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Cablegate: Chongqing's Ipr Environment: Views From the Government, A

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DE RUEHCN #0028/01 0350254
ZNR UUUUU ZZH
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FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3725
RUCPDOC/USDOC WASHDC IMMEDIATE 0062
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHCN/AMCONSUL CHENGDU 4449

UNCLAS SECTION 01 OF 04 CHENGDU 000028

SENSITIVE
SIPDIS

DEPT FOR EAP/CM

E.O. 12958: N/A
TAGS: ECON EIND EINV ETRD PGOV KIPR CH
SUBJECT: CHONGQING'S IPR ENVIRONMENT: VIEWS FROM THE GOVERNMENT, A
CHINESE COMPANY, AND AMERICAN BUSINESSES

REF: A) 09 CHENGDU 300, B) CHENGDU 023

CHENGDU 00000028 001.2 OF 004


1. (U) This message contains Sensitive But Unclassified
information. Not for Internet distribution.

2. (SBU) Summary and Comment: Chongqing officials expressed
their willingness to cooperate with the USG to further
intellectual property rights (IPR) protections during a recent
meeting with Consul General, noting the necessity of progress on
this front both for attracting international investment, and to
protect the long-term interests of Chinese companies.
Highlighting the oft-stated goal of building Chongqing into a
"model IPR city," they described various strategies toward this
end. However, one of Chongqing's largest motorcycle
manufacturers seemed unimpressed with official progress,
emphasizing the difficulties it faced in resolving IPR issues
with other Chinese companies. A group of American business
representatives were generally positive regarding municipal
government support in IPR violation cases, but regarded pursuit
of cases through civil courts as ineffective.

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3. (SBU) Comment: Post believes that the Chongqing Government,
given the forward-leaning commitment to IPR of former Commerce
Minister and current Party Secretary Bo Xilai, would be an ideal
partner should the Patent and Trademark Office (PTO) seek
collaborative partners in southwest China. PTO could also
assist the IPR degree program at a local university and recruit
local Chinese companies, such as a motorcycle manufacturer
Zongshen, as partners lobbying for stronger IP protection. End
Summary and Comment.

4. (U) During January 12-14 travel to Chongqing, Consul General
(CG), Senior Commercial Officer, EconOff and ConOff met with
official and business contacts to discuss their views on IPR.
This included: 1) a joint meeting with representatives of the
Chongqing IPR Bureau, the Trademark Division of the Chongqing
Industrial & Commercial Bureau, and the Chongqing Copyright
Bureau; 2) a visit to the headquarters of Zongshen Industrial
Group, one of Chongqing's major motorcycle manufacturers; and 3)
a joint breakfast meeting, coordinated through the American
Chamber of Commerce, with the heads of several U.S. companies
with Chongqing operations.

Bo Xilai's "IPR model city":

Officials on Goals, Strategy, Accomplishments

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

5. (U) Xiang Hu, Vice Director of Chongqing IPR Bureau,
recounted that, in April 2009, the government of Chongqing
officially started implementing the strategy of Party Secretary
Bo Xilai to develop Chongqing into an "IPR model city." Toward
this end, they established a leading group for IPR work within
the IPR Bureau, headed up by Vice Mayor Tong Xiaoping. Xiang
explained that the goal of building Chongqing as a "model IPR
city" was to:

-- raise the awareness of entrepreneurs, cadres, scholars, and
citizens of Chongqing that "protecting IPR means protecting the
economy and development"; --- encourage people to develop more
patents and trademarks while respecting others' IPR; and,

-- help domestic companies to understand international IPR
issues, and international companies to understand domestic IPR
issues.

6. (U) Xiang further elaborated that Chongqing's IPR strategy
was comprised of "one key line, two main actions, three
structures, and four projects" (yi tiao zhuxian, liang da
xingdong, sange jizhi, si da gongcheng). He explained these as
follows:


CHENGDU 00000028 002.2 OF 004


-- "One key line" refers to the overarching priority placed on
IPR as the key to establishing Chongqing as a destination for
world-wide investment.

