Cablegate: China Mission 2007 Special 301 Recommendation:

DE RUEHBJ #2103/01 0890022
O 300022Z MAR 07



State for EAP/CM - JYamomoto and EB/IPE - EFelsing
USTR for China Office - AWinter; IPR Office - RBae; and OCG
- SMcCoy
Commerce for National Coordinator for IPR Enforcement -
Commerce for MAC 3204/ACelico, LRigoli, ESzymanski
Commerce for MAC 3043/McQueen
LOC/ Copyright Office - MPoor
USPTO for Int'l Affairs -- LBoland
DOJ for CCIPS - Asharrin
DOJ for SChembtob
FTC for Blumenthal
FBI for LBryant
DHS/ ICE for IPR Center - DFaulconer
DHS/CBP for IPR Rights Branch - PPizzeck



E.O. 12958: N/A

REF: (A) 2006 BEIJING 05968

(B) 2006 BEIJING 10459
(C) 2006 BEIJING 24195
(D) 2006 GUANGZHOU 15230
(E) 2006 GUANGZHOU 21191
(F) 2007 SHANGHAI 1774
(G) 2007 SHANGHAI 1866
(H) 2006 CHENGDU 946
(I) 2006 CHENGDU 1095


1. (SBU) This is part two of the Mission's reporting on
"Special 301" related developments. The Mission's
recommendations that China should once again be placed on
the Priority Watch List, with Section 306 monitoring, and
considered for an appropriate WTO case on IPR, were set
forth in the first cable. This cable focuses on
developments in IPR enforcement. Although there remain
certain exceptions, the principal challenge that rights
holders face in China is not the TRIPS incompatibility of
the law, but rather the enormous difficulties in enforcing
the law as written. These issues are particularly acute in
certain fields, such as criminal copyright law. Additional
cables are being prepared on local enforcement issues.

-------------------------- -------------------
China's Three Part System: Civil, Criminal and
-------------------------- -------------------

2. (SBU) China's enforcement system consists of three
components: civil, criminal and administrative. Standards
for initiating a civil, criminal, or administrative action
are different, as is the scope of activities encompassed by
a violation of the relevant legal process. For example,
not all copyright infringements under China's copyright law
are criminalized. Moreover, administrative copyright
action may only be taken when the infringing action harms
"the public interest." Generally speaking, the broadest
scope of infringing activity is captured by the civil
system. The systems additionally differ from each other in
that they: have different levels of deterrence; use
different procedures and enforcement officials; and have
different costs of procuring a remedy. There are also
different standards for: seizing infringing goods,
materials and equipment or assets; referring cases from one
system to the other; preserving and using evidence;
transparency, etc.

Using Chinese Statistical Data

3. (SBU) China maintains extensive IPR statistical data
that can be useful in evaluating the strengths and

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weaknesses of its three-part IPR system. Many Chinese
agencies also maintain statistical data on the number of
foreign-related cases, which can be useful in determining
the extent to which foreign rights holders are being fairly
treated under China's system. However, there is no
consistent definition of what constitutes a "foreign-
related case" - for example, whether it is based on the
ultimate owner of the right, the location of the litigant,
or whether a Chinese litigant has a foreign investor. The
increasingly active, but still low level of foreign
involvement in IPR enforcement is a characteristic of
China's enforcement system overall, with the sole exception
of Customs enforcement, where Chinese officials have
informed the Mission that foreign rights holders
predominate. In evaluating the statistical data, it is
important to keep in mind that overall goals of IPR
enforcement are to deter and reduce infringing activity.
This means that, at a minimum, potentially deterrent cases
must be well publicized in order to have an impact.
Increased enforcement alone may mean that a problem is
being deterred, or that the problem is growing.
Statistical comparisons between countries are often
difficult to make because of differences in infringing
activities, differences in compensation and punishment, the
differing availability of civil, criminal, or
administrative remedies, and other factors. Given China's
pre-WTO legacy of a separate legal regime for foreigners
and increasing nationalism in IPR matters, the United
States is also concerned about the number of cases brought
involving foreign rights holders.

Year End 2006 Statistics Not Yet Available

4. (SBU) China's IPR statistics data for a given year are
generally not made available at the earliest until
March/April of the following year. The Mission will seek
to update the data provided herein as it becomes available.

Criminal Enforcement

5. (SBU) Anecdotally, it remains quite difficult and
expensive for a foreign rights holder to bring a criminal
IPR case in China. While QBPC reports that there were
larger numbers of successfully prosecuted IP criminal cases
in 2006 than in 2005, the majority of members continued to
have limited experience in this area. U.S. copyright
industries also report continuing difficulties in bringing
criminal IPR cases before local enforcement agencies. In
addition, the Trade Facilitation Office at the Embassy has
handled several cases involving China's rejection or
dismissal of criminal IPR cases involving U.S. rights
holders which appeared to involve infringing activities
conducted on a commercial scale.

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6. (SBU) For several years, USG has looked to the quantity
and quality of China's overall criminal IPR investigations,
prosecutions and convictions (both cases initiated and
concluded) as a benchmark for determining the deterrent
capacity of China's IPR system. This data has become
especially important after the promulgation in December
2004 of a revised judicial interpretation, which lowered
many criminal thresholds for IP crimes. During the
December 2006 meeting of the IPR Working Group, China's
Supreme People's Court compared statistical data for
January-August 2006, with similar statistics for 2005 and
2004. There was a 15% growth rate in arrests and a 5.6%
growth rate in prosecutions in 2004 (presumably for the
calendar year), compared to a 40.4% growth rate in arrests
and a 51.7% growth rate in prosecutions for 2005
(presumably for the calendar year). Arrests increased by
47.8% from January - August 2006, and prosecutions
increased by 51.8% during this period. This data, however,
may have included IPR-related prosecutions for "fake and
shoddy goods" and "illegal business operations," which can
occasionally obscure whether the underlying offense is an
IPR-offense or a regulatory offense, which may include an
IP element. According to industry reports, overall there
were 796 criminal cases handled in 2006, an increase of 52%
compared to 2005 (Speech of Deputy Chief Judge Xiong
Xuanguo at the Third Global Anticounterfeiting Congress in
Geneva, January 2007).

