WORLD TRADE  
ORGANIZATION  IP/C/W/503 
11 October 2007 
 
 (07-4372) 
Council for Trade-Related Aspects 
of Intellectual Property Rights Original:   English 
 
 
 
TRANSITIONAL REVIEW MECHANISM OF CHINA 
 
Communication from the European Communities  
 
 By means of a communication from the dele gation of the European Communities, dated 
9 October 2007, the Secretariat has received th e following contribution in the context of the 
transitional review mechanism under Secti on 18 of China's Protocol on Accession. 
 
_______________ 
 
 1. The European Communities (hereinafter referr ed to as the "EC") would like to thank the 
People's Republic of China (hereinafter referred to as "China") for its participation in the TRM 
process and look forward to the further clarification of the important matter of IPR protection and enforcement in China. 
I. GENERAL 
2. The EC welcomes the initiatives taken by China to improve the situation (especially the 
enforcement) of intellectual property rights. 
3. Since the 2006 TRM exercise several developments  have occurred in China in the field of 
IPR, such as: 
- The establishment of 50 IPR Complaint Centres throughout China where IPR 
infringements can be reported (November 2006); 
 
- The Interpretation of the Supreme People's Court on some Issues Concerning the 
Application of the Law in the Trial of Civil Cases of Unfair Competition  (December 
2006); 
 
- The revised draft Third Amendment of  the Patent Law (December 2006); 
 - The Opinion of the Supreme People's Court on the Comprehensive Strengthening of 
Intellectual Property Trials Work and the Pr ovision of Judicial Guarantee for Building 
An Innovation-oriented Country  (January 2007); 
 - The Interpretation of the Supreme Pe ople's Court and the Supreme People's 
Procuratorate on Several Issues in the Concrete App lication of the Law in Handling 
Criminal Cases of IP Infringement  (April 2007);  
 
- China's Action Plan on IPR Protection 2007 which details 276 measures in 10 areas and 
in which China has included the drafting,  formulation and revision of 14 laws, 
regulations, rules and administrative measur es on trademark, copyright, patent and IP/C/W/503 
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  customs protection as well as seven Judicial  Interpretations and guidelines (April 
2007); 
 - A number of public awareness-raising campaigns such as the national "100-Day 
Campaign against Piracy". 
 
4. However, despite these developments and China' s initiatives to address a number of problems 
in its IP system, the level of counterfeiting and pira cy as well as the lack of effective IPR enforcement 
remain a matter of great concern for the EC.  Criminal prosecution remains ineffective.  Sanctions against IPR infringements are insufficient (to deter infringers).  Civil and administrative procedures 
against counterfeiting and piracy activities remain e xpensive and time consuming.  The EC therefore 
urges China to actively pursue its efforts toward s an effective intellectual property protection and 
enforcement system. 
5. On the basis of the cooperation established betw een the EC and China in the context of the 
EU-China IP Dialogue and IP Working Group and in  the light of the above -mentioned developments, 
the EC would like to take this opportunity to rai se a number of questions regarding areas of concern. 
II. IPR PROTECTION 
1. Patents and technology transfers and protection of confidential data 
(a) Use of patented technologies 
6. At the Ninth EU-China Summit on 9 September 2006 the EU and China adopted a joint 
statement by which they expressed the willingness to strengthen exchanges and cooperation on IPR 
protection in the area of technology and support th e contractual freedom between enterprises in the 
field of technology transfers under the condition of  fairness, reason and non-discrimination.  How 
does China envisage to address this issue and to  encourage Chinese companies to better respect 
intellectual property rights and to promote the nego tiation of licence agreements when using patented 
foreign technologies? 
(b) Third Patent Law Revision 
7. The EC appreciates the efforts of China in revising the Chinese Patent Law and the 
opportunity to provide comments on the revised draf t.  The EC takes note of positive developments, 
such as the inclusion of the offering for sale in the sc ope of design patent protection.  Such a provision 
will help IPR holders protect against infringing pr oducts offered for sale on the internet and in 
catalogues.  However, a number of provisions still ra ise concerns and require further clarification. 
8. Article 4 sets out the obligation to obtain approval from the Patent Office before filing a 
patent application in a foreign country for a patent for inventions-creations made in China.  The EC 
would like to get clarification on whether this ap proval requirement will only apply to inventions 
affecting " security or other vital interest of the State ", or whether it will appl y to all inventions made 
in China. 
9. Article 9 relates to inventions which are genera ted through scientific research projects funded 
mainly with Chinese government investment.  Under this provision, any inve ntion-creation generated 
by a foreign entity, in cooperation with Chinese res earch institutes, will be exposed to the risk of 
being spread without any compensation.  How does Ch ina intend to address this issue which is crucial 
if foreign entities are to continue further investing and co-operating with national research institutes?  
Paragraph 2 of Article 9 states that the competent departments of the Chinese administration may 
allow designated entities to exploit the invention.  Th is paragraph appears to apply to all inventions,  IP/C/W/503 
 Page 3 
 
