You Want To See The Arc de Triomphe? Come To Huaxi Village

If you are Chinese it is not so easy to get a visa to travel to some countries around the world. I suggest that the U.S. and the countries within the European Union might want to revise their policy, since most Chinese understand that they have more chances finding economic opportunities in China then in recession stricken U.S. or Europe.

China's richest village, Huaxi village (华西村), located in Jiangyin city in Jiangsu province, came up with a kind of solution:
You want to see the Arc de Triomphe, come to Huaxi village.
You want to see the White House, come to Huaxi village,
You want to see the Sydney Opera House, come to Huaxi village, see here.

The village copied some wonders of the world, including the Tiananmen gate, and the Great Wall.
Wen Renbao, made the Huaxi village into the richest village of China, by taking the local multi-industry (mostly textiles and steel) company, named Jiangsu West China Group Co., Ltd. (Huaxi Group) to Shenzhen Stock Exchange. Huaxi calls itself a model socialist village. Everybody works seven days per week! The free market combined with the socialist work ethos resulted in a high living standard for each villager. Each family gets a free car, a single family house to European standards worth more than 150,000 euro, free health care and education and cooking oil from the village committee.

When the originals were built no copyright law existed, and the copyright on those works of architecture that were created in the copyright era has expired already. Huaxi village made their investment for the replicas on the assumption that they can lure many Chinese visitors, making their plans to go abroad superfluous. Or since many villagers already went abroad they want to share the world with their fellow Chinese (or as they say in the mini video documentary that since everybody is working seven days per week, there is no time to see the world, so the world must come to Huaxi). Either way, if they are right, the villagers of Huaxi become even more rich.

Hat tip to Cecilia.

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China's Exports Moved Up the Value Ladder, EIU Report Underlines Dragons at the Door Thesis

Exports no longer only from coastal provinces
Photo:  Danny Friedmann

'Heavy duty, China's next wave of exports', is a insightful concise report (17 pages) from the Economist Intelligence Unit. It sheds light how the Chinese equipment manufacturing industry is climbing the value ladder. The first waves of exports were dominated by textiles and electronics and took place in the coastal provinces. The manufacturing for this coming export wave takes place in China's hinterland (for example Sany, Zoomlion, Sunward from Changsha, Hunan province, before Xugong from Xuzhou, the coastal province Jiangsu was most prominent in construction-equipment manufacturing), and as of 2012 it will not be driven by foreign direct investment but by domestic companies. Whether this shift in export activity from the coast to the hinterland is enough to bridge the gap in income inequality remains to be seen. The majority of the exports go to developing countries, or so called non-members of the Organisation for Economic Co-operation and Development (OECD) in 2012.

The report reads like the empirical support of professors Williamson and Ming's great book Dragons at your door, see IP Dragon's Book Review. Because although the report makes clear that the developing countries  mostly prefer low technological solutions, it also tells that it gives the Chinese manufacturers, that use innovation to produce at lower costs and offer more variety, the economies of scale so that the Chinese companies can offer higher technological solutions to more developed markets later on and become formidable competitors of companies such as Caterpillar. In other words the companies in the OECD can expect some enormous competition in a not too far future, and they should ask themselves some strategic questions, such as:

• Can we afford to stay out of these emerging markets that will make giants of our Chinese competitiors?
• Should we try to be more innovative by making a more sophisticated product or should we try to be more innovative by making the product in a more sophisticated way and by doing so, make the product cheaper and in more varieties?
• How can we harness these innovations in patents?

Read the EIU report here (after registration free pdf)

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CNTV (CCTV) Sues China Telecom For Copyright Infringement

Geng Wenxin of Global Times, a state owned news organisation, reports about CNTV (China Network Television) part of CCTV (China Central Television) suing two provincial branches of China Telecom for using its copyrighted content without permission.

• China Telecom at the Guangzhou Intermediate People's Court (Guangdong province)
• China Telecom at the Nanjing Intermediate People's Court (Jiangsu province)

There are four nationwide IPTV license owners that are competing with each other. They have licenses and content, but no networks and users. Telecom operators own those resources, so they have to cooperate.

Read more here.

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Changzhou Global Animation Joyland Clones Offline Version Of Activision Blizzard's World of Warcraft/Starcraft

The world's first game themed entertainment park is Global Animation Joyland, in Changzhou, Jiangsu province. It cloned the American game producer Activision Blizzard's World of Warcraft (WoW) into "Terrain of Magic" and Activision Blizzard's StarCraft into "Universe of Starship" designs and made them into attractions. Adapting a copyrighted game into a real life park falls within the scope of the copyright protection of the work. It would be interesting to know if the park was discussed during the realisation of the Memorandum of Understanding (MOU) on intellectual property between the Under Secretary of Commerce for Intellectual Property and Director of the USPTO David Kappos and the Jiangsu's Provincial People's Government of the People's Republic of China, see here. Watch the Game On Daily video below:

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If Central Government Is Not Omnipotent Deal Directly With Provinces: USPTO Jiangsu MOU

As the last article underlines, see here, the central government of Beijing is not all powerful in China. So it makes a lot of sense that the US Patent and Trademark Office went to Jiangsu, the important coastal province to sign a Memorandum of Understanding with the

According to the USPTO press release on July 21, 2011: “The purpose of this MOU is to establish a general framework for future cooperation,” said Under Secretary of Commerce for Intellectual Property and Director of the USPTO David Kappos. Read more here.

