# Presentation: 055526

## Protecting and Enforcing Your Intellectual Property in China

- Office of External Affairs
- United States Patent and Trademark Office

**Notes:**
I’m very pleased to have the opportunity to speak to you today about a very important issue, problems with intellectual property protection and enforcement in China.

First, I’d like to talk to you about the nature of the problem.  For those of you who are already doing business in China, this will be a familiar story.  Others of you may believe that these problems will not have any impact on your businesses.  Some of you may be deciding whether to enter the Chinese market.  I’d like to give you a few things to think about in making that assessment.  

Second, I’d like to talk to you about what you can do to protect your intellectual property in the Chinese market.  This will include some details about how the intellectual property system works in China and where to turn if something goes wrong.

I’ll finish off this talk by explaining a bit about what the US government is doing to help develop a positive environment for  intellectual property in China—and where we anticipate changes in the Chinese system as a result of these efforts. 

## Why care?

- This is not only a problem for US companies doing business in China.
- Chinese counterfeiters and pirates export to US market, and other overseas markets.
- Counterfeiters and pirates market at trade shows.
- Counterfeiters and pirates may sell to your customers and suppliers.
- Counterfeiters and pirates may be selling your products in China, even if you are not in the China market.

**Notes:**
For those of you who are not currently doing business in China, some of the stories you hear today may make you hesitant to enter the market.  And if you’re not going to expand into the Chinese market, why should you worry about protecting your intellectual property in China?  The problem is that China’s intellectual property hazards do not end at its borders.

Let me tell you the story of a US manufacturer of marine gauges.  This company became concerned when a customer reported problems with one of its gauges that it had purchased through a South American distributor.  The company discovered that a Chinese counterfeiter had sold gauges to its supplier that were identical in appearance to the legitimate gauges but were functionally inferior.  The complaining customer was located in China—a market where the US manufacturer had never done business.

Chinese counterfeiters also come to trade shows in the US and around the world.  A US carpet designer and manufacturer discovered that a Chinese infringer had copied its catalog and was taking orders for its designs at a trade show in Las Vegas.

Finally, you may believe that your products won’t be effected because you don’t make Louis Vuitton handbags or Nike shoes.  However, it is not only high-end luxury goods that are being counterfeited in China.  Functional goods like batteries, adhesives, automobile parts are being counterfeited, and may end up in your supply chain.

## Scope of the Problem

- Chinese counterfeiting and piracy affect you:
- In the United States
- China is the largest single source of seizures of infringing products by U.S. Customs.
- In Third Countries
- China is a leading source of seizures in the European Union, Japan and in many developing country markets, such as in South America, Southeast Asia, Africa, and the Middle East.

**Notes:**
Now some numbers. I’m sure that for those who are doing business in China, you’ve experienced this on a personal level. Counterfeiting and piracy of trademarked and copyrighted goods remains rampant in China. These numbers may be familiar to many of you but I thought it still useful to give you an overall assessment of the seriousness of the problem.   

Estimates are that the market value of counterfeit goods in China is between $19 and $24 billion dollars (stats from IACC).  But just in case you think that it’s mainly US companies that are being ‘ripped off’, you might be surprised to know that this problem has also directly impacted China’s domestic market as well. 80 percent of counterfeits sold in China are of domestic brands.  
 	And the problem doesn’t remain in China. Chinese sourced products are found all over the globe.  To highlight 2 cases: one involves auto parts and the other toys.  Auto parts manufactured in south or central China are shipped to Panama then shipped to Paraguay, where they are stored in warehouses, trucked to Brazil and then enter Europe and North America markets.  
 	About toys: China is world’s largest producer of toys. In one case counterfeit toys left South China through Hong Kong, were shipped to Guatemala and then to US market through Los Angeles. 
 	Another very big problem are counterfeit drugs, which our friends at Pfizer and PhRMA can certainly attest to.  We hear that in China lost sales due to counterfeit pharmaceuticals are estimated in excess of $800 million, representing a loss of 10-15 percent of annual revenue.
US Customs statistics for FY ’04, seizures from China accounted for 68% of all goods confiscated and the value of the goods seized increased 47% from FY ’03.  

CPB:  Mid-Year FY 2005:  seizures for China accounted for 64% of all goods confiscated, with total domestic value exceeding $28 million.  Mid-year 2004:  China accounted for 58% of total.  

Statistics from major US trading partners such as Japan and the EU are similar as to percentage of seized goods coming from China; more than 60% for both.