7. (SBU) This trend towards increasing criminal IPR cases
was also evident in 2005, and may have continued into 2006.
In 2005, the number of criminal IPR cases of first instance
initiated increased year to year over 2004 by 28 percent to
3,567. Of these cases, 524 involved IPR crimes under the
IPR section of the criminal code, an increase of 35
percent. In addition, there were 1,117 cases involving
fake and shoddy goods, an increase of 16 percent, and 1,926
were for illegal business operations, an increase of 34
percent. The number of cases resolved was 3,529, an
increase of 28 percent, involving 5,336 people, an increase
of 31%. As a result of these cases, 2,963 people (or 56
percent) were sentenced, an increase of 24 percent. Among
cases resolved during 2005, there were 505 convictions of
crimes under the IP section of the criminal code, involving
741 people. There were 1,121 fake and shoddy goods cases
involving 1,942 people, and 1,903 illegal business
operation cases, involving 2,653 people. Overall, the
number of individuals sentenced increased by 31 percent,
among which 2,963 suspects were sentenced to a fixed term
imprisonment, or an increase of 24 percent. As discussed
below, the Chinese data for 2006 is thus far being
presented in a manner that is difficult to compare. By
comparison, in a recent speech, the Vice President of the
Supreme people's Court stated that in 2006 there were 3,508
people convicted and sentenced. (China's Top Judge:
Crackdown on Crime Promotes Social Stability, Human Rights
protection, Xinhua, Mar. 13, 2007).


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Still Limited Criminal Copyright Cases

8. (SBU) The aggregated data China provides obscures the
limited number of criminal copyright cases that China has
prosecuted since WTO accession. In its Section 301 report,
IIPA estimates the total number of criminal copyright cases
since China's WTO accession at 51, very few of which
involved American rights holders. During the past several
years, the Mission has made repeated requests, with limited
results, to China's enforcement agencies for data on
criminal copyright cases, especially cases involving
foreigners. Although there have reportedly been a few
pioneering criminal cases involving Internet infringement,
the burgeoning Internet piracy environment further
underscores the need for a dramatic ramp-up in Internet
copyright enforcement, including modernization of laws and
enforcement resources.

------------------------ -------------------------
Separate Data on Criminal Copyright Cases for 2005
------------------------ -------------------------

9. (SBU) In January 2007 China published the 2006 IPR
Yearbook, which further belies the assertion that China has
a criminal copyright remedy available. In the 2005 IPR
Yearbook, China reported only 14 concluded criminal
copyright cases for 2004, as well as 321 concluded
trademark related cases and 48 concluded trade secret
related cases. Of these criminal cases, only five people
were sentenced to more than five years imprisonment; and
only one case involved confiscation of assets. China has
changed the reporting in this yearbook from 2004 to 2005 to
remove separate references to criminal copyright cases. We
believe that the change in data reporting in this Yearbook
may in fact be intended to obscure the possible TRIPS
deficiency in lack of an available criminal copyright

---------------------------- ---------------------------
Continued Prosecutions Under Illegal Business Operations
---------------------------- ---------------------------

10. (SBU) Chinese enforcement officials repeatedly note
that they bring criminal cases more easily under illegal
business operations laws (Article 225 of the Criminal Code)
with more deterrent penalties. Arguably, prosecuting under
"illegal business operations" is easier if one need not
provide the ownership of each title that is infringed.
However, China can also facilitate prosecution of criminal
copyright cases by reducing procedural burdens and better
engaging rights holders. Positive steps in this direction
might include sharing of optical disc exemplars, enabling
foreign trade associations to staff their offices with more
than five people, and specifically authorizing use of
statistical sampling techniques, such as apparently is done

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in Jiangsu Province, among other steps. China's
unwillingness to provide detailed information on criminal
copyright cases as part of the "Article 63" request further
underscores the weakness of China's criminal copyright
data. Five years after WTO accession, the continuing lack
of transparency in "illegal business" cases makes it
difficult to determine whether this law is affording any
meaningful relief to U.S. rights holders.

-------------------------- ------------------------------
Increased Criminal Justice Cooperation Remains A Priority
-------------------------- ------------------------------

11. (SBU) Contributions to reduction in infringement levels
can also occur through increased criminal justice
cooperation. There has been some increased cooperation on
international criminal IPR cases in 2006 through the
bilateral Joint Liaison Group (JLG), although the numbers
of cases thus far are too few to make a significant impact.
Operation Ocean Crossing, the second joint U.S.-Sino law
enforcement operation, resulted in the largest People's
Republic of China (PRC) seizure of counterfeit
pharmaceuticals in that nation's history. The joint
investigation by Immigration and Customs Enforcement and
Chinese law enforcement dismantled a major China-based
transnational counterfeit pharmaceutical manufacturing and
distribution organization engaged in the worldwide
distribution of counterfeit Viagra and Cialis, with
proceeds estimated in the millions of dollars. Also in
2006, China and the U.S. agreed to establish an IPR experts
group under the Joint Liaison Group. Efforts have been
made by U.S. law enforcement in the JLG to support JCCT
efforts to promote sharing of forensic exemplars for
optical media, which have thus far been unsuccessful.

------------------------- ---------------------
Mission Supports An Appropriate WTO Case On IPR
------------------------- ---------------------

12. (SBU) The lack of an effective criminal copyright
remedy as well as overall high thresholds appear on the
surface to be TRIPS violations and also support Prority
Foreign Country designation. However, there are some
serious considerations that may mitigate, in particular,
against bringing a WTO case. First, lowering thresholds in
and of itself may not result in any additional criminal
cases. There are already numerous criminal IPR cases above
relevant criminal thresholds which are rarely investigated
or prosecuted. Moreover, China could also easily lower
thresholds by requiring that cases at lower thresholds be
privately, rather than publicly, prosecuted. Article 61 of
the TRIPS agreement does not explicitly require public
prosecutions of IPR crimes. (Note: In January 2007, the
Supreme People's Court in fact issued an "opinion"
encouraging more private prosecutions, which may be in
anticipation of a WTO case. End Note). USTR itself has
also identified other criminal IPR issues in its 2006 WTO
Compliance Report, which include "the lack of criminal

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liability for certain acts of copyright infringement, the
profit motive requirement in copyright cases, the
requirement of identical trademarks in counterfeiting
cases, and the absence of minimum, proportional sentences
and clear standards for initiation of police investigations
in cases where there is a reasonable suspicion of criminal
activity." To these legal issues might also be added the
misallocation of human resources to the administrative
trademark system, which limits the amount of copyright
administrative and police resources that can be dedicated
to enforcement.

