Preliminary Comparison of the Consolidated ACTA Text and China's IP Law

Yicun Chen
June 25, 2010

Although China is identified as the main target of counterfeiting activities, it is not invited to the negotiation table of Anti-Counterfeiting Trade Agreement. ACTA negotiating partners have deliberately opted for a plurilateral approach to circumvent possible opposition from developing countries such as China, Brazil and India. However, the long –term aim of ACTA is to establish it as a global standard for IPR enforcement and developing countries will face a great pressure to adhere to the treaty. Therefore it is necessary to analyze the consolidated text of ACTA in China’s perspective and discuss its potential impacts on developing countries.

I.    Intermediary liability

The draft text of ACTA proposes to impose intermediary liability on Internet service providers (ISPs) and other third parties. This provision is broadly criticized for its threat to free speech and access to information. Moreover, some worry that governments would take advantage of this provision for censorship.
Similar to ACTA, China also imposes the intermediary liability on ISPs and adopts “notice and take down” system. The main legislation regulating Internet piracy and liability of ISPs is Measures for the Administrative Protection of Internet Copyright of China (MAPIC). Effective on May 30, 2005, the MAPIC provides that an ISP will be liable for administrative penalties if it clearly knows an Internet content provider’s copyright-infringing act through its network or if it fails to remove copyright infringed material upon the request of a copyright holder.   MAPIC. Admin Regs. §5 to 6 (2005)   Different from ACTA, to balance the rights between copyright holders and Internet content providers, MAPIC also provides that where any ISP removes relevant contents in light of the notice of a copyright owner, the Internet content provider may send a counter-notice to both the ISP and the copyright owner, stating that the removed contents do not infringe upon the copyright.  Id. § 7.  After the counter-notice is sent, the ISP may immediately reinstate the removed contents without liabilities for the reinstatement.  Id.
However, MAPIC then provides that if an ISP fails to take measures to remove relevant content after it receives the copyright owner's notice and meanwhile the content damages the “public benefits,” it may be punished by administration departments.  Id. §11.  But the content providers do not have equal remedy when the ISP ignores theirs counter-notice. Thus, the law induces ISPs to perform in favor of copyright holders’ interests. Moreover, the definition of “public benefit” under MAPIC is very ambiguous and it often used by government as justification for censorship. Accordingly, people worry that if ACTA put liability for file sharing on ISPs, then they will be forced to create their own censorship campaigns, especially in the countries lack of democracy. The facts in China prove that such anxiety is not groundless. The burden on ISPs to act as gatekeepers is likely to be onerous. Their liabilities are not limited to IP infringement but also cover defamation, privacy and sensitive political content. With the limited resources of ISPs and special political environment in China, the intermediary liability makes Chinese ISPs play an active role in censorship but rather ineffective role in IPR protection.

II.    Damages
With respect to damage assessment, ACTA would require courts to consider certain measures of damage submitted by the right holder, including “the lost profits, the value of the infringed good or service, measured by the market price, [o]r the suggested retail price.”  (Article 2.2 (b)) Compare to ACTA, the assessment of damage in Chinese IP laws is more general and abstract. Chinese IP laws (including copyright, trademark and patent law) only provide that the damage awards are based on the losses suffered by the right holders or the profit obtained by the infringers.  See Copyright Law of China, §48, Trademark Law of China, §56; Paten Law of China, § 60.   But no provision in these laws provides the specific measures to determine the losses and profits. Thus in practice, different courts and different cases in the same court share different criteria when determining the amount of damages. Despite the different criteria, the recoveries are usually quite low by Western standards. That is an important reason for Western blaming the weak IPR enforcement in China.
However, the damage assessment based on market price or suggested retail price as proposed in ACTA is also unreasonable, especially in developing countries like China. SeeThe IPR holders from developed countries always complain about the great losses they suffer in China. The lost profits they claimed are based on the market price of a genuine item multiplied by the number of illegal copies sold in Chinese market. But they may ignore the fact that the number of consumers of genuine items cannot be as many as the consumers of fake ones. For example, suppose the market price of genuine software is $ 100, while the price of the pirated one is only $ 5. Then suppose ten million consumers would buy the pirated software, but you cannot imagine the same amount of consumers in China can afford the genuine ones. Therefore, the normal measure of damage in China’s court is usually based on the defendant’s illicit gains rather than the plaintiff’s own losses due to the uncertainty associated with calculating theoretical losses. Since the infringers usually sell their illegal copies at a much lower price than the market price charged by IPR holders, such illicit gains is often modest compared to the lost profits the right holders claim.

III.    Criminal liability   
Article 61 of TRIPS requires that criminal liability should be applied “in cases of willful trademark counterfeiting or copyright piracy on a commercial scale.” China applies this provision to its domestic laws providing that infringers shall be prosecuted for his criminal liability for IPR infringement on a commercial scale where circumstances are serious.  See Copyright Law of China, § 47; Trademark Law of China, § 59.  By clarifying the item of “serious circumstances,” Chinese IP laws raise the threshold for criminal prosecution—the illegal profits gained from trademark counterfeiting or copyright piracy must exceed $8,500 and the burden of the proof rests on prosecutors or police. Thus in practice, the criminal enforcement of IPR infringement is rare and unusually, and most IP cases continue to be handled through the civil procedure or administrative system. Developed countries often criticize the high threshold for China to initiate criminal enforcement. However, it is groundless to say Chinese IP law is beyond the scope of TRIPS since “commercial scale” under TRIPS means “counterfeiting or piracy carried on at the magnitude or extent of typical or usual commercial activity with respect to a given product in a given market.”

In contrast, ACTA dramatically lowers the bar for individuals to be found criminally liable for a variety of offences. As Kimberlee Weatherall summarizes, ACTA “redefines ‘commercial scale’ to include: 1. Any IPR infringement for purpose of commercial advantage or private finical gain (no matter how low the number); and 2. Significant willful infringement without motivation for financial gain.” Since ACTA asserts to target at criminal and commercial activities rather than private acts, then there is no justification for extending criminal liability beyond large scale infringement that is direct and intentional.

Nevertheless, were China forced to adopt criminal provisions as ACTA provides, there would still be flexibility in enforcement. The definition of “significant willful” in ACTA is ambiguous, thus signatory parties have discretions to detail their own criteria to determine the infringers’ “significant willfulness.”

IV.    Border measure

In terms of border measure, TRIPS only applies custom measures to copyright piracy and trademark counterfeiting. However, ACTA expands the provision to patent infringement. Many people question the practicability of this provision since patent infringement is usually less obvious compared to trademark counterfeiting.  As Kimberlee Weatherall points out, for trademark- infringing goods, such as fake Louis Vuitton bags, the infringing nature is clear on the face of the goods. For patent-infringing goods, the infringement is not so obvious on surface and thus it would impose heavy burden on custom resources.

Similar to ACTA, the border measures in China include trademark, copyright as well as patent infringement.   See generally Border Measures, Regulations, 2010.  But I n practice, the great majority of cases dealt with by Chinese Customs involved trademarks, with only a few cases related to copyrights or patents. One key reason is the relative ease of discovering and distinguishing infringing trademarks.

The goal of ACTA is to create a new standard of intellectual property enforcement above the TRIPs Agreement, and then establish the treaty as global standard. However, the extremely high standards provided in ACTA for IPR enforcement are beyond the ability of China and many developing countries. And for developed countries, strong IP protection in treaties with weak enforcement in practice is meaningless.

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