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Cablegate: Ustr Concludes Provincial Ipr Review in Beijing

VZCZCXRO8846
OO RUEHCN RUEHGH
DE RUEHBJ #2566/01 1080644
ZNR UUUUU ZZH
O 180644Z APR 07
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6980
INFO RUEHCN/AMCONSUL CHENGDU 8192
RUEHGZ/AMCONSUL GUANGZHOU 2789
RUEHGH/AMCONSUL SHANGHAI 7403
RUEHSH/AMCONSUL SHENYANG 7870
RUEHHK/AMCONSUL HONG KONG 9230
RUEHIN/AIT TAIPEI 6406
RUEHKO/AMEMBASSY TOKYO 1335
RUEHUL/AMEMBASSY SEOUL 0081
RUEHMO/AMEMBASSY MOSCOW 8664
RUEHGV/USMISSION GENEVA 1786
RUEAHLC/DHS WASHDC
RUCPDOC/USDOC WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMCSUU/FBI WASHINGTON DC

UNCLAS SECTION 01 OF 08 BEIJING 002566

SIPDIS

State for EAP/CM - JYamomoto and EB/IPE - EFelsing

USTR for China Office - AWinter; IPR Office - RBae; and OCG
- SMcCoy, ACelico

Commerce for National Coordinator for IPR Enforcement -
CIsrael

Commerce for MAC 3204/LRigoli, ESzymanski

Commerce for MAC 3043/McQueen

LOC/Copyright Office - MPoor

USPTO for Int'l Affairs - LBoland, EWu

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

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: KIPR ETRD ECON WTRO CH
SUBJECT: USTR CONCLUDES PROVINCIAL IPR REVIEW IN BEIJING

REF: Beijing 02455

-------
Summary
-------

1. (U) USTR Chief Negotiator for Intellectual Property (IP)
Enforcement Stanford McCoy and USTR Senior Director for
China Affairs Amy Celico visited Beijing on March 16 to
conclude a series of provincial review meetings in several
Chinese cities. They discussed Internet copyright issues
at the Beijing Copyright Bureau; raised IP enforcement in
local markets with the Chaoyang District of Beijing
municipal government (which denied serious problems at the
notorious Silk Market); discussed university textbook
piracy at the Ministry of Education; and covered general IP
enforcement with the Ministry of Commerce. End Summary.

----------------------------
Online Copyright Enforcement
----------------------------

2. (U) USTR Chief Negotiator for Intellectual Property
Enforcement Stanford McCoy and Senior Director for China
Affairs Amy Celico (collectively, "USTR"), Embassy Senior
IPR Attache Mark Cohen, and Econoff met with Beijing
Copyright Bureau (BCB) Director Wang Yefei, Copyright
Department Director Feng Xiansheng, and Deputy Director
Chen Xiaohong on March 16. Wang told USTR that Beijing
started to focus on Internet-related intellectual property
(IP) enforcement in August 2006 with the launch of IP
education and public awareness programs, which included a
project to educate businesses about legal software use.
Wang stated that all of Beijing's copyright initiatives
have the support of Beijing Mayor Wang Qishan, who wrote
the preface of the Bureau's "Software Copyright Protection
Manual," published recently with the support of Microsoft
Corporation and the Business Software Alliance. Wang
further stated that, through BCB's efforts, Beijing
Municipality has extended its government software
legalization efforts from the central municipal government
to all township and government agencies.

-----------------------------------
Difficulty Prosecuting Online Cases
-----------------------------------

3. (U) Wang explained that some cases of Internet copyright
infringement have been successfully transferred from the
BCB to the Public Security Bureau (PSB) for criminal
investigation, trial, and conviction. However, he
expressed concern that evidence in such cases is difficult

BEIJING 00002566 002 OF 008


to collect and, as a result, suspects who infringe
copyrights are often ultimately convicted for illegal
business operations because prosecutors lack sufficient
evidence of IP infringement. To help in prosecuting
Internet copyright cases, the BCB in January launched a
pilot program to use an electronic watermarking system to
register and protect digital images. In a separate
discussion with Senior IPR Attache, Wang also noted that
his office has been tasked by the Beijing Municipal
Government to address the problem of Internet webcasting or
rebroadcasting of the Olympics, including drafting of a
possible special rule addressing this issue for the
government.

