Parties Accept WTO Dispute Settlement Report On China IP Protection

A final decision on a World Trade Organization case over intellectual property rights protection between China and the United States was accepted by the states Friday, with both claiming its arbiter had affirmed their positions.

The case was brought by the United States in April 2007, contending that several of China’s enforcement measures with regards to aspects of the World Trade Organization (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement were being inadequately applied. They were later joined by Canada, the European Union, Japan and Mexico.

The WTO Dispute Settlement Body report on the decision was released in January (IPW, WTO/TRIPS, 26 January). The meeting on 20 March gave member states the opportunity to comment on the report and on the resolution of the case. An earlier panel, hosted by think-tank the International Centre for Trade and Sustainable Development (ICTSD) and the UN Conference on Trade and Development (UNCTAD), analysed the significance of the final decision.

The United States said in its statement at the 20 March meeting that it had “been concerned for some time that levels of counterfeiting and piracy in China remain unacceptably high.” It added “several aspects of China’s legal regime were contributing to the larger problem by hindering effective IPR protection and enforcement,” and said it was gratified that “in critical respects the panel agreed with the US concerns.”

China expressed in its statement “regret that the United States set aside a more cooperative approach… to pursue litigation without apparent economic benefit” after years of “a productive and cooperative dialogue on intellectual property protection.”

The report, said China, is a “broad affirmation of China’s intellectual property protection regime.”

The acceptance of the report is significant as it means neither party will appeal the panel’s ruling. Now that the report has been accepted, China will be expected to say how it will implement changes suggested to it by the panel.

The United States highlighted several of the panel’s decisions. The US said it was pleased over the DSB panel’s decision on works that do not pass China’s censor. China previously did not provide any protection for such works, and the panel decided that this was a violation of Article 9.1 of the TRIPS agreement, which requires any work entitled to copyright protection be granted it, as well as Article 41.1 that calls for enforcement measures to be available to stop infringement.

The US also said the panel had a recognised that border enforcement measures that allow infringing goods to be returned to market with only the trademark removed could be confusing to consumers and damaging to a brand name, and are thus not discouraging infringement.

The statement also noted a decision on China’s thresholds for the definition of criminal activity, which the US had said were too high to be effective, but said it was disappointed the panel needed more evidence to conclude that “the commercial activity under China’s thresholds was ‘on a commercial scale.’” Commercial scale infringement, under TRIPS Article 61, is required to carry criminal penalties and procedures.

China said that, while it does not have a perfect IP enforcement record, “like any other country in the world,” it has always acted in good faith to implement its TRIPS obligations.

China “took note” of several of the panel’s decisions. In particular, it noted that the panel “found no fault” with China’s system of criminal enforcement for IP violations and that the US had failed to prove to the panel that China’s criminal thresholds violated the TRIPS agreement.

China’s statement also said that the panel found “almost all aspects of China’s system for disposing of infringing goods seized at the border” were consistent with TRIPS, including the country’s steps for disposing of infringing goods by donating them to charities, “selling them to the rights-holders, or offering them for auction.” The only border measure the panel objected to, said China’s statement, was measures for auctioning off seized goods, which says simply removing a false trademark is insufficient.

China said it will “be examining the report carefully and will advise the DSB of its intention in respect of the implementation” of the report.

The European Union, Australia, and Canada also submitted statements to the DSB.

The next meeting of the DSB will be 20 April.

Panelists Analyse Report

An ICTSD and UNCTAD event held on 23 February examined and analysed the significance of the panel outcome.

The “lack of evidence that the US provided is pretty stunning,” Joost Pauwelyn, international law professor at the Graduate Institute of International Studies in Geneva, said of the US complaints to the DSB. For example, the evidence regarding criminal sanctions was, he said, essentially “a few press articles,” and wondered if China would become more confident to defend themselves after the case.

Xuan Li of the South Centre said the case brought up wider “challenges from the North” – particularly so-called TRIPS-plus provisions (attempts to impose higher than TRIPS standards on a bilateral basis), and the challenge of how to maintain an effective IP regime in a case where state resources are minimal.

Potential benefits of this report for the United States include an understanding of China’s legal reasoning as well as momentum for future WTO challenges (as this is only one of many cases), said Peter Yu, director of the Intellectual Property Law Center at Drake University Law School in Indiana (US). It also sends a message from the US that they are “willing to use the WTO process,” he explained.

But it could backfire in that copyright could become a pretext for censorship, cautioned Yu: for example, copying banned books could be criminalised as copyright infringement.

There are also benefits for China and for other developing countries, Yu continued. China gains from this experience increased WTO know-how, including a clearer understanding of the country’s obligations under the WTO, and thus the ability to “play the game better.” Developing countries can reject the use of free trade agreements as determining interpretations of TRIPS Article 61, related to criminal enforcement on IP infringement, and they have seen that there are limitations on obligations as well as minimum standards. The panel’s decision to look at the local marketplace to determine the definition of “commercial scale” is also an important development, Yu added.

Developing countries, said Atul Kaushik of the Consumer Unity & Trust Society International and a former Indian negotiator at the WTO, can take guidance from the panel report. The four limitations on TRIPS Article 61 need to be very carefully examined by domestic policy makers, he said, in particular the requirement of “wilful” infringement, as there “is not yet an international understanding in this area of law.”

This is the second case, said Yu, of a DSB involving a developing country, and raises questions as to whether the DSB process is good enough to protect developing countries.

Kaushik said that consumers will eventually benefit from higher IP enforcement, if only because “they’ll be clearer in knowing a, what they are buying, b, the value of what they are buying, and c, whether they can afford the value assigned to an item that has a brand name.”