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Cablegate: Consul General's Ipr Roundtable - Communication and Action

VZCZCXRO4864
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #1241/01 3300239
ZNR UUUUU ZZH
R 260239Z NOV 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6693
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHIN/AIT TAIPEI 9424
RUEAUSA/DEPT OF HHS WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJL/DEPTJUSTICE WASHDC
RHMCSUU/FBI WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 03 GUANGZHOU 001241

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/CM - JYAMOMOTO AND EB/IPE - EFELSING
STATE FOR INL - JVIGIL
USTR FOR CHINA OFFICE - AWINTER; IPR OFFICE - RBAE; AND OCG -
SMCCOY
COMMERCE FOR NATIONAL COORDINATOR FOR IPR ENFORCEMENT
COMMERCE FOR CISRAEL
COMMERCE FOR MAC 3204/LRIGOLI, ESZYMANSKI
COMMERCE FOR MAC 3043/MCQUEEN
COMMERCE FOR MAC 3042/SWILSON, JYOUNG
COMMERCE FOR NWINETKE
LOC/COPYRIGHT OFFICE - MPOOR
USPTO FOR INT'L AFFAIRS - LBOLAND, EWU
DOJ FOR CCIPS - MDUBOSE
DOJ FOR SCHEMBTOB
FTC FOR BLUMENTHAL
FBI FOR LBRYANT
DHS/ICE FOR IPR CENTER - DFAULCONER, TRANDAZZO
DHS/CBP FOR IPR RIGHTS BRANCH - GMACRAY, PPIZZECK
ITC FOR LLEVINE, LSCHLITT

E.O. 12958: N/A
TAGS: ETRD KIPR ECON WTRO PGOV CH
SUBJECT: CONSUL GENERAL'S IPR ROUNDTABLE - COMMUNICATION AND ACTION

REF: BEIJING 7192

(U) This document is sensitive but unclassified. Please protect
accordingly. Not for release outside U.S. government channels. Not
for internet publication.

1. (SBU) Summary: Internet-based intellectual property rights (IPR)
infringement continues to remain a pressing concern in south China,
according to U.S. business people who participated in the Consul
General's Annual IPR Roundtable on November 20, 2007. The
participants also complained of inconsistent IPR enforcement among
Chinese agencies, including different standards of evidence to begin
an investigation, unclear thresholds to initiate a criminal
prosecution, and different formulas used to value seized counterfeit
goods. They noted poor coordination among Chinese enforcement
agencies and asked for help in encouraging local officials to accept
their offers to provide IPR training. In addition, they expressed
interest in receiving more information from U.S. Customs and Border
Protection on seizures in the United States and asked for Consulate
assistance in arranging a meeting with one of the express delivery
companies that has yet to take action on combating internet piracy.
End summary.

Internet Infringement Increasing
--------------------------------

2. (SBU) Websites that illegally market and sell counterfeit
products directly to customers in China and around the world remain
a threat to doing business for companies like Nike, according to
Nike Brand Protection Manager Bill Wei. Wei noted that China has no
unified process for accepting complaints and closing down such
sites; complainants are required to show evidence that the website
has actually sold product and made a profit before authorities will
act in many cases. Chris Cosgrove, Regional Manager of Asia
Investigations for Mattel, also remarked upon losses due to internet
sales of infringing products, but emphasized the greater problem of
business-to-business sales of wholesale lots of infringed goods.

3. (SBU) Internet piracy was a key topic at this year's roundtable -
as it was in 2006 - and the main IPR challenge to the recording
industry in China. Rodney Tsui, Regional Operations Manger for
IFPI, said there were thousands of websites in China offering
illegal music downloads and called enforcement efforts "hopeless."
He echoed the comments of Nike's Wei, pointing out that it is too
difficult to prove that the infringers make a profit.

Hong Kong Registering Infringing Company Names
--------------------------------------------- -

4. (SBU) Many IP-infringers in China register multiple Hong Kong
company names to take advantage of a weak name registration system
that presents major challenges to U.S. IP owners. Freeman Zhang of
Colgate-Palmolive described infringers who may have registered as
many as 16 different Hong Kong companies, misrepresenting themselves
as "Hong Kong Colgate" and "Colgate Hong Kong." Other participants,
including Nike and Motorola, similarly expressed dismay, even as
they pointed to Hong Kong's positive record with other aspects of IP
enforcement.

Inconsistent Enforcement among Chinese Authorities
--------------------------------------------- -----


GUANGZHOU 00001241 002 OF 003


5. (SBU) Just getting an investigation under way is a big problem,
with provincial and local Public Security Bureau (PSB) officials
demanding different amounts of evidence from U.S. companies to look
into IP-infringement activities in their jurisdictions, according to
Microsoft Senior Regional Manager Estee Tam. Local PSB officials,
on the other hand, often frown on IP owners investigating cases
independently without first coordinating with law enforcement. U.S.
companies must sometimes "shop around" for a qualified enforcement
body that will investigate a case. Tam said his company spent
months raising an enforcement case with authorities in different
Chinese jurisdictions before a local PSB office agreed to
investigate and prosecute an illegal software ring. The Consul
General pointed out that many U.S. companies are not able to spend
the time and money necessary to follow Microsoft's example in cases
such as this one, but said that the USG would try to be of
assistance wherever possible.

