On June 17, 2008 and September 12, 2008, Day Pitney’s Trademark, Copyright, Advertising & Internet Group presented “Enforcing Your Intellectual Property Rights in China” in the firm’s New York and Boston offices. These presentations focused on China’s dual system for intellectual property enforcement and its implementation of new rules and regulations to increase efforts to enforce intellectual property rights.

This Client Alert reports on recent developments concerning China’s IP enforcement efforts, and the role the United States government is playing in assessing and improving the effectiveness of China’s enforcement efforts.

China IP Enforcement Statistics.

 On October 24, 2008, China reported to the World Trade Organization (WTO) that its public authorities prosecuted 2,008 IPR-violating cases during 2007 with an estimated value of 1.49 billion RMB ($196 million at the 2007 average exchange rate). That was up from the 1,910 infringement cases in 2006 with a value of 1.06 billion RMB.

China represented that it had implemented new rules to modify its IP laws in 2007 to conform with the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights. China’s State Copyright Bureau and public security and telecommunications authorities also said the country had conducted a new campaign to combat Internet infringement and software piracy in 2007.

China further reported that 2,174 suspected infringers were arrested in 1,256 cases during 2007, nearly double the amount in 2006, and that 2,637 suspected IP infringers in 1,525 cases were prosecuted in 2007, again almost double from 2006. Increases were reported in the amount of seized infringing goods worth 440 million RMB ($58 million) in 2007, up from 200 million RMB seized in 2006, as well as increased numbers of court rulings on criminal infringers, confiscations of pirated goods, as well as trademark violation and patent enforcement prosecutions.

The above information was provided to the WTO in connection with its annual review of China’s efforts to comply with its WTO commitments to improve the protection of IP rights in China. The United States still includes China on its Priority Watch List, which identifies specific countries deemed by the U.S. to not have adequate protections for intellectual property rights. In its 2008 Special 301 Report, issued in April 2008, the U.S. Trade Representative noted that while China had made progress, the high levels of piracy and counterfeiting, including misuse of trademarks in China, were too high.

United States Action At the WTO Against China.

The United States is taking steps to require China to implement additional regulations to enhance China’s ability to protect the intellectual property rights of owners. In November 2007, the United States filed a complaint against China in the WTO alleging that China violated the TRIPs rules in creating certain thresholds for particular acts of counterfeiting and piracy, i.e., barriers to bringing infringement claims which effectively made it easier for the infringers to continue the infringing activity as long as they stayed below the designated thresholds. 

On October 9, 2008, the WTO dispute panel rejected the U.S. claim that some of China’s thresholds violated TRIPS rules. Indeed, China had lowered its thresholds soon after the U.S. brought its WTO complaint, e.g., it dropped the requirement for the amount of infringing goods from 1,000 to 500 to satisfy the basis for filing a criminal action. 

But the WTO did agree that China violated TRIPS rules by not allowing copyright protection for movies, music and books that had not been approved for sale in China. It is estimated that China’s failures in the copyright enforcement area cost the U.S. entertainment industry more than $3.7 billion in lost sales in 2007. The WTO also agreed that China’s rules allowing for the auction of seized infringing goods where the offending trademarks have been removed violated TRIPs. The WTO final ruling is scheduled to be issued before the end of the year, and we will make it available to you shortly thereafter. 

What does this mean for you?

By all accounts, the China IP enforcement situation is improving, albeit slowly. Clearly, China’s enforcement efforts are not where the United States would like them to be. It will likely take more time before China has laws and enforcement mechanisms that meet the standards that United States brand owners expect and require to feel more comfortable doing business in China. In the meantime, IP owners must remain vigilant in maintaining their enforcement strategies in China, be proactive in procuring protection for their IP in China, and implementing such IP strategies before entering the China market. The China IP enforcement system can and does work, if you use it.