-- "Two main actions" describes the Chongqing government's
intent to help the city's companies protect their IPR overseas
and, at the same time, help international companies to protect
their IPR in Chongqing. To assist Chongqing-based companies, he
said, the IPR Bureau was providing information on relevant
international conventions, bilateral treaties, etc. and inviting
foreign experts to give lectures on IPR. In terms of assistance
to individual companies, he noted that they recently assisted
the Lifan Group to resolve an IPR issue in the United States.

-- "Three structures" focuses on building an IPR public service
structure. First, they are building an IPR data bank for
reference by would-be inventors. Second, in 2008 they set up a
call center for IPR-related complaints, modeled on the IPR
complaint call centers Bo Xilai set up nationwide during his
tenure as Minister of Commerce. They did not have statistics
for 2009 yet, but reported that they logged 600 calls in 2008,
mostly for patent and copyright infringements. They did not
provide details regarding what kind of results the hotline
produced. Third, they are working to build an IPR "coordinating
structure" among the government organizations involved in IPR
work.

-- "The four projects" include 1) assisting companies to ensure
they gain maximum economic benefits from their own intellectual
property; 2) helping key industry groups, such as the motorcycle
industry, to develop and protect their patents; 3) helping key
industrial zones with their IPR issues; and 4) educating more
IPR talent in Chongqing.

First IPR University Degree Program in China

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

7. (U) On the last point, Xiang reported that in 2007, the city
established the nation's first IPR degree program at the
Chongqing University of Technology. The program helps to
address a national need for improving China's knowledge base on
IPR issues, especially since joining the World Trade
Organization (WTO). The first group of students will graduate
this year, and are expected to have good employment prospects.
The program has benefited from cooperation with Japan and
Europe, he noted, but so far has had few contacts in the United
States. He expressed hope for greater cooperation with U.S.
institutions in the future.

Tackling Trademark and Copyright Infringements

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

8. (U) Cheng Qiuxiang, Director of the Trade Mark Section of the
Chongqing Industrial and Commerce Bureau, and Xiu Wei from the
Law Section of the same Bureau, discussed their
trademark-related work. Cheng said that his office actively
protected trademarks by working with courts, the Public Security
Bureau (PSB), Customs, and the Quality Inspection Bureau.
Chongqing also works with 12 other provinces and cities in
China's west to protect trademarks, he said. In 2008, the
Bureau discovered many problems in the protection of both
domestic and international trademarks and the situation got even
worse in 2009, he reported. They handled around 1,209 trademark
cases over the last two years, many of them related to foreign
trademarks, citing Nike, Philips, and Gucci as examples. "We
hope that in future all the international companies and foreign
countries will help us to protect IPR and conduct investigations
on relevant cases in Chongqing," he said.

9. (U) Xiu Jiawei, Deputy Coordinator of the Copyright

CHENGDU 00000028 003.2 OF 004


Management Section of Chongqing Copyright Bureau, reported that
they had, over the last two-three years, been cracking down on
copyright violations such as pirated computer software. At the
present, he claimed, most government organs and state-owned
enterprises are no longer using pirated computer software. They
have also been working with major publishing houses in the city,
such as Chongqing Publishing Group, to protect copyrights. He
asserted that the number of illegal/pirated CDs and DVDs
available on Chongqing's streets has gone down significantly
over the last few years.

A Chinese Motorcycle Company's Perspective:

Domestic IPR Problems and Center-Provinces Contradictions

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

10. (SBU) Zuo Zongshen, Chairman and President of Chongqing
motorcycle giant the Zongshen Group, told Consul General his
company is not currently facing any serious international IPR
issues. (In the past, Zongshen had an IPR dispute with Honda,
but it was smoothly resolved, he claimed.) However, Zongshen is
facing significant domestic IPR problems, including around 20
current violation cases. Zuo said that the domestic cases are
difficult to tackle. Although he believes that the policy and
legal structure is basically sound, poor implementation is the
main challenge. Close links between companies and local
governments are the main obstacle he identified, noting that if
he sued a company in Guangdong, the Guangdong government would
protect it. Likewise, for suits within Chongqing, the
government will often ask him to back off due to "shared
interests" between the company and government. Therefore, he
asserted, "there are many companies in China, particularly
military companies and other big state-owned companies,
violating my IPR, but it's very hard for me to deal with it."

