming over peer-to-peer services based in China." According to Mr Mellis approximately 75 percent of the pirated retransmissions of the telecast have occurred through offshore sites and services and approximately 50 percent of the total through Chinese sites and services."

Streaming video via the internet presents new challenges to copyright law:

Mr Mellis: "Our domestic copyright law is clear that this is copyright infringement. However, litigation in the United States is a remedial tool available to U.S. exporters of television programming only in limited circumstances."

Mr Mellis pointed out two relevant reports about this matter:

- U.S. House of Representative, Committee of the Judiciary, 'Hearing on Piracy of Live Sport Broadcasting Over the Internet', December 16, 2009.

- OECD, 'Piracy of Digital Content', 2009.

Major League of Baseball works together with the Coalition Against Online Video Piracy(CAOVP) which has had informal discussions with Chinese government agencies.

In reply to a question Mr Mellis makes clear that he cannot quantify the damages of the telecast infringements, because of "the recency of the problem" and the unknown parts such as the size of the audience size is, who was involved beyond what we can find out through our own limited means of figuring that out, patterns of piracy. Mellis sends routinely cease and desist letters and notices to infringers abroad, in particular China. To no avail, with one exception.

Mike Palmedo (Assistent Director of the American University Washington College of Law Program on Information Justice and Intellectual Property (PIJIP) criticized the Pharmaceuticals and Research Manufacturers of America (PhRMA) for criticizing China's government about Active Pharmaceutical Ingredients (API), that the enforcement of health regulations for API, noting that chemical manufacturers may sell and ship API products to locations within China and abroad with either no regard for the intended use of the API or choosing not to comply with existing regulations. However, the enforcement of Chinese regulation of APIs is, according to Mr Palmedo, outside the scope of the Special 301 report, since it doesn't address the adequacy or effectiveness of intellectual property rights and PhRMA doesn't suggest that these Chinese health regulations deny fair and equitable market access to United States persons that

rely upon intellectual property protection. Mr Palmedo has a point. However, his conclusion "So if this complaint is included in the Special 301 report, it will be nothing more than an attempt to intimidate Chinese companies which many developing country producers rely on to produce affordable generics." is based on an assumption which is not necessarily true. The reason for it is that counterfeit pharmaceuticals that originate in China have proved lethal. In the report it says: "(..) in China, domestic chemical manufacturers that produce APIs can avoid regulatory oversight by not declaring that the bulk chemical is intended for use in pharmaceutical products. This contributes to China being a major source country for APIs used in counterfeit pharmaceutical products."

Text/Picture: Danny Friedmann

continue reading ...

What is so special about Special 301 vis-à-vis China? Part III

Previous parts can be seen here: Part I, Part II.

So what does the report say about China?

On the positive side:

• An increase in the number of civil IP cases in the courts (would be nice if the report states the numbers);
• Largest software piracy prosecution in Chinese history in 2009;
• "Continued and constructive discussions in the Joint Commission on Commerce and Trade (JCCT) and the JCCT Intellectual Property Rights Working Group" (this might be a diplomatic way of saying that the U.S. and China are on speaking terms, but nothing concrete has come out of the meetings, why not mention it otherwise?);
• October 2009 the National Copyright Administration of China, the Ministry of Education, the Ministry of Culture, and the National Anti-Pornography Office issued the Notice on Strengthening Library Protection of Copyright, which directs libraries to adhere to the Copyright Law;
• Judicial enforcement related to infringing activities in retail markets in Beijing and Shanghai;
• Judicial authorities sentencing wholesalers to prison terms;
• Holding retail market landlords liable for failing to take appropriate measures to prevent infringement;
• Shanghai municipality is seen as bright spot regarding IPR enforcement;
• Zhejiang province has shown progress, undertook more trademark infringement investigations than any other Chinese province (which could however also indicate that they have a higher level of infringement than the other provinces; what is needed is to use the IP enforcement/infringement ratio);
• Jiangsu province demonstrated, according to USTR, its recognition of the importance of IPR protection: "including through a Suzhou court's criminal sentences in a high-profile software piracy case (sounds rather anecdotal to come to this conclusion, then again it is also encouragement) and set an example of transparency by publishing IPR decisions online: Jiangsu.ipr.gov.cn.