----------------------------- ---------------------------
Civil Enforcement Increasing, But Foreigners Play A Small
----------------------------- ---------------------------

13. (SBU) Although criminal enforcement has been a
bilateral priority, IPR is "primarily a private right."
(TRIPS Agreement, Preface). Deterrent civil enforcement
also needs to remain a USG priority. An effective and
adequate civil remedy is required to be made available for
all TRIPS-defined IPR rights (TRIPS, Art. 41). Civil
litigation of IP rights showed significant increases in
2006. IPR Tribunals accepted a total of 14,219 civil IPR
cases in 2006, and closed 14,056, increases of six percent
and five percent, respectively. The number of second
instance civil IPR cases accepted and closed in 2006
decreased to 2,686 and 2,656, or declines of 14 and 12
percent, respectively. Cases initiated and closed by IP
right were: patents (3,196/3,227), trademarks
(2,521/2,378), copyright (5,751/5,719), technology transfer
contracts (681/668), unfair competition (1,256/1,188), and
others (846/844). During the period from November 2005 to
October 2006, there were reportedly 67 cases initiated for
preliminary injunctions, and 69 cases were decided during
that time period. The rate of granting preliminary
injunction requests was reportedly 92 percent. There were
1,032 cases for evidence preservation, and 953 cases
concluded, with a "grant rate" of 97 percent. There were
also 560 asset preservation cases, and 494 cases concluded,
with a grant rate of 95 percent. The "grant rate," which
China cites indicates the effectiveness of these TRIPS-
required measures, however, may overstate the percentage of
the actual number of successful cases, as many cases are
rejected by the case establishment ("li'an") division of
the court, where cases are initially accepted for

14. (SBU) The number of foreign-related cases is growing
rapidly in absolute and percentage terms, but is still a
small percentage of the overall IPR civil docket. There
were several high profile civil IPR cases in 2006,
including Pfizer's Viagra case and a case brought against
an affiliate of Sohu by the Motion Pictures Association.
In 2006, China's courts resolved 353 foreign-related civil
cases of IPR violation at first instance trials, an
increase of 52 percent over the previous year. The number

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of civil IPR cases related to foreign companies was 268 in
2005, up 78 percent from 2004. In total, from 2002 to
2006, China's courts settled 931 foreign-related civil IPR
cases. Conservatively, however, the total of foreign cases
is less than five percent of the overall civil IPR docket.

--------------------------- ----------------------------
Mission Supports Overall Improvements in IPR Process and
------------------------ -------------------------------

15. (SBU) The Mission continues to support USG agency
efforts to improve civil process in China through adoption
of "discovery" evidence production and other procedural
safeguards, as well as China's streamlining of procedures
regarding notarization/consularization of powers of
attorney and other evidence. Efforts include working with
the State Department on accession to the Hague Convention
on Legalization of Foreign Public Documents as well as
strengthening the expertise, deterrence, and independence
of IPR adjudication in China.

------------------------- ------------------------------
IPR Courts Have Improved, Although Systemic Flaws Remain
---------------------------- ---------------------------

16. (SBU) In its Section 301 report, IIPA notes that "the
record of China's development of a cadre of well trained
IPR judges to sit on specialized IPR tribunals at the
Intermediate level courts in China to hear civil cases has
been a success." According to Chinese data, in 2006 there
were 172 civil IPR courts, 140 IPR collegial panels, with
1,667 individual IPR judges. There are 62, 38, and 42
intermediate courts that can hear patent, plant variety,
and layout design, respectively. In addition, there are 17
basic level courts. Additional basic level IPR courts were
being added in early 2007, including in the Beijing area.
While rights holders such as IIPA have commended the
increasing expertise of the Chinese IPR courts, they still
generally complain about such factors such as low damage
awards, expenses and delays in adjudication, and lack of
clear safeguards against corruption and political
influence, all of which impair their overall effectiveness.
In some respects, the solution to improving the judiciary
is to have fewer IPR courts at the local level, and to
establish a national IPR court independent of local

Improving Overall IPR Adjudication

17. (SBU) IIPA notes in its 301 Report that "China should
implement similar reforms in the criminal justice system to
enhance deterrent enforcement against copyright piracy."
Some experiments are underway to combine some or all civil,
criminal and administrative adjudication, including at the
basic and intermediate court levels, which could assist in

BEIJING 00002103 008 OF 023

ensuring that courts develop greater expertise in criminal
and administrative IPR matters by relying on the expertise
and training developed in the civil division. Some Chinese
IPR Agencies have also sought development of specialized
national appellate IPR courts, like the U.S. Court of
Appeals for the Federal Circuit, or of courts that combine
civil, criminal, and administrative IPR adjudication (in
comparison to the investment China has made in a national
IPR judiciary at various levels, the United States has one
national appellate patent court with 12 judges that also
hears appeals from the U.S. Patent and Trademark Office,
and has jurisdiction over a range of non-IPR matters). The
Mission continues to support many of China's judicial
reform efforts, along with other trading partners such as
the European Union.

---------------------- -------------------------
Administrative Enforcement Still The Most Common
Enforcement Vehicle
-------------------------------- ---------------

18. (SBU) As indicated by QBPC, criminal enforcement
remains extremely important to rights holders, although
most QBPC members in fact have little experience in its
use. There is no comparable U.S. data we are aware of that
points to the relative importance or unimportance of the
administrative system to U.S. rights holders. Data from a
2006 Japanese government Field Survey shows that the
administrative system was the principal enforcement remedy
used by Japanese companies experiencing infringing
activity, while other forms of enforcement are still
relatively rare. Quantitatively speaking, the vast
majority of China's IPR litigation is administrative. If
all enforcement activities by agencies that can enforce an
intellectual property-related right were collected, we
estimate that the numbers of administrative IPR actions
would likely easily exceed 75,000, and perhaps may equal
200,000 or more. However, many of these agencies, such as
the State Administration for Radio, Television and Film;
the Urban Management Departments of the Bureaus of
Construction; the Tecnology Supervision Bureau of the
Administration for Quality Supervision, Inspection and
Quarantine, and the Tobacco Monopoly; do not separately
report their IPR-related cases. The numbers of
administrative officials involved in IPR matters, by
Chinese government estimates, also may be in the range of
400,000, but such numbers are also difficult to calculate.
Most of them are likely involved in trademark-related
enforcement. Even China's understaffed copyright
administrations have experienced some augmentation in
staffing in some pilot projects by combining into "cultural
task forces" with other copyright-related agencies, such as
culture bureaus, radio, film and television bureaus, press
and publication bureaus, city management officials (who
control street side vendors), public security bureaus, and

19. (SBU) The Japanese Field Survey also points to

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continuing problems in administrative enforcement.
Japanese companies experienced a 42 percent increase in
administrative actions on behalf of surveyed Japanese
companies in 2005 compared to 2004. Confiscation of goods,
suspension of operation, and fines -- the most significant
penalties -- had all significantly increased. Among these
companies, 27 percent believed that the execution of the
legal measure under the law had been inappropriate. Of
particular note is that confiscation and destruction of
infringing equipment was rarely applied, and that 30
percent of firms suffered damages due to repeat offenses,
an increase from 20 percent in the prior year.
The problem of recidivist administrative
offenses underscores a basic weakness of the 2004 Judicial
Interpretation, which removed a prior "three strikes" rule,
thereby effectively raising thresholds and failing to deter

Trademark Data Not Yet Available

20. (SBU) Among the various data available on IPR
protection and enforcement, the Administration for Industry
and Commerce, Chinese Trademark Office (CTMO) publishes
useful data on trademark enforcement cases, including rates
of referral, amounts of fines, case initiated ex-officio or
upon complaint, and cases involving foreigners. These data
were published in 2005, but have not yet been made
available for 2006. Interim data suggest that the number
of cases handled by AIC throughout the country in 2006 may
have declined by about 13 percent, from 39,800 to 33,900,
and that the number of cases involving foreign trademark
holders may have increased by about 10 percent to 7,439.
Among the key data points, only 111 cases were referred to
criminal prosecution, or about 0.3 percent. This was a
decline of 53% from 236 cases in 2005, and undercuts
Chinese assertions that it is increasing criminal
deterrence by improving cooperation between administrative
and criminal authorities.

