IPR Violations in China Remain Rampant

November 3, 2006

Almost half of all books, films, music CDs, and software sold in China in 2005 were pirated, according to a September 1 Xinhua report (via the People's Daily Web site). According to the report, the figure represents a 0.5 percent decrease from 2003, and the first drop in the publication piracy rate in six years. Xinhua characterized the drop as "tiny," and attributed it to the "government's effort to crack down on piracy." According to Xinhua, Chinese authorities have confiscated 8.3 million illegal CDs and DVDs as part of a 100-day crackdown on piracy that began on July 25.

Almost half of all books, films, music CDs, and software sold in China in 2005 were pirated, according to a September 1 Xinhua report (via the People's Daily Web site). According to the report, the figure represents a 0.5 percent decrease from 2003, and the first drop in the publication piracy rate in six years. Xinhua characterized the drop as "tiny," and attributed it to the "government's effort to crack down on piracy." According to Xinhua, Chinese authorities have confiscated 8.3 million illegal CDs and DVDs as part of a 100-day crackdown on piracy that began on July 25.

Rampant piracy by China's state-run television stations has resulted in local Chinese movie producers losing US$7.5 million annually, according to an August 11 Xinhua report. Xinhua said that "pirated copies of movies are widely sold in the streets in China," and quoted Meng Yu, legal affairs director for the China Movie Copyright Protection Association, as saying, "The number of movies illegally aired [by China's television stations] is startling, more than 100 in the first six months of the year." A study released by the Motion Picture Association of America (MPAA) in May 2006 found that 93 percent of the potential Chinese film market for U.S. studios is lost to piracy. Industry estimates place the cost of this piracy at nearly US$300 million per year, according to a December 12, 2005, Reuters report.

WTO Compliance

The U.S. Trade Representative's Trade Policy Staff Committee held a hearing on September 28, 2006, as part of its annual review of China's WTO compliance. In its written comments (oral statement also available) the US-China Business Council (USCBC) said that a 2006 survey of its member companies' executives ranked IPR enforcement as the "most serious shortfall" in the Chinese government's implementation of its WTO commitments, and that over half said there had been no improvement in IPR enforcement in the past year. The USCBC statement said that the Chinese government's IPR enforcement regime remains ineffective because:

  1. It relies on administrative, rather than judicial, punishments which "impose only very low penalties."
  2. The thresholds it uses to determine the existence of IPR infringement are too high and too easily circumvented.

Under the Interpretation on Several Issues of Concrete Application of Laws in Handling Criminal Cases of Infringing Intellectual Property issued in 2004 by the Supreme People's Court and the Supreme People's Procuratorate, the Chinese government calculates criminal thresholds using the retail value of the illegal goods rather than the value of genuine products. In addition, the interpretation creates a "safe harbor" for commercial infringers by setting high quantitative and value thresholds. The USCBC said the Chinese government's use of thresholds "appears to be inconsistent with its commitments as a signatory of the WTO Agreement on Trade Related Aspects of Intellectual Property (TRIPs)." Article 61 of TRIPs states: "Members shall provide for criminal procedures and penalties to be applied at least in cases of willful trademark counterfeiting or copyright piracy on a commercial scale."

A representative of the International Intellectual Property Alliance (IIPA) was also critical of the Chinese government's use of thresholds, and told the hearing that "China is not meeting its WTO commitments to provide effective and deterrent criminal enforcement against 'copyright piracy on a commercial scale' as it is obligated to do under Articles 41 and 61 of the TRIPs Agreement." The IIPA said it is aware of only "two criminal cases under Articles 217 and 218 of the Criminal Law having been concluded involving U.S. copyrights and only five criminal cases involving copyrights of any other WTO member." It estimated the piracy rate in China at 85 to 90 percent, resulting in economic losses exceeding US$2.6 billion in 2005. A copy of the IIPA's written statement is also available.

In its written statement, the International AntiCounterfeiting Coalition, Inc. (IACC) said, "China continues to be the single biggest source of counterfeit product worldwide, and the steps taken by the Chinese government and judiciary over the last year to reduce counterfeiting and piracy have not yet achieved significant and necessary reductions in the level of infringements." The IACC said its members report that infringing goods seized by authorities are sometimes auctioned off and return to the stream of commerce. The IACC was also critical of the Chinese government's use of thresholds and its reliance on administrative, rather than judicial, means of IPR enforcement. According to an IACC review of economic crimes in the Criminal Law, "the threshold for criminal prosecution of most economic crimes is between 5,000 yuan and 10,000 yuan , whereas the threshold for IP crimes is 10 or more times higher - 50,000 yuan for individuals and 150,000 yuan for corporate offenders." The IACC said the Chinese government's application of these higher thresholds was a "clear violation to the Chinese government's obligations under Article 61 of the TRIPs Agreement of the WTO." The IACC also noted that Chinese government IPR enforcement campaigns "only serve to highlight the Chinese government's refusal to take the necessary actions on a regular basis . . . giving the appearance of, if not in fact demonstrating, the government's tolerance or tacit approval of the illicit industry that operates with near impunity inside its borders." Finally, the IACC said that the Chinese government's success in stopping IPR infringement of Olympic merchandise "continues to raise industry concerns regarding favoritism of domestic IPR owners over foreign rights holders."

Government Enforcement Efforts

In the first half of 2006, Chinese customs authorities settled 1,076 intellectual property rights infringement cases involving over 68 million yuan worth of goods and the seizure of 39 million infringing articles, according to an August 14 Guangming Daily report (in Chinese) citing information from the General Administration of Customs. The report stated that Chinese customs officials were stepping up their protection of Olympic symbols, and had seized almost 5,000 goods that infringed on the Olympic trademark and the 2008 Olympic mascots.

The state-run press has also been publicizing a "100-Day Anti-Piracy Action," which eight government agencies jointly launched on July 15 pursuant to a Public Notice Regarding Launching the 100-Day Anti-Piracy Action. According to a September 8 report (in Chinese) on the Ministry of Public Security Web site, as part of the crackdown Chinese police had confiscated more than 6 million pirated publications by the end of August, inspected over 32,000 publication markets and distribution companies, and sanctioned 355 companies engaged in commercial-scale copyright infringement.

In another report on the 100-Day Anti-Piracy Action, the Guangming Daily reported (in Chinese) on September 18 that authorities in China had revoked the audio-visual business licenses of 368 companies for selling pirated products.