Room for improvement:

• The USTR is concerned about the proliferation of the manufacture, sale, and distribution of counterfeit pharmaceuticals in China;
• China's domestic chemical manufacturers that produce Active Pharmaceutical Ingredients (API) can "avoid regulatory oversight by not declaring that the bulk chemical is intended for use in pharmaceutical products." (according to Mike Palmedo, PIJIP, this is more a health issue not an IP issue, see 'What was said during the Special 301 hearing about IP in China?' below);
• Internet piracy is significant in China. Unauthorised retransmission of live sports telecasts over the internet is a problem (see Michael Mellis, Major League Baseball Advanced Media L.B., 'What was said during the Special 301 hearing about IP in China?' below);
• Pre-loaded illegal content on cellular telephones, palm devices, flash drives and other mobile technologies (see Eric Smith, IIPA, 'What was said during the Special 301 hearing about IP in China?' below);
• "Other countries still need to adopt and implement legislation or improve existing measures to combat illegal optical disc production and distribution, including China, India, Paraguay, and Thailand, which have not made sufficient progress in this area." This is rather vague language: In case of China does the USTR need to implement legislation or improve existing measures? That remains unclear;
• Government use of legitimate software is a problem in China;
• The report gives the USTR's view about what the US achieved with the WTO Dispute Settlement cases DS362 (China - Measures Affecting the Protection and Enforcement of Intellectual Property Rights) and DS363 (China - Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products);
• USTR is concerned about the promotion of China's "indigenous innovation". They give one example: preferential government procurement. As a comment about my post about the subject "Anonymous" gave many more examples as a comment on my post about the subject. See them here.
• The share of IPR-infringing product seizures at the U.S. border that were of Chinese origin was 79 percent in 2009, a small decrease from 81 percent in 2008.
• "Business software theft (theft is a misnomer, since the software is not taken a way, but copied and used without authorisation by the rights holder) by enterprises is particularly troubling as it not only results in lost revenues to software companies but also lowers the business costs of offending enterprises and my give these firms an unfair advantage against their law-abiding competitors." Don't know why infringed business software is singled out. All companies making use of a counterfeit or pirated product have an unfair advantage in comparison to law-abiding competitors;
• That during a recent internet enforcement campaign, see here (Managing IP) or here (China Daily), in which 558 cases were investigated and 375 websites were shut down, demonstrates according to the USTR that if the Chinese government chooses to utilise its enforcement resources and personnel to deal with an IPR problem, it can produce results. The question is whether these actions are structural.
• "The United States notes that at times particular enforcement actions are directed not only at copyright or trademark infringement, but also include infringement activities that may be considered more serious under the Chinese legal system." Is this a cryptic way of saying that China is more interested in controlling the media? And one should take into account that article 41 (5) TRIPs requires no special allocation of resources to the enforcement of law in general in absolute terms, nor to the enforcement of intellectual property rights in relative term;
• Retail and wholesale market have still pervasive problems. Despite 1. attention from brand owners, the Chinese central government and foreign governments; 2. resources from brand owners; 3. contractual agreements with landlords;
• Civil damages for infringement are deemed inadequate; minor penalties levied by courts;
• U.S. trademark and copyright industries report that administrative fines are too low; and imposed too infrequent, to provide deterrence. The ambition level of TRIPs is not helping: the wording of article 61 TRIPs is not that remedies should provide a sufficient deterrent, but that they should be sufficient to provide a deterrent. China’s implementation of article 61 TRIPs is one of the most vehemently debated issues. Many WTO members seem to expect a lot of this enforcement route. But they should perhaps do some self reflection first, because criminal enforcement in IPR cases is underdeveloped in most countries, or, as professor Hugenholtz (IvIR, UvA) pointed out, not even available, as is the case with patent law. Maybe that is why there has been no jurisprudence or decision of a competent WTO body thus far;
