The Constant US-China IPR Disputes and the Fresh Elements

By Liu Hu and Jiang Guangyao,[Comprehensive Reports]


     On October 27, 2009, U.S. Commerce Secretary Gary Faye Locke said at the Pearl River Delta International Forum on Innovation and Intellectual Property that he was disappointed in the lax intellectual property law enforcement in Guangdong and other places. On the same day, he remarked at Jinan University that stronger intellectual property laws had been written in China, but they were only as valuable as the civil and criminal penalties people faced for breaking them, and China’s enforcement of IP laws was often uneven.
  Gary Faye Locke touched on the nerve of the constant intellectual property disputes between China and the United States. However, unlike previous “pure” criticisms, Locke raised a new element: cooperation.
  US-China IPR disputes
  Gary Faye Locke’s comments on China’s IP law enforcement were not unexpected. In the 2009 Special 301 Report, released on April 30, 2009, the Office of the U.S. Trade Representative (USTR) listed 12 countries, including China and Russia, on the Priority Watch List. Locke’s Chinese trip was simply one of the action plans of the report. Actually, this 2009 Special 301 Report was only a tip of the US-China IPR dispute iceberg.
  Since the Sino-US Trade Agreement was signed in 1979, IPR disputes have emerge endlessly between the two countries. In the USTR’s 1989 Special 301 Report, China was included in the Priority Watch List. In the three disputes in 1991, 1994 and 1996, the U.S. retaliated upon China with its three lists respectively valued at USD 1.5 billion, USD 2.8 billion and USD 3 billion (all ended up with a bilateral agreement). After China’s entry into the WTO in 2001, IPR matters remain the most controversial issues in the two countries’ trade disputes. At the third China-US IPR Roundtable Conference held in 2005, Donald Louis Evans, former U.S. Commerce Secretary, criticized China for the lax protection over intellectual property, and China was once again put on the Priority Watch List. It should be noted that in April 2007, the United States brought a complaint to the WTO Dispute Settlement Mechanism against China’s IP measures. However, previous disputes showed that the US’s claims were nothing but the same old and pending topics, which would possibly also be the basis for its future complaints.
  WTO Panel Report: New wine in an old bottle
  The WTO on January 26, 2009, issued the report of the panel that had examined the complaint by the United States against China’s measures affecting the protection and enforcement of intellectual property rights (DS362 and hereinafter referred to as the Panel Report DS362).
  1. The dispute concerned two fundamental provisions in the TRIPs Agreement. First was Article 61, which stated that, “members shall provide for criminal procedures and penalties to be applied in cases of willful trademark counterfeiting or copyright piracy on a commercial scale. Remedies available shall include imprisonment and/or monetary fines sufficient to provide a deterrent, consistent with the level of penalties applied for crimes of a corresponding gravity.”  With this backer, the US complained about China’s low criminal threshold for IPR infringement enforcement. In the article, “commercial scale” is the “criminal threshold” for penalties against counterfeiting or piracy. However, this is an obscure definition with no quantitative criteria. To what degree will an act of piracy be raised to the level of a commercial scale? Finally, the Panel Report DS362 rejected the US’s inconsistent claims of China’s IPR criminal threshold within the TRIPs Agreement. Although rejected, the US was not deterred.
  Second is Article 41, which the US often relies on to censure China. Early in 2004, the US pointed out in a report that “the reduced value of counterfeiting goods seized by China Customs reflects the Customs’ slack law enforcement; the limited number of cases transferred by administration departments to public security organs, procuratorial organs and the People’s Courts represents the insufficient deterrence of penalty.” Obviously, the US tends to use the value and quantity of infringing products to judge China’s IPR protection status, which, in our opinion, is unjustified. China is now in a fast economic growth period, where the economic value and quantity of infringing products are on the rise every year. A more objective way would be to compare China’s IPR law enforcement status to other WTO members with an economic growth rate similar to that of China. However, it is difficult to collect enough thorough and objective information to make such a comparison. One thing that China should be applauded for is that it has continuously promulgated IPR-related laws and regulations over recent years, and has intensified the crackdown on IPR infringement crimes. However, due to the low starting point, China will have to wait for at least two more years to enjoy the results of IPR law enforcement.
