U.S-China (Enforcement of Intellectual Property Rights) (DSB) (Panel 2009) By: Simon Graff, Bryan Jacoby, Arlene Jurado

Protection and Enforcement of Intellectual Property Rights The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), negotiated in the Uruguay Round, introduced intellectual property rules into the multilateral trading system for the first time and came into force in The agreement covers five broad issues:  How basic principles of the trading system and other international intellectual property agreements should be applied  How to give adequate protection to intellectual property rights  How countries should enforce those rights adequately in their own territories  How to settle disputes on intellectual property between members of the WTO  Special transitional arrangements during the period when the new system is being introduced.

U.S-China (Enforcement of Intellectual Property Rights) The U.S said this dispute concerned fundamental provisions in the TRIPS Agreement related to the protection and enforcement of intellectual property rights (IPR). The US claimed it had been concerned that levels of counterfeiting and piracy in China remained far too high and added it had brought this dispute because several aspects of China's legal regime were contributing to the problem by hindering effective IPR protection and enforcement.

Political/Business Context of Case From a Political point of view, the timing of the US complaint is closely linked with its domestic political agenda to deal with China’s huge trade surplus. The WTO intellectual property disputes can be seen as another episode in the China-U.S trade conflict combined with other WTO complaints by the US against Chinese government subsidies and domestic measures against Chinese imports failing health and safety standards tests abroad. From a Business point of view, the United States wants to protect its commercial goods and corporations from trademark and copyright infringement.

FIRST CLAIM: COPYRIGHT LAW The U.S.’s first claim addressed China’s denial of copyright protection and enforcement to works that are not in accordance with China’s censorship regulations. According to the U.S., Article 4 of China’s Copyright Law did not provide the protection to all works that was required under Article 9.1 of TRIPS because the law denied copyright protection to works that had been banned for publication, distribution or both under Chinese law. SECOND CLAIM: CUSTOMS MEASURES In its second claim, the U.S. contended that China’s Customs Law was inconsistent with Articles 46 and 59 of the TRIPS Agreement because the law created a scheme giving Chinese customs authorities the option of disposing IP-infringing goods seized at the border instead of destroying the goods, thereby encouraging the infringing goods to enter the channels of commerce. THIRD CLAIM: CRIMINAL THRESHOLDS The last claim brought by the U.S. concerned China’s high thresholds for criminal procedures and penalties. The U.S. alleged that the high thresholds violated Article 61 of the TRIPS Agreement because they allowed Chinese infringers to structure their commercial operations to ensure that they operated below the relevant threshold evading any criminal liabilities. By implementing these high thresholds, the U.S. contended that China violated Article 41 of TRIPS, which obligates member countries to provide means for enforcement resulting in effective action.

Timeline (Initial Meetings) 10 April 2007: United States requested consultations with the Government of the People's Republic of China with respect to certain measures pertaining to the protection and enforcement of intellectual property rights in China 7-8 June 2007: Consultations held, but did not lead to a resolution of the dispute 13 August 2007: United States requested the Dispute Settlement Body ("DSB") to establish a panel 25 September 2007: DSB established a Panel

Timeline (Continued) 13 December 2007: Director-General accordingly composed the Panel Argentina, Australia, Brazil, Canada, the European Communities, India, Japan, Korea, Mexico, Chinese Taipei, Thailand and Turkey reserved their rights to participate in the Panel proceedings as third parties April 2008: Panel met with parties 15 April 2008: Panel met with third parties 9 October 2008: Panel submitted its interim report 13 November 2008: Panel submitted its final report

Timeline (Continued) 20 March 2009: DSB Adoption of the Panel Report 15 April 2009: China informed the DSB that it intended to implement recommendations and rulings but would need a reasonable period of time to do so 29 June 2009: China and the United States informed the DSB that they had agreed that China shall implement the recommendations and rulings within 12 months of the adoption of the report 20 March 2010: Agreed reasonable period of time expired 8 April 2010: China and the United States notified the DSB of Agreed Procedures under Articles 21 and 22 of the DSU

International Agreements as Cited in the Request for Consultation The TRIPS Agreement requires WTO member countries to align their intellectual property standards with the main provisions of the World Intellectual Property Organization’s (WIPO) Paris Convention and Berne Convention (copyright protection). The Articles of the TRIPS Agreement in question are: TRIPS Art. 3.1 TRIPS Art. 9.1 (Berne Convention - Arts. 5(1) and 17) TRIPS Art. 14 TRIPS Art TRIPS Art. 46 TRIPS Art. 59 TRIPS Art. 61

“Each Member shall accord to the nationals of other Members treatment no less favorable than that it accords to its own nationals with regard to the protection of intellectual property, subject to the exceptions already provided in, respectively, the Paris Convention (1967), the Berne Convention (1971), the Rome Convention or the Treaty on Intellectual Property in Respect of Integrated Circuits. In respect of performers, producers of phonograms and broadcasting organizations, this obligation only applies in respect of the rights provided under this Agreement. Any Member availing itself of the possibilities provided in Article 6 of the Berne Convention (1971) or paragraph 1(b) of Article 16 of the Rome Convention shall make a notification as foreseen in those provisions to the Council for TRIPS.” TRIPS Part I — General Provisions and Basic Principles TRIPS Art. 3.1-

TRIPS Part II — Standards concerning the availability, scope and use of Intellectual Property Rights Section 1: Copyright and Related Rights TRIPS Art. 9.1 (Berne Convention – Arts. 5(1) and 17) “Members shall comply with Articles 1 through 21 of the Berne Convention (1971) and the Appendix thereto. However, Members shall not have rights or obligations under this Agreement in respect of the rights conferred under Article 6bis of that Convention or of the rights derived therefrom.”

