By Kaitlin Mara and William New
China has been found in violation of two of its responsibilities under international rules on trade and intellectual property, and in partial violation of one more, said a World Trade Organization panel report on the US-China dispute over copyright and customs matters released Monday. But the panel did not make a decision on some of the US claims.

The panel has recommended that China alter its copyright law and customs measures to be consistent with its obligations under the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement.

The final report finds China’s copyright law inconsistent with Article 9 of the TRIPS agreement, which incorporates the Berne Convention for the Protection of Literary and Artistic Work. The panel stated that China is inconsistent with Berne Convention Rule 5(1), which requires that foreign owners of creative works receive the same protection as domestic owners of similar material.

The panel decision also found China to be in violation of TRIPS Article 41.1, which requires members to have available laws “so as to permit effective action against any act of infringement of intellectual property rights covered by this agreement,” including remedies which “constitute a deterrent to further infringements.”

China was not in violation, the panel said, of the first sentence of TRIPS Article 61, which requires “criminal procedures and penalties to be applied at least in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale.”

China’s customs measures were found to be in partial violation of TRIPS Article 46, in particular its fourth sentence which says in the case of “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.”

But the country was not found in violation of the first sentence of Article 46, which grants customs authorities the right to get rid of goods they have found to be infringing.

The panel’s final report is available here.

The dispute started in April 2007, when the United States requested consultations on four matters related to intellectual property on which it said China’s behaviour was in violation of its obligations.

These matters included minimum thresholds on trademark counterfeiting and copyright piracy before criminal penalties can be applied. The US claim stated [pdf] that thresholds for criminal prosecution in China are defined in such a way as to allow commercial-level trademark and copyright violations to go unpunished. This, the US contended, violates TRIPS Article 41.1 as well as Article 61. The US claimed there is a lack of criminal procedures for people who illegally reproduce copyright works.

The panel’s final report left without decision claims related to the second sentence of Article 61, listing potential punishments for the criminal procedures, and parts of Article 41.1 related to criminal thresholds, on grounds that earlier decisions render them irrelevant.

Second, on the disposal of IP-infringing goods confiscated by customs authorities, the US said that certain laws seem to allow infringing goods to enter the market once their infringing features are removed, which violates TRIPS articles 46 and 59, which respectively concern deterrents to infringement by denying market access, and grant authority to destroy goods under certain conditions.

The third concerns China’s refusal to grant copyright and related rights to creative works not authorised for publication or distribution in China (censored in the country), which the US said violates a series of laws, including Article 5(1) of the Berne Convention, which mandates that foreign authors be given the same protection as domestic.

US Vows Enforcement

The US Trade Representative’s office was quick to claim victory in the case. Acting USTR Peter Allgeier said in a statement: “These findings are an important victory, because they confirm the importance of IPR protection and enforcement, and clarify key enforcement provisions of the TRIPS Agreement.”

“Having achieved this significant legal ruling, we will engage vigorously with China on appropriate corrective actions to ensure that US rights holders obtain the benefits of this decision,” he added.

USTR also said the panel “clarified that whether acts of counterfeiting or piracy are ‘on a commercial scale’ depends on factors such as the product at issue – whether it is a designer watch, DVD or a software title – and the particular market in which it is sold.” It further clarified that what constitutes ‘commercial scale’ must take into account the impact of technological developments such as the internet and the evolution of marketing practices making it easier for pirates and counterfeiters to flourish, USTR said.

Chinese officials could not be reached for comment at press time. Both sides have the right to appeal.

Intellectual Property Watch will seek to provide a more in-depth analysis of this dispute in the near future.

Kaitlin Mara may be reached at kmara@ip-watch.ch.