## Scope of the Problem

- Problem is Widespread in China.
- Counterfeiting (20% or more revenue lost of some products)
- Piracy (90% + of movies, motion pictures, software)

**Notes:**
According to IIPA, China has one of  the highest software piracy rate in the world at 90% with losses to industry in 2004 estimated at close to $2 billion. 
Piracy levels (reflecting the percentage of product sold in a market that is illegal) at 85% to 95% in 2004 for all copyright industries (except books)  in China.  
Estimated losses due to piracy of copyrighted materials were over $2.5 billion in 2004 in China. 
An estimated 5 to 7 per cent of world trade is comprised of counterfeit products, a market worth $350 billion, according to the U.S. Department of Homeland Security. 
Counterfeiting in China is considered to be the most serious counterfeiting problem in world history.  Today, China is termed "the undisputed capital of counterfeiting.“
In 2003, China accounted for 66% or over $62 million of the $94 million of all counterfeit and infringing goods seized by the US Customs Service at ports of entry into the United States.  No other country accounted for more than 3% of counterfeit products. 
According to World Health Organization estimates, counterfeit medicines comprise 6 per cent of the world market and higher in some areas. 

## Catalyst for Change:  WTO 

- China joined the WTO on December 11, 2001.
- China agreed to implement the Agreement on the Trade-Related Aspects of Intellectual Property (TRIPs) Agreement.
- Does China provide “adequate and effective” intellectual property protection?

**Notes:**
China joined the WTO on December 11, 2001.  This was the culmination of fifteen years of negotiations.  As a part of this process, China agreed to implement the Agreement on the Trade Related Aspects of Intellectual Property, or the TRIPs Agreement.  TRIPs provides minimum standards for intellectual property protection and enforcement, including chapters on patents, trademarks, copyright, trade secrets, and integrated circuit designs. 

In the late 1980s and early 1990s, intellectual property had become more and more important in international trade.  WTO members believed that the differences between member counties’ protection for and enforcement of intellectual property rights created impediments to the international trading system. With this in mind, new internationally agreed rules for intellectual property rights were seen as a way to introduce more order and predictability and for disputes to be settled more systematically. 

The TRIPs agreement, which came out of the Uruguay round negotiations, is an attempt to narrow the gaps in the way in which IP rights are protected and enforced around the world and to bring them under common international rules. It also provides a dispute settlement mechanism to resolve disputes should they arise.

TRIPs requires that all countries provide “adequate” protection for IP and establishes minimum standards (based largely on existing international agreements).  The Agreement covers seven IP rights: copyright, trademark, geographical indications, industrial designs, patents, layout designs of integrated circuits, undisclosed information and trade secrets. TRIPs also requires that all WTO members provide measures to allow for “effective” enforcement of these IP rights – and here, TRIPs is most important because it marks the first time that an international intellectual property agreement had an enforcement component.

The buzzwords that you should remember here are “adequate and effective.”  When we look to see whether a country complies with the TRIPs Agreement, we make a determination as to the adequacy and effectiveness of their substantive IP laws and practical enforcement system. 

## Catalyst for Change:  WTO

**GOOD NEWS:**
- China has amended its IP laws substantially.
- The TRIPs Agreement keeps China accountable.
- Other WTO Members can use TRIPs as leverage with China.
**BAD NEWS:**
- Cutting edge legal issues require further legislation.
- Enforcement of IP laws is weak.

**Notes:**
How has China done in implementing its TRIPs commitments?  Assessment is mixed.

The good news is that in the three years since its WTO accession, China has substantially revised its IP laws.  Generally speaking, the laws on China’s books are TRIPs-compliant.  There are certain “cutting edge” areas that may require further legislation.  We continue to work with China on the issues such as online piracy, well-known marks, and data exclusivity; where additional legislation or regulation may be needed.

The bad news is that foreign industry faces huge challenges in enforcing their rights in China.  I’ll talk a bit later about what the US Government is doing to hold China to the commitments it made as a part of WTO accession.  

Right now, I’d like to talk a bit about the decisions that US companies need to make before doing business in China.

## Business Considerations

- Do you plan to market in China?
- Do you plan to serve other foreign markets?
- Do you plan to manufacture in China?
- Do you plan to purchase supplies in China?
- Do you attend large international trade shows?

**Notes:**
Ask questions to audience.  

Let me describe briefly how some of these issues may affect your business. If you plan to market, and I’ll get into this later, it’s important that you secure you IP right there since most of these rights are territorial, meaning that they are good only within the territory in which you’ve registered the right. That being said, and as I mentioned earlier on, it’s possible that even if you don’t market in China, you could have IP problems nevertheless. 

Do you plan manufacture your product in China? In that case, you must consider, among other things, the possibility of your manufacturer making counterfeit products after hours in the Chinese factory.

Do you plan to purchase supplies in China? Unfortunately, in that case, you may have to be concerned with the suppliers providing you with counterfeit products.

Do you attend large international trade shows either in China or elsewhere? If so, you may have to deal with counterfeiters who knock off the products that you’ve exhibited at these trade shows. 

