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Viewing cable 09BEIJING570, CHINA MISSION 2009 SPECIAL 301 RECOMMENDATION
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| Reference ID | Created | Released | Classification | Origin |
|---|---|---|---|---|
| 09BEIJING570 | 2009-03-05 06:00 | 2011-08-23 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Beijing |
VZCZCXRO0111
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0570/01 0640600
ZNR UUUUU ZZH
P 050600Z MAR 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 2684
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHIN/AIT TAIPEI 7172
RUEHKO/AMEMBASSY TOKYO 2405
RUEHUL/AMEMBASSY SEOUL 1078
RUEHMO/AMEMBASSY MOSCOW 9212
RUEHGV/USMISSION GENEVA 2392
RUEAHLC/DHS WASHDC
RUCPDOC/USDOC WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMCSUU/FBI WASHINGTON DC
UNCLAS SECTION 01 OF 12 BEIJING 000570
SENSITIVE
SIPDIS
State for EAP/CM - SFlatt, PPark
State for EEB/IPE - RWatts, JUrban, TMcGowan
State for EEB/CIP - SFlynn, FSaeed
USTR for China Office - TStratford, TWineland, AWinter
USTR for IPR Office - JRagland, SMcCoy
Commerce for National Coordinator for IPR Enforcement
Commerce for MAC NMelcher, JWu, ESzymanski
Commerce for MAS RLayton, SMathews
LOC/Copyright Office - STepp
USPTO for International Affairs - LBoland, EWu, STong
DOJ for CCIPS - MDubose and SChembtob
FTC for Blumenthal
FBI for LBryant
DHS/ICE for IPR Center - DFaulconer, TRandazzo
DHS/CBP for IPR Rights Branch - GMacray, PPizzeck
ITC for LLevine, LSchlitt
E.O. 12958: N/A
TAGS: ETRD EIND KIPR ECON CH
SUBJECT: CHINA MISSION 2009 SPECIAL 301 RECOMMENDATION
This cable is sensitive but unclassified and is not for Internet
distribution.
Ref A: State 8410
Ref B: 2009 Guangzhou 0043
Ref C: 2008 Beijing 4527
Ref D: 2009 Chengdu 0030
Ref E: 2009 Shanghai 0059
Ref F: 2008 Shanghai 0232
Ref G: 2008 Shanghai 0233
Ref H: 2008 Shanghai 0546
REF I: 2008 Guangzhou 0720
REF J: 2008 Guangzhou 0438
¶1. (U) This cable responds to Ref A seeking Post input for the
annual 2009 Special 301 Review.
¶2. (SBU) Post recommends that China continue to be placed on the
Priority Watch List with Section 306 monitoring. A World Trade
Organization (WTO) dispute settlement panel on January 26, 2009
found that China was deficient in important aspects of its
intellectual property rights (IPR) regime under the WTO Agreement
on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
China's notorious markets, optical media piracy, online piracy,
and production and export of counterfeit goods and counterfeit
pharmaceuticals all remained serious problems. While there were
some positive developments, including robust enforcement
activities surrounding China's hosting of the 2008 Olympic Games,
China's IPR enforcement regime is still widely regarded as
ineffective and non-deterrent. Several U.S. businesses and
industry associations reported that China's IPR environment did
not deteriorate markedly in the past year and was more or less
"the same." However, recent reports that suggest the global
economic downturn may lead in China to judicial policies that
could reflect the selective enforcement of IPR laws. If such
reports are confirmed, rights holders could face serious
challenges in China in the coming year.
WTO Dispute Settlement
----------------------
¶3. (SBU) Following the April 2007 request by the United States for
WTO dispute settlement consultations with China over deficiencies
in China's legal regime for protecting and enforcing IPR, the
Chinese government suspended most bilateral discussions with the
United States on IPR matters and cancelled a large number of
previously planned collaborative IPR activities. Despite this
suspension, however, some agencies and municipalities continued
cooperation with the United States despite the central government
suspension. In addition, the Chinese government continued to work
on IPR programs, such as the EU's IPR2 initiative, that did not
involve the United States. Following a more than 18-month
suspension, the Chinese agreed (after a mandate by Vice Premier
Wang Qishan) to resume the bilateral dialogue on September 4-5,
2008 for the IPR Working Group under the Joint Commission on
Commerce and Trade (JCCT). On October 15, 2008 the WTO dispute
settlement panel unofficially ruled that China was TRIPS-
inconsistent in its denial of copyright protection to works
undergoing content review, as well as in the improper disposal of
infringing goods by China Customs. On a third point, however, the
panel found it had insufficient evidence to support the U.S. claim
that criminal thresholds for prosecution in China's criminal law
are so high as to allow commercial-scale counterfeiting and piracy
to occur without the possibility of criminal prosecution. The
BEIJING 00000570 002 OF 012
panel made its official decision on January 26, 2009.
