Supreme People's Court and Supreme People's Procuratorate Interpretation on Criminal Prosecution of IPR Infringement Likely To Be Ineffective

June 2, 2005

China's highest court and procuratorate have issued an Interpretation (in Chinese and an unofficial English translation) adjusting the threshold for transfer of IPR infringement cases from administrative adjudication to criminal enforcement. Through the various IP Laws (unofficial English translations available here and China's Criminal Law) Chinese law includes both a remedy for an individual rightsholder through a civil law suit and criminal provisions that carry fines and prison sentences for commercial operations that sell infringing goods. China's December 2001 accession to the WTO Agreement on Trade-Related Aspects of Intellectual Property requires these remedies. Most enforcement in China, however, occurs within an administrative system operated by the local Administrations of Industry and Commerce (link to Chinese- language Web site of the State Administration of Industry and Commerce). Analysts generally believe that the weak nature of such administrative enforcement has resulted in China’s currently high levels of piracy and counterfeiting.

Despite the official fanfare that accompanied the announcement of the new Interpretation, the changes will not have the desired effect because the thresholds remain too high for transfer of cases to criminal enforcement and the method for calculating the damage remains a problem. The Interpretation continues to use the amount of turnover or sales of infringing materials as the criteria for whether or not to transfer a case to criminal enforcement and whether or not the infringement is serious or extremely serious as defined by Articles 213-219 of China's Criminal Law. Because of the low value of typical infringing goods, this methodology means that a huge volume of goods, or adequate records of sales of such goods, have to be discovered before a case will be transferred to criminal enforcement. The SPC and SPP's failure to address this methodological problem will likely limit the impact of this new Interpretation.

Part of the reason for that failure may be that, in drafting this Interpretation, the Chinese authorities did not fulfill the general WTO transparency commitments. Even though this measure is trade-related, and although the SPC solicited input before drafting the Interpretation, the Chinese government did not publish a draft of the Interpretation before announcing its adoption. The first publication of the Interpretation was on December 22, 2004, the day it became effective, even though the document itself is dated December 8, 2004. If the Chinese authorities had sought comments on the draft before promulgating the final Interpretation, they could have answered certain complaints about the infringement valuation methodology and the high threshold of infringement required to transfer cases from administrative to criminal enforcement.