WTO Report DS362

We have been waiting even before 10 April 2007, because a dispute between the US and the People’s Republic of China regarding the protection and enforcement of intellectual property in China, was in the air. Finally the WTO panel published their conclusion on 26 January 2009, read here.

So first who were the honorable WTO report panellists?
The WTO report reports that on 13 December 2007, the Director-General composed the Panel with as Mr. Adrian Macey (Chairperson) and Mr. Marino Porzio (Member) and Mr. Sivakant Tiwari (Member).

According to Wikipedia Mr. Adrian Macey is a New Zealand diplomat who in 1987 became Counsellor (economic) and Consul-General at New Zealand’s embassy in Geneva, where he was a New Zealand negotiator in the Uruguay Round for dispute settlement.
Mr. Marino Porzio, is a Chilean lawyer, partner of Porzio, Rios & Associates, who worked at the World Intellectual Property Organization (WIPO) in Geneva, in several posts from 1970 to 1987. Deputy Director General between 1980 and 1987. Since 1990 he has been advisor to the Chilean Government in matters of Intellectual Property. Advising mainly the Ministry of Foreign Affairs and the Ministry of Economy. In this respect and on a regular basis he attended, as a Chilean delegate, the meetings of the Administrative Bodies of the World Intellectual Property Organization (WIPO) in Geneva. He also participated in the meetings leading to the adoption of TRIPS and the World Trade Organization (WTO).
Mr. Sivakant Tiwari is Attorney-General’s Chambers of Singapore and Chair of APEC Intellectual Property, you can see a presentation by him here.

When I was finishing my thesis (which is about whether the People’s Republic of China is compliant with the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs)), I had to add the formal complaint of the US to China at the WTO in the preface. Even before that I had made some prognoses about a possible outcome of the dispute.

Before assessing whether my expectations were correct, let us first revisit the three complaints:

The United States claims that China is acting inconsistently with its obligations under the TRIPS Agreement by denying the protection of its Copyright Law to creative works of authorship (and, to the extent Article 4 of the Copyright Law applies to them, sound recordings and performances) that have not been authorized for, or are otherwise prohibited from, publication or distribution within China.
The United States claims that China’s measures for disposing of confiscated goods that infringe intellectual property rights are inconsistent with China’s obligations under the TRIPS Agreement.
The United States claims that China has not provided for criminal procedures and penalties to be applied in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale that fail to meet certain thresholds.

The first complaint, summarised is that the copyright of censored works is not protected nor enforced. In my thesis ‘Paper Tiger or Roaring Dragon, China’s TRIPs implementations and enforcement‘ (pg 73) I wrote: “One can argue that the legitimate foreign and domestic movies cannot compete with pirated movies (footnote 339: Legitimate foreign and domestic movies cannot compete with pirated movies “who endure no censorship, pay no taxes, and bear minimal production costs”, Ranjard and Misonne, see note 109, pg 13.) Even the Chinese Academy of Social Sciences has concluded that state censorship of film imports helps encourage piracy because distributors want to give customers more choices than what’s officially available (footnote 340: “China’s censorship process means that legitimate titles are a subset of all titles produced, i.e. producing pirated titles allows distributors to offer customers much wider choice; with no royalties and taxes to pay, and no quality control requirements to meet, pirated movies provide distributors with significantly higher profits, because sellers of pirated movies are generally unlicensed, the distribution network for pirated movies is far more developed than that for legally licensed movies”, Chinese Academy of Social Sciences report, ‘Study of the Impact of Movie Piracy on China’s Economy’, June 2006, available at: http://www.uschina.org/public/documents/2006/07/cass_piracyimpact_e.pdf.)”
“China has agreed to regularly instruct enforcement authorities throughout the country that copies of select films which are still in censorship, and not yet ready for distribution are deemed pirated and subject to enhanced enforcement. Notwithstanding these instructions, a Memorandum of Understanding that was reached July 2005, about the protection of films from piracy before, during and immediately after their theatrical release in China (footnote 341: Hau, see note 285.) (thesis pg 74) between the Ministry of Culture, SARFT and MPA, only protects 15 Hollywood movies that are released in China (footnote 342: Chris Israel, ‘Testimony before the US-china Economic and Security Review Commission Piracy and Counterfeiting in China’, June 7, 2006, pg 5, available at: http://www.uscc.gov/hearings/2006hearings/written_testimonies/06_06_07wrts/Chris_Israel.pdf.) An interesting question is whether, and if so to what extent non-released movies can contribute to the damages that a plaintiff can claim. In the Sohu versus MPA case, half of the infringed movies were released (footnote 343: The Associated Press, ‘U.S. film group: Chinese portal Sohu loses copyright suit over movie downloads’, December 29, 2006, available at: http://www.iht.com/articles/ap/2006/12/29/business/AS_TEC_China_Sohu_Movie_Piracy.php.
), and this case was further complicated, because people could download from countries where the movie was released.”