IPR Working Group and JCCT
--------------------------
¶4. (SBU) On September 4 and 5, the U.S.-China bilateral dialogue
on IPR was officially resumed under the auspices of the JCCT IPR
Working Group in Beijing (see Ref B). In preparatory meetings and
throughout the event itself, the Chinese side emphasized that the
session should focus on rebuilding confidence in the IPR dialogue
rather than seek overly ambitious outcomes. Nevertheless, both
sides agreed during the event on a substantial list of cooperative
activities, including a concrete objective to move ahead with MOUs
on trademark, copyright, and patent cooperation before the end of
the year. At the September 16 JCCT plenary meeting in California,
China and the United States agreed to continue meetings of the IPR
Working Group and pursue cooperative activities on issues such as
IPR and innovation; copyright and internet piracy; counterfeit
goods at wholesale and retail markets; and other issues of mutual
interest. Both sides also agreed to further discuss China's
patent law amendments; pharmaceutical data protection; and the
bilateral customs Memorandum of Cooperation.
MOUs Signed with SAIC, NCAC, SIPO
---------------------------------
¶5. (SBU) On October 24, the United States and China signed three
memoranda of understanding related to IPR. First, USPTO and the
State Administration for Industry and Commerce (SAIC) established
a general framework for bilateral cooperation between the two
agencies on trademarks and unfair competition. A second with the
National Copyright Administration of China (NCAC) outlined
cooperation on issues related to copyright administration and
enforcement. Finally, a third MOU with SIPO will continue to
deepen the cooperation between the two agencies, which USPTO
officials describe as increasingly extensive and generally strong.
In early 2009, counterpart agencies were drafting respective work
plans for each MOU. These are expected to include bilateral and
multilateral technical level exchanges, and cooperation
initiatives such as "how to file" programs, which directly benefit
Chinese and U.S. patent applicants. In addition, USPTO will in
2009 again host at least one Chinese patent examiner from SIPO at
its Foreign Examiners in Residence program, in which foreign
examiners travel to the United States to participate in the same
eight-month training program as new U.S. patent examiners.
Developments in IP Legislation
------------------------------
¶6. (SBU) On December 27, 2008 the National People's Congress
passed the third major revision to China's Patent Law, which will
go into effect on October 1, 2009. The new law contains some
provisions, including those related to data protection and
compulsory licensing, that are of concern to foreign rights
holders. However, the State Council Legislative Affairs Office
conducted the revision process in a relatively transparent manner,
making the law available several times for public comment periods,
and making some changes to the draft that reflected input received
from public comments. China's Trademark Law and Copyright Law are
similarly undergoing review for possible amendment.
Ambassador's IPR Roundtable
---------------------------
BEIJING 00000570 003 OF 012
¶7. (SBU) On November 6-7, Embassy Beijing hosted the seventh
annual Ambassador's Roundtable Discussion on IPR in China.
Whereas in 2007 Chinese government officials refused to
participate because of the pending WTO case, in 2008 five Chinese
IP officials attended. The event included a keynote address by
Assistant Minister of Commerce Chong Quan and presentations by
SIPO National IP Strategy Office Deputy Secretary General Wu
Xiaoming; State Council Legislative Affairs Office (SCLAO)
Director General Zhang Jianhua; NCAC Copyright Department Deputy
Director Xu Chao; and China Trademark Office (CTMO) Deputy
Director General Lu Zhihua. While the speakers' comments did not
reveal major developments in China's IPR policies, their presence
at the event marked a positive step toward renewed bilateral
cooperation on IPR.
¶8. (SBU) Ambassador's Roundtable participants, mostly U.S.
businesses, were surveyed during the event for their views on the
IPR environment in China. With only 27 respondents, the findings
are not conclusive, but are as follows: one-third said IPR
protection in China was better than the year before; more than
one-half said IPR protection in China was the same as the year
before; nearly two-thirds said the IPR challenges they face in
China were the same as the year before; more than two-thirds said
Chinese IPR protection/enforcement was ineffective.
Innovation Conference
---------------------
¶9. (SBU) The "China-United States Innovation and Commercialization
Conference" was held in Beijing on December 2, two days prior to
the fifth Strategic Economic Dialogue (SED). Co-sponsored by the
Chinese Ministry of Science and Technology (MOST) and the U.S.
