Historical Context: Why it matters?

• US engaged in talks for two decades– 81% of counterfeit goods are from China– 1.4 billion US dollars lost annually– Discourages innovation– Poor quality

Historical Context: Culture/ Political Influences

• Reliance on administrative vs. criminal measures

• Learning by copying• Government corruption• Communist roots• Confucianism

Historical Context: US Retaliates

• Special 301 Hit List – China becomes a “Priority Foreign Country”

• Issues that prompted action:– Low sales of IPR intensive goods and services– Theft of trade secrets– IPR transfers from foreign to domestic entities

Historical Context: Round #1

• January 1992: First Bilateral Agreement– Adhere to certain levels of IP protection – Accede to international intellectual property

treaties (Berne Convention)– Provide effective border control procedures

and remedies– US agrees to terminate Special 301

investigation

Historical Context: Round #2

• July 1994– China fails to deliver/ US threatens Special 301– China provides new legislation– China’s piracy levels still remain high

• Next Sino- U.S. Agreement; The 1995 Memorandum of Understanding– Required China to reduce piracy, improve

enforcement, and open its markets for U.S. computer software, sound recordings, and movies

Historical Context: Pre-TRIPS

Year Cases 1997 1998 1999 2000 Avg Fine 15,321 14,216 16,938 22,001Avg Damages

[US]$679 [US]$699 [US]$754 [US]$794

Criminal [US]$40 [US]$41 [US]$40 [US]$19Prosecutions 57 total or 1

in 268 cases35 total or 1 in 406 cases

21 total or 1 in 806 cases

45 total or 1 in 489 cases

Historical Context: China post-TRIPS

• China joins WTO in 2001– Fights for development status to receive

special concessions

• Post-TRIPS no better than Pre-TRIPS– 2004: 96/ 51,851 trademark infringement

cases handled– 2005: >0.3% trademark cases prosecuted

Historical Context: China Seeks Development Status

• Special & Differential Trading provisions include:– Longer time periods for implementation of

agreements and commitments– Safeguards of trade interests

• Opposition from US & EU countries– More FDI than developing/developed countries– 3rd largest trading nation; 4th largest economy

• Key areas China did not accede as a developed country:– Subsidies, countervailing duties, and intellectual

property rights

Historical Context: Perspective

• Most countries have history of commercial piracy– Ex: US was the leading nation in

the 19th century

• China is still in early stages of development

Issue Brought to WTOShort Title China – Intellectual Property Rights

Complainant U.S.

Respondent China

Third Parties Argentina; Australia; Brazil; Canada; European Communities; India; Japan; Republic of Korea; Mexico; Chinese Taipei; Thailand; Turkey

Agreements at Issue TRIPS Art. 3.1, 9.1, 14, 41.1, 46, 59, 61, Berne Convention

TimelineEvent Date

Request for Consultations Received 10 April 2007

Panel Report Circulated 26 January 2009

Implementation Agreement 15 April 2009

Implementation Notified by Respondent

19 March 2010

Total Time: 3 Years

Issue Brought to the WTO• Thresholds for criminal procedures and

penalties• Disposal of goods confiscated by Customs

authorities that infringe intellectual property rights

• Denial of copyright and related rights protection and enforcement to works that have not been authorized for publication or distribution within China

• Unavailability of criminal procedures and penalties for a person who engages in either unauthorized reproduction or unauthorized distribution of copyrighted works*

WTO Issue #1

CHINESE LAW• Chinese Criminal Law

– Articles 213, 214, 215, 217, 218

INTERNATIONAL LAW• TRIPS Articles 41.1 and 61

Thresholds for Criminal Procedures and PenaltiesThresholds for Criminal Procedures and Penalties

WTO Issue #2

CHINESE LAW• Customs IPR Regulations

– Article 27

• Customs IPR Implementing Measures – Article 30

INTERNATIONAL LAW• TRIPS Articles 46 and 50

Disposal of goods confiscated by Customs authorities Disposal of goods confiscated by Customs authorities that infringe intellectual property rightsthat infringe intellectual property rights