21. (SBU) In discussions the Embassy has had with the CTMO,
it was suggested that this interim data may not include the
entire end of year data and may need to be revised. IACC
suggests in its Section 301 submission that this data may
reflect an increase in small scale raids on an ex-officio

22. (SBU) Despite these negative trends, during 2006, AIC
had been responsive to several requests involving IPR
enforcement. For example, AIC issued a directive involving
the Lance Armstrong Foundation, which resulted in some
enforcement activities on behalf of that charity. AIC had
also closed down a website,, which
involved the cooperation of several provincial authorities.
SAIC also began to address in a more systemic manner the
problems associated with abusive registrations in early
2007, including cooperating with the USG on these issues

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and issuing guidance on abusive registrations by natural
persons. Of particular note, SAIC had directed local AICs
to take steps against local markets. At the IPR Working
Group, it was revealed that in Guangdong Province alone,
AIC had conducted investigations of 30 markets and 230
shops, in which 208 cases of infringement had been
uncovered, of which 116 involved foreigners. As with trade
fair statistics (noted below), this data underscores the
particularly adverse impact that local markets have on
foreign rights holders.

------------------------ ------------------------
Copyright Administrative Enforcement Remains Weak
-------------------------------- ----------------

23. (SBU) China's administrative copyright system continues
to suffer from several basic limitations. According to a
recent Chinese government analysis the reasons for weakness
in copyright enforcement are threefold: (a) lack of
emphasis by many local enforcement agencies. Although
special campaigns began enthusiastically, there was no
timely follow-through; (b) certain copyright industry
officials lack adequate knowledge on copyright, and are
using pirated products or engaged in piratical activities,
especially in the Internet environment; and (c) inadequate
enforcement human resources and IP knowledge, especially at
the local level. To these challenges might be added
the legal requirement that copyright administrations only
take enforcement actions that affect the "public interest"
which may limit certain types of enforcement, such as
software end user piracy.

24. (SBU) Copyright administrative enforcement data for
2006 is not yet available. During 2005, there were 9,644
copyright cases handled by copyright bureaus throughout
China. Among these cases, 366 were referred to criminal
prosecution, while 7,840 involved fines. Cases were
concentrated in Liaoning, Shandong, Guangxi, Guangdong, and
Sichuan. Only 38 cases "involved foreigners." The three
principal regions for enforcement were Guangdong, Beijing
and Shanxi. These cases presumably involved complaints by
foreign rights holders and may underestimate the number of
ex-officio cases involving foreign rights holders or
involving foreign rights holders' products mingled with
domestic products. The referral rate to criminal
prosecution in 2004 was 1% or 101 out of 9,691 cases; in
2005 it was 3.8%, or 366 out of 9,644 cases.

------------------- ------------------------
Numerous Copyright-Related Campaigns in 2006
----------------------------------- --------

25. (SBU) There have been several copyright-related
administrative campaigns in 2006. Among the copyright-
related administrative campaigns and activities were:

March 30 - a circular was issued by MII, NCA, Ministry of
Finance (MoF) and Government Offices Administration of the

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State Council to require all government entities at
national and sub-national levels to procure and provide
sufficient funds to procure only PCs that are preloaded
with legitimate operating system software.

Late April - an enterprise legalization plan was jointly
issued by the NCA, MII, MOFCOM, MoF, State-owned Assets
Supervision and Administration Commission of the State
Council (SASAC), All-China Federation of Industry and
Commerce, China Banking Regulatory Commission (CBRC), China
Securities Regulatory Commission (CSRC) and China Insurance
Regulatory Commission (CIRC).

Early June - NCA issued a notice to launch a campaign
against hard-disk loading piracy as a step to implement the
circular on pre-loading of legal operating system software.

July 14 - China announced a 100 day campaign directed
primarily at retail piracy. Although there was a vast
quantity of raiding, the results of the campaign did not
significantly reduce retail piracy. Industry surveys
generally showed that availability of pirated product had
declined during the campaign; however, pirated discs were
still available at virtually the same level. In some
instances, the discs were removed to a back room or for
ordering via catalog. Also during the 100 day anti-piracy
campaign, the Ministry of Public Security reportedly was
engaged in over 2,300 cases. 28,316,000 illegal
publications were seized, 2,480 people detained, and
criminal detentions and arrests for 379 people.

August 2006 - China launched an Internet piracy campaign.
During the four month crackdown ending in January, NCAC and
its local offices investigated/handled 436 cases, imposed
fines totaling RMB700,000 (USD90,000), and shut down 205
illegal websites. Six cases had reportedly been
transferred to courts for prosecution; one led to a
conviction. According to press reports, NCAC had pursued
nearly 130 cases brought by overseas copyright holders
during the campaign, and 90 percent has been concluded.

August 24 - The National Antipornography and Piracy Task
Force (NAPP) issued a notice to copyright, press and
publication and education bureaus regarding strengthening
enforcement against university campus textbook piracy
during the 100 day campaign.

October 9 - General Administration of Press and
Publications, Ministry of Education and National Copyright
Administration issued an additional notice regarding
cracking down on piracy of foreign textbooks.

November 10 - The Ministry of Education issued a notice
concerning cracking down on piracy of foreign textbooks. A
total of seven textbook piracy decisions were issued by
year-end 2006.

------------------------- ----------------------------

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Limited Copyright Enforcement Against End User Piracy,
Broadcast Piracy
----------------------------- ------------------------

29. (SBU) There have been other year-long efforts
undertaken on behalf of copyright interests. In the area
of software end-user piracy, local copyright authorities,
according to BSA, have taken 22 administrative actions
against enterprise end users based on BSA complaints but
only two administrative penalties were issued. There has
been virtually no publicity surrounding these raids without
penalties so they go unnoticed by the business community.
Some cases were cut short when the raiding team was refused

30. (SBU) Broadcast, cable, and public performance piracy
continues to be a problem in China. The problem was also
noted this year in a submission by CASBAA, which has
recently increased its anti-piracy enforcement efforts in
China. The Mission has raised this issue from time to
time, most recently in a meeting with the Beijing Law
Enforcement Culture Task Force, which noted that it has
undertaken administrative enforcement to stop the
distribution of illegal cable piracy set-top boxes. The
problem, however, continues to be pervasive.