Departments of State and Commerce, the conference launched the
innovation component of SED V and was a follow-up to the December
2007 innovation conference convened in conjunction with SED III.
Participants, half of whom represented Chinese government and
industry, underscored the need for more bilateral collaboration in
exploring innovation. The U.S. side in particular stressed the
virtues of open innovation in contrast to indigenous, or "self-
reliant," development policies, and most speakers emphasized that
the current economic crisis provides an opportunity to enhance
global innovation. Business, academic, and government speakers
from both countries explored a variety of themes, including the
importance of standardization, IPR protection, government policies
and support, and the conditions and measures that produce a
"culture of innovation."
Data Protection
---------------
¶10. (SBU) According to the Pharmaceutical Research and
Manufacturers of America (PhRMA), China in 2008 did not provide
meaningful data protection to multinational pharmaceutical
companies that brought pharmaceutical products with new chemical
entities into China. A recent independent study focused on the
period January 1, 2003 to June 30, 2008 demonstrated the
inadequacy of data protection in China. The study showed that,
since 2003, shortly after Chinese law incorporated the data
protection provision of TRIPS, 49 pharmaceutical products
containing new chemical entities (NCE) have been introduced in
China by 21 multinational pharmaceutical companies. As many as 18
of these NCE products are severely affected by domestically
manufactured products, which are essentially the same as the
BEIJING 00000570 004 OF 012
original NCE product but were nevertheless all approved as "new
drugs" in China. There are a significant number of non-original
manufacturers in China making NCE products whose equivalent
generic drug was approved either before or shortly the NCE product.
These facts, said PhRMA, show that China has yet to provide
meaningful data protection to NCE originator companies.
Enforcement
-----------
¶11. (SBU) Microsoft reported to Emboffs in February 2009 that a
number of cases conducted in 2008 represented milestones in
enforcement of the company's IPR by Chinese authorities. However,
the company said the cases are not significant in the broader
context of Microsoft's experience in China, where the company's
revenues are vastly smaller than would be expected given the size
of the computer market.
¶12. (SBU) On April 14, 2008, the Qingdao Intermediate People's
Court ruled that defendant Qingdao Ultimate Transportation
Equipment Co., Ltd., a Sino-U.S. joint venture, must pay 1.72
million RMB (USD 250,000) in damages to three plaintiffs,
including Microsoft. In 2006, BSA filed a civil suit with Qingdao
Intermediate People's Court after failing to reach a settlement
with Ultimate. The case was built on evidence obtained through a
raid by Qingdao's Copyright Administration against Ultimate. The
defendant appealed to the Shandong Province High People's court
and the court reaffirmed the decision in October, 2008. The case
is significant because it was the first winning end user civil
court case brought by Microsoft in China, as well as the highest
damage awarded by the China court to foreign software rights
holders.
¶13. (SBU) On July 14, 2008, Shanghai Pudong People's Court
sentenced two criminal defendants to serve 2-3 years for making
and selling altered volume discount agreements under the Microsoft
Open License Program. The case, brought to the Pudong PSB by
Microsoft, was significant because it was the first ever case
involving a fake license, as opposed to counterfeits disks. The
Supreme People's Court recognized the significance of the case by
naming it one of its Top 10 Criminal Cases in the past 30 years.
¶14. (SBU) On August 15, 2008, Suzhou Public Security Bureau
detained and froze the assets of Hong Lei, the founder of
TomatoLei.com, a website offering free downloads of pirated
Microsoft Windows, Office, and popular software from Adobe,
Symantec, Autodesk, and other companies. The case, which was made
possible by effective coordination between the Microsoft, NCAC,
and the MPS, had a significant impact on the Chinese software
market and led to the closure by Suzhou PSB of a number of similar
websites. The case was transferred to the Procuratorate in
November 2008.
¶15. (SBU) On December 31, the Shenzhen Futian District People's
Court convicted 11 defendants in China's largest-ever copyright
counterfeiting case. Sentences ranged from 1.5 to 6.5 years, the
longest ever handed down by China's courts for a software
copyright crime. The decision ended a 17-month prosecution and
involved the largest group of pirates punished by the court in a
single case. The convictions were a result of milestone
collaboration between the FBI and China's Ministry of Public
Security (MPS), and disrupted a criminal syndicate believed to be
the largest software counterfeiting group in the world,
BEIJING 00000570 005 OF 012
responsible for manufacturing and distributing 13 different
counterfeit Microsoft software products in 11 languages to 36
global markets. Li Shunde, a legal scholar who heads the Chinese
Academy of Social Sciences Intellectual Property Research Center,
told China's Xinhua news agency "This [case] shows China's
sincerity in implementing intellectual property law enforcement."
