US vs China (DS 362)

Measures Affecting the

Protection and
Enforcement of Intellectual
Property Rights
Case Analysis
International Economic Law Class
2013/2014
Presented by:
Muhammad Faiz Aziz (P72110)
Noor Farahani Binti Norizan (P72105)

Contents
I
I
IV
III
1. Brief Information
2. Issues
3. Arguments
4. Findings
5. Current Status
6. Conclusion
7. References

BRIEF INFORMATION
Short title China Intellectual Property Rights
Complainant United States
Respondent China
Third Parties Argentina; Australia; Brazil; Canada; European Communities;
India; Japan; Korea, Republic of; Mexico; Chinese Taipei;
Thailand; Turkey
Agreements cited:
(as cited in request for
consultations)
Intellectual Property (TRIPS): Art. 3.1, 9.1,14, 41.1, 46, 59, 61
Request for
Consultations
10 April 2007
Panel Established &
Composed
25 September 2007 & 13 December 2007*
Panel report circulated 26 January 2009
Adopted by DSB 20 March 2009*
Implemented by China 26 February 2010*
Source: WTO (with modifications)
ISSUES
1. Thresholds for criminal procedures and penalties
2. Disposal of goods confiscated by Customs Authorities
that infringe Intellectual Property Rights
3. Denial of copyright and related rights protection and
enforcement to works that have not been authorized for
publication or distribution within China
ISSUES
1. Thresholds for criminal procedures and penalties
China
Criminal
Law*
Provision Inconsistent
with TRIPS
Agreement
Art 213 "if the circumstances are serious" or "if the circumstances are
especially serious."

Article 41.1 &
Article 61

China
implements
threshold with
concept of
ILLEGAL
BUSINESS
VOLUME
Art 214 "if the amount of sales [of commodities bearing counterfeit
registered trademarks] is relatively large" or "if the amount of sales
is huge."
Art 215 "if the circumstances are serious" or "if the circumstances are
especially serious."
Art 217 "if the amount of illegal gains is relatively large, or if there are other
serious circumstances" or "if the amount of illegal gains is huge or
if there are other especially serious circumstances."
Art 218 "if the amount of illegal gains is huge."
Art 220 By Unit as opposed to by natural persons
With is interpretation by the Supreme People's Court and the Supreme People's Procuratorate
ISSUES
Article 41.1 of TRIPS Agreement:

Members shall ensure that enforcement
procedures as specified in this Part are available
under their law so as to permit effective action
against any act of infringement of intellectual
property rights covered by this Agreement, including
expeditious remedies to prevent infringements and
remedies which constitute a deterrent to further
infringements. These procedures shall be applied in
such a manner as to avoid the creation of barriers
to legitimate trade and to provide for safeguards
against their abuse.
ISSUES
Article 61 of TRIPS Agreement

Members shall provide for criminal procedures and penalties to be
applied at least in cases of wilful trademark counterfeiting or
copyright piracy on a commercial scale. Remedies available shall
include imprisonment and/or monetary fines sufficient to provide a
deterrent, consistently with the level of penalties applied for crimes of a
corresponding gravity. In appropriate cases, remedies available shall
also include the seizure, forfeiture and destruction of the infringing
goods and of any materials and implements the predominant use of
which has been in the commission of the offence. Members may
provide for criminal procedures and penalties to be applied in other
cases of infringement of intellectual property rights, in particular where
they are committed wilfully and on a commercial scale.
ISSUES
ILLEGAL BUSINESS VOLUME

The calculation methodology based on the prices through which the
counterfeit goods undercut legitimate merchandise. Thus, the value of
"illegal business volume" for a quantity of counterfeit merchandise can
be far less than the value of an equivalent quantity of legitimate
merchandise.

This concept creates barriers to prosecution of commercial scale
counterfeiting and piracy (whether carried out by businesses or others)
because it is not a calculation of the value of the legitimate non-
infringing goods with which the counterfeit goods compete.
ISSUES
2. Disposal of goods confiscated by Customs Authorities
that infringe Intellectual Property Rights
China Custom Law* Provision
Inconsistent
with TRIPS
Agreement
Customs IPR
Regulations 2003

Set forth a hierarchy of requirements for the
disposal of goods that infringe intellectual
property rights and that are confiscated by
Chinese customs authorities.

Under that hierarchy, the Chinese customs
authorities are required to give priority to disposal
options that allow such goods to enter the
channels of commerce (for instance, through
auctioning the goods after removing their
infringing features ). Only if the infringing features
cannot be removed must the goods be destroyed
.

