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.

My partner Jorge Espinosa has launched The Gray Blog dedicated to news, law and trends involving the parallel market.  Jorge reported yesterday on the Supreme Court of Canada's decision in Euro-Excellence Inc. v. Kraft Canada Inc. in which the court held that Kraft Canada could not rely on copyright law to  prevent the importation of parallel market Toblerone chocolate from Europe. 

KCI is the exclusive Canadian distributor of Côte d’Or and Toblerone chocolate bars in Canada for its parent companies KFB and KFS. Euro-Excellence imported and distributed Côte d’Or and Toblerone bars which it had acquired in Europe. In 2002, in order to allow KCI to challenge Euro-Excellence's importations, KFB registered three Côte d’Or logos in Canada as copyrighted artistic works and granted KCI an exclusive license in the works as used in association with confectionery products. KFS did the same with two Toblerone logos. KCI then demanded that Euro-Excellence cease distribution of any product to which the copyrighted works were affixed. When it refused, KCI sued Euro-Excellence alleging that it had engaged in secondary infringement under Section 27(2) of the Canadian Copyright Act by importing copies of KFS and KFB’s copyrighted works into Canada for sale or distribution.  Section 27(2) prohibits the importation into Canada of any copy of a work "that would have infringed copyright had it been made in Canada by the person who made it."  The Canadian Supreme Court  held that Kraft Canada could not rely on this statute to enjoin Euro-Excellence from importing gray market chocolate into Canada because the infringing designs were placed on the imported chocolates by KCI's parent companies, the very same entities that own the copyrights in the logo designs.  An exclusive copyright licensee is not entitled to sue its licensor for infringement under Canadian law (and this is contrary to the law in the U.S., by the way).  For this reason, the imported chocolate packaging would not have "infringed copyright had it been made in Canada by the person who made it" and Section 27(2) was, therefore, not violated. 

Read more about this decision on The Patry Copyright Blog and Jorge's The Gray Blog.

The International edition of Helsingin Santomat has highlighted the recent surge in transhipments of counterfeit medications through Finland to the world market.  It quotes Anssi Kartila of the Finnish Board of Customs as attributing this upsurge to the absence of effective laws: "Transit for medicines is unrestricted. Cases are investigated only if the holder of a medicine's brand name or patent files a criminal complaint alleging fraud. In other cases the medicines will be allowed to pass through."  The Customs Board believes that the counterfeit drugs that enter Finland are generally not intended for the Finnish market. Instead, they usually originate in India or China and pass through Finland in transit to Central Europe or Russia.

An award of $1.1 million dollars to Yamaha Motor Corporation in a trademark counterfeiting case has been affirmed by China's highest court ending a five-year legal battle between Yamaha and four Chinese companies.  The companies manufactured and distributed motorcycles in China that were labeled with Yamaha's registered trademarks YAMAHA, FUTURE and a three-character mark that Yamaha uses to translate its YAMAHA mark into Chinese.  Click here to read Yamaha's detailed press release.

eBay in India has charged Harry Potter author JK Rowling with causing it “humiliation and harassment” by spreading misinformation about an ongoing litigation between eBay and the author.  In the underlying litigation, Rowling and Warner Bros. sought and obtained interim injunctions from the Indian High Court prohibiting the unauthorised display or sale of pirated Potter books.  eBay has filed papers in the lawsuit accusing Rowling of misusing these orders by giving the media the impression that the court had made scathing remarks condemning eBay's activities.  Click to read more.

The Japanese parliament  passed a law last week that partially closes a legal loophole that allows people to record movies in theaters.  Although camcording films for commercial use violates Japanese copyright law, there was previously no ban on recording films for personal use.  This made it virtually impossible to prevent pirates from recording films immediately upon their release.  The new law does not eliminate the personal use exception, but creates an 8 month blackout period in which even recording for personal use is unlawful.  Violaters face up to 10 years in prison or a maximum fine of 10 mllion yen. 

In the April session of the European Parliament, the Members voted to give preliminary support  to a proposed directive that would require that infringements of intellectual property rights be treated as criminal offenses that could  lead to a €300,000 fine and/or 4 years in jail. In addition to fines and possible criminal sentences, the legislation would provide for destruction of property, confiscation of pirated goods, possible closure of the company involved, and a temporary or permanent ban on commercial trading.  The proposed sanctions would only apply to those who seek commercial profit and not to private home users.  Because the directive would be the first to address criminal sanctions, the vote was close, with 374 Members of Pariament voting for, 278 voting against, and 17 abstaining.  The vote was at the first reading stage. The text will now be discussed by ministers from the 27 EU countries.  Click here for the EU Parliament announcement of this action.