6. (SBU) Criminal thresholds also differ among Chinese
jurisdictions, with many U.S. companies preferring to focus
enforcement efforts in north China rather than the south. Although
the criminal thresholds for IP infringement cases were officially
reduced in April 2007, participants reported that local
municipalities like Shenzhen in south China still require a much
higher standard before taking enforcement action on behalf of IP
owners. James Luo described Motorola's policy of confirming that
criminal thresholds are exceeded by at least 150 percent before the
company submits an enforcement request to Chinese authorities.

7. (SBU) Problems persist in how seized counterfeit goods are
valued, but there is sign of improvement, according to the
roundtable participants. Luo explained that in a recent case,
Shenzhen authorities had used a formula to calculate the value of
seized goods that returned a value nearly equal to the retail price.
Although still slightly lower than retail, the value was much
higher than the street price of counterfeit goods, which has often
been used in the past.

8. (SBU) Participants also lamented interagency coordination
problems among Chinese IP enforcement bodies. The Technical
Supervision Bureau (TSB) can often be relied upon to act when
counterfeit products can be shown to pose a risk to consumer health
or safety, but participants also told how local TSB branches can be
reluctant to enforce IP rights in other cases. The Administration
for Industry and Commerce (AIC) is similarly inconsistent, often
engaging in what appears to be local protectionism for infringers of
copyrights and trademarks. Motorola's Luo commented that in those
cases where TSB initiates the investigation, the handover of
evidence to PSB once it becomes a criminal case can be problematic.
As a result, Motorola always endeavors to bring cases directly to
PSB without involving other agencies.

Rejected Offers to Provide Training
-----------------------------------

9. (SBU) U.S. IP holders in south China are often frustrated by the
failure of local Chinese agencies to take up their offer to provide
training in IPR enforcement. Procter and Gamble Legal Counsel Gary
Zeng described his company's efforts to arrange training for local
PSB, TSB and AIC officials. He noted that the firm was particularly
eager to provide product identification training in Shantou,
Guangdong. He asked the Consulate to assist in P&G's outreach by
encouraging local agencies to work with U.S. companies and accept

GUANGZHOU 00001241 003 OF 003


training offers. Mattel's Cosgrove endorsed this approach.

Unique Challenges for Patent Holders
------------------------------------

10. (SBU) Patent violation cases are extremely difficult to pursue,
according to DTS Digital Entertainment Greater China Managing
Director Kin Chan. He said his attorney had advised him not even to
pursue patent infringement law suits because they would be too
expensive and afforded little opportunity for success. He urged
that the Chinese work with us to devise a special channel to pursue
patent cases. Commenting that companies in China often see foreign
technology patents as a form of imperialism, Chan called on the U.S.
Mission to continue its efforts to explain the importance of IPR
protection to China's economic development.

U.S. Government Can Help - Customs Information...
--------------------------------------------- ----

11. (SBU) U.S. company representatives from several industries were
united in their desire for access to more U.S. Customs data after
seizures take place in the United States. Chris Cosgrove from
Mattel and Kin Chan from DTS both reported excellent cooperation
with U.S. Customs, including receiving shipping data after
counterfeits were seized in U.S. ports. Other U.S. companies,
including Motorola and Colgate-Palmolive, indicated they too would
like to receive this type of information, specifically the container
number and port of embarkation for any Chinese counterfeit shipments
seized in the U.S. Without this information, participants said the
investigative trail turns cold in China.

...And Reaching Out to Express Delivery Companies
--------------------------------------------- ----

12. (SBU) U.S. companies described express delivery services as a
key link in China's counterfeit sales supply chain. Nike's Bill Wei
said a Consulate-hosted roundtable discussion among major private
express delivery companies last year had been highly successful at
enhancing cooperation between these companies and IP owners, but
representatives of the government's EMS service did not participate
and have not been as cooperative. He asked that the Consulate host
a follow-up discussion with express delivery companies, including
EMS, to further cooperation and help prevent future delivery of
infringing products.

Comment - Communicating B2G, G2B and B2B too
--------------------------------------------

13. (U) The Roundtable gave U.S. IP holders a chance to express
their individual and shared IPR enforcement concerns with the Consul
General and other Congenoffs. In turn, we briefed on what the
government is doing to assist them and undertook to further our
dialogue in addressing their concerns. In addition, the
participants took advantage of the opportunity to communicate with
each other and identify ways they can work together to enhance
industry efforts to improve IPR protection in south China. The
addition of a new PTO officer - Conrad Wong - was commented upon
favorably by local U.S. company reps and rights holders.

GOLDBERG

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