4. (U) The Beijing Copyright Bureau regulates all requests
from rights holders for the removal of infringing material
on the Internet. Wang admitted that the procedures for
take-down notification are only one year old and still in
development, and said that the BCB is concerned that the
system will be overwhelmed by the large number of parties
(rights holders, law firms, representatives, and others)
filing take-down notices. He said the BCB is also
concerned about whic noties are legitimate and which are
sent by unauthorized parties, and is working with rights
holders to clarify this process. USTR responded that
rights holders often settle on their own in the United
States, and therefore the take-down system only involves
the government in the very small percentage of cases that
require judicial intervention. UST added that
associations often act on rights holders' behalf outside of
the United States, and should continue to be allowed to
file notices in China.

5. (U) Wang stated that while Internet service providers
(ISPs) often respond to take-down notices by removing links
to illegal content quickly, the content remains resident on
the servers of Internet content providers (ICPs), who host
the illegal files. As the number both of illegal files and
ICPs grows, Wang said the BCB faces difficulties regulating
them, particularly with respect to film and music downloads.
USTR responded with the recommendation to work closely with
industry to better understand the challenges they face in
the area of illegal content.

6. (U) In response to USTR's inquiry about the "deep
linking" case brought against Yahoo China by the music
industry in January 2007, Wang said that the BCB hosted a
workshop in February to discuss this and similar cases with
judges. He said that the opinion of the judges was that
the prosecutors in the case were "not professional enough,"
in that they faced difficulties establishing sufficient
evidence. Wang said such cases are very difficult to

BEIJING 00002566 003 OF 008


prosecute, and suggested that the lawyers bring charges
that are easier to prove, including civil infringement for
the right to communicate over information networks, as
defined in recently issued regulations, and others.

7. (U) Wang indicated his interest in seeing IPR cases
prosecuted in a special division of the civil courts,
making more resources available for such cases. He noted
that Beijing recently established several basic level IPR
civil courts, which provide additional convenience to right
holders seeking to litigate their cases. He added that the
Chinese Government is still learning to establish legal
systems that adequately address IPR issues, and he noted,
in response to a comment by Senior IPR Attache, that at
least the chief judge of the Supreme People's Court civil
IPR tribunal, Jiang Zhipei, supported such a move. (Note:
The increasing trend towards basic level civil IPR courts
is of little help to foreigners, who must litigate their
cases in intermediate courts. Furthermore, such basic
level courts may be more closely tied to local economic
interests. In general, the United States Government has
supported the creation of either an integrated IPR court
that combines civil, criminal, and administrative
jurisdiction or a national appellate IPR court that permits
litigants to immediately appeal a case in a jurisdiction
that is less tied to local influence. Emboffs subsequently
met with Supreme People's Court Deputy President Zhang Jun
on March 28. While Zhang agrees there is benefit in
establishing a unified IPR court in China, he said it will
not happen until after a broad-based reform of China's
judicial system as well as its IPR laws as a whole. Zhang
noted that in the event such a court were established,
Judge Jiang Zhipei would likely serve as its chief judge,
and he therefore naturally supports the move. See Reftel.
End Note.)

----------------------------
Infringement at Universities
----------------------------

8. (U) Asked about copyright infringement at universities,
Wang replied that many universities use foreign textbooks,
which are subject to illegal copying and distribution
because of their relatively high cost. However, he said
that universities receive "no safe harbor" from IPR laws,
and said that the BCB plans to meet with 56 Beijing-area
university presidents to discuss the problem. On the issue
of proliferating online piracy over broadband Internet
connections at universities, Wang said that the problem is
still relatively new, and that BCB is developing a black
list of known infringing web sites that have not yet been
shut down. In response to a question of the Senior IPR

BEIJING 00002566 004 OF 008


Attache, Wang noted that he was unaware of any specific
university policies governing usage of the Internet to
minimize infringement activities. USTR recommended that
BCB employ more transparent reporting of any IPR
enforcement actions, since such publicity would give China
more credit abroad for its efforts, and would help to deter
pirates.

