Cablegate: South China Ipr: Enforcement Still the Problem, High-Level

DE RUEHGZ #0084/01 0430729
R 120729Z FEB 10



State for EAP/CM; EEB - JBonilla, JSpeck, JUrban, TMcGowan
State for INL - JVigil
USTR for China Office - KAlvarez, AWinter; IPR Office - RBae; and
OCG - SMcCoy
Commerce for National Coordinator for IPR Enforcement
Commerce for MAC 3204/ESzymanski
Commerce for MAC 3043/NMelcher
Commerce for MAC 3042/SWilson
Commerce for NWinetke
LOC/Copyright Office - MPoor
USPTO for Int'l Affairs - DKappos, SBarner, LBoland, EWu
DOJ for CCIPS - MDuBose
DOJ for SChembtob
FTC for Blumenthal
FBI for LBryant
DHS/ICE for IPR Center - THipelius, TRandazzo
DHS/CBP for IPR Rights Branch - GMcCray, PPizzeck
ITC for LLevine, LSchlitt

E.O. 12958: N/A
SUBJECT: South China IPR: Enforcement Still the Problem, High-Level
U.S. Engagement Remains Critical

REF: A) 2009 GUANGZHOU 619, B) 2009 GUANGZHOU 503, C) 2009 GUANGZHOU
320, D) 2008 GUANGZHOU 720

GUANGZHOU 00000084 001.2 OF 004

1. (SBU) Summary: Rights holders came to the Consul General's IPR
Roundtable on January 28 and 29, with a clear message: Problems
remain serious and continued high-level U.S. engagement is critical
to improving the situation. Representatives of 39 south China-based
rights holders and law firms praised extensive U.S. Government
support and participation in last October's Pearl River Delta Forum
on Innovation and Intellectual Property, but wasted no time in
asking for more engagement in 2010 to keep up momentum that the
conference generated. Rights holders said the scale of south China
IPR problems had not decreased in the last two years, with criminal
penalties for IP infringement seldom imposed and administrative and
civil enforcement failing to deter infringement activity. Rights
holders also used the opportunity to exchange information, and
suggested the need for a more coordinated approach to detect repeat
offenders and locations with high concentrations of infringement
activities. End summary.

Keep Up the Momentum

2. (SBU) Attendance set a record at the Consul General's IPR
Roundtable, which was held over two sessions on January 28 and 29,
2010, to maximize participation of south China-based rights holders.
Almost 40 participants representing individual companies, law firms
and industry associations joined the discussion at the U.S.
Consulate in Guangzhou. Rights holders told the CG that
participation of Commerce Secretary Gary Locke, Ambassador Jon
Huntsman, and Deputy Director of the Patent and Trademark Office
Sharon Barner at the Pearl River Delta Forum on Innovation and
Intellectual Property on October 27, 2009 in Guangzhou set the stage
for engaging Guangdong provincial leaders and sent a powerful signal
of the U.S. Government's commitment to this issue in south China
(ref A).

3. (SBU) Participants said that 2010 is an opportunity to build on
the momentum created by last fall's IP Forum and offered two
specific ideas for high-level USG engagement with provincial and
local authorities. First, rights holders voiced concern that they
had not been able to reconnect with Guangdong Party Secretary Wang
Yang after the conference, which many see as critical for creating
the political conditions that encourage working-level local
officials to take meaningful action against infringers. Rights
holders requested that Secretary Locke send Wang a letter referring
to the success of last fall's conference and requesting new action
from provincial and local authorities. The second idea from rights
holders was for Ambassador Huntsman host one or more large-scale IPR
activities, focusing on Beijing and key cities such as Shenzhen, in
order to bring together business leaders and government officials
from both sides to jointly address IPR concerns.

4. (SBU) In addition to rights holders' two specific

GUANGZHOU 00000084 002.2 OF 004

recommendations, participants in the CG's roundtable also called on
the U.S. Government to continue capacity building and other
engagement efforts in south China, including dispatching more
high-level visitors to personally meet with provincial and local
officials. Rights holders said that too often, efforts to engage in
south China are short-lived or characterized as one-off meetings,
which makes it easier for local officials to put on a good face for
the visit and then revert to unhelpful postures after U.S. officials
depart. More frequent visits would show a pattern of commitment
that could better influence local political will and improve
protection for IPR in the province that many American business
leaders still call the infringement "heart of darkness."

