Originally published October 15, 2008
Keywords: WTO, dispute settlement, copyright, trademarks, intellectual property rights, piracy, optical disks, infringement, TRIPS, counterfeit goods, commercial scale piracy, censored goods
On October 9, 2008, a World Trade Organization (WTO) dispute settlement panel issued a mixed "interim" ruling in a case filed by the United States alleging China fails to protect copyrights, trademarks, and other intellectual property rights. The panel ruled against the United States on one issue regarding what constitutes "commercial scale" piracy, but ruled against China's enforcement regime on the other two claims brought by the United States. Although the ruling remains confidential, media reports and comments by US trade officials have provided a reasonably complete picture of the ruling.
"Commercial Scale" Piracy – China's law provides for criminal prosecution only for seizures of more than 500 pirated optical disks. China originally had set the threshold for criminal prosecution at 1000 copies, but lowered it to 500 discs in April 2008. On this issue the WTO panel sided with China, concluding that the United States had not provided sufficient evidence that smaller-scale piracy (below 500 optical discs) qualified as "commercial scale" piracy. It is possible the United States may be able to provide new evidence to show that infringements at levels below the criminal threshold also constitute commercial piracy. The WTO Agreement on Trade-Related Intellectual Property Rights (TRIPS) does not define what is considered piracy on a commercial scale and this panel decision marked the first time a WTO panel was asked to interpret the issue of "commercial scale."
On two other issues the panel ruled in favor of the Unites States.
Auctioning Seized Goods – The WTO panel found that China violates Article 46 of TRIPS by auctioning off counterfeit goods seized by the government after removing the infringing trademark. Article 46 of TRIPS states that infringing goods should be "disposed of outside the channels of commerce in such a manner as to avoid any harm caused to the right holder" or destroyed. It specifies that this should be done "without compensation" to the infringer in order to provide an "effective deterrent." Article 46 also states that the removal of a fake trademark "shall not be sufficient, other than in exceptional cases," to justify releasing goods back into the market.
Copyright Protection For Censored Goods – The WTO panel also found that China violates Articles 9.1 and 41.1 of TRIPS by denying copyright protection to works that do not meet the standards of China's censors. In China, a work is not protected by copyright if it has been rejected by censors for distribution in China; however, a work still being reviewed by censors is protected. The WTO panel ruled that all copyrighted works must be protected.
The final ruling of the panel is expected in early 2009. Under WTO rules, the parties to a dispute may file comments with a panel following an interim ruling, which the panel can take into account before issuing its final decision. Panels rarely make major changes between their interim and final rulings.
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