## Business Considerations

- How important is intellectual property to your business model?
- Can your goods or services be copied or imitated?

**Notes:**
Again, some more business considerations: ask your manager or your lawyer, how important is IP to your business model? What rights have you secured in the U.S., because those are similar to what you should secure in other countries as well.

Can your goods or services be copied? 

##  Protecting your IP in China

- REMEMBER:
- •IP rights are usually territorial.
- •Use the 3 R’s
- 		1.	Registration
- 		2.	Recordation
- 		3.	Remedies

## Protecting your IP in China

- Register
- Record
- Remedies

**Notes:**
Remember that each of the three R’s is territorial . . .

To help you enforce your rights in China, we recommend that you register these rights and record them, without which you may not have any remedies in case of infringement.

## Protecting your IP–Registration

**Patents**
- Must file patent applications with State IP Office (SIPO)
- SIPO Regional Offices provide administrative enforcement
- Rights are territorial
- China is “first to file” country
- Use of registered patent agent.

**Notes:**
Let’s go to patents. Good news first. the patent office in China, called the State Intellectual Property Office (SIPO), is one of the better-run offices when compared with other countries at a similar level of development. 
SIPO has offices in all major cities in the provinces, but the main one is in Beijing, and that is the one that will examine your patent applications, although the local patent offices can accept patent applications and forward them to Beijing. 

In 2005, 476,000 patents were files at SIPO, an increase of 34.6%.

As with most IP rights, patent rights are territorial which means you must file in China in order to get protection there. 

China is a first to file country which means that the first inventor to file will get the patent rights. In the U.S., we are first to invent country which means whoever invents first will get the patent right. Most countries are like china. 

If time,  mention design patent problems: the one main problem that we have heard from industry about China’s patent system (besides the enforcement problems which I’ll discuss later) is the problem with design patents. GM in particular has had problems with a Chinese auto company that has manufactured a car that shares the same design as one of its own cars. We’ve also heard from other companies that they have design patent problems, problems of not getting their patent issued when they’ve applied for design patent protection, or reports that rival Chinese companies have somehow gotten their design patents issued first.  

## Protecting your IP–Registration

**Trademarks**
- Must file trademark applications with the Chinese Trademark Office (CTO), which is part of the State Administration for Industry and Commerce (SAIC)
- CTO is the most active TMO in the world
- SAIC’s local bureaus provide administrative enforcement of trademarks throughout China

**Notes:**
Next, onto trademarks.  The Chinese Trademark Office became the office with the largest number of filings in the world in 2002 – that year, it had more than 350,000 filings. In fact, the year after China entered the WTO, 2002, the number of trademark filings increased 25% from the pervious year. In 2005, 650,000 trademark applications were filed with CTO. 

A couple of tips for protecting your mark in China: do a TM search to make sure that no one else has registered your mark. Register your mark in Chinese and English – when doing it in Chinese, you need to use characters in that sound like your mark. Secure domain name protection if necessary.

Let me discuss here some specific problems with regard to trademarks:  For those who have applied for and tried to enforce their trademark rights in China, you are probably familiar with the issue of well-known marks, and whether foreign marks are receiving protection as well-known marks in China.  The SAIC had previously amended the trademark law to include provisions to protect well-known marks.

Then in 2003, the SAIC issued regulations which were intended to broaden protection for marks deemed to be well known in China. According to the regulations, if a mark is recognized as being well known, the regulation would provide protection against other parties seeking to use or register identical marks in connection with dissimilar goods or services or in registered company names. Trademark owners may oppose an application or seek to cancel a registration by seeking recognition of well-known status through submission of relevant evidence for each new dispute that arises.

There’s also been a bit of controversy as to whether China maintained an official list of well-known marks for which special treatment would apply. Chinese officials have denied, although we’ve heard from industry that no US company’s well known mark has been on the list. At any rate, the practice of maintaining a list was supposed to have been abolished by the 2003 regulations. Our concern that notwithstanding this provision, other agencies and local authorities may still be maintaining such a list.

We, USG, have spoken with officials about the new regulations. The Chinese Trademark Office has told us that foreign marks should now be able to enjoy well-known status in China. They also tell us again that they do not maintain a list of well-known marks. However, we’ve seen no decisions from the CTO recognizing a foreign mark as well-known so bottom line  it’s still unclear to us how these provisions will work. 

Finally, there is an issue concerning a trademark database.  We know that industry has been concerned about the lack of a publicly accessible, searchable, online database for searching trademarks in China.  We’ve been actively trying to encourage the Chinese to provide for a transparent database of trademarks to facilitate trademark prosecution, and also, on the enforcement side, to reduce incidence of counterfeiting. In this way, manufacturers in China can readily determine if a trademark is registered and is being used by someone other than the party for whom they are manufacturing. 

