Lurking beneath the rhetoric on intellectual property rights (IPR) protection is a difficult reality: China’s legal system couldn’t enforce tougher laws even if tasked to do so. As it stands, the country’s reputation for counterfeiting and piracy remains intact and lawyers can’t see a short-term solution.
“It is a capacity problem that cannot be immediately remedied,” said Nick Redfearn, regional manager of Rouse & Co International Group’s IP firm in Hong Kong, Yu & Partners.
Recently, the US has upped the pressure on Beijing, filing a complaint with the WTO in April that accused China of providing a haven for counterfeiters. Responding to the complaint, Vice Premier Wu Yi warned it would “seriously undermine” cooperation on IPR.
This is a threat China appears to be making good on.
“We’ve seen increased cooperation in some areas but in other areas it has slowed. We don’t think that’s the right way forward,” said John Dudas, US undersecretary of commerce for intellectual property, at a recent forum in Beijing.
He noted that Beijing had refused to hold another meeting of the Joint Commission on Commerce and Trade Intellectual Property Rights Working Group (JCCT), a high-level forum for bilateral trade issues.
Douglas Clark, who heads the China IP practice for law firm Lovells, said China had made the mistake of taking the action personally.
“The whole point of WTO dispute resolution is that you have a problem and you try to resolve it through the system. To treat it as a nasty attack against China is unnecessarily emotional,” he said.
In its defense, China can claim to have taken measures to curb IPR abuses. According to the American Chamber of Commerce in China, local authorities seized over 150 million illegal, pirated and pornographic publications in 2006. Meanwhile, the Supreme People’s Court recorded 796 IPR-related convictions last last year, up 52% on 2005.
Some argue that these actions are just window dressing, though. Mike Ellis, senior vice president and regional director of the Motion Picture Association (MPA) for Asia-Pacific said that China has failed to reduce piracy levels since joining the WTO, with movie piracy now standing at an estimated 93%.
“Although senior Chinese officials have made numerous statements in support of IP protection and the fight against piracy, actual results have been more difficult to spot,” he said.
Not tough enough
Some figures suggest that prosecutions of IPR offenders are actually dropping. Of the 33,900 trademark cases seen by China’s administrations for industry and commerce (AICs) in 2006, only 111 were transferred to the Public Security Bureau, a 52% fall from 2005, the International Anti-Counterfeiting Coalition (IACC) claims, citing AICs data. The reason for this is that only the most egregious offenders – individuals and corporations whose violations exceed US$6,000 and US$18,000 respectively – are pushed through the criminal system.
Critics say that these thresholds fail to comply with article 61 of the WTO’s TRIPS agreement, which requires criminal action against those engaged in “willful trademark counterfeiting or copyright piracy on a commercial scale.”
“Clearly China has not met its WTO TRIPS commitment to provide effective enforcement, and has not made substantial progress toward a significant reduction in copyright infringement levels, as promised by Wu Yi at the JCCT,” said the MPA’s Ellis.
This is where the deficiencies in the Chinese legal system come into play. Redfearn argues that there aren’t the resources to comply with TRIPS – there just aren’t enough judges, IPR professionals or police to channel all the administrative cases into the criminal system.
“The best case scenario is that China and the US sit down and negotiate a settlement that would address these structural issues and also non-WTO issues like police resources,” said a representative of industry associations seeking redress against China for IPR abuse.
“Nobody’s asking China to go fill its jails right away. We’re talking about making structural changes so that in five to 10 years we can be where we want to be.”