Article 46 &
Article 59
Customs IPR
Implementing Measures
2004
General Administration
of Customs
Announcement No. 16
(2 April 2007)
ISSUES
Article 45 of TRIPS Agreement

In order to create an effective deterrent to infringement, the judicial authorities
shall have the authority to order that goods that they have found to be infringing
be, without compensation of any sort, disposed of outside the channels of
commerce in such a manner as to avoid any harm caused to the right
holder, or, unless this would be contrary to existing constitutional requirements,
destroyed. The judicial authorities shall also have the authority to order that
materials and implements the predominant use of which has been in the creation
of the infringing goods be, without compensation of any sort, disposed of outside
the channels of commerce in such a manner as to minimize the risks of further
infringements. In considering such requests, the need for proportionality between
the seriousness of the infringement and the remedies ordered as well as the
interests of third parties shall be taken into account. In regard to 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.
ISSUES
Article 59 of TRIPS Agreement



Without prejudice to other rights of action open to the right holder and
subject to the right of the defendant to seek review by a judicial
authority, competent authorities shall have the authority to order the
destruction or disposal of infringing goods in accordance with the
principles set out in Article 46. In regard to counterfeit trademark
goods, the authorities shall not allow the re-exportation of the
infringing goods in an unaltered state or subject them to a different
customs procedure, other than in exceptional circumstances.
ISSUES
3. Denial of copyright and related rights protection and
enforcement to works that have not been authorized for
publication or distribution within China
There are 10 regulations allegedly inconsistent:
(1) the Copyright Law, in particular Article 4;
(2) the Criminal Law; the Regulations on the Administration of Publishing Industry; the
Regulations on the Administration of Broadcasting; the Regulations on the Administration of
Audiovisual Products; the Regulations on the Administration of Films; and the Regulations on
the Administration of Telecommunication;
(3) the Regulations on Administration of the Films Industry;
(4) the Administrative Regulations on Audiovisual Products;
(5) the Administrative Regulation on Publishing;
(6) the Administrative Regulations on Electronic Publications;
(7) the Measures for the Administration of Import of Audio and Video Products;
(8) the Procedures for Examination and Approval for Publishing Finished Electronic
Publication Items Licensed by a Foreign Copyright Owner;
(9) the Procedures for Examination and Approval of Importation of Finished Electronic
Publication Items by Electronic Publication Importation Entities;
(10) the Procedures for Recording of Imported Publications.

ISSUES
3. Denial of copyright and related rights protection and
enforcement to works that have not been authorized for
publication or distribution within China
Allegedly Inconsistent with Article 5(1) of the Berne
Convention for the Protection of Literary and Artistic Works
(1971) (the "Berne Convention") . It provides that foreign authors
of protected works shall enjoy all the rights granted to domestic
authors, as well as all the rights specially granted by the Berne
Convention.

Moreover, these rights may not be made subject to any formality
(Berne Convention Article 5(2)). Article 9.1 of the TRIPS
Agreement requires all WTO Members, inter alia, to comply with
Articles 1 through 21 of the Berne Convention.
ISSUES
3. Denial of copyright and related rights protection and
enforcement to works that have not been authorized for
publication or distribution within China
Article 4 of the China Copyright Law provides as follows:

"Works the publication or distribution of which is prohibited by
law shall not be protected by this Law."

Therefore, authors of works whose publication or distribution in
China is prohibited (such as those works whose publication or
distribution has not been authorized in China) appear not to
enjoy the protection specially granted by the Berne Convention in
respect of those works (and, it appears, may never enjoy such
protection if the work is not authorized, or is not authorized for
distribution or publication in the form as submitted for review).
ARGUMENTS
1. Thresholds for criminal procedures and penalties
USA CHINA
The first sentence of Article 61 of the TRIPS
Agreement provides that :

"Members shall provide for criminal procedures
and penalties to be applied at least in cases of
wilful trademark counterfeiting or copyright
piracy on a commercial scale."

"provide for" means to "take appropriate
measures in view of a possible event; make
adequate preparation."

The phrase "Members shall provide for . . ." thus
means that Members have an obligation to
include in their law criminal procedures and
penalties that apply in cases of wilful
commercial scale trademark counterfeiting and
copyright piracy.

TRIPS Agreement Article 61 must be read in
accordance with Vienna Convention.

A treaty must be interpreted "in the light of its
object and purpose." The object and purpose of
TRIPS, laid out clearly in the Preamble to the
Agreement, are to enhance international trade
though the protection of intellectual property
within the framework of Members' legal norms
and resource constraints.

The object and purpose underscore that TRIPS
Article 61 should not be read to harmonize legal
systems across Members or to disregard
Members interests in developing criminal
measures that reflect its own legal norms and
public interests

ARGUMENTS
2. Disposal of goods confiscated by Customs Authorities
that infringe Intellectual Property Rights
USA CHINA
Article 27 of the Customs IPR Regulations and Article
30 of the Customs IPR Implementing Measures
mandate a compulsory sequence of steps (or "items")
that Chinese Customs must take in deciding how to
treat goods determined infringe intellectual property
rights.

Neither of the two components of the compulsory first
"item" accords with Article 46 principles. The first item
contains two parts. Customs ascertains whether the
infringing goods can be used for "public good"; if so,
Customs gives the goods to the relevant "public
welfare organization". Where a donation to a charity is
an option, and the donation has the right-holder's
consent, this may be a socially beneficial disposition
of infringing goods that also observes the principles of
Article 46. On the other hand, allowing counterfeit
goods to be used, even for "public good," can be
harmful to a right holder in certain cases.