## Protecting your IP–Registration

- Tips for Protecting Your Trademarks
- China does not grant trademark rights on use without registration (“first-to-file” system)
- Do a trademark search
- Have the trademark registered in Chinese and English
- Secure other rights such as domain names and company names

**Notes:**
Next, onto trademarks.  The Chinese Trademark Office became the office with the largest number of filings in the world in 2002 – that year, it had more than 350,000 filings. In fact, the year after China entered the WTO, 2002, the number of trademark filings increased 25% from the pervious year. 

A couple of tips for protecting your mark in China: do a TM search to make sure that no one else has registered your mark. Register your mark in Chinese and English – when doing it in Chinese, you need to use characters in that sound like your mark. Secure domain name protection if necessary.

Let me discuss here some specific problems with regard to trademarks:  For those who have applied for and tried to enforce their trademark rights in China, you are probably familiar with the issue of well-known marks, and whether foreign marks are receiving protection as well-known marks in China.  The SAIC had previously amended the trademark law to include provisions to protect well-known marks.

Then in 2003, the SAIC issued regulations which were intended to broaden protection for marks deemed to be well known in China. According to the regulations, if a mark is recognized as being well known, the regulation would provide protection against other parties seeking to use or register identical marks in connection with dissimilar goods or services or in registered company names. Trademark owners may oppose an application or seek to cancel a registration by seeking recognition of well-known status through submission of relevant evidence for each new dispute that arises.

There’s also been a bit of controversy as to whether China maintained an official list of well-known marks for which special treatment would apply. Chinese officials have denied, although we’ve heard from industry that no US company’s well known mark has been on the list. At any rate, the practice of maintaining a list was supposed to have been abolished by the 2003 regulations. Our concern that notwithstanding this provision, other agencies and local authorities may still be maintaining such a list.

We, USG, have spoken with officials about the new regulations. The Chinese Trademark Office has told us that foreign marks should now be able to enjoy well-known status in China. They also tell us again that they do not maintain a list of well-known marks. However, we’ve seen no decisions from the CTO recognizing a foreign mark as well-known so bottom line  it’s still unclear to us how these provisions will work. 

Finally, there is an issue concerning a trademark database.  We know that industry has been concerned about the lack of a publicly accessible, searchable, online database for searching trademarks in China.  We’ve been actively trying to encourage the Chinese to provide for a transparent database of trademarks to facilitate trademark prosecution, and also, on the enforcement side, to reduce incidence of counterfeiting. In this way, manufacturers in China can readily determine if a trademark is registered and is being used by someone other than the party for whom they are manufacturing. 

##    Protecting your IP–Registration

**Copyright**
- Copyright protection is available for all works at the point that the work is in any tangible form
- There may still be reasons to register.
- As a US copyright owner, you must register in order to be able to bring suit in federal court for infringement.
- Registration puts others on notice
- A US registration may help to provide evidence in Chinese court.

**Notes:**
Onto China’s copyright situation. The principal agency in China with regard to copyright protection and enforcement is the National Copyright Administration of China, which operates under the State Press and Publications Administration. The other ministry involved in copyright enforcement issues is the Ministry of Culture which handles distribution and market access issues for movies, music and books, and also issued its own rules regarding enforcement of copyrighted works over the Internet.

You do not need to register your copyright since the law says that you get protection for it when it’s fixed into a tangible form, such as a CD, DVD, book, etc. But there are some good reasons to register, which I’ve outlined here. 

Another agency with enforcement capabilities is the State General Administration of the PRC for Quality Supervision and Inspection and Quarantine (AQSIQ) which has the authority to confiscate equipment used for making counterfeit and pirated products and other evidence of infringement. 
 China has made many legal improvements in the copyright enforcement area but many problems remain. China amended its copyright laws in late 2001. The new amendments help to strengthen available enforcement measures – for example, in the case of administrative enforcement, authorities can now confiscate and destroy pirated products and the equipment used to produce them, as well as impose fines. The plaintiff copyright holder can also seek a preliminary injunction.  
 One major problem is with criminal enforcement.  Again, as in the trademark area, high thresholds translate to difficulties convincing Chinese authorities to prosecute commercial piracy cases under the copyright provisions of the criminal law. Another problem: lack of referrals from administrative enforcement to criminal prosecutors.  
 Next, a word about enforcement of copyrighted works on the internet: China has the world’s second highest number of internet users. But it has not yet acceded to the WIPO internet treaties, the WIPO copyright treaty, (WCT), and the WIPO Performers and Phonograms Treaty (WPPT).  We’ve been urging them to sign onto these treaties at every opportunity possible.   
 Finally, there is the issue of market access which poses a very serious problem for the copyright industry. For the audio and audio visual industries, film industry, market access barriers severely limit the number of theatrical films that can be imported under revenue sharing terms.  Videogames, for example, must be approved by the government before import and when permission is granted, they are already pirated. 

