TWN Info Service on WTO and Trade Issues (Oct07/04)

10 October 2007

Dispute panel set over Chinese measures on IPRs

The WTO Dispute Settlement Body (DSB) has agreed to establish a panel, at the request of the United States, to rule on Chinese measures affecting the protection and enforcement of intellectual property rights.

Below is an article that was published in the South North development Monitor (SUNS) on 26 September 2007.   It is republished here with permission of the SUNS.  Any re-publication or re-circulation requires the prior permission of the SUNS (sunstwn@bluewin.ch). 

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Martin Khor
TWN

Dispute panel set over Chinese measures on IPRs
Published in SUNS #6331 dated 26 September 2007 
 By Kanaga Raja (SUNS) Geneva, 25 Sept 2007

The WTO Dispute Settlement Body (DSB) on Tuesday agreed to establish a panel, at the request of the United States, to rule on Chinese measures affecting the protection and enforcement of intellectual property rights.

This was a second-time request and panel establishment was automatic. A first-time request was made by the United States to the DSB on 31 August.

Japan, Mexico, the European Communities, Argentina, and Chinese Taipei reserved their third-party rights in the dispute.

In other actions, the DSB also agreed to establish a panel, at the request of the European Communities, to rule on compliance by the United States of an earlier WTO ruling in relation to US laws, regulations and methodology for calculating dumping margins ("zeroing"). (See below.)

With respect to the Chinese IPR case, in its communication to the DSB, the US said that it held consultations with China on 7-8 June 2007. Those consultations provided some helpful clarifications but unfortunately did not resolve the dispute.

According to the communication, the US considered that China had not provided for criminal procedures and penalties to be applied in cases of willful trademark counterfeiting or copyright piracy on a commercial scale that failed to meet certain thresholds.

It cited China establishing these thresholds through the following measures: the Criminal Law of the People's Republic of China, in particular, Articles 213, 214, 215, 217, 218, and 220; the Interpretation by the Supreme People's Court and the Supreme People's Procuratorate on Several Issues of Concrete Application of Law in Handling Criminal Cases of Infringing Intellectual Property ("the December 2004 Judicial Interpretation"); and the Interpretation by the Supreme People's Court and the Supreme People's Procuratorate on Several Issues of Concrete Application of Law in Handling Criminal Cases of Infringing Intellectual Property (II) ("the April 2007 Judicial Interpretation").

The US communication said that Articles 213, 214, and 215 of the Criminal Law describe certain acts of trademark counterfeiting that may be subject to criminal procedures and penalties. However, under Article 213, criminal procedures and penalties are available only "if the circumstances are serious" or "if the circumstances are especially serious."

Under Article 214, criminal procedures and penalties are available only "if the amount of sales [of commodities bearing counterfeit registered trademarks] is relatively large" or "if the amount of sales is huge." Under Article 215, criminal procedures and penalties are available only "if the circumstances are serious" or "if the circumstances are especially serious."

The communication said that Articles 217 and 218 of the Criminal Law describe certain acts of copyright piracy that may be subject to criminal procedures and penalties. However, under Article 217, criminal procedures and penalties are available only "if the amount of illegal gains is relatively large, or if there are other serious circumstances" or "if the amount of illegal gains is huge or if there are other especially serious circumstances." Under Article 218, criminal procedures and penalties are available only "if the amount of illegal gains is huge."

Article 220 of the Criminal Law provides for the availability of procedures and penalties when the crimes described in Articles 213 through 219 are committed by a "unit," as opposed to by natural persons.

According to the US communication, the Criminal Law does not contain definitions for the thresholds "serious," "especially serious," "relatively large," and "huge" as used in the above-referenced articles.

However, the December 2004 Judicial Interpretation and the April 2007 Judicial Interpretation do contain such definitions, which use thresholds that are stated as minimum "illegal business volumes" (stated in terms of minimum values of products produced, stored, transported or sold), minimum "illegal gains", or minimum numbers of "illegal copies".

Acts of trademark counterfeiting and copyright piracy that fail to meet the statutory and judicial interpretation thresholds described above thus are not subject to Articles 213, 214, 215, 217, 218, and 220 of the Criminal Law. Consequently, said the US, it appears that, as a result of the thresholds described above, there are cases of willful trademark counterfeiting and copyright piracy on a commercial scale in which China has not provided for criminal procedures and penalties to be applied. It also appears that, as a result of the thresholds described above, there are cases of willful trademark counterfeiting and copyright piracy on a commercial scale for which the remedies of imprisonment and/or monetary fine sufficient to provide a deterrent are not available in China.