• Market access barriers create incentives to infringe products such as movies, video games and books;
• September 2009, Ministry of Culture issued a "circular that bars providers of imported, but not domestic, digital music from distributing their content online unless they obtain content approval"; and the foreign providers have to enter into an exclusive licensing arrangement with a wholly Chinese-owned entity;
• Some landlords and infringers ignore applicable court rules;
• November 2009, the Standardization Administration of China (SAC) released the Draft Regulations for the Administration of the Formulation and Revision of Patent-Involving National Standards (Chinese) for public comment. The USTR reports that it is "concerned about the expansive scope, the feasibility of certain patent disclosure requirements and the possible use of compulsory licensing for essential patents included in national standards" (Article 9, Chapter III: "(1) The patentee agrees to license, on a reasonable and non-discriminatory basis, any organization and person to implement the patent when implementing the national standard at a price significantly lower than the normal royalties; "; Compare the just released Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, of which section 284 states that "(..) in case of a dispute, the assessment of whether fees imposed for patents in the standard-setting context are unfair or unreasonable, will be based on whether the fees bear a reasonable relationship to the economic value of the patents." Article 12, Chapter IV of the Chinese draft regulation: "In principle, a compulsory national standard shall not involve a patent."; Article 13, Chapter IV of the Chinese draft regulation: "For a compulsory national standard that indeed needs to involve a patent, the patentee shall grant license free of charge or the national administration department of standardization shall request the related departments to consult with the patentee about disposal of the patent. If the related departments fail to agree with the patentee on the disposal of patent, the approval for release of the national standard will be temporary withheld or a compulsory license will be granted according to law.") which could indeed give a disincentive for innovation by foreign rights holders in the development of standards in China. Not only the U.S. but also the European Commission is taking a different approach to standards and IPR from China;
• October 1, 2009, the Third Amendment to the Patent Law is effective (Patent Law 2008). USTR writes that rights holders have raised a number of concerns, including the effect of disclosure or origin requirements on patent validity (rightly so, because it is unclear), inventor remuneration (no reason for this fear, see 'Are Statutory Compensation Rules for Inventors Scary?';
• China's recently got a "naked" Bolar exemption, article 69 (5) Patent Law 2008, which exist of the safe harbor provision. I am not sure whether it is bad that there is no possibility of extending the term of patent protection, as is possible in the U.S. system. I am not sure whether the State Food and Drug Administration (SFDA) has long delays. And 20 years seem long enough to get a return on the investments of innovators. And otherwise generic producers have to wait longer, which might be bad for competition. And in principle, the law applies in the same way to Chinese and foreign companies in China. The USTR has concerns about effective protection against unfair commercial use, as well as unauthorised disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products;
• Guangzhou province's IPR enforcement is seen as inconsistent with respect to valuation methodologies for calculating damages, fines and penalties, and the criminal IPR cases initiated are deemed too low;
• According to the USTR, IPR enforcement at the local level is poorly coordinated among Chinese government ministries and agencies; rife with local protectionism, corruption, high thresholds for initiating investigations and prosecuting criminal cases, lack of training, inadequate and non-transparent processes.

