Why the U.S. Lost Its WTO IP Complaint Against China. Badly.

Michael Geist, Guest Blogger
University of Ottawa
January 27, 2009

The World Trade Organization yesterday released its much-anticipated decision involving a U.S. complaint against China over its protection and enforcement of intellectual property rights. The U.S. quickly proclaimed victory, with newspaper headlines trumpeting the WTO panel's requirement that China reform elements of its intellectual property laws. For its part, China was conciliatory and offered to work with the international community to resolve the concerns raised by the decision. Reuters notes that the Chinese reaction is far less combative than it has been other issues.

Why the muted response? I suspect that it is because anyone who bothers to work through the 147 page decision will find that the headlines get it wrong. The U.S. did not win this case, but rather lost badly. China is required to amend elements of its copyright law, but on the big issues of this case - border measures and IP enforcement - almost all of the contested laws were upheld as valid. Further, the ramifications of this case extend well beyond China's laws into other areas such as ACTA, since it points to the considerable flexiblity that countries have in meeting their international obligations on these issues.

The case centred on three key issues:

1. Does China's copyright law provide appropriate protection for all works in compliance with international copyright law (Berne Convention as incorporated by TRIPS)?
2. Do China's border measures, which allow customs officials to donate, auction, or sell to the rights holder confiscated goods, violate TRIPS?
3. Does China's IP enforcement system, which sets a minimum threshold for criminal prosecution, violate TRIPS?

On the first issue, the panel ruled that China's copyright laws do violate Berne by failing to provide copyright protection to all works. China maintained that it denied protection for certain works whose contents are "unconstitutional or immoral." The panel ruled that this was not good enough - international copyright requires protection for all works, though other laws may be implemented to address content restrictions (ie. as Canada noted in its third party submission - "Members can prohibit the publication and distribution of a work but . . . Members do not have a right to deny copyright protection to them."). This issue is a clear win for the U.S. (therefore the proclamation of victory), though this particular concern was certainly the least important of the three issues.

The other two more important issues were near total losses for the U.S. On border measures, the U.S. argued against the current Chinese law that provides customs officers with a range of possible methods for disposing confiscated counterfeit products. Virtually all of these measures were upheld, with the panel noting at one point that "China's border measures provide a level of protection higher than the minimum standard required by . . . the TRIPS Agreement." With the exception of one practice (removal of trademark from counterfeit trademarked goods), the panel upheld all of China's border measures including the distribution of confiscated goods to the Red Cross, the resale of the goods to rights holders (if they are interested), the auction of certain goods, or the destruction of the goods.

The Chinese IP enforcement system, which sets a minimum threshold for criminal enforcement, was a huge issue for the U.S. and it lost badly on it. The U.S. argued that the high thresholds render prosecution impossible in many cases (Canada joined the U.S. with a similar argument). The panel rejected the U.S. claims, in part due to a lack of evidence. Indeed, the U.S. submitted a series of newspaper articles as the basis for some of its claims, to which the panel responded:

"the Panel does not ascribe any weight to the evidence in the press articles and finds that, even if it did, the information that these press articles contain is inadequate to demonstrate what is typical or usual in China for the purposes of the relevant treaty obligation."

With that, the Panel found that China does not violate its TRIPS obligation that "Members shall provide for criminal procedures and penalties to be applied at least in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale."

This represents a major loss for the United States as well as for the countries such as Canada that supported the U.S. in the case. It also holds the prospect of larger ramifications for initiatives such as te Anti-Counterfeiting Trade Agreement, which are premised on the need to address concerns around border measures and IP enforcement. Rather, the decision highlights the reality that international copyright and trade law provide considerable flexibility that do not necessitate new treaties or additional legal obligations.

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