¶16. (SBU) Dahon Technologies, Ltd., a U.S. bicycle maker with
extensive retail and manufacturing activities in mainland China,
reported that local courts in Shenzhen awarded monetary damages to
the company in seven separate patent infringement cases against
Chinese firms in 2008. Despite these successes, company
representatives said they faced continuing IPR infringement risk
due to lax enforcement of IPR regulations at trade fairs
throughout China. Several other Guangzhou-based rights holders
and law firms have separately described trade fair-related IPR
concerns as an area that did not significantly improve in 2008,
even as trade fair organizers and local government Intellectual
Property Offices established complaint desks and assigned full-
time officials to settle IPR-related disputes during most major
fairs (see Ref I). One rights holder described officials ignoring
repeated IPR infringement complaints for three consecutive years
as the company escalated its complaints and repeatedly sued fair
organizers, local government officials, and companies that
allegedly violated the firm's IP during the fairs. The rights
holder said fair organizers eventually implemented new procedures
and stepped up enforcement in time for the 2008 annual fair in
order to prevent the company from filing additional law suits.
¶17. (SBU) Shanghai continues to be a bright spot in East China's
IPR enforcement. The city's IPR white paper, published in 2008,
highlights Shanghai's efforts. Shanghai has particularly boosted
transparency through such efforts as posting its IP strategy on-
line for public comment and live broadcasts of IP case trials via
the Internet. Shanghai PSB has also begun a new initiative to
more proactively investigate IP cases based on credible leads
rather than waiting for the criminal threshold to be met before
beginning an investigation. However, counterfeit retail markets
continue to be a problem in the city (see Ref G).
¶18. (SBU) Shanghai courts, which receive high marks from the U.S.
business community for their professionalism and fairness, are
attracting large numbers of both foreign and domestic
litigants. Shanghai has taken a number of measures since October
2008 to highlight and strengthen its judicial capabilities. On
October 29, Shanghai established the Shanghai Intellectual
Property Arbitration Court with the support of the Shanghai IP
Administration and the Shanghai Arbitration Commission (SAC). By
establishing a special IP Arbitration Court, Shanghai hopes to
gain a similar reputation for its arbitration abilities (see Ref
H).
¶19. (SBU) The Jiangsu High Court is likewise gaining recognition
in the U.S. business community for its progress and increasing
capacity for dealing with IP cases. The Jiangsu High Court
emphasizes compelling the infringer to disclose all infringement
information and imposes civil sanctions in addition to damages
under certain circumstances.
¶20. (SBU) Guangdong Provincial and Local courts, especially in
Guangzhou and Shenzhen, resumed IP-related cooperation and
exchanges with the United States in 2008 after a hiatus of almost
two years. Court officials met with U.S. officials and described
continuing efforts to improve the handling and enforcement of IPR
BEIJING 00000570 006 OF 012
cases. Guangdong High Court also welcomed visiting U.S. federal
judges and prosecutors in conjunction with exchange programs
cosponsored by USPTO and Guangdong IPO (see Ref J). Guangdong
Customs and Guangdong Administration of Industry and Commerce (AIC)
also resumed cooperative product identification training for each
agency's front-line inspectors by inviting U.S. officials and
rights holders to directly participate.
¶21. (SBU) However, rights holders continued to report challenges
in inter-agency cooperation on IPR-related cases among China's
different administrative and law enforcement agencies. Although
rights holders said cooperation with individual agencies generally
improved in 2008, they repeatedly complained about situations in
which successful investigations and enforcement actions failed to
be effectively transferred from one agency to another for
continued action or the next step in the enforcement process. For
example, cases successfully investigated by a local AIC reportedly
languished and remained incomplete after transfer to the Public
Security Bureau for further criminal investigation. More
frequently, rights holders reported that Public Security Bureau
criminal cases were inexplicably refused or simply disappeared
after being referred to Procuratorates for trial, meaning that the
results of the administrative and criminal investigations were
never considered by a Chinese court. Lack of an effective
evidence discovery process and prohibitively high enforcement
thresholds remain major problems for rights holders when
attempting to enforce their IPR rights in China (see Ref J).
¶22. (SBU) NCAC reported that, from April 1 to May 31, 2008, it
launched a nationwide special action to combat the preloading of
infringing software on new computers by manufacturers and
resellers. By strengthening the supervision and inspection of
computer manufacturers and large-scale computer markets, NCAC said
the rate of preloaded genuine operating system software increased
to 85 percent. However, Microsoft estimates that only 35 percent
of such software is genuine, up from 15 percent in 2005.