The report states that "the overall level of IPR theft in China remains unacceptable." The usage of the term 'IPR theft' could be confusing. Because the IPR are not stolen, but infringed. If they were stolen the rights holders would not have the intellectual property rights anymore.

Mike Masnick wrote an interesting article for TechDirt with the title 'USTR Announces What Countries Have Been Naughty When It Comes To Intellectual Property'.

I have put my comments on Mr Masnick's article in italic.

IP Dragon: Naughty is a term that might be perverse in the case of counterfeited medicines and food/beverages that have proved lethal in China.

Mr Masnick asserts the following about Section 301:

- standard used is mythical;

IP Dragon: Why mythical? The USTR listens to the witnesses, reads the public submissions, and reviews, evaluates and determines whether the standard of proof has been met. If so then it comes with a qualification. What exactly the standard of proof is, is difficult, because it inadequacy and ineffectiveness of intellectual property is contingent on several factors, see directly below.

- no methodology;

IP Dragon: The USTR, together with the interagency Special 301 subcommittee made an assessment. Imput: apart from public engagement, 571 submissions, there was a hearing, seetranscript of 23 witnesses (But only four talked about China, see pages

64:21 65:6,7

69:4,4,5,8 70:10

70:20 71:2,10

93:7,11,16 94:3,4

96:2,3,7,8 128:17

136:14 268:8,13

274

:9,20) For each country they took the following factors into account:

• level of development (this is hard to measure, and controversial: China for example is a country fragmented in regions of different developmental speeds);
• international obligations and commitments (this might be easy);
• concerns of rights holders and other interested parties (question is whether the rights holders and other parties heared form a representative group);
• trade and investment policies of the United States.

John Rawles' legal-philosophical theory of the Veil of Ignorance (devising a legal system without knowing whether it will be applied to you or to someone else) is hard when you want to devise a system for protection and enforcement of intellectual property rights. Especially in case your IP system takes the above-mentioned factors into consideration: it is hard to forget your own level of development, your international obligations and commitments and the particular interests of your own industries.

- Masnick alleges that Section 301 is biased, because it is based on what the entertainment and pharmaceutical industry do not like;

IP Dragon: Academics and journalists should be as objective as possible. Lawyers and marketeers should defend one side/show the best side of something. Governments should be fighting for the interests of their citizens. Including the industry. Industry groups should be fighting for the companies they are representing.

- it is not taken seriously, because "even people of the US Copyright Office" are making fun of it;

IP Dragon: This argument should not be taken seriously.

- no real interest in hearing consumer concerns;

IP Dragon: there was public engagement. 571 submissions that are public via Regulations.gov, with docket number USTR_2010_003.

- no interest in sovereign rights of countries;

IP Dragon: It is each country's right, to protect the interests of its citizens and industry as well as possible. The U.S. trying to do this for a decade with Section 301. Whether it have been effective is another question.

- Mr Masnick wrote that the USTR wants to "monitor" countries that do compulsory licensing of patents.

IP Dragon: However, one can read in the USTR report that "the United States respects our trading partners' rights to grant compulsory licenses, in a manner consistent with the provisions of the TRIPS Agreement and encourages our trading partners to consider ways to address their public health challenges while maintaining intellectual property systems that promote investment, research, and innovation." The USTR also writes that it will follow the scope and procedures related to compulsory licensing. Not so strange. And in the case of standards and IP in China there are enough reasons to be concerned.

- Canada is included in the list;

IP Dragon: I will focus on China only.

- Michael Geist's wrote: "According to the report, approximately 4.3 billion people live in countries without effective intellectual property protection." Masnick suggest that if the USTR has a problem with the countries where the majority (4.3 billion) of people live, then the problem might be the U.S..

IP Dragon: 1. this reasoning is: if most people approve of something, therefore it is true. This is a fallacy ad populum, 2. the people who live in a country do not necessarily agree with their government or their legislation.

A commentor using the name Daemon_ZOGG made some interesting remarks:

- many consumers don't care about whether the product is produced by the original manufacturer as long as the quality is good;

IP Dragon: could be the case.

- half of the time pirated media and software are as good or better than the real products;

IP Dragon: it is a trend that pirated and counterfeit goods are getting a better quality and sometimes are better in tune with the needs of local markets. The way the products are manufactured could be degrading for the environment, and employees, could involve child labour and the funding of organised crime.

- because of the global market, jobs were sent overseas and piracy is a collatoral damage.

IP Dragon: income from innovation (patents), creativity (copyrights) and commerce (trademarks) via intellectual property rights (IPR) is a growth market and creates jobs. Because of globalisation and digitisation, each company has more chances but is at the same time more vulnerable. Rewards and risks are linked.

But what is really special about Special 301?

If you are a WTO member state and you have an IP related problem with another WTO member state, you can take the take the case to the Dispute Settlement Body (DSB) of the WTO. But what if you are a company or a person? Then you first have to lobby with your government to take your case to the DSB. Every U.S. person (natural or legal) can take their case to the USTR. Until there is a possibility for industry groups, individual companies or natural persons, to bring their case against another country for not meeting their IPR obligations and commitments, there is a valid reason for the Special 301 procedure's existence.