  Given the above analysis, we can see that Article 61 and Article 41 fail to provide sufficient justifications to allow the US to win its lawsuit. For WTO disputes, the most crucial point is the burden of proof: Only after the evidence provided by the US can preliminarily prove that China has failed to implement its legal commitments under the TRIPs Agreement will the burden of proof be shifted to China. The US failed to do this and in the Panel Report DS362, its complaint against China for noncompliance with the TRIPs Agreement in carrying out customs protection of intellectual property rights was rejected for lack of evidence.
  2. The US exerts pressure on China through third-parties. With the adoption of the Omnibus Trade and Competitiveness Act of 1988, the US consistently relied on the Special 301 Report and Section 337 of the Tariff Act of 1930 to take bilateral measures. However, after the complaint was brought to the WTO in April 2007, the US turned to the WTO Dispute Settlement Mechanism and exerted pressure upon China via third-parties.
  Once China is involved in a lawsuit, WTO members, coveting the giant market potential of China, will actively join as third parties, or passively become third parties on the subject of joint infringement of transnational companies to participate in dispute settlements. For example, 12 WTO members were involved in the DS362 case as third parties, and the US took this advantage and successfully exerted pressure on China.
  The US has more reasons to choose the WTO Dispute Settlement Mechanism. Firstly, because of the long term negotiations on China’s WTO accession and years of trade frictions between China and the US, China has become quite experienced in bilateral trade negotiations and reserved rich human resources. However, regarding the application of the organization’s multilateral mechanism, China is still somewhat green. According to the WTO’s latest data, as of November 6th, 2009, China had initiated a total of six actions, responded to 17 actions, and participated in actions as the third partyr 62 times under the framework of WTO; however, the figures for the US were 107, 93 and 73 respectively. Obviously, in the WTO battlefield, China is a new recruit, while the US is a veteran. The US enjoys the absolute predominance in international relationships, legal resources and a reserve of talents. This is why the US appeals to the WTO multilateral mechanism to settle IPR disputes.
  Secondly, the US has been actively looking for international cooperation and support in IPR protection. Either in the G8, the OECD or in APEC, the US government has seized every chance to promote its IPR strategies. Especially since 2007, the US government has not passed up on the opportunity to attend localized conferences, such as the East Africa Regional Seminar and the IP Law and Policy Seminar in Jordan, during which it drummed in its IP protection and law enforcement theories. Clearly, its intention is to formulate and adjust international IPR protection rules. As long as it obtains international support, the US will place itself in a more advantaged position in US-China intellectual property disputes.
  3. Disputes have been raised to the trade policy level. On August 12, 2009, the WTO issued the report of the panel that had examined a complaint by the United States against “China - Measures affecting trading rights and distribution services for certain publications and audiovisual entertainment products” (DS363). Different from DS362, the US no longer badgered China with just Copyright Law and other unimportant legal provisions, but directly threw down a challenge on China’s cultural and trade policies. In this way, the US successfully raised its IPR disputes against China to the level of trade policy, and had them settled under the WTO framework.
  Dispute, how does it come and how will it go
  Economic benefit is the reason behind the US’s unremitting and miscellaneous challenges over the past years to China’s IPR protection enforcement. The US believes that IPR protection is a necessary element to the protection of its economic growth, and has been alleging that China’s lack of due IPR protection has seriously bitten into the economic profit of American enterprises in China.
  However, a country does not have permanent friends, only permanent interests. 2007’s economic recession forced the US to adjust its economic strategy and look for new economic growth points, especially in the new energy sector. Boasting of the huge market potential for new energies and the fact that China is the second largest trade partner of the US, China perfectly matches the US need for cooperation partners. At the Pearl River Delta International Forum, Mr. Locke said that he and U.S. Energy Secretary Steven Chu had come to China in the summer of 2009 to explore avenues for clean energy cooperation. He also pointed out that the prospect of climate change presented both a great challenge and a great opportunity, and that we needed to do everything we could to incentivize and empower the brightest minds we have to solve climate change. In contrast to previous tough stances, Locke put requirements on China’s law enforcement of intellectual property rights in the perspective of a win-win scenario in the industrial cooperation between the two countries, which possibly foreshadows a new orientation in the development of US-China IPR disputes.
  (Translated by Hu Xiaoying)

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