The Quest for Thought Protection: Chinas Intellectual Property Rights Enforcement Regime To Improve With Increased Education To The Public

• Author: Hillary Hollingsworth
• Position: JD Candidate at American University Washington College of Law
• Pages: 11

Hillary Hollingsworth is a second year JD candidate at American University Washington College of Law. She received her BA in Political Science and History from the University of California at Los Angeles. Ms. Hollingsworth conducted research for this article while studying at the City University of Hong Kong Law School and interning at the Intellectual Property Department of Hong Kong.

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WHEN CHINA JOINED THE WORLD TRADE Organization (WTO) in 2001, the nation agreed to transform its closed economic system and to accept global business practices. This agreement included a pledge to comply with the WTO's Trade Related Aspects of Intellectual Property Agreement (TRIPs) and to amend Chinese laws and regulations regarding the protection of international intellectual property rights (IPR). In response to China's accession, many developed WTO member countries, including the United States, expressed concerns over China's compliance with TRIPs, and argued that China's current laws and enforcement policies could not provide the IPR protection necessary for participation in global trade. Although China has been strengthening its copyright, patent, and trademark laws since 2001, developed WTO nations today remain apprehensive about China's IPR enforcement regime. These countries argue that while China's reforms comply with TRIPs on paper, ineffective enforcement policies have created little incentive for long-term reform.¹More specifically, the United States recognizes the efforts made by China to comply with the TRIPs agreement, but claims that the "continuing unacceptably high levels of piracy and counterfeiting require more effective and coordinated action."²

Even if the United States is correct in its assertions, a question remains: who will effectively coordinate this action? The Chinese government recently expressed that it lacks the knowledge and the necessary skills to combat piracy alone.³ In fact, China admits to having difficulties in effective implementation and enforcement of its newly reformed IP laws. Further, Chinese consumers consistently demonstrate disinterest and ignorance about the importance of IPR protection. Thus, the government's lack of knowledge, coupled with a disinterested Chinese public, may indefinitely disable the Chinese government from effectively enforcing IPRs. Although many WTO members are contributing funds and training Chinese government officials to assist China with its IPR enforcement, these efforts are often ad hoc and lack uniformity. If the United States and other WTO members are truly concerned with China's enforcement regime, they need to encourage increased training assistance from both the private and public sectors in order to satisfy the patent need for more effective and coordinated action.

The Problem: Lack of Enforcement

IT IS INDISPUTABLE THAT PIRACY AND COUNTERFEITING in China are rampant. The piracy rate in China remains one of the highest in the world, at over 90 percent.⁴In 2001, the U.S. Department of State reported that 92 percent of the software in China was counterfeit. Similarly, the Business Software Alliance (BSA) claimed that China is at the top of the list for the biggest dollar losses due to piracy. According to BSA, in 2002, China was responsible for more than US$2.4 billion in lost revenue due to pirated products, up from US$1.6 billion in 2001.⁵ Also, domestic piracy of optical media (including CDs, VCDs, and DVDs) remains extremely high.⁶ To make matters worse, a boom in online purchasing has created a new industry in the packaging, labeling, and transportation of counterfeit products purchased and traded via the Internet.⁷ Despite China's attempt to "crack down," counterfeiters continue to produce large volumes of fake products in China for export to other countries.⁸ This influx of cheap, low-quality counterfeit products hurts international companies in various ways, mainly by decreasing the demand for legitimate brand-name products and high quality goods in the Chinese market. Similarly, widespread counterfeiting hurts consumers by driving up prices for brandname products so that legitimate companies can continue the expensive fight against piracy.⁹ In addition to lost profits, piracy discourages foreign companies from investing in China, as potential investors question their ability to recover their investments in a market with weak IP protection.

Although U.S.-China IPR relations have historically resulted in a pattern where U.S. threats to impose trade sanctions are followed by short-term increases in compliance by the Chinese government, ¹⁰ after its accession to the WTO, China took immediate steps to tackle its IPR problems. In 2002 and 2003, U.S. experts Page 46 carefully reviewed amendments to China's IP laws, and while they found room for improvement, they described the amendments as "major improvements that move China generally in line with international norms."¹¹ However, experts contend that China's intellectual property infringement problems lie not in inefficient lawmaking, but rather in inefficient administrative and criminal enforcement mechanisms. Indeed, the Chinese government has demonstrated an incredible commitment in bringing IPR laws into compliance with WTO requirements, but this kind of leadership does not result in effective enforcement at the local level.¹² As evidenced by enduring high piracy levels, even perfected IPR regulations are of little value if local IPR violators are not deterred. Moreover, if China is to truly live up to the commitments of the WTO, it must eliminate the many administrative loopholes that exist and provide effective civil and criminal remedies that will deter IP infringers.

Administrative Enforcement

The general consensus among U.S. experts is that China needs harsher and more effective administrative penalties.

Although the Chinese government prides itself in its anti-counterfeiting and anti-piracy campaigns that often result in a large seizure of infringing materials, these campaigns only illustrate the central government's veiled attempts to crack down on piracy. In 2002, regular announcements on state-run television showed the seizure and destruction of thousands of counterfeit products branded with the Olympic Games logo.¹³ The central government assured the world that crackdowns on these products would continue, and that the Olympic Games logo would remain protected until and throughout the 2008 Olympic Games in Beijing. However, as is usually the case in China, these announcements failed to mention any arrests that resulted from these seizures. This is because administrative efforts often end with the seizure of infringing materials, and the infringer remains free. Some experts even contend that the seized products are not destroyed, but rather are handed back to the infringer to put back on the market. U.S. trade officials argue that China's goal must not end with the seizure of counterfeit products, but should also include increased fines and criminal penalties that will effectively deter violators from future infringement. These officials assert that administrative penalties are weak because authorities use the market price of the counterfeit product to determine the fine, rather than the actual retail price of the infringed product. ¹⁴As a result, infringers consider these weak administrative penalties as a mere cost of doing business; these fines thus do not serve as an effective deterrent against infringement. Further, few enforcement measures are available to ensure that fines are paid.

Criminal Enforcement

Chinese administrative authorities receive further criticism for their failure to refer administrative cases to the Supreme People's Court for criminal prosecution. Experts repeatedly urge authorities to refer more infringement cases to prosecutors and to the police in order to increase criminal punishments. However, further conflicts arise at the criminal enforcement level.

In order to bring a criminal action against an infringer, there must be evidentiary proof of a high amount of counterfeit sales.¹⁵ Therefore, seized counterfeit products discovered in a warehouse, which have yet to be sold, do not result in criminal culpability in China. U.S. experts have repeatedly argued that Chinese criminal enforcement policies would be more effective if they also applied to the manufacture, storage, distribution, and use of counterfeit and pirated goods.¹⁶ Another problem with China's criminal enforcement policies is that the monetary threshold for criminal liability is extremely high. For example, to bring a criminal action against a counterfeiter, sales must total US$24,000 for enterprises and US$6,030 for individuals. Enterprises and individuals with total sales below these numbers are only subject to an administrative fine. These high thresholds have inevitably resulted in a low rate of criminal prosecution. Even when authorities do pursue criminal liability, prosecutions often result in punishments that are too lenient to effectively deter future infringement.¹⁷ A higher number of criminal prosecutions would result if China lowered its threshold or criminalized the manufacturer and distribution of counterfeit products.

A further barrier to criminal enforcement is Chinese police officers who often express disinterest in pursuing piracy cases and who lack the requisite training and resources to investigate cases effectively.¹⁸ Because the prosecution of IPR crimes requires coordination among a large number of Chinese agencies on both...