## Protecting your IP–Recordation

- In the U.S., you can record your registered trademarks and copyrights with the U.S. Customs and Border Protection (CBP)
*This information is recorded (for a fee) and entered into an electronic database accessible by CBP officers across the country.  CBP uses the information to actively monitor shipments and prevent the importation or exportation of infringing goods.*
- Note:  this procedure is not available for patents.
- A similar process exists for Chinese Customs **.**
- Trademarks, copyright and patents can be registered with Customs.

**Notes:**
Next, recording your rights with Customs. You can record your registered TM and CR with US Customs, which is now in the Department of Homeland Security. This procedure is not available for patented products. 

It is recommended that you also record your registered rights with Chinese Customs.  One point to consider, is that it is highly recommended to have a local in-country agent designated for your point of contact with Chinese Customs as the timeframe for responding to suspect seizure is only 3-5 business days.

## Trade Secrets

- Technical and/or management information that is unknown to the public
- Can bring economic benefits and is of practical value, and
- Which the rightful party has adopted measures to maintain its confidentiality.

**Notes:**
Chinese law is very similar to the US Uniform Commercial Code regarding Trade Secrets protection.  Theft of trade secrets can also be criminally punished under Chinese law under the new Judicial Interpretation where the infringer causes losses of more than RMB 500,000 (US$60,000) to the obligee of the business secrets.  Fines and imprisonment of up to 7 years can be imposed in cases where the infringement has caused losses of more than RMB 2.5 million (US$300,000).

## Trade Secrets

- Trade secrets do not require registration.
- Principle law regarding trade secrets is “Law to Counter Unfair Competition”
- Principle administrative enforcement agency:  Fair Trade Bureau of SAIC.

**Notes:**
Chinese law is very similar to the US Uniform Commercial Code regarding Trade Secrets protection.  Theft of trade secrets can also be criminally punished under Chinese law under the new Judicial Interpretation where the infringer causes losses of more than RMB 500,000 (US$60,000) to the obligee of the business secrets.  Fines and imprisonment of up to 7 years can be imposed in cases where the infringement has caused losses of more than RMB 2.5 million (US$300,000).

## Section 337 Remedy

- 	If infringing products are being imported into the United States, and the company holds a registered patent, trademark or copyright for the product, you should consider filing a Section 337 complaint with the U.S. International Trade Commission to bar infringing products from entering the United States.
-     ***http://www.usitc.gov/trade_remedy/int_prop/index.htm***

**Notes:**
This process can be used to bar infringing goods from coming into the US.  Generally, this is a 6-12 month process whereby the ITC will issue a ruling and instruct US Customs to bar the import of the infringing product.  The infringing goods are not seized, but simply not allowed entry into the US.

## Section 337 Remedy

**	**_**PROS**_
- ITC is required to conclude its investigation in a timely manner
- Effective & speedy remedy compared to court cases
**	**_**CONS**_
- Can be very costly meeting ITC deadlines

**Notes:**
This process can be used to bar infringing goods from coming into the US.  Generally, this is a 6-12 month process whereby the ITC will issue a ruling and instruct US Customs to bar the import of the infringing product.  The infringing goods are not seized, but simply not allowed entry into the US.

## Using Remedies in China

- “Three Track” Enforcement System
- Administrative Enforcement (Most Common)
- Patent, TM, Copyright, Trade Secret, Plant Varieties, etc.
- Customs
- Civil Enforcement
- Criminal (Least Common)

**Notes:**
What remedies are available to you in China?  As many of you may be aware, China’s basic enforcement structure consists of 3 tracks:  administrative enforcement, civil enforcement and criminal enforcement. 

## Administrative Enforcement

_**ADVANTAGES:**_
- Inexpensive and fast,
- Local,
- Expert Agency (nearly every IP right has an administrative agency),
- No lawyer needed,
- May be able to obtain an injunction,
- Administrative agency may have other enforcement capabilities.

**Notes:**
	First, I’ll talk about Administrative enforcement, which is by far the most common and frequently used form of enforcement of IP rights.  One important point to make here: each IP right in China has an administrative agency associated with it that can issue fines, etc. This means that there are lots of agencies involved in IP enforcement, some overlapping, and the lack of coordination among them is a concern.  Clearly, in China, there is not a lack of enforcement agencies... or of laws/regulations etc. governing enforcement. 
	The main enforcement agency in China is the State Administration for Industry and Commerce (AIC). It is one of the largest agencies in China with some 600,000 employees at the national and local level. It includes the Chinese Trademark Office, the Trademark Review and Adjudication Board, Fair Trade Bureau (deals with unfair competition, trade secret matters, trade dress infringements, etc., a company licensing function and enforcement authority over these laws.) 
	An infringed party may seek redress at the AIC by filing a complaint with the local AIC  The AIC can enter premises and seize goods, order infringing goods to be stopped, levy fines, destroy goods, etc.  It is used most frequently because it is readily available and quick.   
	I’ve listed several of the advantages of the administrative enforcement:  inexpensive, relatively quick, and depending on the IP right, you can generally seek an injunction to stop infringing goods. 