Customs may also allow the right holder to purchase
the goods "for compensation" . The option under
which a right holder can buy the infringing goods is
not disposal.

Customs have the authority to order that infringing goods be
"disposed of outside the channels of commerce in such a
manner as to avoid any harm caused to the right holder,
or destroyed. Article 59 does not require that China limit
Customs' disposition methods to disposal outside the
channels of commerce and to destruction.

Therefore, Customs has the authority to donate infringing
goods to social welfare organizations and has the legal
responsibility of ensuring that donated goods are exclusively
used by social welfare organizations and that they are
exclusively used for social welfare purposes.

Infringers whose goods are auctioned are left in exactly the
same position as if the goods had been destroyed: in both
instances the infringers lose the goods without any
compensation.

In addition, Right holders have a legal, formal right to
comment prior to any public auction; this procedure helps
Customs to determine that a good would be inappropriate
for public auction, and thereby helps avoid harm to the right-
holders
ARGUMENTS
3. Denial of copyright and related rights protection and enforcement
to works that have not been authorized for publication or
distribution within China
USA CHINA
By denying copyright protection to works that
should have it, Article 4 allows copyright
infringers to profit at the expense of the
legitimate rightholder, without fear of being
subjected to enforcement procedures and
remedies for copyright infringement..

Article 9.1 of the TRIPS Agreement provides that
all WTO Members shall comply with Articles 1
through 21 of the Berne Convention, except that
WTO Members do not have rights or obligations
under the TRIPS Agreement in respect of the
rights conferred under Article 6bis of the Berne
Convention or of the rights derived there from.

China is a party to the Berne Convention.

China maintains government review and approval
processes with respect to the publication and
distribution within China of a variety of works,
including films and DVD releases.

In general terms, a work subject to these processes
may be published or distributed only if the required
authorization is obtained. The United States does not
object to the existence of these processes, nor could
it.

This sovereign right is an inherent, reserved power
acknowledged by international law as referenced in
Article 17 of the Berne Convention for the Protection
of Literary and Artistic Rights ("Berne Convention"),
and expressly incorporated into the WTO structure
through Article 9.1 of the TRIPS Agreement.

RESULTS
(a) the Copyright Law, specifically the first sentence of Article 4, is inconsistent
with China's obligations under:
(i) Article 5(1) of the Berne Convention (1971), as incorporated by Article 9.1 of the
TRIPS Agreement; and
(ii) Article 41.1 of the TRIPS Agreement;

(b) with respect to the Customs measures:
(i) Article 59 of the TRIPS Agreement is not applicable to the Customs measures
insofar as those measures apply to goods destined for exportation;
(ii) the United States has not established that the Customs measures are
inconsistent with Article 59 of the TRIPS Agreement, as it incorporates the
principles set out in the first sentence of Article 46 of the TRIPS Agreement;
(iii) the Customs measures are inconsistent with Article 59 of the TRIPS
Agreement, as it incorporates the principle set out in the fourth sentence of
Article 46 of the TRIPS Agreement.

(c) the United States has not established that the criminal thresholds are
inconsistent with China's obligations under the first sentence of Article 61 of the
TRIPS Agreement.


RESULTS
Under Article 3.8 of the DSU, in cases where there is an infringement of the obligations
Assumed under a covered agreement, the action is considered prima facie to constitute
a case of nullification or impairment. China did not succeed in rebutting that presumption.
Accordingly, the Panel concludes that, to the extent that the Copyright Law and the
Customs measures as such are inconsistent with the TRIPS Agreement, they nullify or
impair benefits accruing to the United States under that Agreement.

In light of these conclusions, the Panel recommends pursuant to Article 19.1 of the DSU
that China bring the Copyright Law and the Customs measures into conformity with its
obligations under the TRIPS Agreement.

In this dispute, the Panel's task was not to ascertain the existence or the level of
trademark counterfeiting and copyright piracy in China in general nor to review the
desirability of strict IPR enforcement. The United States challenged three specific alleged
deficiencies in China's IPR legal system in relation to certain specific provisions of the
TRIPS Agreement. The Panel's mandate was limited to a review of whether those
alleged deficiencies, based upon an objective assessment of the facts presented by the
parties, are inconsistent with those specific provisions of the TRIPS Agreement.

As of 26 February 2010, China has implemented
the recommendations and rulings of the DSB
with respect to the Copyright Law.

However, The United States and China agree to
use mechanism of "Agreed Procedures under
Articles 21 and 22 of the Dispute Settlement
Understanding"

No further announcement regarding Compliance
Proceeding of DS362 case
CURRENT STATUS
REFERENCES
TRIPs (Trade Related Intellectual Property Rights) Agreement
The Berne Convention for the Protection of Literary and Artistic
Works (1971)
Copyright Law of the People's Republic of China 1990 (as
amended in 2001 and 2010)
China Measures Affecting The Protection And Enforcement Of
Intellectual Property Rights: Request for Consultations by the
United States, WT/DS362/1, 16 April 2007
China Measures Affecting The Protection And Enforcement Of
Intellectual Property Rights: Request for Consultations by the
United States, WT/DS362/R, 26 January 2009

Thank you