U.S. - China (Enforcement of IPR) (DS 362) (Panel 2009) Team 4 U.S. - China (Enforcement of IPR) (DS 362)    (Panel 2009) China — Measures Affecting the Protection and Enforcement of Intellectual Property Rights

Case History Consistency Issue The case revolves around intellectual property issues with the United States and China, focused on copyright. Consistency Issue China was not being consistent with its obligations under Article 5(1) of the Berne Convention (1971 revisions), as incorporated by Article 9.1 of the TRIPS Agreement; and Article 41.1 of the TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights) .

Case History WTO Definitions of IP and Copyright Intellectual property (IP)- refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce. Copyright- is a legal term used to describe the rights that creators have over their literary and artistic works. Works covered by copyright range from books, music, paintings, sculpture, and films, to computer programs, databases, advertisements, maps, and technical drawings.

Case History Industry and Business Context: Many American business rely on copyright to sell, maintain, and build there products/businesses. Entertainment industry, musical artists, publishing industry, broadcasting, audiovisual products, items licensed by a foreign copyright owner. This ripples to all the related industries and businesses, as well as the jobs associated with them. Many American businesses were complaining about issues like piracy and not following copyright on items like CDs, DVDs, books, magazines, etc.

Case Timeline (2007-2009) Date Sep 25, 2007   Sep 25, 2007  The DSB established a Panel.  Dec 3, 2007  The US requested the Director-General to compose the panel.  Dec 13, 2007  The Director-General composed the panel.  July 16, 2008  The Chairman informed that the panel won't be able to complete within 6 months due to the complexity of issues  Jan 29, 2009  the panel report was circulated to Members.  Mar 20, 2009  the DSB adopted the panel report. 

Consultation The U.S. requested consultation on 4 issues: The thresholds that must be met in order for certain acts of trademark counterfeiting and copyright piracy to be subject to criminal procedures and penalties; Goods that infringe intellectual property rights that are confiscated by Chinese customs authorities, in particular the disposal of such goods following removal of their infringing features; The scope of coverage of criminal procedures and penalties for unauthorized reproduction or unauthorized distribution of copyrighted works; and  The denial of copyright and related rights protection and enforcement to creative works of authorship, sound recordings and performances that have not been authorized for publication or distribution within China.

Consultation The United States claims that in relation to the four above-mentioned matters possible inconsistencies with the TRIPS Agreement arise as follows: The lack of criminal procedures and penalties for commercial scale counterfeiting and piracy in China as a result of the thresholds appears to be inconsistent with China's obligations under Articles 41.1 and 61 of the TRIPS Agreement. The requirement that infringing goods be released into the channels of commerce under the circumstances set forth in the measures at issue appears to be inconsistent with China's obligations under Articles 46 and 59 of the TRIPS Agreement. To the extent that willful copyright piracy on a commercial scale that consists of unauthorized reproduction but not unauthorized distribution of copyrighted works, and vice versa, may not be subject to criminal procedures and penalties under the law of China, this would appear to be inconsistent with China's obligations under Articles 41.1 and 61 of the TRIPS Agreement. Authors of works whose publication or distribution has not been authorized (and whose publication or distribution is therefore prohibited) appear not to enjoy the minimum standards of protection specially granted by the Berne Convention in respect of those works. Japan, Canada, the EU, and Mexico requests to join to consultation.

Panel Complainant Respondent Third Party The United States China Argentina, the European Communities, Japan, Mexico, Chinese Taipei, Australia, Brazil, Canada, India, Korea, Thailand and Turkey  

Panel Copyright Law Copyright Law is inconsistent with China's obligations under Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement; and Article 41.1 of the TRIPS Agreement.  The Panel exercised judicial economy with respect to the claim under Article 5(2) of the Berne Convention (1971), as incorporated by Article 9.1 of the TRIPS Agreement, the claims under Article 61 of the TRIPS Agreement

Panel Berne Convention Article 5 (1) Authors shall enjoy, in respect of works for which they are protected under this Convention, in countries of the Union other than the country of origin, the rights which their respective laws do now or may hereafter grant to their nationals, as well as the rights specially granted by this Convention. (2) The enjoyment and the exercise of these rights shall not be subject to any formality; such enjoyment and such exercise shall be independent of the existence of protection in the country of origin of the work. Consequently, apart from the provisions of this Convention, the extent of protection, as well as the means of redress afforded to the author to protect his rights, shall be governed exclusively by the laws of the country where protection is claimed.

Panel TRIPS Agreement Article 41 1. 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.

Panel Berne Convention Article 5 (1) Authors shall enjoy, in respect of works for which they are protected under this Convention, in countries of the Union other than the country of origin, the rights which their respective laws do now or may hereafter grant to their nationals, as well as the rights specially granted by this Convention. (2) The enjoyment and the exercise of these rights shall not be subject to any formality; such enjoyment and such exercise shall be independent of the existence of protection in the country of origin of the work. Consequently, apart from the provisions of this Convention, the extent of protection, as well as the means of redress afforded to the author to protect his rights, shall be governed exclusively by the laws of the country where protection is claimed.

