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Cablegate: South China Ipr: Rights Holders Reiterate Need For

VZCZCXRO6903
RR RUEHCN RUEHGH
DE RUEHGZ #0503/01 2320914
ZNR UUUUU ZZH
R 200914Z AUG 09
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0861
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0230
RUEHBJ/AMEMBASSY BEIJING 0670
RUEHCN/AMCONSUL CHENGDU 0167
RUEHHK/AMCONSUL HONG KONG 0233
RUEHGH/AMCONSUL SHANGHAI 0168
RUEHSH/AMCONSUL SHENYANG 0178
RUEAUSA/DEPT OF HHS WASHINGTON DC 0017
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC 0020
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0084
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0132
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC 0015
RUCNFB/FBI WASHINGTON DC 0014
RUEAIIA/CIA WASHDC 0221
RUEKJCS/DIA WASHDC 0217

UNCLAS SECTION 01 OF 03 GUANGZHOU 000503

SENSITIVE
SIPDIS

State for EAP/CM - SFlatt; EEB - JUrban, TMcGowan
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/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 - GMcCray, PPizzeck
ITC for LLevine, LSchlitt


E.O. 12958: N/A
TAGS: ETRD KIPR ECON PGOV CH
SUBJECT: South China IPR: Rights Holders Reiterate Need for
Sustained Engagement

REF: A) 2008 GUANGZHOU 720, B) 2008 GUANGZHOU 132, C) 2007 GUANGZHOU
1241

1. (SBU) Summary: American brand owners said Guangdong Province
remains the global source for most counterfeit and infringing
products during an August 11 introductory meeting with the Consul
General. Executives highlighted continued concerns about weak IPR
enforcement in South China and suggested additional opportunities
for USG engagement to help address some of the enforcement problems.
They believe that high-level business and government support for
the U.S. Chamber of Commerce's planned Guangdong IPR Forum in
October would be an effective opportunity to engage with senior
provincial and municipal leaders and help focus local attention on
the need for solutions to IP infringement problems. Rights holders
reiterated their suggestion that incoming administration senior IP
officials visit IPR hotspots like south China as early as possible
to see problems first-hand. Rights holders raised many of the same
concerns about the impact of IPR infringement on society and the
economy of south China that we raise with local officials.
Continuing coordination will help ensure that we're sending a
unified message. End summary.

Enforcement Problems Have Not Abated
------------------------------------

2. (SBU) Representatives of Cisco, Apple, Mattel, Nike and Procter
and Gamble each described recent developments and continuing
challenges in protecting intellectual property rights in south China
during an August 11 meeting with the Consul General. In addition to
reiterating long-standing concerns such as the need for local
enforcement agencies to allocate more personnel and resources to IP
issues (ref A), rights holders also reported an increase in
transshipment cases in which seized products were manufactured in
south China but transited other jurisdictions including Hong Kong
and the Middle East before arriving in markets in the United States,
Europe and elsewhere. One business representative said 30% of his
company's U.S. product seizures appeared to have originated in Hong
Kong, although further investigation revealed that infringing
products were produced in south China and transshipped.

3. (SBU) Rights holders also complained that enforcement
authorities' unwillingness to take action against retail violators
of IP rights is a continuing problem. Local protection of violators
has continued in cases where local branches of China's
Administration of Industry and Commerce (AIC) refuse U.S. business
requests to raid "notorious markets," shopping malls and other
large-scale retail sites that sell large quantities of counterfeit
goods. Other enforcement officials also refuse to accept cases
involving Internet sales of counterfeit and infringing products on
the grounds that purchases of evidence by rights holders and their
contracted investigation agencies constitute "entrapment." Rights
holders suggested that the U.S. Government's annual 301 process
should designate additional "notorious markets" as a way to increase
pressure on China to take action in these retail cases, and
Internet-related local enforcement bodies might benefit from

GUANGZHOU 00000503 002 OF 003


training with FBI's Computer Crime and Intellectual Property Section
(CCIPS) and other training in order to improve enforcement
cooperation.

4. (SBU) Lax enforcement against production and distribution
offenders is also a major problem, according to brand owners. One
long-standing issue is refusal of local enforcement agencies to
destroy or at least trace and verifiably liquidate machinery used
for producing counterfeit and infringing products, as well as the
printing machines used to produce packaging and other promotional
materials. Without this change, rights holders said violators'
machines frequently resume operations within days of seizures and
enforcement actions are rendered meaningless. (Note: Some machines
in question are valued at US$1 million or more. End Note.) Another
problem in certain jurisdictions occurs when local authorities
conduct a raid and seize infringing products but subsequently refuse
to issue seizure reports that are necessary to escalate the case to
civil or criminal prosecution. One business representative said
this situation had occurred more frequently in the last year because
of protection of local violators during the global economic
downturn.

Strong Support for IP Forum in South China
------------------------------------------

5. (SBU) Business representatives pledged their best efforts in
attracting participation of executives from the their U.S. and Asia
headquarters at the U.S. Chamber's South China IP Forum that is
planned for late October 2009. Rights holders expressed optimism
that high-level participation from Washington-based U.S. officials
and important U.S. business leaders could attract key provincial and
municipal leaders from Guangdong and the Pearl River Delta, the
origin of most American companies' greatest IP infringement
concerns. Rights holders told the Consul General that such a
conference could help address many specific IP-related problems and
help increase government transparency across the board, which is a
fundamental weakness of China's IP enforcement regime.

USG Role Improving IPR Protection in South China
--------------------------------------------- -

6. (SBU) Participants reiterated their 2008 call for continued
engagement with local authorities on IP issues to help improve IPR
protection in this critical region (ref A). Rights holders
emphasized that regardless of format or participants, the most
effective U.S. government contribution to south China IP enforcement
in 2009 would be high-level USG visits, especially by incoming
administration IP officials, to Guangdong and Fujian provinces to
see the problems first-hand. The visits could be independent of a
specific event, or could be tied to routine bilateral meetings like
the JCCT IPR Working Group.

7. (SBU) Brand owners also encouraged continued USG support for
Chinese government outreach including a planned delegation from the
General Administration of Quality Supervision, Inspection and

GUANGZHOU 00000503 003 OF 003


Quarantine (AQSIQ) that will visit the United States in October and
feature visits to Silicon Valley and other key IP-related sites.
Business representatives said they are encouraged by increased brand
protection activities by growing Chinese brands including Huawei,
Lenovo and Lining (sporting goods) in key south China problem areas,
and USG engagement can help foster broader support for improved IPR
protection.

Comment - A United Front
------------------------

8. (SBU) U.S. rights holders made many of the same arguments for
increasing IPR enforcement in China that we make in our efforts to
convince the public and their local government representatives that
improved IPR protection is preferable to "full employment" by
factories that produce infringing and counterfeit products. Such
factories do not pay local taxes, nor do they ensure legal and
ethical protections for their workers including contributing to
social security or meeting minimum wage requirements. Infringers
damage local society by producing unsafe products without regard for
environmental protection and other public interests. Continuing
coordination with U.S. rights holders on the ground in south China
will help us ensure that local officials are hearing a unified
message. End Comment.

GOLDBECK

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