31. (SBU) Also in 2006, cultural authorities launched the
"Sunshine Campaign" to clear up audio-visual markets. The
campaign investigated 10,330 cases involving 3,184
enterprises, with RMB1.98 million in illegal profits
confiscated, and RMB 41.68 million in fines imposed.
Licenses were revoked for 728 infringing companies.

Optical Disc Piracy

32. (SBU) In 2005, Ambassador Portman sent a letter to
Chinese Ambassador Zhou Wenzhong requesting the closure of
certain identified producers of optical discs. China's
response to this letter has been neither comprehensive nor
transparent. While some Chinese officials had complained
that some of the titles identified in the letter were
beyond the term of Chinese copyright protection, that
certain production lines had already been closed and/or
their owners punished, and that certain complaints were
beyond the statute of limitations for administrative
enforcement, there was no effort to respond to the letter
in its entirety.

33. (SBU) According to Chinese press reports and
information from the JCCT IPR Working Group, 14 pirated
optical disc production lines were closed by China in 2006.
At the December 2006 JCCT IPR
Working Group, the National Copyright Administration
explained that during 2000-2005, China had taken action
against 48 replicators. Of the 14 cases closed by China,
it was further reported that only one factory was referred

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to criminal prosecution.

34. (SBU) In May 2006, Embassy visited the newly relocated
Disc Production Source Identification Center (DPSIC) in
Shenzhen. DPSIC, which falls under the Ministry of Public
Security, reportedly holds China's only complete exemplar
library of optical discs produced in China and is also the
only lab to house sound spectrogram and optical media
"fingerprinting" equipment to conduct forensic analysis.
(Note: At a meeting in February with Vice Minister Liu
Binjie of the General Administration of Press and
Publications (GAPP), Minister Liu denied that the DPSIC
holds a complete exemplar library and advised that it only
collects exemplars when a factory is under investigation.
End Note.) The lab can only identify discs produced on
legally registered production lines. On-site inspectors
from GAPP are posted at every optical disc replicating
facility in China in order to monitor disc titles and
production equipment. The lab's director, though open in
discussing technical and procedural issues, expressed no
interest in formally cooperating with foreign industry
groups, arguing that such cooperation would be inconsistent
with the organization's need to maintain objectivity.

35. (SBU) Most U.S. industry groups and companies have
described DPSIC as opaque and uncooperative and have been
particularly frustrated with DPSIC's requirement that only
domestic entities submit cases, the burdensome evidentiary
requirement for submissions, and the long waits to obtain

State Food and Drug Administration

36. (SBU) During 2006, the Embassy actively supported
several efforts to improve IPR protection for the
pharmaceutical industry, including a seminar with the Japan
and European patent offices, as well as advocacy for
criminal pharmaceutical law reform.

37. (SBU) China's pharmaceutical anti-counterfeiting regime
suffers from the substantive and procedural deficiencies of
its IPR regime. During 2006, there were several negative
developments, including several high profile cases
involving counterfeit pharmaceuticals, continued
proliferation of counterfeit drugs from China in markets
throughout the world, continuing harm to Chinese patients,
and increasing concerns over corruption in SFDA across a
wide range of areas. At the same time, there has also been
a reluctance of the Chinese government to address problems
such as lack of protection of data exclusivity, integrity
of clinical data submissions for marketing approval, as
well as legislative reform of China's counterfeit
pharmaceutical law. SFDA has itself been criticized for
possibly selling or releasing clinical data to generic
competitors of innovator companies. Regarding its
counterfeit pharmaceutical law, China needs to amend the

BEIJING 00002103 014 OF 023

law to conform to World Health Organization standards under
which a drug that is deliberately misidentified as to
source or identity, of whatever quality standard, is deemed
a counterfeit.

38. (SBU) According to China's own data, enforcement
against counterfeit pharmaceuticals remains chronically
weak. Jin Shaohong, the first vice president of National
Institute for the Control of Pharmaceutical and Biological
Products, estimates counterfeit medicines at 5-10 percent
of the China medicines market. China also continues to be
a major source of counterfeit pharmaceuticals worldwide.
During a 2004 special campaign by SFDA, there were 154,000
enforcement man-visits, involving 10,400 individuals, with
fines of RMB1.653 million. As a result of this activity,
14 establishments were rectified, and only one had its
license revoked. Only two cases were referred to criminal
prosecution. In 2005 31,000 cases of
fake and inferior drugs and medical appliances were
handled, with value of RMB51.4 million, 59 licenses
canceled, 530 counterfeit medicine workshops were
destroyed, 214 cases transferred to PSB, and 36 criminals
punished. The "referral rate" was only 0.69 percent.
Problems of counterfeiting pharmaceuticals have also been
identified by the U.S. Pharmacopeia in evaluating drug
quality in USAID assisted projects (Primo-Carpner and
McGinnis, Matrix of Drug Quality Reports in USAID-Assisted
Countries, July 2006). Counterfeit Chinese artesunate,
which may be manufactured in China has been identified as a
possible reason for increasing malaria resistance.
According to the industry-led Counterfeiting
Incident Reports, China experienced the highest number of
counterfeiting incidents -- 155 compared to 96 for the
number two country, Russia. (Kubic, Pharmaceutical
Counterfeiting Trends: Understanding the Extent of Criminal
Activity, Journal of Biolaw and Business (2006). The
system needs to be seriously improved.

------------------------- ---------------------------------
China Remains a Principal Concern Over Export of Infringing
--------------------------------- -------------------------

39. (SBU) By almost any measure, China is a major source of
infringing goods worldwide. More QBPC members cited China-
origin counterfeit exports as accounting for at least USD 1
million in lost revenue than cited any other country.
Twenty-two percent of members estimated more than USD 1
million in lost revenue due to counterfeit exports
originating in China; only 14 percent of members estimated
equivalent losses due to exports originating from other
countries. Worldwide, the OECD's preliminary estimate is
that 80 percent of IPR seizures by Customs authorities
originated from only ten countries, with China ranking the
highest at 32 percent. As reported by the
ICC's Business Alliance to Stop Counterfeiting and Piracy,
approximately two-thirds of Europe's seizures of infringing
goods originate from China.

BEIJING 00002103 015 OF 023

40. (SBU) According to U.S. Customs and Border Protection,
IPR seizures from China of infringing goods increased in
both relative and absolute terms in 2006 to 81 percent of
the total domestic value of all customs IPR seizures. Hong
Kong represented an additional six percent. The total
value of seizures from all countries was USD 155,369,236
with 14,675 total seizures. China-origin seizures in FY
2006 were USD 125, 594,844, or almost double USD 63,968,416
in FY 2005. Footwear represented 49 percent of U.S.
seizures from China in FY 2006, an increase from 12 percent
the prior year.