 
  including inventions made with the contributions of foreign entities.  If so, how does this provision 
comply with Article 31 of the TRIPS Agreement? 
10. Articles 72 and 73 limit the rights of the patent holder when an infringer believes that the 
patent holder does not object to the infringement.  The patent holder will not be able to obtain 
compensation nor to stop the infringing act.  How will China ensure that the rights of the patent holder 
will be respected?  Can China explain how Paragr aph 2 of Article 72 woul d be applied in case of 
continuous infringement?  Will the three-year period  be calculated from the first day of the two year 
limitation period?  Will this provision apply retroactiv ely?  Can China explain whether also Article 73 
shall only apply after the two plus three year period  stipulated in Article 72 has lapsed?  Can China 
explain the actual scope of application of  Article 73, possibly by giving examples? 
(c) Protection of confidential information 
11. In various sectors, where companies are require d to apply for the technical and/or regulatory 
approval for products or for the authorization to build  a plant, such companies are required to entrust 
Chinese governmental or official agencies or institute s with highly confidential information.  In many 
cases, it is felt that the information required go es beyond what is reasonably needed.  Does China 
intend to address this issue?  For example, would China be ready to adopt clear instructions to restrict 
the disclosure of technical know-how to what is strictly necessary for the required authorisation or approval relating to commercialisation of a product or the construction of a plant? 
12. Often, such information is not kept confidentia l but is made public and, in certain instances, 
data have been published on the in ternet before regulatory approval for such a product is granted.  
How does China intend to address this problem?  W ould China be prepared to clearly define the 
obligations of all governmental officers and their related institutes, and enforce the liability and 
sanctions against those officers who disseminat e confidential information without permission? 
(d) Protection of test data fo r pharmaceutical products 
13. The EC welcomes the draft Drug Registrati on Regulation (DRR) of 10 March 2007 and 
expects that some of the proposed changes will  lead to some improvement of the regulatory 
framework in China.  However, the following IPR-related aspects need to be clarified. 
14. The regulatory framework in China provides fo r six marketing authorization categories.  
Depending on the marketing authorization category,  the type and extent of information to be 
submitted to the registration authority varies.  Therefore innovative pharmaceuticals generally fall 
under the so-called Category 3 (" Drugs first marketed ex-China ") for which only a limited data set 
has to be submitted in order to support the new medici ne registration.  This practice might give rise to 
the conclusion that the provisions on data protecti on formally in place in China are nullified by the 
possibility to refer to less comprehensive data wh ich are often in the public domain.  Does China 
intend to review the six registration categorie s to ensure non-discrimination and create an 
environment in line with the sprit of the Chinese legal provision on data exclusivity? 
15. With regard to the enforcement of data, curre nt Chinese legislation does not explicitly state 
that the State Food and Drug Administration (SFDA) must not approve the same product for six years 
after the originator's approval unless the applicant submits a full dossier demonstrating quality, safety 
and efficacy containing chemical-pharmaceutical, preclin ical and clinical data of the nature required 
from the originator and the applicant demonstrates th at it has generated such data itself.  Does China 
intend to introduce appropriate provisions in this r espect?  Moreover, existing legislation provides for 
a subsequent applicant to confirm non-infringement of  patents.  However, the current system does not 
enable drug approval authorities to help solve disputes  at an early stage of the procedure.  Does China IP/C/W/503 
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  envisage the adoption of a mechanism that would pr event infringements and patent disputes before 
new drugs are released onto the market? 
(e) Protection of products subject to marketing authorisation 
16. As some specific products require long additiona l periods for their development and in order 
to obtain marketing authorizations, a number of  countries have decided to compensate for these 