Enforcement Still Key

5. (SBU) Leading a chorus of similar feedback about local IPR
conditions, the representative of a prominent American cosmetics
firm told the CG that 90% of his firm's worldwide counterfeiting
problems can be traced to Guangdong Province, with Guangzhou's
Baiyun District and Shantou City representing the largest problem
areas for production of counterfeit goods. Other health and beauty
products companies offered similar views of the depth and breadth of
south-China infringement problems, saying that criminal cases, which
they said are the only "impact cases" that help improve local
conditions, are too few to measurably improve local conditions (ref
C). Rights holders from all industries said that administrative and
civil enforcement have been frequently used to penalize infringers,
but the fines and other minor penalties are generally seen as the
cost of doing business rather than a deterrent from engaging in
illicit activity (ref B). Criticisms included inconsistent
application of existing IPR-related laws, unpredictable valuation
methodologies for determining criminal prosecution, and allegations
of non-transparent and protectionist behavior at each level of
China's justice system. In addition, participants faulted the
civil-enforcement avenue as being too expensive, cumbersome and

6. (SBU) Several rights holders also complained of being unsure
whether goods seized during administrative enforcement actions were
actually destroyed as prescribed under Chinese law. Many suspect
that infringing goods were being re-introduced into the commercial
stream as rights holders had no real ability to hold administrative
agencies accountable for destruction of infringing goods, or to
verify whether the goods had been destroyed. One participant
additionally voiced a long-standing complaint that enforcement
agencies do not destroy the machinery used for producing counterfeit
goods. This shortcoming is another example of the failure of
Chinese legal and regulatory conditions to fully address
infringement concerns with an eye towards prevention and deterrence
of repeat offenders.

New Frontiers of Infringement

GUANGZHOU 00000084 003.2 OF 004

7. (SBU) Rights holders told the CG that a rapidly expanding
delivery channel for counterfeit goods is express-mail and
package-delivery services, in addition to more traditional smuggling
via large ocean-going cargo containers. The shift means that
infringers are able to transport their goods more quickly to
consumers, and exploit weaknesses in Customs and other traditional
enforcement approaches. Representatives of major American
pharmaceutical companies and sporting-goods firms said this threat
to their brands and to the public in the form of dangerous and
sub-standard counterfeit goods cannot be ignored. Rights holders
said that China Customs led a special enforcement campaign in 2008
that was very effective at seizing thousands of illicit parcels sent
from the Shanghai area. However, the illicit trade quickly returned
to normal after the six-month campaign ended. Participants voiced
their desire for more sustained Chinese efforts to police this
delivery channel, and to require positive ID checks for all parcels
sent through express-mail and package-delivery services in the
country to help investigators effectively address illicit activity.

8. (SBU) Another rapidly growing tactic is internet-based sales of
counterfeit goods, in addition to the long-standing problem of
on-line piracy and illegal downloading of digital content. On-line
sellers of illicit goods utilize express-mail and package-delivery
services, most often sending the packages using untraceable false
names and addresses. Victims of both types of on-line IP
infringement told the CG that procedures for rights holders to have
local authorities shut down infringing websites and listings at
major on-line marketplaces, such as Alibaba and Taobao, have
improved in the last year or two. However, the procedures remain
too cumbersome and slow to stem the growth in internet-based
infringement activities. One rights holder cited an internal study
from the fashion industry, stating that recidivism among on-line
infringers was estimated at 70-80%. He blamed the high rate on the
difficulty in shutting down the infringing websites, and the
relative ease with which infringers change registration names and
then re-list infringing products immediately following initial
efforts to close them down.

Innovations in Brand Protection

9. (SBU) Participants suggested new cooperative approaches to help
address widespread problems faced by many rights holders. One idea
was to create a database or other information system using location
and organization information about known or suspected infringers.
Several rights holders said that repeat infringers were common, and
geographic locations could be traced if details about enforcement
raids and other investigations could be shared and aggregated into a
useful tool for rights holders. A related idea was to organize
meetings of rights holders' enforcement and brand-protection
personnel to promote exchange of detailed enforcement information
and facilitate communication. Pursuing repeat offenders might be an
effective way to also attract broader support from local officials

GUANGZHOU 00000084 004.2 OF 004

who often lack personnel and resources to pursue every IPR

Expanding the Discussion

10. (SBU) Participants in the Consul General's roundtable expressed
appreciation that the Consulate invited participation from the
Consulates of the United Kingdom, France, Canada and Japan for the
first time. Economic and trade officers from each country joined
IP-related discussions and described IPR problems facing their firms
in south China. Rights holders also discussed the need for
increased engagement with Chinese rights holders, both among the
private sector, as well as among foreign governments and local
firms. One novel idea for building consensus on IPR problems and
solutions was to organize or sponsor joint- or third-party studies
of the problem in China, or of its impact on external markets such
as certain African countries where some experts believe that as many
as 30% of all consumer products are counterfeit items exported from
China. Participants agreed that the scale of IPR problems is so
great that no one company, industry, or firm is unique in its
suffering, but the challenges are central to all innovators and can
only be solved through concerted joint effort.


© Scoop Media

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