41. (SBU) U.S. Customs seizure data are one of the few
benchmarks that the U.S. government collects regarding the
magnitude of the IPR problems in China. However, the total
volume of Customs seizures is a fraction of a percent of
total Chinese exports to the U.S. in 2006 and seizures may
not correspond to the incidence of piracy and
counterfeiting. For example, exports of media and
pharmaceuticals, known to be major categories for Chinese
piracy and counterfeiting, represented only two percent and
one percent, respectively, of the total FY 2006 Customs IPR
seizures from China, and were too negligible to separately
report in 2005.

42. (SBU) Chinese seizures in 2006 increased dramatically.
According to recent speeches by Chinese Customs officials,
in 2006 there were 2,473 trademark related cases involving
196.8 million infringing goods with a value of over RMB 200
million. These numbers suggest increases of more than 100
percent. In 2005, 98 percent of China's Customs seizures
by value were export-related, while 96 percent of the cases
were export-related. In addition, the vast majority of all
2005 seizures were trademark-infringing goods -- 1,106 in
2005, versus 67 for copyright and 37 for patents. Total
seizures in 2005 were only RMB 99,780,000, or about USD 13
million. Both 2005 and 2006 seizures were a fraction of
U.S. seizure levels. Chinese data show that 36 percent of
seizures in 2005 were for apparel, footwear, and caps,
while less than one percent was for medicines and medical

43. (SBU) The relatively high level of apparel seizures is
consistent with U.S. Customs as well as overall OECD data
on trade in counterfeit goods, which show that clothing and
apparel were among the principal goods seized by the six
countries with the largest numbers of seizures worldwide,
including China. See OECD Report.

44. (SBU) Notwithstanding this data, exports of optical
media and pharmaceuticals from China continue to be major
problems, further underscoring the limitations of Customs
seizure data for analyzing worldwide trends in infringing
goods. IIPA reports that infringing optical media from
China has been found in nearly every major market in China,
including but not limited to Germany, Italy, Australia,

BEIJING 00002103 016 OF 023

Norway, Belgium Canada, Mexico, the United States, Russia,
the United Kingdom, Netherlands, Israel, Paraguay,
Lithuania, Singapore, Taiwan, the Philippines, Indonesia,
Vietnam, Hong Kong, Malaysia, Thailand, Chile, New Zealand,
and South Africa. U.S. law enforcement has also been
involved in cases involving the export of pirated optical
media from China. In 2006 more than 75,000 Chinese-origin
counterfeit Nintendo products alone were allegedly seized
in 13 countries around the world. Counterfeit Chinese
pharmaceutical products have also been found throughout the
world. The impact of counterfeits is particularly severe
in the developing world, including Africa. (See, e.g.,
Nigeria criticizes China over counterfeit threat, Daily
International Pharma Alert. Feb 14, 2006; vol. 3, no 31.
Available from; see also OECD Report).

45. (SBU) The USITC provides an administrative procedure
that closely follows U.S. civil IPR procedures, under
Section 337 of the Tariff Act of 1930, to exclude goods
that infringe patents and other rights from entering the
U.S. market. Fiscal year 2006 reportedly set a new high
for Section 337 cases. The USITC launched a record 40
section 337 proceedings between October 1, 2005, and
September 30, 2006. According to statistics from China's
Ministry of Commerce (MOFCOM), by the end of June this
year, USITC had instituted 52 Section 337 investigations
against Chinese companies. Although China occasionally
questions the TRIPS-compatibility of the US Section 337
remedy, border measures against products that infringe
patents may become increasingly important as Chinese
exports continue to increase and may play an increasingly
important role to the many companies frustrated in their
efforts to stop infringement or gather evidence within

--------------------------- ----------------------
WTO and Other Strategies on Exports of Pirated and
Counterfeit Goods
----------------------------------- --------------

46. (SBU) China's export-related border measures are not
required by the TRIPS agreement. While there are aspects
of the regime that are problematic, such as the manner by
which Chinese Customs disposes of counterfeit goods, the
availability of an export remedy is in fact "TRIPS-plus,"
that is, China need not have an administrative export
regime to satisfy the plain meaning of the TRIPS provisions
regarding border measures. The following are steps that
have been considered to further deter infringing exports.

QImproving criminal enforcement over exports of
counterfeit goods should continue to be a priority. China
is obligated under TRIPS Article 61 to have criminal
remedies against commercial scale counterfeiting and
piracy. Exports of such goods should also be considered
such a "commercial scale" activity. Such efforts were
begun in 2004 with the revised Judicial Interpretation, and
again in 2006 with referral procedures put in place and

BEIJING 00002103 017 OF 023

several criminal cases.

QExperiments in Ningbo have shown that increasing
inspection resources can reduce the numbers of domestic
seizures of exported goods. We may encourage a
reallocation of resources to key ports that are the source
of infringing goods. While we are impressed with seizures
undertaken by IPR officials in remote areas, such as Lhasa,
IPR enforcement resources in China need to be more closely
tied to evolving risk assessments.

QThe track record of the sporting goods industries
shows that one of the more effective ways of increasing
seizures is by supporting broad identification and
intelligence sharing between business and Customs officers.

QChina should address legislative deficiencies in its
export regime. The Ministry of Culture's AV regulations do
not require licensing for the export of optical discs, but
only for import, sales, and distribution. We have raised
this several times with MoC, to no effect. This limits the
availability of other criminal remedies, such as illegal
business operations for export-related transactions.
Similarly, MOFCOM has the authority under China's Foreign
Trade law to revoke licenses or impose penalties for
companies engaged in the trade in infringing goods, which
MOFCOM had previously promised th USG to use to deter
companies that export infinging goods. To our knowledge,
such efforts have also not taken place. As discussed at
the December JCCT IPR Working Group, other agencies, such
as AIC can also revoke business authority for companies
operating Internet sites or business licenses for

QEnhancing customs cooperation of China with U.S.
Customs and third country Customs and trade officials can
also help improve intelligence and thereby facilitate

QSystemic problems, such as recycling of seized goods
through charities (which may occur without removing the
infringing marks), might also be addressed elsewhere, such
as in the current draft of the revised Trademark Law. Such
recycling efforts have regrettably been applauded in the
Chinese press. See e.g., "Hangzhou Customs Donates 1
Million Seized Infringing Goods to the Red Cross" (China
Intellectual Property News, March 2, 2007, at 5.)

QWe can also use training programs such as the current
Trade and Development Agency IPR Customs training program
in Shanghai to advance many of these goals, as well as
global efforts under the STOP initiative.

Other Administrative Efforts

47. (SBU) There have been several efforts undertaken in

BEIJING 00002103 018 OF 023

2006 to make the administrative system more "user-friendly"
and effective. Three of these efforts involved the "Blue
Sky Campaign" to improve administrative enforcement at
trade fairs, and the establishment of a nationwide system
of IPR complaint centers in 50 cities throughout China, as
well as an effort to improve local copyright enforcement by
combining resources of the copyright-related agencies, such
as the Ministry of Culture, Copyright Administration, Press
and Publications, and Radio, Film and Television Bureaus.