¶23. (SBU) Chinese authorities in 2008 received positive attention
in the media for making IPR enforcement a national priority,
especially against unlicensed goods bearing the Olympics logo.
The campaign implemented broad efforts to protect Olympic Sponsors
and China's image as the host, and included a propaganda campaign
to place monthly news stories about protecting the Olympics logo.
Many of the largest sponsors of the Games praised the government's
efforts to protect their brands in some of the most public Olympic
venues. However, there were many reports that unlicensed products
in Beijing's notorious markets were simply driven underground in
the cat-and-mouse game with law enforcement officials that is so
familiar to Beijing's vendors.
Notorious Markets
-----------------
¶24. (SBU) Baidu.com has in previous years been identified by
industry as the largest China-based "MP3 search engine" with deep
links to unauthorized downloads of copyright-protected files. In
February 2008, International Federation of the Phonographic
Industries (IFPI), representing Sony BMG Music, Warner Music,
Universal Music, and Gold Label Entertainment, filed a $9 million
music copyright infringement suit in a Beijing court against Baidu
and a $7.5 million suit against Sohu.com. Baidu officials
continue to deny responsibility for the content hosted by other
websites, but told Emboffs in February 2009 that the company does
BEIJING 00000570 007 OF 012
provide a mechanism for rights holders to request the removal of
links to infringing content. Domestic rights holders are also
suing Baidu. In March 2008, the Music Copyright Society of China
(MCSC) and R2G, a leading music distributor, announced anti-piracy
action against the company, citing infringement of material
including Olympics-themed songs. The MCSC and R2G said they
turned to the courts after failing to reach a private settlement
with the search engine giant, charging Baidu with stonewalling,
delaying tactics, and using distorted interpretations of the law.
¶25. (SBU) At physical markets in China, the widespread
availability of counterfeit goods in and around Beijing's markets
continued to be a problem. Widespread infringement continued at
long-time hotspot markets such as Jiayi, Yuexiu, and Yaxiu.
Unofficial visits to Jiayi after 5:00 p.m., when police and
copyright officials leave for the evening, reveal dedicated vendor
stalls, closed during daylight hours, that sell exclusively Louis
Vuitton and Coach products. Both of those brands, along with
dozens of others, have been prohibited for sale in all Chinese
wholesale markets since 2004. Problems at the notorious Silk
Street Market and Hongqiao Market also remained severe. A January
2008 report from industry claimed that the situation remains
"horrid," with a survey of the market revealing piracy levels that
increased in most categories from 2007 to 2008.
¶26. (SBU) In December 2008, a coalition of brands including
Burberry, Chanel, Gucci, Louis Vuitton, and Prada reached a
settlement agreement with Silk Street Market management. Under
the terms of the deal, the market's management company agreed to
suspend vendors caught selling infringing goods. While the
settlement has been enforced and some stalls shut down, such
actions in February 2009 elicited angry responses from vendors,
who protested and threatened employees of the agency in Beijing
that represents the brands. As a result, suspensions were delayed
and notarized purchases, the process by which transactions
involving counterfeit goods are recorded for use as evidence in
court, were disrupted. The law firm representing the brands in
the settlement agreement is investigating whether Beijing
government and Silk Street authorities have capitulated to demands
of the vendors in order to avoid conflict. Threats to social
stability, particularly during the current economic downturn, have
been rumored in some cases to be hindering authorities'
willingness to enforce laws (see para 43).
¶27. (SBU) In 2008, while Beijing played host to the Summer Olympic
Games, Silk Street market management reported more than 1.6
million visitors to the market, its highest numbers in three
decades. Wang Zili, general manager of Beijing Silk Street Co.,
Ltd., which manages the market, was repeatedly quoted in the local
media during the Olympics touting the surge in visitors. In a
September 2008 meeting with USTR officials, the Chaoyang District
Government's Commerce Bureau, which oversees the market, cited
visits to Silk Street by former U.S. President George H. W. Bush
and other dignitaries as a validation of, and support for, the
market's legitimacy.
¶28. (SBU) In Shanghai, while production of IPR infringing goods is
reportedly decreasing, purveyors of infringing goods, both on the
streets and with small retail establishments, remain largely
unchecked. In July 2006, Shanghai closed its premier counterfeit
market, Xiangyang. However, several other markets have sprung up
and thrived in its place, and many Xiangyang merchants simply
moved to these other locations throughout the city, including the
Shanghai Yatai Shenhui Recreational Shopping Center, Fengxiang
BEIJING 00000570 008 OF 012
Fashion and Gift Market (located in the same building as the
Shanghai IP Service Center), and the Shanghai Longhua Fashion and
Gift Market.
