China Dominates Priority Watch List 2012

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.

All the other 12 countries on the priority watch list got only a paragraph about their shortcomings in the field of protection and enforcement of intellectual property rights. The information about China’s IPR weaknesses were spread over 10 pages, making clear the gravity of the IPR challenges in the People’s Republic.

I agree with Stan Abram’s article on China Hearsay that the policies in the IPR, such as indigenous innovation, technology transfer and market access issues to create national champions, are hardly new as the report suggests.

 

 

The report gives some examples:

 

 

The Circular on Launching the 2009 National Indigenous Innovation Product Accreditation Work issued by the Ministry of Science and Technology (MOST), National Development and Reform Commission (NDRC), and Ministry of  Finance (MOF) in November 2009, and its partial correction by the 2010 Circular on Launching National Innovation Product Accreditation Work, also by MOST, NDRC, and MOF in April 2010.

 

 

Some bright spots were mentioned in the report:

• Special IPR Enforcement Campaign that was begun in 2010, which resulted in some improvements in targeted sectors. November 2011, Premier Wen Jiabao announced that this campaign would be made permanent, through the creation of a National Leading Group on IPR Enforcement.
• Chinese Internet giant Baidu reached a landmark agreement with international music rights holders to ensure that its online music platform transmits legal content. Following that agreement, USTR removed Baidu from the Notorious Markets list.
• April 22, 2012, China’s Supreme People’s Court issued a draft (Chinese) Judicial Interpretation entitled Regulations for the Applicability of Laws in Hearing Cases Regarding Civil Disputes Concerning Infringement on Information Network Broadcasting Rights, read more about it on Bridge IP Commentary here and Michael Kan’s article on Networkworld here. This draft measure is intended to clarify, among other issues, legal standards surrounding inducement of infringement.

 

 

Software piracy, especially by state-owned enterprises (SOEs) remains a problem. Streaming video of pirated content is substituting downloads of pirated material.

 

 

Local differences

One cannot say that there is uniformity in the protection and enforcement of intellectual property rights in China. Geography plays a big role.

 

Shenzhen

The administrative authorities in Shenzhen have lowered the criminal case thresholds for bringing cases against optical disk pirates, and those authorities regularly transfer cases for investigation to the Public Security Bureau.

In one case, those authorities followed up regularly with online sales platform TenCent to discuss the company’s enforcement efforts.

 

Guangdong,  Fujian

By contrast, rights holders have expressed concerns that local Administrations for Industry and Commerce (AIC) in Guandong and Fujian have refused to refer cases for criminal prosecution even when thresholds are met.

Local protectionism has impeded rights holders who have investigated and provided clear evidence of counterfeiting operations (including, in one case, evidence of an entire supply chain to support massive counterfeiting of children’s toys and accessories, from design to manufacturing to packaging) only to be stymied by provincial officials who have turned a blind eye to the evidence and have failed to act.

 

 

 

Yiwu Market, a large wholesale market in Yiwu, Zhejiang province, is still notorious, where all types of products can be copied and exported throughout the world;

Putian night market, in Fujian province specializes in counterfeit athletic shoes, sports equipment, handbags, and watches, and where most products are being sold for export to U.S., European and African markets.

 

 

The misappropriation of trade secrets is becoming an ever bigger problem.

 

 

There is a general trend observable in all jurisdictions of counterfeit products ordered via the internet and then send via the post in small packages. So to lower the thresholds for criminal enforcement of intellectual property rights seems to be more important then ever, especially to stop the scourge of counterfeit pharmaceuticals, that instead of cure you might kill or damage your health.

 

 

A footnote fetishist’s request

This year, I have the same critique about the USTR lack of transparency in regard to the sources of its research.