Panel TRIPS Agreement Article 61 Members shall provide for criminal procedures and penalties to be applied at least in cases of wilful 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 wilfully and on a commercial scale.

Panel Custom Measure Article 59 of the TRIPS Agreement is not applicable to these measures insofar as they apply to goods destined for exportation The United States has not established that these measures are inconsistent with Article 59 of the TRIPS Agreement, as it incorporates the principles set out in the first sentence of Article 46 of the TRIPS Agreement. 

Panel TRIPS Agreement Article 59 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.

Panel TRIPS Agreement Article 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.

Panel Criminal thresholds The United States has not established that the criminal thresholds are inconsistent with China's obligations under the first sentence of Article 61 of the TRIPS Agreement. The Panel Exercised judicial economy with respect to the claims under Article 41.1 of the TRIPS Agreement and under the second sentence of Article 61 of the TRIPS Agreement

Panel TRIPS Agreement Article 61 Members shall provide for criminal procedures and penalties to be applied at least in cases of wilful 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 wilfully and on a commercial scale.

Panel The panel concluded to the extent that the Copyright Law and the Customs measures as such are inconsistent with the TRIPS Agreement recommended that China bring the Copyright Law and the Customs measures into conformity with its obligations under the TRIPS Agreement.

Implementation China’s reaction China did not appeal the Panel’s ruling. China implemented internal changes to both measures found inconsistent with China’s TRIPS Agreement obligations. China notified the DSB that the Standing Committee of the Eleventh National People’s Congress had adopted an amendment to the Copyright Law to bring the measure into conformity. In addition, the State Council of the People’s Republic amended the customs measures in order to comply with the remainder of the Panel’s recommendations. Subsequently, on April 20, 2010, China notified the DSB that it was compliant with regard to all measures found inconsistent in China—Intellectual Property Rights. This case indicates China’s willingness to comply with the adverse rulings and bring its inconsistent measures into conformity with its WTO obligations.

Implementation The following communication, dated 7 January 2010, from the delegation of China to the Chairman of the Dispute Settlement Body, is circulated pursuant to Article 21.6 of the DSU.

Implementation The following communication, dated 8 March 2010, from the delegation of China to the Chairman of the Dispute Settlement Body, is circulated pursuant to Article 21.6 of the DSU.

Timeline of Implementation March 19, 2010 China reported that on 26 February 2010, the Standing Committee of the 11th National People's Congress had approved the amendments of the Chinese Copyright Law and that on 17 March 2010, the State Council had adopted the decision to revise the Regulations for Customs Protection of Intellectual Property Rights. April 15, 2009 China informed the DSB that it intended to implement the DSB recommendations and rulings and that it would need a reasonable period of time to do so. June 29, 2009 China and the United States informed the DSB that they had agreed that the reasonable period of time for China to implement the DSB recommendations and rulings shall be 12 months from the adoption of the report. April 8, 2010 China and the United States notified the DSB of Agreed Procedures under Articles 21 and 22 of the DSU.

Observations Some things to consider Was this a true US victory? With the exception of one practice (removal of trademark from counterfeit trademarked goods), the panel upheld all of China's border measures including the distribution of confiscated goods to the Red Cross, the resale of the goods to rights holders (if they are interested), the auction of certain goods, or the destruction of the goods. The Chinese IP enforcement system, which sets a minimum threshold for criminal enforcement, was a huge issue for the U.S. and it lost badly on it. The U.S. argued that the high thresholds render prosecution impossible in many cases. The panel rejected the U.S. claims, in part due to a lack of evidence. Was China already moving to implement some level of these regulations? Prior to the United States filing the complaint, China had already taken a number of important steps to amend or adopt a range of laws, regulations, and other measures in the intellectual property rights area. Deputy Director of the State Copyright Bureau, has stated that China is tackling the problem as part of a step-by-step plan, including its 2007 National Action Plan. Was China’s implementation of the Panel’s review successful? Local enforcement of national laws - Because infringing enterprises are often an important local source of revenue and employment, local authorities may be reluctant to enforce new or more stringent IP laws for fear of jeopardizing this revenue source. Regulations to enhance protection for copyrighted works on the Internet, in preparation for China's recent accession to the WIPO Internet Treaties; • Measures to protect intellectual property rights at trade fairs; " New patent examination guidelines; " New standards for the review of trademarks; * New requirement that legal operating system software be installed on all computers manufactured in or imported into China, and requirement that government agencies at all levels purchase only such computers; " Adoption of plan to encourage use of legal software by enterprises; steps to ensure government agencies use only legal software.'