## Administrative Enforcement

_**DISADVANTAGES:**_
- “Local Protectionism”,
- Penalties usually non-deterrent,
- Non-transparent,
- Difficult to transfer to criminal prosecution,
- Limited geographic jurisdiction,
- Can’t reach international criminal activity,
- Damages for injured party not likely available.

**Notes:**
	There are problems however. It can be a burdensome approach that does not result in permanent relief. I’m sure that those of you doing business in China can attest to the problems with this system: most importantly, damages are not available so repeat offenders are common. Fines are too low so there’s no deterrence and local protectionism remains a problem, and there’s also lack of transparency in the system, particularly at local levels.  Local protectionism is a real problem in China.

## Recent Statistics

- Trademark—In 2004, 51,851 cases of TM infringement and counterfeiting, 5,494 cases involving foreign right holders; average fine of $620 per case, 96 cases referred for criminal prosecution
**Copyright—9,691 cases, 158 involving a foreign right holder, 102 cases referred for criminal prosecution. **

## Civil Enforcement

_**ADVANTAGES**_
- Specialized judiciary that may be trained in IPR
- Damages available
- Injunctive remedies
- Rights to appeal
- Nationwide jurisdiction
- _[http://www.Chinaiprlaw.com](http://www.chinaiprlaw.com/)_

_**DISADVANTAGE**_
- High cost
- Low damage rewards
- Lack of independence of judiciary in many jurisdictions
- Difficulties in collecting damages, if rewarded

## Recent Statistics

- Chinese courts handled a total of 11,468 IP related civil cases in 2005 (Jan-Nov); an increase of 31.9%
- Copyright cases totaled 5,240.
- Patent cases totaled 2,491
- Trademark case totaled 1,482
- Generally cases involving foreign right holders were approximately 5% of total.

**Notes:**
CIVIL CASES:  58.5%  of cases were withdrawn after mediation settlement.  Only 32 cases were appealed.  

Judge Li of the SPC, IPR Civil Division, noted that approximately 50% of all IP cases settle or are dismissed before trial.  Cases on appeal from administrative rulings by SIPO and CTO also increased by 30%.

## Criminal Enforcement

_**ADVANTAGES:**_
- Can be brought by police/prosecutors or injured party;
- Deterrent damages possible (fine and imprisonment),
- Possibility of civil damages in addition to criminal punishment,
- Potentially lower cost than civil litigation.
- Criminal measures for willful trademark counterfeiting and copyright piracy on a commercial scale are WTO obligations.

**Notes:**
Criminal enforcement is available as well. Ideally, this would be the most effective form of enforcement. Cases can be brought by prosecutors or injured parties, deterrent penalties are available, including jail time. 

Unfortunately, not enough criminal cases are being brought, and there is pretty general wide spread consensus that the legal thresholds to trigger criminal enforcement need to be lowered. Also – there are problems in determining what administrative cases can be referred to criminal prosecution because the regulations are not too clear. Other problems include the fact that not all IP infringements are criminalized so for some of them, criminal enforcement is simply not available. 

Let me give you some enforcement statistics that give you an idea of how the enforcement system has been used. We’ve heard that  there were 41,163 trademark law violation cases in 2004.   Infringers were ordered to pay the rights owners average damages of RMB 8,500 or $780 and there were 96 cases transferred to criminal procedures or .2% of all cases.  Cases involving foreign right holders numbered more than 5,500. 

As for copyright cases, in 2004 copyright administrative authorities accepted 9,691 cases in total, involving 163 foreign right holders and 102 cases were transferred to criminal procedures. 

Note:  Supreme People’s Procuratorate is an independent branch of Chain’s government, co-equal with the courts. The SPP has two primary functions:  prosecution of crimes and investigation of government fraud and abuse. Along with the SPC, the SPP issues interpretations of law to govern its operations, and has independent authority to request interpretations of law from the National People’ Congress. The research department of the SPP is working on revising criminal thresholds for IPR crimes, a key USG issue.

Ministry of Public Security = FBI.  Public Security Bureau=Police 

## Criminal Enforcement

_**DISADVANTAGES:**_
- Evidentiary standards have been lowered with the new Judicial Interpretation, but resource issues may still make these cases difficult to pursue.
- Not all IPR infringements are criminalized.
- Difficulties may exist in having administrative cases referred to criminal prosecution.