periods during which the patent can not be exploite d by an additional protection mechanism (e.g. in 
the EC with the creation of Supplementary Protec tion Certificates for pharmaceutical products and for 
plant protection products).  This can be seen as a measure to counterbalance the introduction of the 
so-called "Bolar exemption" in Article 74 of the re vised draft Third Amendment of the Patent Law.  
Does China plan to grant additional protection – in the form of patent term restoration or 
supplementary protection certificates – to products  that can not be marketed before a specific 
marketing authorization has been gi ven (such as pharmaceutical products)? 
2. Trademarks 
17. The EC welcomes the revision of the Chinese Tr ademark Law, in particular the proposed 
amendments to limit the preliminary examination of a trademark application to the absolute grounds 
of refusal and to start oppositions at the level of the Trademark Review and Adjudication Broad 
(TRAB).  The EC welcomes the possibility to partic ipate in the consultation process initiated by the 
Chinese authorities. 
(a) Counterfeiting at retail and wholesale markets 
18. On 7 June 2006 three major retail markets in Beijing and a coalition of trademarks holders 
signed a Memorandum of Understanding (MoU) whic h includes an agreement to insert specific 
clauses related to selling of counterfeit goods into the lease contracts between landlords and vendors 
in retail markets.  These clauses  aim at expelling vendors of count erfeit and pirated products from the 
markets.  How will the Chinese public authoritie s support the implementation of this MoU in 
practice?  For instance, does China envisage pr omoting these clauses in model contracts between 
landlords and vendors?  Can China confirm police a nd/or Administration of Industry and Commerce's 
support to ensure that market order is respected when these clauses are implemented by landlords? 
19. In general, despite obvious and widespread infri ngements occurring on a daily basis, there is a 
lack of effective and consistent action against retail and wholesale markets.  The administrative enforcement agencies claim not to have enough information to act and tackle the problem while the 
police deny having jurisdiction for lack of proven criminal threshold.  Can China indicate which 
strong measures it intends to take against reta il and wholesale markets engaged in the sale of 
infringing products? 
(b) Trademark Office backlog 
20. There is an increasingly alarming backlog of cases pending at the Trademark Office (TMO) 
and Trademark Review and Adjudication Board (TRA B).  An application, which takes today an 
average of two years before it can be published and re gistered, can be delayed by five to six years in 
the case of a dispute.  In certain cases, such lengthy  litigation results in a deni al of justice, and is 
detrimental to all parties concerned.  It is doubtful whether this is compliant with Article 62(2) of the 
TRIPS Agreement and the gene rally accepted concept of " reasonable period of time ".  How does 
China intend to resolve this issu e?  Does China plan to significan tly increase the number of examiners 
and members of the TMO and of the TRAB in orde r to keep up with the increase in trademarks 
applications and related administrative litigation, and to reduce the backlog?  IP/C/W/503 
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  3. Copyright – Market access 
21. Foreign suppliers of sound recording distribu tion services appear to receive less favourable 
treatment than that accorded to Chinese suppliers of sound recording distribution services.  It would 
appear that any "imported" music (which appears to  include music in which certain rights are held by 
a foreign-owned or foreign-invested enterprise) is subj ect to content review before digital distribution.  
However, music in which such rights are held by  Chinese enterprises without foreign investment is 
subject to registration but not prior content review  before digital distribution.  Consequently, it 
appears that foreign-owned and foreign-invested s ound recording distribution enterprises in China, as 
well as enterprises that supply cross-border sound recording distribution services, are treated less favourably than like sound recording distribution en terprises that are wholly Chinese-owned.  Another 
problem is the time it takes to clear the censorship process.  In the fast-moving music business 
whoever gets to market first has a big advantage an d it would appear that the infringers are often able 
to supply music months before the copyright holder can.  How does China intend to resolve these 
issues?  Does China intend to apply the same censorship require ments to Chinese enterprises as to 