¶29. (SBU) In Guangdong Province, notorious markets in Shenzhen and
Guangzhou have shown signs of increased attention to IPR
protection, but the total volume of infringing goods at such
markets has not seen a major decline. At Shenzhen's Luohu Market,
signs have been posted at most entrances and exits reminding
visitors that the sale of infringing goods is prohibited, and
notices are occasionally posted on closed stalls indicating that
those stalls were shut down for violating IPR regulations.
However, sales of infringing goods continue to openly take place
in other stalls in the same markets, and the increased attention
to IPR enforcement appears to have forced the sellers of higher
quality counterfeits further underground. Sellers of high quality
fakes, including brand name purses, clothing, and accessories, as
well as DVDs, CDs, and other digital media, increasingly escort
customers to hidden back rooms within the market or to apartments
in adjacent buildings where the better quality fakes are stored
and transactions take place.
Internet Piracy
---------------
¶30. (SBU) China has the world's largest and fastest-growing
Internet population, which increased more than 41 percent to
nearly 300 million users from 2007 to 2008. The United States,
with the second largest number of Internet users, had
approximately 223 million during the same period. However,
China's rate of Internet penetration is only 23 percent, still
relatively low compared with 71 percent in the United States.
More than 90 percent of Chinese Internet users, approximately 270
million people, were estimated to use a high-speed Internet
connection, allowing them to download larger files including
movies, television shows, and video games. The launch in 2009 of
China's third-generation mobile phone services, which support
wireless Web surfing, is expected to cause a further surge in
Internet usage in coming years. According to statistics from the
China Internet Network Information Center (CNNIC), there were more
than 13 million websites with a .cn domain name in December 2008.
The Internet environment in China has created opportunities for
widespread piracy and challenges for law enforcement.
¶31. (SBU) In addition, China's internet population is increasingly
watching streaming video of foreign television programs and movies
rather than waiting to buy DVD or VCD discs, with the video
content available on a burgeoning number of domestic and
international websites featuring new and old television programs
that often become available for viewing within hours of their
initial broadcast. Hobbyist groups have also formed in China with
television and computer enthusiasts volunteering to compile
translations of foreign programs and upload home-made subtitles to
the new programs as soon as new videos become available on Chinese
streaming video websites, making the content more accessible to an
even broader Chinese audience.
¶32. (SBU) Chinese officials reported campaigns to crack down on
online piracy at various times throughout 2008 with varying
degrees of success, and hundreds of infringers were reportedly
ordered shut down. In March 2008, China's National Anti-
Pornography and Anti-Piracy Office, under the General
Administration of Press and Publication (GAPP) announced that it
had shut down and unspecified number of domestic websites in a
BEIJING 00000570 009 OF 012
crackdown on pornography and piracy. The office at the time also
reported that a number of cases in Guangdong, Anhui, and Hubei
provinces had resulted in arrests. Amendments to China's
copyright law, which for many years has been under review for
revision, are expected to better address issues of online piracy.
¶33. (SBU) From June 1 to September 30, 2008, the Chinese
government went to great lengths to launch a broadly coordinated
crackdown on the unauthorized retransmission of sporting events
and other activities related to the Beijing 2008 Olympic Games. A
working group composed of NCAC, MPS, MIIT, and the State
Administration of Radio, Film and Television (SARFT) initiated 24-
hour monitoring of video websites. The nationwide enforcement
efforts reportedly resulted in 453 online infringement cases, of
which 192 sites were shut down, 173 sites were required to remove
infringing content, 88 sites received administrative punishment,
usually fines, and 10 sites were transferred to the Procuratorate
for prosecution. According to monitoring by the International
Olympic Committee, the vast majority of illegal retransmissions
subsequently happened outside of China, indicating a successful
campaign.
Production, Import, and Export of Counterfeit Goods
--------------------------------------------- ------
¶34. (SBU) Statistics released by United States Customs and Border
Protection (CBP) in January 2009 revealed that China was again the
United States' top trading partner for IPR seizures, accounting
for 81 percent of the total value of counterfeit products seized
at United States borders for full year 2008. Hong Kong (five
percent) and Taiwan (one percent) were in third and fourth place,
respectively. While the proportion of seizures from China
increased slightly from 80 percent in 2007, the total value of
goods seized jumped more than 40 percent in the same period to
$221 million from $158 million. (Note: Globally, CBP reported
that the total value of all IPR seizures in 2008 increased nearly
39 percent from 2007. End note.) More than 96 percent of footwear,
the top commodity seized in 2008, originated in China. More
troubling, perhaps, is that China, India, and Hong Kong, the top
three trading partners for IPR seizures overall, accounted for 94
percent of all seizures of products posing potential safety or
security risks.
