Counterfeit Law Blog

The United States has requested that the World Trade Organization (WTO) establish a dispute settlement panel, the next step in its WTO case challenging China’s laws for protecting and enforcing copyrights and trademarks.  The request will be considered by the WTO Dispute Settlement Body at its next meeting on August 31.  In an August 13 statement announcing the request, a U.S. Trade Representative spokesperson explained the U.S. action:

“The United States and China have tried, through formal consultations over the last three months, to resolve differences arising from U.S. concerns about inadequate protection of intellectual property rights in China. That dialogue has not generated solutions to the issues we have raised, so we are asking the WTO to form a panel to settle this dispute....It is in the best interest of all nations, including China, to protect intellectual property rights. Over the past several years China has taken tangible steps to improve IPR protection and enforcement. However, we still see important gaps that need to be addressed. We will pursue this legal dispute in the WTO and will continue to work with China bilaterally on other important IPR issues.”

The U.S. requested WTO dispute settlement consultations with China in April. The U.S. and China engaged in consultations in early June.  According to the USTR, China has not taken steps to address the U.S.'s concerns during this period.

According to UPI, Mu Xinsheng, China's Minister of the General Administration of Customs, has announced that Chinese customs officials will begin to share information with U.S. customs officials  about seizures of counterfeit goods including the quantity and value of goods seized, the form of transportation used and ports involved. Additionally, the countries' customs officers will visit each other's ports to learn about each other's enforcement techniques.

The European Union and Mexico have asked to join in the World Trade Organization (WTO) dispute settlement consultations with China that the United States initiated last month.  Both will participate as "third parties," along with Japan and Canada.  For more on this development, see the AP story reported at TradeObservatory.org.  The USTR's fact sheet on the issues underlying its complaint is a good source of information regarding the substantive issues underlying the proceeding.

U.S. Trade Representative Susan C. Schwab announced today that the U.S.will make two requests tomorrow for WTO dispute settlement consultations with China over deficiencies in China’s legal regime for protecting and enforcing copyrights and trademarks on a variety of products, and over China’s barriers to trade in books, music, videos and movies. Click here for the USTR's press release announcing this action.  The WTO filings trigger a 60-day consultation period during which trade negotiators will try to resolve the countries' disputes. If they fail, a WTO hearing panel will decided the disputes.  If the U.S. wins , it will be permitted to impose economic sanctions on Chinese products.

According to the Philadelphia Inquirer, Treasury Secretary Henry Paulson said Thursday that China is moving too slowly to combat copyright piracy and that the Bush administration will continue to push China to increase its anti-piracy efforts.

Several recent events reflect that some progress is being made in the effort to stem the overwhelming tide of pirated films in the Chinese market.  Most recently, on December 27, the Beijing First Intermediate People’s Court fined Beijing Sohu Internet Information Service Co., a subsidiary of Nasdaq-listed Sohu.com (NASDAQ:SOHU), 1,085,000 yuan (US$138,850) after finding that it illegally posted digital movie files on the Sohu.com website for downloading.  Sohu.com, the third largest Internet Portal in China, has approximately 100 million registered users.

In addition to paying the fine, the court is requiring Beijing Sohu to publish an acknowledgment of its infringements and to pledge to refrain from future infringements, according to a statement by the Motion Picture Association (MPA).

Beijing Sohu operated an Internet service that allowed subscribers to download movies without the consent of the copyright owners. MPA-member films available for download on the site included 'Dawn of the Dead', 'The Day After Tomorrow,' 'Harry Potter and the Prisoner Of Azkaban' and more than 100 others titles. Five of the 10 pirated films owned by MPA members had never been released theatrically in China.

Less than two weeks earlier, the MPA announced that another court in China, the Beijing Second Intermediate People’s Court, had ordered the Yu Hao Qing DVD retail outlet located in Beijing’s central business district and its parent, Beijing Century Hai Hong Trading Co. Ltd., to cease sales of pirated movies. The defendants were ordered to pay the five MPA-member plaintiffs 164,000 yuan(US$20,964).  In its announcement of this ruling, the MPA estimated that 93% of movies sold in China are pirated.

The Chinese government allows only 20 foreign films a year to be shown in Chinese cinemas. As MPA Vice President and Regional Legal Counsel, Asia-Pacific, Frank Rittman, explained in the MPA announcement of the Yu Hao Qing ruling, the “maintenance of theatrical exhibition quota, combined with the frequent imposition of ‘blackouts’ on the theatrical release of foreign films, and the restrictions on home video distributors compared with pirate retailers, give movie pirates a tremendous market advantage.” Thus, Rittman opined, “[m]arket access, i.e., a more open market is a prerequisite for reducing piracy.”

In an apparent effort to increase market access to genuine copies of US films, MGM and 20th Century Fox announced in late November that China's biggest retailer of legitimate DVDs, Zoke Culture Group, will distribute their home videos. Zoke joins CAV/Warner Home Entertainment as a distributor of legitimate copies of US films in China. Currently, Warner's DVDs compete head to head with counterfeits in stores in China. As pirated DVDs sell for a mere $1 and are frequently available within a week or so after the film’s US theatrical release, Warner’s strategy has been to release a high quality DVD at a low price within two weeks of the film’s theatrical release. For example, Warner released the film Crazy Stone last summer with minimal special features and cheap cardboard packaging. The price, 12-15 yuan (US$1.50-$1.90), and cheap packaging rendered Warner’s legitimate DVDs almost indistinguishable from pirated versions. According to Asia Times, even though most customers didn't know the difference, several store clerks around Beijing said Crazy Stone was never pirated.

Click here to read the U.S. Chamber Commerce's June 7, 2006 submission to the US-China Economic and Security Review Commission on China's Enforcement of Intellectual Property Rights and the Dangers of the Movement of Counterfeited and Pirated Goods into the United States.