11. (SBU) Zuo went on to say that there are many contradictions
between the official IPR policies at the central and local
levels, and between official IPR policies and other official
policies. "The whole system in China is very complicated and
there are a lot of problems," he said, blaming the government
for prioritizing gross domestic product (GDP) over IPR
protection.

American Businesses: Local Government Support,

Preventive Policies Key to IPR Protection

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

12. (U) During an AmCham-organized breakfast meeting with Consul
General, the heads of the Chongqing operations of Briggs &
Stratton, Cummins, Visteon, Oracle and Hewlett-Packard discussed
their experiences with IPR issues. Those that have been
operating in Chongqing for a longer period all reported
encountering multiple IPR violations over the years. The more
recent arrivals - Visteon and Hewlett-Packard -- said they had
not yet encountered any major IPR issues, but fully expect
issues to arise as their businesses expand.

13. (U) The discussion revealed that, when addressing IPR
violations, US companies in Chongqing tend to rely on personal
relationships with government officials to solve them, rather
than legal structures and procedures. When these companies did
decide to pursue court cases, they typically pursued violations
through criminal, rather than civil, law channels. This meant
first gaining Chongqing government support for their case in
order to secure the necessary follow through by the Public
Security Bureau to investigate violations. This often took
time, they noted, but was generally successful. Cummin's
General Manager described the time and effort involved as just
the "reality of doing business here." Briggs & Stratton's
General Manager noted that, "The government is very powerful and
can be helpful" and added that IPR protection for wholly owned
foreign enterprises was often more difficult than for joint
ventures with strong state-owned enterprise (SOE) partners.

CHENGDU 00000028 004.2 OF 004


None reported successful resolution of any cases via civil
courts.

14. (U) The company representatives also emphasized the
importance of setting up comprehensive structures to protect IPR
up front. Visteon's General Manager noted that their software
algorithms comprise their key proprietary technology, so they
give local engineers access to only the portion of the software
needed for their work. All of Briggs & Stratton's current
supplier agreements specify Briggs & Stratton ownership of the
designs and stipulate steep monetary penalties if parts are sold
outside their supply chain (a requirement which suppliers
initially balked at, but ultimately signed.) Cummins' General
Manager said they invested a lot of time educating their
suppliers on what they could and could not do. If Cummins found
a supplier selling a proprietary part elsewhere, they simply cut
that supplier off, he said. Cummins also emphasized the
importance of their legal office in proactively chasing down IPR
issues as they arose. A dedicated IPR law specialist in their
Beijing office provided support to Cummins, as needed.

IPR Lawyers Face Steep Learning Curve, Low Rewards Says
Chongqing Attorney

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

15. (U) A partner from an attorney's office that has handled IPR
cases in Chongqing (and who joined the meeting with US
companies) confirmed that filing civil IPR cases was difficult,
so that plaintiffs often had to shift to a criminal approach.
It was still difficult for lawyers to earn much income from IP
cases - she said that those who are specializing in IP work were
not happy with their income. She also noted that the IP lawyers
faced a steep learning curve, especially when dealing with
multiple patents within a single product. Nevertheless,
interest in IPR issues was increasing on the part of legal
actors, she believed.

Comment: PTO Engagement with Chongqing Officials, University,
and Companies; British Consulate on Possible IPR Initiatives

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

16. (U) Post believes that the Chongqing Government, given the
forward-leaning commitment to IPR of former Commerce Minister
and current Party Secretary Bo Xilai, would be an ideal partner
should PTO seek collaborative partners in southwest China. PTO
could also consider assisting the IPR degree program at
Chongqing University of Technology. Zongshen Motorcycle
(septel) and other local Chinese firms might also be recruited
as partners in support of stronger IP protection.

17. (U) Finally, we note that the British Consul General in
Chongqing informed us that their mission is also reviewing
possible IPR initiatives in Chongqing. He expressed interest in
coordinating with any USG initiatives on this issue.
BROWN

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