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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.

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More Brooms Sweep Cleaner: Expansion of IPR Tribunals in China

Xie Chuanjiao of the China Daily wrote about the increasing number of IPR court cases and the pilot project of specialised IPR courts in cities such as Beijing, Shanghai, Guangdong, Jiangsu, Zhejiang, Shandong and Fujian (nine intermediate people's courts and 14 courts at district- and county-level). There will be similar IPR tribunals throughout China.

Read Xie Chuanjiao's article here. Picture Swamibu

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Beijing, Guangzhou, Jiangsu and Zhejiang IP Litigation Data

Mr Will Lewis, an international business law and IP rights student at University of San Diego School of Law, tells on his blog Experience not logic that he was given a slew of data on IP litigation between domestic parties and between a domestic party and a foreign party in Beijing, Guangzhou, Jiangsu and Zhejiang courts. He posted the data and let readers interpret it for themselves. Later in the week, Mr Lewis will post his interpretation to the data along with other's interpretations.

Find the IP litigation data on these courts in Mr Lewis' article China IP Litigation Data: What Does it Mean? on his interesting blog called Experience not logic quoting Oliver Wendell Holmes, Jr.

UPDATE: Mr Lewis has interpreted the data and comes to the conclusion that although the data are inconclusive, they at least suggest that businesses should not be scared about an inability to protect their IP in China. Read Mr Lewis interpretations here.

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2007 Special 301 Report Presents Special Provincial Review of China

It's that time of the year again. The USTR's presents its annual Special 301 Report. Which countries have protected and enforced their IPR adequately and effectively and which have not. The risers, the fallers and the usual suspects, such as China and Russia.

This year the USTR airs again the frustrations against China's alleged lack of IPR protection and enforcement. Given the fact that the US has filed formal complaints against China at the WTO, because of these alleged failures, it is no wonder that the US has the plan to maintain China on the Priority Watch List. No surprises there.

However, the USTR has done an unprecedented review which spotlights strengths, as well as weaknesses and inconsistencies, in and among special jurisdictions of six provinces that were the focus of industry comments and US Governement discussions: Beijing, Fujian, Guangdong, Jiangsu, Shanghai, and Zhejiang. For the purpose of this review, the jurisdictions at the provincial level (sheng) may include the four municipalities (shi) of Beijing, Chongqing, Shanghai, and Tianjin, as well as China's five autonomous regions (zizhiqu): Guangxi, Inner Mongolia, Ningxia Hui, Xinjiang Uyghur and Tibet.

The executive summary of this Special Provincial Review presents the following:

Strengths:

• "Beijing is showing leadership in the area of internet piracy. There have also been notable cases against internet piracy in Xiamen (Fujian) and Guangdong.
• Shanghai closed down a notorious market for infringing goods and has and has sought to enhance cooperation with right holders.
• Jiangsu has issued rules requiring audiovisual business operators to carry proof of relevant licenses and legality of products sold in their retail outlets.
• Guangzhou (Guangdong) and Beijing achieved measurable reductions in retail piracy during a 100-day crackdown in 2006, according to an industry survey.
• Customs authorities in Xiamen (Fujian) reportedly cooperate well with foreign rights holders.
• Zhejiang reportedly transferred 109 administrative trademark cases for criminal prosecution in 2005.
• Shanghai authorities have instituted a pilot program to improve administrative-judicial coordination on IPR cases and allow police to conduct raids based on suspicion of criminal activity.
• Public security authorities in Guangdong and Fujian have taken some notable actions against pharmaceutical counterfeiting and other counterfeiting directed against major US brand owners.
• China's court system is gradually improving, particularly in Beijing, which has the largest number of civil IPR cases, and in Shanghai."

Weaknesses and inconsistencies:

• "Guangdong and Zhejiang remained provinces in which right holders most consistently encountered all types of counterfeiting, according to an industry survey.
• Guangdong, Zhejiang, and Fujian are home to major ports of lading for exports of infringing goods to the US.
• In spite of the efforts of local authorities, Beijing and Shanghai remain centers for retail trade in pirated goods, and Yiwu (Zhejiang) remains a wholesale center, according to an industry survey. An industry group cited the Silk Market, Tianyi Market, and Yaxiu Market in Beijing and the Ziyuangang Market in Guangzhou (Guangdong) as well-known retail and wholesale markets for pirated products.
• Shenzhen (Guangdong) and Shanghai did not achieve measurable reductions in retail piracy during a 100-day crackdown in 2006, according to an industry survey.
• Transfers of administrative trademark cases for criminal prosecution were especially rare in Guangdong, Jiangsu, Fujian, and Shanghai in 2005, according to official statistics.
• There were reportedly no transfers of administrative copyright cases for criminal prosecution in Shanghai, Zhejiang, and Fujian in 2005."

The complete Special Provinces Review can be found on pages 43 through 53 of the 2007 Special 301 Report, see here.

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