¶35. (SBU) In December 2007, U.S. Customs and Border Protection
entered into a non-binding memorandum of understanding (MOU) with
the General Administration of Customs of the People's Republic of
China (GACC) to better exchange information on border seizures of
counterfeit goods. While technical and internal challenges on
both sides have reportedly slowed the responsiveness, data sharing
between the customs agencies has been generally useful, and led to
some successful seizures in 2008.
Optical Media Piracy
--------------------
¶36. (SBU) The massive problem of Internet piracy has overshadowed
optical disc piracy because of its scale and efficiency. However,
the music and movie industries continue to be plagued by optical
disc piracy in China and by China-made pirated optical discs
across Asia. These discs fuel the pirated DVD sellers that seem
to be ubiquitous in Chinese cities (see Ref D). Industry reports
that little seems to be done about infringing optical disc plants
in China, and notes in particular a lack of criminal
BEIJING 00000570 010 OF 012
investigations. Industry finds especially problematic the
inability to send suspicious optical discs directly to forensic
testing centers such as the one in Shenzhen. Although they
regularly exchange information with the facility, the current
requirement is that discs be submitted via local law enforcement
or publishing companies, a burden that complicates investigations.
Changing this policy requires approval by the Ministry of Public
Security.
¶37. (SBU) At a November 21, 2008 roundtable with U.S. business
representatives in Shanghai, and at a separate roundtable event in
Guangzhou on December 2, USG officials discussed Internet-related
IP enforcement in China. Business representatives outlined some
of the hurdles they face on IP protection, most notably the
verification of pirated DVDs and CDs. Businesses confirmed their
difficulty finding an agent to verify pirated copies despite the
presence of the government lab in Shenzhen that has testing
capabilities. In even the most obvious cases of pirated DVDs,
they said, Chinese enforcement authorities insist on a report from
a neutral agent.
Use/Procurement of Government Software
--------------------------------------
¶38. (SBU) In its fifth annual survey of packaged PC software
piracy, released in May 2008, the Business Software Alliance (BSA)
showed that, accounting for new information on China's PC market,
the real piracy rate in 2007 dropped two points to 80 percent.
BSA credited new vendor agreements with OEMs that took effect in
2007, and said that more China-based companies becoming
multinational enterprises added incentive to comply with
international IPR standards. BSA reported that the number of PCs
shipped to homes and small businesses, a group with higher
infringement levels, grew faster than the market as a whole,
especially in second- and third-tier cities, but not enough to
offset progress made to date legalizing larger customer segments,
such as government and enterprise. However, BSA also explains in
its report that previous studies had underestimated the number of
China's non-brand name vendors, a group with a higher rate of
piracy than other vendors. This discovery increased the overall
estimate of China's PC market by 25%, and also raised the piracy
rate. Therefore, BSA's official 2007 ranking shows that China's
piracy rate remained at 82 percent for a second consecutive year,
with the acknowledgement that China is demonstrating progress in
fighting PC software piracy in the government, large enterprises,
and even consumer and small business markets, which represent two-
thirds of the country's software market. BSA's preliminary
estimates show China's 2008 piracy rate at 79 percent, continuing
a downward trend.
¶39. (SBU) As in previous years, the Chinese Government objected to
BSA's methodology, which it said is flawed because it accounts
only for packaged software, which they argue represents only a
portion of China's software market. Instead, China relies on its
own study, conducted by Chinese research firm Chinalabs. In June
2008, Chinalabs released its annual report on software piracy,
announcing that China's software piracy rate was in fact only 41
percent in 2007 - half the 82 percent piracy rate reported by BSA.
The study indicated that the general software piracy rate had
dropped 10 percentage points from 2006 to 2007, while the piracy
rate in operating systems had declined 29 points from 2006 to 39
percent in 2007.
BEIJING 00000570 011 OF 012
¶40. (SBU) On January 12, 2009, Zhejiang Copyright Department
Director Wang Shaojie said that the financial crisis has made
their work more difficult as companies are more tempted to cut
corners by using pirated software. Nevertheless, Wang vowed that
the Copyright Bureau would continue to urge companies that are
still in operation to buy legitimate software. He said the
Zhejiang Copyright Bureau plans to assist Zhejiang companies to
buy software worth RMB 100 million (USD 15 million) from Microsoft,
though it is unclear how this will be funded (see Ref E).