WTO Issue #3

CHINESE LAW• China's Copyright Law• Administrative Regulations

– Publishing– A/V– Electronic Publications

INTERNATIONAL LAW• Berne Convention• TRIPS 9.1, 14, 3.1

Denial of copyright and related rights protection Denial of copyright and related rights protection and enforcement to works that have not been and enforcement to works that have not been

authorized for publication or distribution within authorized for publication or distribution within ChinaChina

Positions

United States of America– China needs time to update

policies and regulations after accession to the WTO in 2001

– Complaint submitted and request for consultation received in April 2007

– Claimed that China’s criminal measures inadequately managed IP infringements

China‒ Claimed protection under Article

1 of TRIPS:“Members shall be free to determine

the appropriate method of implementing the provisions of

this Agreement within their own legal system and practice.”

‒ Claimed the U.S. failed to prove that they were not in compliance with the TRIPS Agreement

Inconsistencies… • Thresholds

– Article 41.1 – Enforcement procedures and remedies to prevent infringements and remedies which constitute a deterrent to further infringements [are present in Member Law].

– Article 61 – Members shall provide for criminal procedures and penalties to be applied at least in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale.

• Disposal of Infringing Goods– Article 46 – Disposal options for infringing goods by seriousness of the infringement.– Article 59 – Competent authorities shall have the authority to order the destruction or

disposal of infringing goods in accordance with the principles set out in Article 46.• Member Protection and Enforcement

– Article 3.1 – Fair treatment and protection– Article 9.1 – Compliance with Berne Convention (1971)– Article 14 – Performers right to authorize or prohibit reproduction of acts

…and Decision

• China must institute more complex laws• US “commercial scale” evidence was inadequate

(Art. 61)• China’s auctioning of goods inconsistent; allows

removal of trademark (Art. 59)• China failed to protect copyright works (Art. 5(1))• Panel Conclusion: China must bring Copyright Law

and Customs measures into conformity with TRIPS

Mutually Beneficial Agreement?

Benefits – United States• Copyright Law

– China’s amended law was amended; more inclusive

• Customs Law– China must remove infringing

materials unlawfully affixed

Benefits – China • Thresholds

– U.S. was not able to define “Commercial Scale”

– Existing administrative and criminal procedures preserved

• Customs Law– Distinctions made between

import/export protections– Imports: Once counterfeit

trademarks are removed, goods may enter commercial channels

How is China Doing?• Remains on the Priority Watch List– Subject to Section 306 monitoring

• Continual progress is being made– Greater cooperation with U.S. and Chinese law

enforcement• U.S. stakeholders continue to report issues with

effective IPR protections– Sales of IPR-intensive goods remain

disproportionately low• Theft of trade secrets remains a significant

concern

Observations

• US in talks with China for several years • China had lax approach to enforcing Articles of

the TRIPS Agreement• Mutiple third party members (12 countries)• Findings reaffirm significance of adherence to

IPR

SourcesAlford W., 1995. To Steal a Book is an Elegant Offense: Intellectual Property Law in Chinese Civilization, Redwood, California: Stanford University Press.Available URL: http://www.sup.org/books/title/?id=2011 Harris D., 2008. The Honeymoon is Over: Evaluating the U.S.-China WTO Intellectual Property Complaint. Fordham International Law Journal (Web version) Vol. 32 Issue 1 Article 12.Available URL: http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=2190&context=ilj Office of the United States Trade Representative. 2014 Special 301 Report. Available URL: https://ustr.gov/sites/default/files/USTR%202014%20Special%20301%20Report%20to%20Congress%20FINAL.pdf World Trade Organization. China Measures Affecting the Protection and Enforcement of Intellectual Property Rights. Available URL: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds362_e.htm Yu P. Intellectual Property, Foreign Direct Investment and the China Exception, Drake Law School.Available URL: http://www.peteryu.com/fdi.pdf Yu P. The US-China Dispute Over TRIPS Enforcement, Drake Law School.Available URL: http://www.law.drake.edu/clinicsCenters/ip/docs/ipResearch-op5.pdf