**Notes:**
Criminal enforcement is available as well. Ideally, this would be the most effective form of enforcement. Cases can be brought by prosecutors or injured parties, deterrent penalties are available, including jail time. 

Unfortunately, not enough criminal cases are being brought, and there is pretty general wide spread consensus that the legal thresholds to trigger criminal enforcement need to be lowered. Also – there are problems in determining what administrative cases can be referred to criminal prosecution because the regulations are not too clear. Other problems include the fact that not all IP infringements are criminalized so for some of them, criminal enforcement is simply not available. 

Let me give you some enforcement statistics that give you an idea of how the enforcement system has been used. We’ve heard that  there were 41,163 trademark law violation cases in 2004.   Infringers were ordered to pay the rights owners average damages of RMB 8,500 or $780 and there were 96 cases transferred to criminal procedures or .2% of all cases.  Cases involving foreign right holders numbered more than 5,500. 

As for copyright cases, in 2004 copyright administrative authorities accepted 9,691 cases in total, involving 163 foreign right holders and 102 cases were transferred to criminal procedures. 

Note:  Supreme People’s Procuratorate is an independent branch of Chain’s government, co-equal with the courts. The SPP has two primary functions:  prosecution of crimes and investigation of government fraud and abuse. Along with the SPC, the SPP issues interpretations of law to govern its operations, and has independent authority to request interpretations of law from the National People’ Congress. The research department of the SPP is working on revising criminal thresholds for IPR crimes, a key USG issue.

Ministry of Public Security = FBI.  Public Security Bureau=Police 

## New Judicial Interpretation

- TM thresholds lowered from RMB 100,000 to RMB 50,000 ($12,000 to $6,000)
- Copyright thresholds similarly lowered; number of copies lowered from 5,000 to 1,000
- New provisions addressing online copyright piracy, accomplice liability, and the import/export of infringing goods

**Notes:**
These thresholds are for individual liability with corporate or entity liability being three times those limits as opposed to 5 times previously.

There are also new provisions for counterfeiting of more than one registered trademark that lower the thresholds even further.  Also, numbers and values of goods seized can be aggregated where there has not been an administrative punishment issued.

## Problems with the New JI

- Valuation of seized goods
- A “profit generating” requirement for copyright piracy
- A “knowledge” requirement for the sale of counterfeit or pirated goods
- Repeal of “three strikes” rule for repeat offenders

**Notes:**
Confiscated goods are valued at the infringer’s price and not the legitimate market price.  Zippo case example.

The profit generating requirement could mean that P2P infringements and other internet related infringements may not be able to be criminalized.  This flaw is in the underlying statute and would need to be corrected by the legislature.

The seller of counterfeit or pirated goods must (1) have actual knowledge that the goods being sold are counterfeit or pirated or (2) have been previously administratively sanctioned for selling the same commodities or (3) using altered authorization documents

## Recent Statistics

- Criminal Cases:  Public Security Bureau (PSB, Chinese police) initiated 2,991 IP criminal cases, involving over 5,000 suspects.
- Total value of 2.06 billion Yuan
- 2,661 cases progressing; 261 cases concluded.

## Customs Enforcement

_**ADVANTAGES**_
- Available for import and export,
- Stops goods in transit,
- Inexpensive.
- Stops the harm caused by export of counterfeit goods.

_**DISADVANTAGES**_
- Most useful when you know the port the goods are being exported from.
- Storage charges,  other expenses can be high.
- Customs can only inspect a limited % of goods exported.

## Statistics

- 1,052 total seizures in 2004 with a value of more than $10 million
- 95% of all seizure cases involve TM infringement
- 98% of all seizures are for goods destined for export
- 67% of seizures involve foreign TMs

**Notes:**
Seizures increased by 39% from 2003; value of seizures increase almost 25%

95% of all cases came from ex-officio action.  Most Customs seizures are made from a tip made to Customs authorities.

## U.S. Government Efforts

- Ongoing WTO monitoring
- Multilateral work at World Intellectual Property Office (WIPO)
- Regional work:  ASEAN, APEC
- Bilateral Meetings
- Joint Commission on Commerce and Trade (JCCT)
- Capacity building activities
- Domestic Outreach to U.S. businesses

## Other USG Efforts

- U.S. Ambassador’s Annual IP Roundtable
- JCCT IPR Working Group Meeting established in 2003 led by USPTO and USTR on the U.S. side
- Case Referral Mechanism
- Legal Advice from ABA IP experts for SME’s

## Slide 35

## Slide 36

## Office-to-Office Activities

- USPTO has a strong relationship with:
- The State Intellectual Property Office (SIPO) of China on Patent issues
- The State Administration for Industry and Commerce (SAIC) and the China Trademark Office (CTO) on issues relating to trademarks, domain names, and geographical indications.
- The National Copyright Administration (NCA) on copyright and related rights, including Internet issues.