Blue Sky/Trade Fairs

48. (SBU) At the start of 2006, various local governments
and trade fair organizers had established policies or local
regulations regarding the reporting of IPR infringements at
trade fairs. The Canton Trade Fair, China's largest, has
had an IPR complaint center for several years. In 2006,
the central government took a more active interest in this
area. The Ministry of Commerce, in conjunction with other
IPR-related ministries, promulgated the "Protection
Measures for Intellectual Property Rights during
Exhibitions" on January 1, 2006 (effective March 1, 2006).
The Rules recommend that trade fairs of three days or more
set up IPR complaint centers staffed by personnel from
local patent, trademark, and copyright bureaus. The
guidelines operate on a "three strikes" principal,
requiring rights holders to enforce their rights against an
infringer at three consecutive fairs before consequences
beyond warnings are incurred.

49. (SBU) On May 29, 2006, MOFCOM and other ministries
unveiled the Blue Sky Campaign to help implement the
earlier promulgated "Measures." The Blue Sky Campaign
includes development of guidelines for reporting IPR
infringement at trade fairs. On-the-spot trade fair
enforcement is typically a weak remedy, since evidence may
be hard to obtain, companies may have little infringing
merchandise available, and typically only a scaled down
type of Chinese administrative enforcement is made
available. U.S. rights holders may also have difficulty
locating hard-to-find complaint centers, staffed by non-
English speakers, with simple complaint forms that are only
available in Chinese. Evidentiary requirements to document
IP rights as well as powers of attorney, including
notarizations and consularizations, can be inconsistent and
overly burdensome by international norms. Moreover, rights
holders have confirmed that at some fairs, contrary to the
guidelines, local IPR authorities have refused to be
involved, even after being properly contacted by fair
organizers. A litigation brought by one U.S. rights holder
in Shanghai for failure to recognize an obligation to
enforce IPR rights was dismissed by a Shanghai court.
Thereafter, the organizer banned the rights holder from
exhibiting in trade fairs unless the litigation strategy
was entirely dropped. Finally, when U.S. rights holders

BEIJING 00002103 019 OF 023

have adequately documented their rights, alleged infringers
are typically "punished" with a warning to remove offending
products from their displays; in some cases, infringers
replace offending products once they think "the heat is

50. (SBU) Apart from these remedies, we are unaware of any
effort to secure civil or criminal judicial relief by
reason of a trade fair infringement. In certain instances,
Chinese law needs to clarify when an "offering for sale"
constitutes an infringement of rights, and what remedies
are available. At the JCCT IPR Working Group in December
2006, it was revealed that during the most recent Canton
Trade Fair, 472 complaints had been accepted, of which 419
cases were determined to have involved IP rights, and 182,
or 38 percent, involved foreign rights holders. This high
level of foreign-related complaints further underscores the
importance of an effective trade fair remedy. We
appreciate, however, efforts by MOFCOM to establish IPR
complaint centers to address trade fair infringements, and
we look forward to working with MOFCOM and local trade fair
organizers to achieve meaningful and effective IPR
enforcement at trade fairs. With the FY 2007 launch of
USDOC's Initiative to Protect IPR at Trade Fairs for events
DOC sponsors or supports, the Foreign Commercial Service
and USPTO will benchmark and monitor the effectiveness of
IPR protection at Chinese trade fairs and will engage trade
fair organizers to improve ineffective policies and
procedures as a condition for future USDOC support.

--------------------- ---------------------------------
Patent Administrative Enforcement of Continuing Limited
Utility to Americans
---------------------------------- --------------------

51. (SBU) Administrative enforcement of patents has
historically not been a priority for USG, in part because
the U.S. lacks a criminal patent infringement law but
instead uses deterrent civil remedies. Administrative
patent infringement cases initiated in 2006 totaled 1,270;
in addition 973 cases were concluded during this period.
Only 16 percent of the patent cases involved invention
patents, which are of primary concern to foreigners. In
fact only 7.5% of the administrative patent infringement
cases involved foreigners. There were 43 other types of
patent cases, of which 21 were concluded. Among these
"other types" of cases, the principal disputes involved
patent ownership (67%) and rights to remuneration for
patent filings for service inventions (25%). There were 33
counterfeit patent cases, and 933 instances of passing off
of patents (passing non-patented products off as patented
products or of passing non-patented processes off as
patented processes) and 12 cases were referred to criminal
prosecution. This referral rate is in fact higher than
many other IPR administrative agencies.

--------------------------------------------- ------
Overall Administrative Enforcement is Pervasive and

BEIJING 00002103 020 OF 023

Difficult to Assess
--------------------------------------------- ------

52. (SBU) There are other active areas of administrative
enforcement in China that may implicate IP Rights. For
example, the State Tobacco Monopoly investigated 330,000
counterfeit cigarette cases in 2006, a decrease of five
percent from the 347,000 cases in 2005. A total of more
than nine billion counterfeit cigarettes was seized in
2006, an increase of 24 percent over 2005. Perhaps due to
the lost tax revenue, China arrested 6,334 people and
sentenced 2,313 people for cigarette counterfeiting,
increases of 19 and 36 percent, respectively. Chinese-
origin counterfeit tobacco products have been the subject
of U.S criminal investigations and customs seizures as
well. The total volume of arrests and convictions is much
greater than the arrests and convictions under China's
criminal IPR laws previously noted, perhaps due to lost tax

53. (SBU) Another area is fake and shoddy goods. These
cases are brought by the Technology Supervision Bureau of
the Administration for Quality Supervision, Inspection, and
Quarantine (TSB). During 2006, there were reportedly as
many as 180,000 such cases. Fake or shoddy goods valued at
3.1 billion RMBwere also destroyed. From January to
October2006, 111 uch cases were transferred for criminal
investigation. Although foreign rights holders do use the
TSB to pursue counterfeiters, it is unclear from the data

how many such cases involved trademark counterfeiting.

54. (SBU) Other agencies with administrative enforcement
authority include: the Ministry of Agriculture for
counterfeit seeds and production materials, the Ministry of
Construction and Municipal Supervision for regulation of
vendors of pirated or counterfeit goods, and the Ministry
of Public Security for a wide range of offenses. In
addition, the civil courts have authority to refer criminal
matters to criminal prosecution, which is rarely done.

------------------------- -----------------------------
Coordination and Referral Issues: The Structure Remains
Overly Complex
--------------------------------- ---------------------

55. (SBU) China's IPR system is largely ineffective, but
not due to a lack of enforcement activity. Today's China
may be the most litigious IPR society in the world, with
among the lowest level of overall effectiveness and the
highest complexity due to overlapping authorities, laws,
regulations, rules, local practices, etc. China urgently
needs higher quality, deterrent enforcement with a minimum
of procedural baggage. China's current system establishes
a brisk market for "forum shopping" where rights holders
should be maximizing their enforcement dollar among various
alternatives of varying ineffectiveness which involve
different costs, advantages, and disadvantages, including
varying enforcement at local levels. Rights holders may

BEIJING 00002103 021 OF 023

also be considering seeking overseas enforcement as a
costly but more limited alternative.