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.

A Hong Kong man who sold pirated discs on eBay, including to customers located in the U.S., was sentenced yesterday to 3-1/2 years in jail. As reported by earthtimes.com, Yung Chun-Pong's January 2005 arrest was part of a customs operation in Millennium City 3 in Kwun Tong aimed at eBay sellers who exported DVDs overseas.  At the time of Yung's arrest, customs officials detained five people and seized 46,742 discs. Yung's conviction for copyright infringement is reportedly the first in Hong Kong under the Organized and Serious Crime Ordinance which increased penalties for piracy offenses.

Click here for the report.

EUobserver.com reports that a proposal for an EU directive harmonising criminal law in all member states was adopted by the Members of the European Parliament's legal affairs committee on Tuesday, March 20.  The proposal includes  criminal penalties - including imprisonment - for crimes breaching intellectual property rights.

A film piracy syndicate in Singapore has enlisted senior citizens to illegally record movies in cinemas, reports bernama.com.  The practice was uncovered last week when a 60-year-old man, who entered a mall movie theater on a half-priced senior citizen ticket, was arrested while recording the movie "Ghost Rider".

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.

China's Ministry of Public Security announced that Chinese police had arrested more than 5,000 people involved in more than 4,600 cases of counterfeit and sale of inferior goods from January to November 2006, reports chinaeconomic.net.  The total value of the fakes  was given as US$164 million (1.28 billion yuan ).

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.

The Gowers Report on Intellectual Property, released on December 7, recommends that UK laws be changed to toughen criminal penalties for online piracy.  The report, which was commissioned by the Chancellor of the Exchequer in December 2005, recommends that Section 107 of the Copyright, Designs and Patents Act (CDPA) be amended to increase the maximum penalty for a copyright offense committed online from two to ten years.  This would bring online infringement penalties to the same levels as penalties for physical infringement.  The increased penalty would also apply to consumers whose online infringement prejudicially affects the rights holder. 

The Gowers Report also recommends that police give IP crime higher enforcement priority in light of the demonstrated links between it and organized crime.

While the Report's recommendations were generally welcomed by rights holders, the British recording industry expressed disappointment at Gowers' recommendation that the 50-year term of copyright protection for recorded music not be extended to 95 years.

A copy of the Report is available on-line at the website of HM Treasury. 

Speaking in Shanghai today, U.S. Commerce Secretary Carlos Gutierrez applauded the Chinese government's decision to require that all PCs made in China, or imported into China, be pre-loaded with legitimate software and that its own agencies buy computers with pre-loaded, licensed software. He then went on to reiterate the "three specific challenges facing China that need to be addressed in the very near term" that he had announced Tuesday. These are:

1. Lowering criminal thresholds for prosecuting those involved in commercial piracy and counterfeiting;

2. Allowing greater market access for audiovisual products, and

3. Sharing factories' pirated disc exemplars with the international laboratories that trace pirated optical discs to their source.

Gutierrez said that these "are important improvements in IPR that have gone unaddressed by the Chinese for too long."

The Duma approved a bill on intellectual property today that would create a fast-track procedure to shut down businesses that repeatedly violate intellectual property rights and provide for seizure and destruction of counterfeit goods and the equipment used to produce them.

Governor Arnold Schwarzenegger and others have been lobbying hard to open U.S. borders to inexpensive "safe" Canadian drugs. Criticizing the recent decision by U.S. Customs to stop seizing Canadian drugs imported through the mail, former associate commissioner of the FDA and current president of the Center for Medicine in the Public Interest, Peter J. Pitts, argued in a recent Op-Ed piece that liberalizing restrictions on imports of Canadian pharmaceuticals will result in an uncontrolled influx of counterfeit medicines into the United States.

Russia's Health and Social Development Ministry's inspection service announced today that a criminal case was opened in August against the pharmaceutical company Bryntsalov-A after the company was found to have made knock-offs of foreign medicines. The fake medications were confiscated and the company's license is being revoked. Federation Council member and Moscow region Duma deputy Igor Bryntsalov is head of Bryntsalov-A, according to Interfax.

"If a company produces fake medicines, then it will lose its license," Health and Social Development Minister Mikhail Zurabov said Monday.

According to international experts, the production of fake medicines in Russia nearly doubled in 2006.

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.