To be continued, see Part IV.

continue reading ...

What is so special about Special 301 vis-à-vis China? Part II

The previous part can be seen here: Part I.

Yes, Special 301 is special, but what is rather normal?

Like each sovereign state, the US tries to use its power to encourage/pressure other countries to protect its interests as long as it honours its obligations and commitments. Or as the report states: "(..) USTR works to protect American inventiveness and creativity with all the tools of trade policy, including this Report." And since Special 301 is not incompatible with WTO, I don't see anything wrong with a USTR's assessment excercice from a legal perspective. Subjectivity is completely legitimate for a government. This time I do not share the outcry of Mike Masnick (see below) nor the indignation of my esteemed blogger colleague Shamnad Basheer of Spicy IP. However, I do share Mr Basheer's remark in his open letter to the USTR here that "[i]f your grudge is that we haven't complied with TRIPS, please feel free to take us to the WTO dispute panel." Yes, that is each WTO member's prerogative. From a Realpolitik point of view: the BRIC-countries (Brazil, Russia, India and China) are getting more powerful economically and might be able as a bloc to change the legal and political pressure to the other side, if they wanted to and if they would not be so divided.

To be continued: see Part III and Part IV.

continue reading ...

What is so special about Special 301 vis-à-vis China?

Each year, since 2005, IP Dragon dealt with the annual Special 301 reports, as a ritual dance in April which had to be described concisely and quickly. Not this year. The ferociousness of the tone by some (see below Messrs. Masnick and Basheer) against the perceived lack of legitimacy, methodology and flawed content of the report combined with the important subject matter made me take a closer look.

First the legitimisation of the Special 301 procedure and its report is explored; then the content of the report about the adequacy and effectiveness of intellectual property in China (this is IP Dragon, after all) is investigated (see Part II), then some of the criticism will be debunked (see Part , and some comments on a comment on Mr Masnick's article will be made. After that the testimonies of messrs. Donnelly, Smith, Mellis and Palmedo regarding IPR in China during the hearing will be looked into.

Legitimisation: "You are not strange, you are eh... special"

The Office of the United States Trade Representative (USTR) put China also this year on the so called 'Priority Watch List' and is again subject to 'Section 306 monitoring' ("the USTR may apply sanctions if a country fails to satisfactorily implement an agreement", however these sanctions are restricted to bringing a case to the WTO, see 'Statutory language versus undertakings that remove inconsistency' below). The USTR published its annual report in which it reviews the adequacy and effectiveness of the protection of intellectual property rights in and market access to U.S. persons that rely upon the protection of intellectual property rights.

The Special 301 procedure is pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994). It was controversial for some time, because many countries thought that it gave the USTR the right in case of a perceived denial of adequate and effective protection of IPRs or market access to retaliate unilaterally. Therefore the European Communities brought a case to the World Trade Organization, which got the code WT/DS152. See an excellent 63-page summary of the case, here.

The main complaint of the European Communities was that Section 301(c), which became later 19 U.S.C. Section 2411, authorises the USTR to "suspend, withdraw, or prevent the application of, benefits of trade agreement concessions", or "impose duties or other import restrictions on the goods of, and … fees or restrictions on the services of, such foreign country for such time asthe Trade Representative determines appropriate". It also came to the conclusion that because the U.S. is a member of the WTO it should bring its trade conflicts to a panel of the Dispute Settlement Body to solve the problems multilaterally. The same is also applicable to Section 306.

Statutory language versus undertakings that remove inconsistency

According to the panel the statutory language was indeed inconsistent with the obligations under the WTO Agreement. However, such inconsistency could be removed upon examination of the US' undertakings: namely a Statement of Administrative Action (SAA) in which the US promised to follow the route set out by the WTO to settle trade conflicts and made a promise that consecutive US governments will honour this pledge.

To be continued: see Part II, Part III and Part IV.

continue reading ...