Furthermore, the US added, it appears that, as a result of the thresholds described above, China fails to ensure that enforcement procedures as specified in Part III of the TRIPS Agreement are available under its law so as to permit effective action against any act of willful trademark counterfeiting or copyright piracy on a commercial scale.

The US communication said that China's measures thus appear to be inconsistent with China's obligations under Articles 41.1 and 61 of the TRIPS Agreement.

The US also complained that China's measures for disposing of confiscated goods that infringe intellectual property rights appear to be inconsistent with China's obligations under the TRIPS Agreement.

The US also considered that China appears to be 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 US cited several Chinese measures at issue including the Copyright Law, in particular, Article 4; the Criminal Law; regulations on the administration of the publishing industry, broadcasting, audiovisual products, film industry, and telecommunications; and procedures for the examination and approval for publishing finished electronic publication items licensed by a foreign copyright owner, and of importation of finished electronic publication items by electronic publication importation entities, as well as procedures for recording of imported publications, interim regulations on Internet culture administration, and several opinions on the development and regulation of network music.

The US also noted that the measures at issue establish different pre-distribution and pre-authorization review processes for Chinese nationals' works, performances (or their fixations) and sound recordings than for foreign nationals' works, performances (or their fixations) and sound recordings.

These different processes, taken together with Article 4 of the Copyright Law, appear to result in earlier and otherwise more favourable protection and enforcement of copyright rights for Chinese authors' works than for foreign authors' works.

Further, to the extent Article 4 applies with respect to related rights, these different processes, taken together with Article 4 of the Copyright Law, appear to result in earlier and otherwise more favourable protection and enforcement of related rights for Chinese performers' performances (or their fixations) and Chinese producers' sound recordings than for foreign performers' performances (or their fixations) and foreign producers' sound recordings.

The US said that the measures at issue therefore appear to be inconsistent with China's obligations under Article 3.1 of the TRIPS Agreement, which provides that, subject to certain exceptions and qualifications, each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection of intellectual property.

In addition, said the US, Article 4 of China's Copyright Law, both independently and in conjunction with the other measures at issue, appears to make it impossible to enforce copyrights (and, to the extent covered by Article 4, related rights) with respect to works, performances or sound recordings whose publication or distribution in China has not been authorized or is otherwise prohibited.

It therefore appears that, as a result of the measures at issue, China fails to ensure that enforcement procedures as specified in Part III of the TRIPS Agreement are available under its law so as to permit effective action against infringements
(including expeditious remedies to prevent infringement) of those copyrights and related rights in such circumstances, and that China does not provide for criminal procedures and penalties to be applied in certain cases of copyright piracy, the US concluded.

In its statement at the DSB on Tuesday, the US reiterated that it recognizes that China has made the protection of intellectual property rights a priority, and that China has taken active steps to improve IPR protection and enforcement.

The US however said that the fact remains that bilateral discussions on the specific matters described in its panel request have not resulted in a mutually agreeable solution to its concerns.

China expressed regret that the US has requested the establishment of the panel. While remaining confident that the relevant Chinese measures are consistent with relevant WTO rules, China said that it strongly opposed the US attempt to impose on developing country Members, through this case, extra obligation that goes beyond what has been prescribed in the TRIPS Agreement.

Meanwhile, in other actions, the DSB agreed to establish a panel, at the request of the European Communities, to rule on compliance by the United States of an earlier WTO ruling in relation to US laws, regulations and methodology for calculating dumping margins ("zeroing").

Although this was a first-time request, under an understanding reached earlier between the two parties, the US did not block the request.

India, Japan and Mexico reserved their third-party rights in the dispute.

In its statement at the DSB, the EC expressed concern that the US is still collecting duties calculated with zeroing in many of the cases that the EC challenged and that nothing has been done to eliminate zeroing in the 16 administrative reviews.

The EC cited two cases that are also causing particular concern. In a case involving certain stainless steel sheet and strip in coils from Italy, the EC said that it was still waiting for proper implementation five months after the end of the implementation period . It was also waiting for a decision in a case involving ball bearings from the United Kingdom, where one company (NSK UK) should have a zero duty in its latest review.

"We are now more than 5 months after the implementation deadline but the US Department of Commerce still refuses to take any action to remove zeroing," said the EC.

On the other hand, the US maintained that it has complied fully with the recommendations and rulings of the DSB.