TRIPS Part II — Standards concerning the availability, scope and use of Intellectual Property Rights Section 1: copyright and related rights TRIPS Art. 14 “In respect of a fixation of their performance on a phonogram, performers shall have the possibility of preventing the following acts when undertaken without their authorization: the fixation of their unfixed performance and the reproduction of such fixation. Performers shall also have the possibility of preventing the following acts when undertaken without their authorization: the broadcasting by wireless means and the communication to the public of their live performance.”

TRIPS Part III — Enforcement of Intellectual Property Rights Section 1: general obligations TRIPS Art “Members shall ensure that enforcement procedures as specified in this Part are available under their law so as to permit effective action against any act of infringement of intellectual property rights covered by this Agreement, including expeditious remedies to prevent infringements and remedies which constitute a deterrent to further infringements. These procedures shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse.”

TRIPS Part III — Enforcement of Intellectual Property Rights Section 2: civil and administrative procedures and remedies TRIPS Art. 46 “In order to create an effective deterrent to infringement, the judicial authorities shall have the authority to order that goods that they have found to be infringing be, without compensation of any sort, disposed of outside the channels of commerce in such a manner as to avoid any harm caused to the right holder, or, unless this would be contrary to existing constitutional requirements, destroyed. The judicial authorities shall also have the authority to order that materials and implements the predominant use of which has been in the creation of the infringing goods be, without compensation of any sort, disposed of outside the channels of commerce in such a manner as to minimize the risks of further infringements. In considering such requests, the need for proportionality between the seriousness of the infringement and the remedies ordered as well as the interests of third parties shall be taken into account. In regard to counterfeit trademark goods, the simple removal of the trademark unlawfully affixed shall not be sufficient, other than in exceptional cases, to permit release of the goods into the channels of commerce.”

“Without prejudice to other rights of action open to the right holder and subject to the right of the defendant to seek review by a judicial authority, 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. In regard to counterfeit trademark goods, the authorities shall not allow the re- exportation of the infringing goods in an unaltered state or subject them to a different customs procedure, other than in exceptional circumstances.” TRIPS Part III — Enforcement of Intellectual Property Rights Section 4: Special Requirements Related to Border Measures TRIPS Art. 59 (Remedies)-

“Members shall provide for criminal procedures and penalties to be applied at least 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, consistently with the level of penalties applied for crimes of a corresponding gravity. In appropriate cases, remedies available shall also include the seizure, forfeiture and destruction of the infringing goods and of any materials and implements the predominant use of which has been in the commission of the offence. Members may provide for criminal procedures and penalties to be applied in other cases of infringement of intellectual property rights, in particular where they are committed willfully and on a commercial scale.” TRIPS Part III — Enforcement of Intellectual Property Rights Section 5: Criminal Procedures TRIPS Art. 61 –

Panel Findings (26 th January, 2009) Claim 1: The Chinese Copyright Law does not protect copyrighted works that do not meet China's "content review" standards. The Panel found that this denial of protection is impermissible under Article 9.1 of the TRIPS Agreement, which incorporates Article 5(1) of the Berne Convention for the Protection of Literary and Artistic Works. The Panel also found that this denial of protection is incompatible with Article 41.1 of the TRIPS Agreement.

Panel Findings (26 th January, 2009) Claim 2: The Panel agreed with the United States that China's disposal rules are inconsistent with Articles 46 and 59 of the TRIPS Agreement, which do not permit trademark-infringing imports seized at the border to be released into the channels of commerce subject only to removal of the infringing trademark.

Panel Findings (26 th January, 2009) Claim 3: The Panel agreed with the United States that the term "commercial scale" in that provision means that China cannot set its thresholds for prosecution of piracy and counterfeiting so high as to ignore the realities of the commercial marketplace. However, the Panel found that it would need additional evidence to apply Article 61 thus construed to China's existing thresholds.

Implementation of Adopted Reports April 15, 2009: China informed the DSB that it intended to implement the DSB recommendations and rulings June 29, 2009: China given 12 months from the adoption of the report to implement rulings

Implementation of Adopted Reports March 17, 2010: China State Council adopted the decision to revise the Regulations for Customs Protection of Intellectual Property Rights. March 19, 2010: Standing Committee of the 11 th National People's Congress approved the amendments of the Chinese Copyright Law. The United States said that it was not yet in a position to share China's claim that it had implemented the DSB recommendations and rulings

Observations: China China’s Maoist Era ( ) had a complete absence of intangible property rights. New era of “opening up” Embrace intellectual property rights in order to engage with foreign interests and foreign markets.

“Pirating Nation” Difficulty of moving from the traditional collective doctrine to private property rights regarding intangibles. Destroying Pirated Discs

China’s dream of becoming an “innovative nation” Foreign pressures and maintaining membership in the WTO. Chinese President: Xi Jingping

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