The second complaint about the disposal of confiscated goods inconsistent with China’s obligations I wrote in my thesis (pg 38): “Infringing products are often not destroyed in China and find their way back into the channels of commerce, which conflicts with article 46 TRIPs. Competent authorities shall have the authority to order the destruction or disposal of infringing goods in accordance with the principles as set out in article 46 TRIPs, thus to dispose the infringing goods outside the channels of commerce, without compensation to the infringer. Article 30 (1) Implementation Regulation 2004 states that customs are permitted to donate infringing goods to public welfare organisations or the right holder can purchase the goods. According to article 30 (2) Implementation Regulation 2004 if the goods cannot disposed of in a way they can be used by a public welfare organization, they shall be auctioned after eliminating the infringing character of the goods. The income of the auction goes to the state treasury. Article 30 (3) Implementation Regulation 2004 states that only if donating to a charitable organisation and auctioning is not possible, the infringing products shall be destroyed. The equivalent of article 30 Customs Implementation Regulation 2004 could already be found in article 27 Regulations 2003. One can argue that the donation to charitable organisations and auctions open the possibility of infringing product reentering the channels of commerce (footnote 164: “It is not uncommon for counterfeit goods donated to charity or sold at auction to reenter the stream of commerce as they can easily be repurchased by the infringers and leave brand owners right back where they started,” Timothy Trainer, ‘Submission of the International AntiCounterfeiting Coalition, Inc., to the US Trade Representative, Special 301 Recommendation’ , February 11, 2005, pg 30., available at: http://www.iacc.org/resources/2005_USTR_Special_301.pdf.), which is in conflict with article 46 TRIPs. Trainer contends that counterfeit goods should always be destroyed unless the right holder gives prior consent for donations or auctions, because no company is able to vouch for the safety of seized products, allowing counterfeit products to reenter the marketplace will injure the right holder’s brand equity, and the destruction of illegal goods makes a statement it is unacceptable (footnote 165: Trainer, see note 164, pg 30.).”
“Besides, it can be argued that article 16 Regulations 2003 (footnote 166: Article 16 Regulations 2003: Customs shall notify the right owner immediately when they discover the goods suspected to infringe recorded intellectual property rights. Where the right owner files an application according to Article 13 of these Regulations within three business days after he receives the notice from Customs and submits the guarantee according to Article 14 of these Regulations, Customs shall detain the suspected goods and send the detention receipt to the consignees or consignors. Where the right owner fails to file the application or submit the guarantee within the time limit, Customs shall not detain the goods.) and article 21 Customs Implementation Regulation 2004 (footnote167: Article 21 Customs Implementation Regulation: An intellectual property right holder shall give reply according to the following provisions within 3 working days from the date of serving the customs the written notice as described Article 20 of the present Measures:
(1) If he believes that the relevant goods have infringed upon the intellectual property right that have been put on archives at the General Administration of Customs, and requests the customs to detain the goods, he shall file a written application to the customs for detaining the goods suspected of infringement and providing guarantee in accordance with Article 22 of the present Measures;
(2) In case he believes that the relevant goods do not infringe upon the intellectual property rights that have been put on archives at the General Administration of Customs by him or does not request the customs office to detain the goods suspected of infringement, he shall explain the reason to the customs in writing.
The intellectual property right holder may check the relevant goods upon approval of the customs.) that impose a deadline of three days for a right holder to apply for seizure of suspected infringing goods held by Chinese customs, otherwise the goods shall not be detained, are not conducive to border enforcement (footnote 168: “[T]hese rules impose a deadline of only three days for a right holder to apply for seizure of suspected infringing goods held by Chinese customs,” USTR, 2006 Special 301 Report, April 28, 2006, pg 20, available at: http://www.ustr.gov/assets/Document_Library/Reports_Publications/2006/2006_Special_301_Review/asset_upload_file473_9336.pdf.) in the best case or non-compliant to the prohibition to entail unreasonable time-limits of article 41 (2) TRIPs in the worst case. On the other hand, customs protection in China may have been strengthened by the Regulations Governing Customs Penalty of 2004 (footnote 169: Regulations Governing Customs Penalty of People’s Republic of China (Provision related to intellectual property protection), adopted at the 62nd Executive Meeting of the State Council on September 1, 2004, promulgated by Decree No.420 of the State Council of the People’s Republic of China on September 19, 2004 and effective as of November 1, 2004, available at:
http://www.ipr.gov.cn/ipr/en/info/Article.jsp?a_no=2045&col_no=121&dir=200603.) which consists of only one single provision. This article 25 Regulations Governing Customs Penalty of 2004 provides customs the power to fine exporters or importers up to 30 percent of the value of the infringing goods for IP infringements.”

The third complaint about the numerical thresholds for commercial scale intellectual property infringements I wrote in my thesis (pg 82): “There is no indication that numerical thresholds are prohibited by TRIPs. The judicial interpretation’s calculation methods undermine the effectiveness of a deterrent, but does not exclude the possibility that the result is “sufficient to provide a deterrent”, pursuant to article 61 TRIPs.”

I will analyse the WTO report later. My first reaction I gave in an interview with World Trademark Review, see here. To be continued.

In the meantime you can already read Stan Abrams of China Hearsay’s interesting take on the WTO report, here and Michael Geist’s take here.