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Why the U.S. Lost Its WTO IP Complaint Against China. Badly.

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Tuesday January 27, 2009
The World Trade Organization yesterday released its much-anticipated decision involving a U.S. complaint against China over its protection and enforcement of intellectual property rights.  The U.S. quickly proclaimed victory, with newspaper headlines trumpeting the WTO panel's requirement that China reform elements of its intellectual property laws.  For its part, China was conciliatory and offered to work with the international community to resolve the concerns raised by the decision.  Reuters notes that the Chinese reaction is far less combative than it has been other issues.

Why the muted response?  I suspect that it is because anyone who bothers to work through the 147 page decision will find that the headlines get it wrong.  The U.S. did not win this case, but rather lost badly. China is required to amend elements of its copyright law, but on the big issues of this case - border measures and IP enforcement - almost all of the contested laws were upheld as valid.  Further, the ramifications of this case extend well beyond China's laws into other areas such as ACTA, since it points to the considerable flexiblity that countries have in meeting their international obligations on these issues.

The case centred on three key issues:
  1. Does China's copyright law provide appropriate protection for all works in compliance with international copyright law (Berne Convention as incorporated by TRIPS)?
  2. Do China's border measures, which allow customs officials to donate, auction, or sell to the rights holder confiscated goods, violate TRIPS?
  3. Does China's IP enforcement system, which sets a minimum threshold for criminal prosecution, violate TRIPS?
On the first issue, the panel ruled that China's copyright laws do violate Berne by failing to provide copyright protection to all works.  China maintained that it denied protection for certain works whose contents are "unconstitutional or immoral."  The panel ruled that this was not good enough - international copyright requires protection for all works, though other laws may be implemented to address content restrictions (ie. as Canada noted in its third party submission - "Members can prohibit the publication and distribution of a work but . . .  Members do not have a right to deny copyright protection to them.").  This issue is a clear win for the U.S. (therefore the proclamation of victory), though this particular concern was certainly the least important of the three issues.

The other two more important issues were near total losses for the U.S.  On border measures, the U.S. argued against the current Chinese law that provides customs officers with a range of possible methods for disposing confiscated counterfeit products.  Virtually all of these measures were upheld, with the panel noting at one point that "China's border measures provide a level of protection higher than the minimum standard required by . . . the TRIPS Agreement."  With the exception of one practice (removal of trademark from counterfeit trademarked goods), the panel upheld all of China's border measures including the distribution of confiscated goods to the Red Cross, the resale of the goods to rights holders (if they are interested), the auction of certain goods, or the destruction of the goods.

The Chinese IP enforcement system, which sets a minimum threshold for criminal enforcement, was a huge issue for the U.S. and it lost badly on it.  The U.S. argued that the high thresholds render prosecution impossible in many cases (Canada joined the U.S. with a similar argument).  The panel rejected the U.S. claims, in part due to a lack of evidence.  Indeed, the U.S. submitted a series of newspaper articles as the basis for some of its claims, to which the panel responded:

"the Panel does not ascribe any weight to the evidence in the press articles and finds that, even if it did, the information that these press articles contain is inadequate to demonstrate what is typical or usual in China for the purposes of the relevant treaty obligation."

With that, the Panel found that China does not violate its TRIPS obligation that "Members shall provide for criminal procedures and penalties to be applied at least in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale."

This represents a major loss for the United States as well as for the countries such as Canada that supported the U.S. in the case.  It also holds the prospect of larger ramifications for initiatives such as te Anti-Counterfeiting Trade Agreement, which are premised on the need to address concerns around border measures and IP enforcement.  Rather, the decision highlights the reality that international copyright and trade law provide considerable flexibility that do not necessitate new treaties or additional legal obligations.
Comments (15)add comment

Esa Turtiainen said:

Hypocrisy
USA was the last relevant country that signed the Berne convention originating 1886. USA signed it four years ago! And already teaching others.
January 28, 2009

asdf said:

Citation needed
No, the USA signed the Berne Convention in 1989.
http://en.wikipedia.org/wiki/List_of_parties_to_international_copyright_treaties
January 28, 2009

reasdf said:

Nitpickety picnic
Who cares if they signed 2004 or 1989? It's still a hundred years after the origin, as was the point of the previous post.
January 28, 2009

giafly said:

This Stuff is Complicated
@Hypocrisy. You may be confusing the Berne convention with a more recent treaty, perhaps the "Agreement on Trade-Related Aspects of Intellectual Property Rights" or something from the "World Intellectual Property Organization" (WIPO).
http://en.wikipedia.org/wiki/A...ty_Rights
http://en.wikipedia.org/wiki/World_Intellectual_Property_Organization

@Nitpickety picnic. Almost 20 years (1989-2009) is enough experience.
@
January 28, 2009

Alan Riaso said:

US propaganda.
The US media lying to their placid and ignorant listeners/readers/viewers? Surely not.
January 28, 2009

Tom said:

Wikipedia as a citation?
Tertiary source at best.
January 28, 2009

Ellis said:

Wikipedia Correct, as usual
The US did sign the Berne Convention in 1989.
January 28, 2009

T.E.D. said:

...
The Berne Convention was actually a *reaction* to US copyright violations, so it shouldn't be a huge suprise that the US was late to sign it. What is kind of suprising is the US's hypocritical turn-around now that they are a net IP-exporter instead of importer.
January 28, 2009

O.D.B. said:

Some caveats
Michael, this is a good critique and one that needs to be in the media. However, USG would probably argue that in fact there were gains made as a result of both rulings 2 and 3. On ruling 2, no one knew exactly what China's practices are. All of the ones you summarize were disclosed as a result of the case, so that's a good thing. On ruling 3, China was basically arguing that article 61 doesn't even apply, the ruling makes clear it does. There are still gains in both 2 and 3 and for both, things could have been worse for the US.
January 28, 2009

Cmarch said:

...
A 500% tariff, plus safety testing @Chinese cost, would ensure no lead in toys, and a lot more jobs in ca and us.

Do it now, they will acquiese to whatever "demands" are made- like treat your people like human beings.

Never happen, too many hands in the pie in us govt.
January 28, 2009

SunyJim said:

Tariff? not likely. but would you be willing to pay a bit more for a quality product built in North America?
"A 500% tariff, plus safety testing @Chinese cost, would ensure no lead in toys, and a lot more jobs in ca and us."
Who do you think is ordering all these products made in China? Its as much American companies like Mattel moving American jobs to places like China to cut corners with a cheaper production and fewer regulations. Don't kid yourself you go to Walmart and buy the latest toy, and you're buying on price... so the companies need to cut corners and that means North American jobs go to places like China, and it also means health and safety regulations don't apply and lead paint is used.
so your 500% tariff will just show up in everything you buy at walmart, and you'll be the one paying it.
So Tariff? not likely. but would you be willing to pay a bit more for a quality product built in North America?
January 28, 2009

haha said:

It's even funnier when you consider the WTO rulings ignored by the US
http://www.google.ca/search?cl...gle+Search
January 28, 2009

American in China said:

...
If the U.S. lost due to lack of evidence, it is either their own fault for lack of thoroughness or an unwillingness on the part of the Chinese government to grant them access. Whatever the case, it is obvious the panel members are either willingly ignoring or are totally ignorant of the reality on the ground.

As an American who has lived in China, I can tell you that it is obvious to anyone who has spent time in China that there is almost complete lack of foreign IP enforcement (domestic IP enforcement is another matter, as you might imagine) due to endemic corruption, among other issues. All of the recent public demonstrations of enforcement have been complete farces, the source of much amusement to the average Chinese citizen.

Where I spent time in Kunming, for example, the local pirated DVD store shared a wall with the local police station.

The WTO panel is obviously either corrupt, incompetent, or completely out of touch with the reality in China.
January 28, 2009

Trade Lawyer said:

Comment on "American in China"
American in China -- your comment does not take into account the nature of the WTO case. You assume that the US challenged the manner in which China enforces its IP rights "on the ground", in real life. But that is not the case. The US challenged the Chinese law in abstract, the law as it is on the books. The US argued, among others, that the thresholds set out in Chinese law were too high to capture all activities that deserve the label as being "on a commercial scale". The "reality" of how Chinese laws are applied on the ground, or "on the street", was not put before the Panel. The US could have brought such a challenge, but they did not. A WTO panel has no right to analyze issues that a complainant has chosen not to raise.
February 07, 2009

M said:

...
This commentary is wrong in many respects. First, as others point out, this was an "as such" case, not an "as applied case." The questions involved statutory construction in light of TRIPS requirements. The copyright claim had little commerical value, since censored products are not likely to have economic value, even if they are protected by copyright (as the panel rules). So that victory was pyrrhic. The Customs provisions were TRIPS+, not because China disposed of goods in a TRIPS+ manner, as the blog suggests, but because China seizes most of its goods on exports, not on import. The WTO in fact validated what had been a long standing practice of USG prior to this case - to engage Chinese customs in cooperative efforts, and seek criminalziation of exports, to deal with exports of infringing goods. Regarding the criminal thresholds issues, in some respects it was more a defeat for the WTO than a victory for either party. The WTO rules against the US in the mistaken belief that the US could easily have obtained cases to support its legal argument, however the WTO panel itself failed to recognize the difficulties in obtaining these cases. The prior Article 63 request of the US to request copies of cases met with little cooperation from China. The real message underlying the case for both China and the US is that politicization of these disputes brings little positive results. China suspended cooperation with the US during the pendency of the WTO cases and understood the case as a "hostile act", while the US portrayed the case as related to enforcement, when it was related to laws regarding enforcement and not the enforcement itself. The WTO cacluated zero losses to the US even if the US won the Customs provision. In terms of rule of law issues, the panel declined to request relevant decisions from China (in the copyright provision), even when it cited to the government opinions about those decisions...Its an awkward precedent for rule of law, and a misunderstood precedent for IP.
M.
December 03, 2010

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