WTO Dispute DS362 China vs. United States Measures Affecting the Protection and Enforcement of Intellectual Property Rights

Overview In April 2007, the United States approached the World Trade Organization (WTO) with concerns over the protection and enforcement of intellectual property rights in China. The United States claimed that China had acted against its obligations to certain parts of the TRIPS Agreement (Agreement on Trade-Related Aspects of Intellectual Property Rights). The four matters that the United States sought consultations on are: The thresholds that must be met for counterfeiting and piracy to be subject to criminal procedures How goods that infringe intellectual property rights are disposed of The scope of coverage of criminal procedures and penalties for IP counterfeiting or piracy The denial of copyright and related rights protection that have not been authorized for publication or distribution in China

United States’ Arguments China’s Arguments China’s actions are within the limitations of the TRIPS Agreement Part (5) of Article 41 is written – “it is understood that this Part does not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general, nor does it affect the capacity of Members to enforce their law in general” Therefore, China cannot be prosecuted for its actions as this Article clearly does not obligate China to put in place a judicial system for IPR enforcement or change their current laws (China’s Copyright Law) to align with this Article United States’ Arguments China has breached Articles 9, 41, 46, 59, and 61 of the TRIPS Agreement by: Lacking criminal procedures for commercial scale counterfeiting and piracy Requiring that infringing goods be released into the channels of commerce rather than being disposed of Foreign nationals not receiving the same level of copyright protection as Chinese nationals The fact that willful copyright piracy on a commercial scale may not be subject to criminal procedures and penal

International Standards in Question The TRIPS Agreement requires WTO member countries to align their intellectual property standards with the main provisions of the WIPO’s Paris Convention (industrial property protection) and Berne Convention (copyright protection). The Articles of the TRIPS Agreement in question are: Article 9: “Works originating in one of the contracting States must be given the same protection in each of the other contracting States as the latter grants to the works of its own nationals” Article 41: “Members shall ensure that enforcement procedures…permit effective action against any act of infringement of intellectual property rights” and that “procedures …shall be fair and equitable” Articles 46 & 59: Judicial authorities have the right to order that infringing goods be disposed of outside the channels of commerce in a way that would not cause harm to the right holder Article 61: “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”

Resolution by the WTO’s Dispute Panel Criminal Thresholds The Panel found that China did not violate Article 61 of the TRIPS Agreement as the article does not require Members to criminalize all copyright and trademark infringement. Customs Measures: The Panel found that the way in which China’s customs auctions goods (releases infringing goods into the channels of commerce in a way that could harm the right holder) was inconsistent with Article 59. Copyright Law: China’s failure to protect copyright in prohibited works (so that the copyright in such prohibited works cannot be enforced) is inconsistent with Articles 9 & 41 of the TRIPS Agreement.

US Customs Counterfeit Seizures from 2002-2004   Oct 1, 2003 – Mar 31, 2004 Oct 1, 2002 – Mar 31, 2003 Trading Partner Value % of Value China $37,578,952 58% $26,693,641 70% South Africa $4,444,218 7% -- Mexico $1,519,150 5% Russia $3,865,043 6% South Korea $1,433,690 4% Malaysia $902,532 2% Hong Kong $2,205,328 3% $1,882,366 Vietnam $2,181,094 All other trading partners $14,128,704 23% $5,553,764 15% Total domestic value $64,403,339 $37,985,143 Total number of seizures 3,693 3,117 Source: USCBC. “Intellectual Property Rights in China: Background and Figures.” June 2005.

Implications In April 2009, China informed the Dispute Settlement Body that it intended to implement their rulings and that a reasonable time period for them to implement these changes was 12 months from the adoption of the report. By 2010, China had completed all necessary actions for implementing the rulings into its domestic legislation, although the United States claimed that it was still skeptical that all changes had been effectively implemented and were being followed. As we see today, although there has been progress between merging China’s and the United States’ interpretations of appropriate intellectual property protections, there are still plenty of conflicts between the two countries in this realm. For more information on this WTO dispute, please visit: http://wto.org/english/tratop_e/dispu_e/cases_e/ds362_e.htm

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