Treaties
--------
¶41. (SBU) China acceded to the 1996 WIPO Copyright Treaty (WCT)
and WIPO Performances and Phonograms Treaty (WPPT), known as the
"Internet Treaties," in June 2007. Since then, China's
legislature has not promulgated any laws or regulations to
implement these two treaties, because China's current Copyright
Law, revised in 2001, meets all the requirements provided in the
WIPO treaties. As a result, the Chinese government can use the
Copyright Law to implement the two treaties without drafting a new
implementing law or regulation.
¶42. (SBU) The Chinese government on September 1, 2008 notified
WIPO that it would extend the application of the Internet Treaties
to Hong Kong effective October 1, 2008. The notification
superseded China's statement in 2007 that, unless otherwise
notified, the Internet Treaties would not apply to Hong Kong or
Macao.
Recent Developments
-------------------
¶43. (SBU) Since December 2008, there have been a number of
developments in China that appear to indicate a potentially
troubling trend toward protectionism and nationalism and selective
application of the rule of law. In a December 10 press interview
with a local reporter, Supreme People's Court (SPC) Third Division
Court Vice President Judge Kong Xiangjun reportedly said the SPC
would study "how to adjust IP judicial policies" to mitigate the
effect of the global financial crisis on China's economy. Reports
said Kong suggested that if infringing activity did not "violate
public interest," the infringer would be allowed to continue the
infringing activity, but be required to pay damages to the rights
holder. China's 21st Century Business Herald quoted an SPC source
saying that the SPC had already distributed the new guidelines
internally even as the policy deliberations continue. The SPC and
SIPO at the time denied knowledge of the issue. A Xinhua media
report from the same day, however, credited Judge Kong with
telling local courts to apply a stricter compensation rule in the
case of infringements, and to set up more IPR tribunals -
statements more in line with China's current legal requirements to
cease all infringing activities (see Ref C).
¶44. (SBU) In January 2009, SPC President Wang Shenjun stressed to
local deputies in Henan province that Chinese courts must serve
the overall situation of the country, with a focus on better
servicing the nation's top priority: stable and fast growth.
Reinforcing those statements, the SPC's Third Division (the IPR
division) published on its website its 2009 "Focuses of Work,"
which include "taking full advantage of the functional role of IP
trials to provide judicial support to enterprises in enhancing
BEIJING 00000570 012 OF 012
indigenous innovation capabilities, market competition
capabilities, and risk resistance capabilities."
¶45. (SBU) Reports from Guangdong confirm that the policy is being
put into practice. Local media reports announced that the
Guangdong Communist Party's (CPC) Disciplinary Inspection
Committee and the Guangdong Procuratorate have each announced
measures to ease law enforcement efforts in cases where punishment
might impact the ability of a major firm to maintain economic
growth. Business and legal contacts in the province have warned
that legal resolution of commercial disputes, especially IPR civil
cases, has measurably weakened as court officials express doubts
about upholding judgments that might cause defendant companies to
go out of business or shed local workers.
¶46. (SBU) China IP expert Danny Friedman suggested to Econoff that
"the Chinese ministers might feel that their hands are tied. On
the one hand, they want to enforce intellectual property rights,
but on the other they do not want to increase unemployment and
cause soQnrest by putting whole villages out of work that are
sustained by manufacturing counterfeit products. This is a
fortiori so, because of the economic downturn."
Comment
-------
¶47. (SBU) Reports from industry suggest that the IPR environment
in China continues to receive increased awareness and benefited
from sufficient enforcement actions to prevent significant
deterioration in the past year. During the Olympics, China's
government launched a highly visible campaign to protect certain
aspects of IPR. However, progress has not been sufficiently
consistent or sustained to change the widespread perception of
China's enforcement regime as largely ineffective and non-
deterrent. The suspension of the bilateral IPR dialogue continued
for much of 2008 as a result of China's petulant response to the
United States' 2007 WTO filing. While some gains appear to have
been made following the resumption of bilateral talks in September
2008, the cooperation to which both sides agreed will not result
in concrete action until later in 2009. The long-awaited third
revision of China's Patent Law included many provisions, such as
compulsory licensing, that are troubling to the foreign IPR
community. Furthermore, the rumored selective enforcement of IPR
laws, motivated by the economic downturn, suggests we need
continued pressure on the Chinese Government to cooperate in
bilateral and multilateral fora, and to take measurable action to
improve the IPR environment in China. In this context, Post
recommends that China continue to be placed on the Priority Watch
List with Section 306 monitoring. End Comment.
PICCUTA