56. (SBU) Viewed as a system with multiple competing fora,
the relatively high level of civil copyright litigation
likely reflects both the high incidence of piracy and the
relative weakness of the copyright administrative and
criminal enforcement system, thereby forcing victims to
bring civil litigations in lieu of criminal or
administrative complaints. By contrast, the relatively
high level of administrative and criminal trademark
litigation results in a proportionately low level of civil
trademark adjudication. Moreover, the low level and
effectiveness of patent and trade secret litigation
increasingly forces foreign litigants to bring cases
overseas, such as through Section 337 cases in the United
States or even through criminal cases brought overseas.

----------------------- -----------------------------------
Chinese Ministries Have Sought Greater Coordination in 2006
------------------------------------ ----------------------

57. (SBU) In 2006, national and local Chinese ministries
issued several documents guiding the referral and
coordination of administrative, criminal, and even civil
cases. Many of these documents suggest useful means to
further coordinate and improve IPR enforcement,
particularly criminal IPR enforcement. At a national
level, the procuratorate, public security, copyright,
customs, trademark and other authorities jointly
promulgated four rules including the "Regulations on Timely
Transfer of Suspected Criminal Cases in Administrative
Enforcement" and "Provisional Rules on Strengthening
Coordination in Combating IP-Related Crimes." In addition
to this effort, in April 2006, the National Working Group
for IPR Protection formulated China's Action Plan for IPR
Protection 2006, including 160 separate measures. Part of
these measures included setting up 50 staffed IPR complaint
centers throughout China, which was completed in 2006.

--------------------------- -------------------------
Ministry of Public Security Launches Mountain Eagle 2
------------------------------------ ----------------

58. (SBU) During 2006, MPS launched the Mountain Eagle 2
campaign, which appears to have resulted in increased
arrests and seizures of infringing materials, although the
disposition of seized goods and the outcomes of criminal
cases remain largely obscured by lack of transparency. MPS
reported over 3,000 cases being established, 2,300 cases
"cracked" and investigations of 3,600 suspects. In
response to U.S. requests, MPS also assembled an internal
IPR coordination steering group on a national and local
level to better integrate the various divisions of MPS and
local PSBs involved in IPR crime. This group has provided
support for many cases, as well as useful training and
engagement. For example, MPS sponsored a program in 2006

BEIJING 00002103 022 OF 023

on how to file a criminal copyright case that was supported
by the U.S. Embassy and attended by U.S., foreign, and
Chinese rights holders. In the critical area of exports,
Chinese customs has reportedly attempted to transfer at
least 20 cases to the Public Security Bureaus for
investigation. Additional data is needed before judging
whether there have been demonstrably more referrals of
administrative trademark and copyright cases.

Human Rights Concerns in IPR Enforcement

59. (SBU) Efforts to improve IPR enforcement in China also
need to be geared to other key issues, such as protection
of human rights and rule of law. Some of those concerns
involve freedom of religion and information. In many
instances, the ethical consequences need to be carefully
weighed. For example, "illegal business operations" cases
have been brought against individuals who distribute
bibles. China's recent complaints against piracy of
Chinese movies on U.S. cable television stations may also
be directed towards the outlawed cult "Falun Gong," which
may be an investor in many of these stations. Culture
bureaus that bring copyright or illegal business operations
cases also function as censors of information, which raises
concerns about how strongly we should strengthen their

60. (SBU) Generally speaking, the Mission believes that the
protection of private property, rule of law, and IPR are
mutually compatible messages. Occasionally, however,
punishments may be imposed without proper process or in a
disproportionate manner. For example, the Nanjing City IPR
Whitepaper released in 2006 identified several instances
where re-education through labor has been used for IPR
offenses, perhaps for juveniles. There have been several
reported instances where organized criminal groups have
hired pregnant or nursing women, or minors, in order to
evade liability. There were also cases in 2006 where
rights holders were able to detain or imprison infringers
for several months without trial. As was discussed at the
first Ambassador's roundtable on IPR in 2002, U.S. rights
holders in China generally recognize that good IPR
protection and enforcement must occur in an environment
where rule of law is protected, and our efforts should be
geared to ensuring such procedures are in place.

Other Industry/Government Efforts

61. (SBU) There were several efforts under way in 2006 to
improve cooperation between U.S. business and the Chinese
government. Various industry copyright trade associations
executed memoranda of understanding with the Chinese
Ministry of Culture, National Copyright Administration,
State Administration of Radio, Film, and Television and

BEIJING 00002103 023 OF 023

others to improve copyright protection. MPAA and BSA
executed another agreement with the National Copyright
Administration of China to enhance our collective efforts
to combat Internet piracy. Local MOUs have also been
undertaken, such as with the Chaoyang District government
in Beijing (where the Embassy is located) to improve
copyright enforcement and coordination, and an MOU between
the U.S. Chamber and Jiangsu government. Other agencies,
such as the Ministry of Public Security, have also sought
MOUs with U.S. industry. The European Chamber concluded an
agreement regarding assistance with the IPR complaint
centers in Guangdong and Jiangsu, while the U.S. Chamber is
also building a network of MOUs to improve local
cooperation. Many of these efforts are geared towards
improving administrative enforcement. The MOU signed by
the Motion Pictures Association in conjunction with the
2005 JCCT has generally resulted in some increased
transparency on enforcement issues and responsiveness to
specific requests for action. Industry hopes that the NCA
MOUs will bring concrete results despite the severe
resource limitations imposed on NCA.

62. (SBU) The MOUs with copyright-related agencies appear
to target pre-release and early-release piracy. China has
achieved limited success in this area, including the
release of "Shrek 2," as well as with the Chinese movie
"The Promise" in Jiangsu Province. However, such efforts
are frequently constrained by administrative resources and

-------------------------- -----------------------------
Conclusion: The Challenge of Coordination to Support the
IPR Agenda
------------------------------------ -------------------

63. (SBU) The IPR issues in China continue to become more
complex. The Mission has been proud to support activities
that provide a platform for sharing of information on IPR
issues. Because of these complexities, we believe it is
critical that USG agencies continue to adopt as inclusive
an approach as possible in the 301 process and other IPR-
related negotiations. The Mission supports continued
Section 306 Monitoring and Priority Watch List status for
China, as well as a possible WTO case if negotiations
cannot resolve the problems to the satisfaction of USTR and

64. (U) Post welcomes inquiries on IPR issues in China, and
would be pleased to provide further details and
clarification, as necessary.


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