--------------------------------------------- ----
Strategies for Enforcement in Counterfeit Markets
--------------------------------------------- ----

9. (U) In a meeting with Chaoyang District Vice Governor
Xie Chaobin, Director Liu Chuncheng, and Deputy Directors
Zhang Yong and Zhang Guohua, the Chinese side told USTR
that Beijing's Central Business District plays an important
role in the development of the capital and the country,
especially with the impending 2008 Olympic Games, and that
IPR enforcement is central to the district's continued
development. Xie said the government is "involving more
social forces" in protecting IPR, and explained that the
government relies heavily on the management companies at
Chaoyang's notorious counterfeit markets to enforce IPR
protection. For example, he said that all management
companies now require vendors selling trademarked brands to
report their suppliers to Chaoyang's Cultural Authority for
certification, and that revocation of that certification
also results in the revocation of a vendor's business
license, thus avoiding the quick revival of illegal
businesses.

10. (U) Xie said that, based on meetings with industry
associations, rights holders are satisfied with IPR
protection measures and enforcement actions taken in
Beijing's markets. He added that the Chaoyang government
signed a memorandum of understanding (MOU) with the
American Chamber of Commerce (AmCham) in October 2006 that
will create a better environment for legitimate goods and
will increase public awareness of the counterfeit problem.
Xie said that this strategy, combined with targeted law
enforcement activities, is the keys to IPR enforcement. He
added that Chaoyang government officials would like to
visit the United States in 2007 to exchange experiences on
enforcement, further to a recent exchange with local law
enforcement from the United States. Also through the MOU
with AmCham, Xie reported that the Chaoyang government
meets monthly with an IPR working group to exchange ideas
and the results of piracy cases, enhance law enforcement
and monitoring efforts, hold workshops and seminars, and
create campaigns to educate sellers and buyers,
particularly younger buyers. He added that education
programs have to date included a visit to Microsoft and to

BEIJING 00002566 005 OF 008


Taiwan movie studios.

-------------------------------------------
Chaoyang Challenges Silk Street Allegations
-------------------------------------------

11. (U) USTR asked Chaoyang government officials what more
the United States and China must do to cooperatively manage
the problem at Silk Street Market, the "world's most famous
market" for counterfeit goods. Liu interrupted the
interpreter to note that "the embassy did not provide us
with this question [in advance]." He continued to say that
those familiar with the market's history will have a more
objective view of recent progress n enforcement, and that
those who "pay more attention to recent litigations" and
cooperation with the EU will have a better understanding of
the situation. USTR cited recent industry data showing
that, in some categories, up to 80-90% of goods at Silk
Street are counterfeits. The Chinese side challenged those
figures and requested that such data be shared, asserting
that rights holders are pleased with the situation at the
market. (Note: Director Liu referred in particular to a
widely reported incident in which a European lawyer, who is
also counsel to two companies concerned about infringement
at the Silk Market and who chairs European Chamber's IPR
Committee, entered into a separate agreement with the Silk
Market to settle his clients' civil litigation. The
signing ceremony was widely reported in the media as an
indication of European "satisfaction" with IP enforcement
at Silk Market. Emboffs were advised by rights holders'
counsel not to attend this meeting, lest it be used for
propaganda purposes, and therefore declined to participate.
End Note).

12. (U) Director Liu said that data on high rates of
counterfeit products at local markets is "forced" by
intermediaries who profit from IPR cases, and stated that
Chaoyang district has never relied on the sale of
counterfeit goods for economic development. USTR suggested
that both sides acknowledge frankly the situation at the
market and work constructively to address it, to which Liu
replied by encouraging USTR to visit Silk Street Market,
and expressed his hope to work together in the future based
on real data. Vice Governor Xie added that Chaoyang
district is firmly determined to fighting piracy and that,
as WTO members, China assures that all rights holders
receive the same treatment as domestic rights holders. He
said that he hopes to promote future discussion and avoid
misunderstandings.

------------------------------------------
Online and Textbook Piracy at Universities

BEIJING 00002566 006 OF 008


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

13. (U) In a meeting with the Ministry of Education's
Department of International Exchanges, Assistant Director
General Xu Yongji told USTR that, especially since 2000,
Chinese universities have increasingly begun to use foreign
textbooks. In such cases, the Ministry of Education
requests that the books be licensed for publishing in China
to reduce the cost to students. He said there are nine
presses in China that print such licensed foreign books,
with a total of more than 6,000 foreign textbooks in print
in China today, amounting to several hundred million RMB in
royalties.

14. (U) Xu said that the Ministry of Education currently
monitors copyright compliance at universities, and
stipulates measures, available online, for schools to
follow. However, enforcement responsibility falls to the
National Copyright Administration, which worked together
with the Ministry of Education from August to September
2006 to punish textbook infringers, and will collaborate
longer term to establish mechanisms to fight piracy.