**Notes:**
In 2004, Under Secretary and Director Jon Dudas led two trips to China for consultations with senior officials at China's patent and trademark and other intellectual property agencies.  Our delegations also met with U.S. companies facing intellectual property issues in China.  

During these visits, we urged China to ratify and implement the World Intellectual Property Organization (WIPO) treaties in the near terms, provide draft criminal judicial interpretations to the United States for review and facilitate enforcement against end user software piracy by declaring that it harms the public interest.

We also discussed technical cooperation issues with our Chinese patent and trademark counterparts. We have pledged to work with our sister agencies in China on issues such as protection for industrial designs and pharmaceutical test data, new trademark examination guidelines and providing assistance on well-known mark examination in China.

## USPTO China IP Expertise

- USPTO has a comprehensive and experienced China IPR team, including:
- TM expert
- Copyright expert
- Patent expert
- Enforcement expert
- USPTO appointed an IP attaché to the US Embassy in Beijing.
- Two additional IPR Experts (attorneys) will be posted in China this year.

**Notes:**
In September 2004, a USPTO attorney-advisor was appointed as intellectual property attaché to the U.S. Embassy in Beijing, China.  Mark Cohen is fluent in Mandarin and has many years of experience in working on China IP issues.  Mark will work with government officials to improve Chinese intellectual property laws, regulations and enforcement procedures.  This is the first time that the USPTO has placed an official overseas for the purpose of improving intellectual property protection in a specific country. The assignment fulfills a recommendation in the Department of Commerce report, “Manufacturing in America,” to place a USPTO official in China to provide in-country support to curb intellectual property crime and strengthen enforcement.

## Protecting your IP–Remedies

- Do you need assistance contacting any U.S. Embassies who may be able to help you find experienced intellectual property attorneys in your country of interest?
- Embassies maintain lawyer lists—as do some trade associations.

**Notes:**
Let me add here that you ought to also consult with our colleagues at the Foreign Commercial Service, which is a part of our “mother” agency, the Department of Commerce.

##   USG Help for IPR Rights Holders

_**What We Can Do**_
- Help companies navigate through China’s legal system
- Provide list of attorneys and/or consulting firms
- Monitor and inquire about case status

_**What We Can’t Do**_
- Provide legal advice
- Advocate on behalf of a company where the company has not pursued legal action
- Try to influence the result of a case under adjudication

## Slide 41

## STOP Initiative

- Rightsholders can call 1 (866) 999-HALT
- Multi-agency effort involving:
- Commerce Department
- Justice Department and
- Department of Homeland Security
- Multifaceted effort using each agency’s resources to best tackle the problem.
**	****http://www.stopfakes/gov/**

**Notes:**
Another IPR enforcement initiative is the Strategy Targeting Organized Piracy (STOP), recently established to provide for a coordinated attack to stem the global trade in counterfeit merchandise and pirated music and movies.  As part if STOP, a hotline is being provided that gives a one-stop-shop for businesses to protect their intellectual property at home and abroad.  The hotline gives businesses the information they need to leverage the resources of the United States Government to lock down and enforce their trademarks, patents and copyrights overseas.  Other STOP initiative elements that are underway include 
-developing a comprehensive web-based guide for American innovators and businesses on how to safeguard their ideas and innovations
-challenging industry leaders to develop voluntary guidelines/corporate compliance programs to ensure that their supply chains are free of trade in fakes;
-facilitating a process for U.S. companies to record intellectual property rights with U.S. Customs and Border Protection; and
-establishing a Global Intellectual Property Training Center as a central location and focal point for the coordination of U.S. intellectual property rights enforcement training.

## Slide 43

## STOP Hotline

- Would you like to speak to U.S. Government experts that can help you devise a strategy to fight back?
*The company may be directed to the Commerce IPR hotline where Commerce experts can suggest strategies to evaluate IPR problems encountered abroad.  Companies can contact the Commerce Department at: ****1-866-999-HALT (4258)***

## Thank You

- For further information, please contact:
- US Patent & Trademark Office
- Department of External Affairs
- www.USPTO.gov

**Notes:**
We are optimistic about the results of all of our efforts.  I am hopeful that with your continued support and partnership—as well as the efforts of other WTO Member countries, we will be able to achieve concrete results in China.  We look forward to seeing a substantial drop in the  piracy and counterfeiting rates in China.   We hope that businesses will be able to enter the Chinese market confident that they will be afforded the IP protection they need.

Thank you very much.