-----------------------------------
MOFCOM's IPR Enforcement Strategies
-----------------------------------

15. (U) USTR also met with on March 16 with the Ministry of
Commerce (MOFCOM) Market Order Rectification Office (MORO),
including China International Electronic Commerce Center
(CIECC) Vice Director Wang Kaiqian, IPR Affairs Vice
General Manager An Ning, and State Office of IP Protection
Division Director Qiu Zhongyi. USTR provided MOFCOM with a
summary of provincial review activities and findings,
covering athletic shoe counterfeiting, Internet and book
piracy, IPR complaint centers, and discussion of Silk
Market with Chaoyang District Government. Vice General
Manager An expressed MOFCOM's appreciation for USTR's
observations on IPR and cited recent examples of IPR
enforcement and the establishment of 50 nationwide IPR
complaint centers, which he noted are consistent with
MOFCOM's principle to consistently promote IPR issues at
all levels of government.

16. (U) Asked about the existence of a rewards system for
IPR enforcement, MOFCOM replied that different enforcement
and administrative systems exist for trademarks, copyrights,
and patents, and that rewards and punishments, including
rewards for case transfer, are part of each. However,
MOFCOM noted that there is no central system for evaluating
and rewarding IPR enforcement. Asked what incentives have
been added since 2006 for increased case transfer, MOFCOM

BEIJING 00002566 007 OF 008


reported that four new rules have been made, and a
monitoring system established. The two problems they
report to face are evidence collection and cooperation with
rights holders.

17. (U) All IPR enforcement actions are reported on the
CIECC website, and MOFCOM said that 20 percent of visitors
to the site in February 2007 were from the United States,
indicating that it has become a valuable tool to foreign
rights holders. United States visitors represented the
largest proportion of foreign visitors to the site. USTR
pointed out that very little information is available
online, leaving rights holders uncertain whether their
particular case has been dealt with or not, and that
publishing so little information may reduce the deterrent
effect. USTR suggested releasing more information about
take-down actions, in compliance with Chinese law. MOFCOM
replied that this has to do with confidentiality of rights
holders. USTR pointed out that following a March 2006
conversation about transparency, MOFCOM had not yet made
available enforcement statistics for 2006.

-------
Comment
-------

18. (SBU) USTR's provincial review meetings in China, which
were held prior to the April 10 WTO filings by USTR, were
largely granted at the last minute and only after
considerable direct intervention by the Embassy. To
arrange the meetings, Emboffs told MOFCOM that if China
wanted an objective report in USTR's provincial review, it
should either support USTR's visits to local governments,
or at least refrain from interfering with them. In
response, MOFCOM denied any interference; however, Chinese
agencies did not grant any requested meetings until MOFCOM
stopped "not interfering." With the April 10 filing of the
WTO dispute resolution cases on Chinese IPR-related matters
(enforcement and market access), Chinese officials have
repeatedly noted in various fora that all bilateral
cooperation on IPR issues between the United States and
China is henceforth suspended, which casts considerable
doubt on the ease with which such meetings may be arranged
in the future.

19. (SBU) Despite recent WTO fallout, however, USTR's
March meetings in Beijing demonstrated the effectiveness of
continued engagement with local officials to build
relationships and trust to support better IPR enforcement.
Emboffs have met with BCB dozens of times and have
sponsored several joint programs together. In a prior
meeting with Emboffs, the BCB even confided their own

BEIJING 00002566 008 OF 008


initial disbelief when first advised by Emboffs that
Internet copyright piracy was a problem in China. Now,
however, they say they are fully engaged on the issue.
Similarly, Emboffs attended several bilateral meetings with
CIECC before it established its now popular online IPR
complaint mechanism. Vice Director Wang Kaiqian has
credited advice from Emboffs about how to make the site
more user-friendly and useful to foreigners with the site's
recent dramatic increase in foreign users.

20. (SBU) Continuing local engagement remains especially
critical in the post-WTO case world. The Embassy was
pleased to nominate and send a delegation of four Chinese
Internet copyright enforcement officials to the United
States on an International Visitors Program in March and
April 2007. The visitors were hosted by USTR and other
agencies, and are now planning a number of technical
assistance programs with the CIECC, which the Embassy hopes
will survive the high profile public rhetoric of
disappointment and anger from the Chinese Government. End
Comment.

21. (U) This report was cleared by USTR.

RANDT

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