foreign suppliers?  Does China have any plans to streamlin e the censorship process to allow right 
holders quicker access to the market? 
22. It appears that sound recordings imported into Ch ina in physical form but intended for digital 
distribution must undergo content review prior to distribution within China; domestically produced 
sound recordings appear not to be subject to this requirement but can instead be digitally distributed 
immediately.  It thus appears that sound recordings  imported into China in physical form are treated 
less favourably than sound recordings produced in China in physical form.  It also appears that 
achieving censorship clearance for a digital work does not mean that the equivalent physical work has 
also passed censorship and vice versa.  How does China intend to reso lve these issues?  Does China 
intend to apply the same censorship requirements  to Chinese enterprises as to foreign suppliers?  Does 
China have any plans to streamline the censorship pr ocess to allow right holders quicker access to the 
market?   Will China ensure that only one censorship a pplication is required for content irrespective 
of the form that it takes (i.e. digital or physical form)? 
III. IPR AND COMPETITION LAW 
23. The EC welcomes the recently adopted Chinese Anti-Monopoly Law.  This new legislation 
refers to the concept of " abuse of intellectual property rights " in particular in Article 55.  Can China 
clarify what this concept means in practice?  Ca n China confirm that this concept does not go beyond 
what the TRIPS Agreement considers as abusive practices under Article 31(k) (compulsory licensing) 
and Article 40 (competition)? 
IV. IPR ENFORCEMENT 
1. Customs measures 
24. Statistics provided by EU customs show a dram atic increase in the number of counterfeit and 
pirated goods coming from China and entering EU territory.  In 2006, 86 per cent of the total 
counterfeit and pirated goods seized by EU custom s authorities came from China.  The counterfeiting 
and piracy problem is growing faster in size and complexity than what th e Chinese system, with the 
methods currently used, is able to deal with.  Wh at measures will China take to tackle this problem? 
2. Notarization and legalization of Powers of Attorney and evidence 
25. Foreign companies which wish to initiate le gal proceedings in China but do not have a 
registered branch office or an investment presence in China, are required to produce a notarized and 
legalized Power of Attorney in favour of a regist ered practising Chinese lawyer.  They also need to IP/C/W/503 
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  notarize and legalize any document justifying thei r incorporations.  Similarly, all documentary 
evidence (with a recently introd uced narrowly interpreted excep tion for officially published 
documents of foreign governments) produced in ad ministrative or judicial litigation needs to go 
through the same procedure of notarization and legalization when they originate from a foreign country.  This is onerous, cumbersome and time consuming and can constitute an obstacle to any 
urgent proceeding.  It is also doubtful that this is compliant with the TRIPS Agreement.  Does China 
intend to simplify these formalities?  If so, how? 
3. Interim injunctions 
26. In China, it is difficult to obtain injunctions in  practice.  It is estimated that less than 
2 per cent of all interim injunction applications actua lly submitted to the courts are granted.  Official 
statistics do not take into account or give a break down on applications made which have not been 
"accepted" by the courts, for example due to the l ack of notarization and legalization of Power of 
Attorney.  It is doubtful that this is compliant w ith the TRIPS Agreement.  How does China intend to 
solve this problem? 
4. Revision of the threshold system 
27. On 4 April 2007, the Supreme People's Court a nd the Supreme People's Procuratorate adopted 
an Interpretation on Several Issues in the Concrete Applicatio n of the Law in Handling Criminal 
Cases of IP Infringement .  This Interpretation aims to reduce th e criminal threshold for copyright to 
500 units and cancel the distinction between " individual " and " units ".  Does China intend to re-
evaluate the threshold mechanism for criminal prosecution for infringements of other intellectual 
property rights on the basis of the sta ndards set for copyright infringements? 
5. Price evaluation system 
28. The calculation method used to determine the "s eriousness" of a case (for the application of 
the thresholds) appears to be inappropriate.  Instead of using prices of authentic goods, Chinese 
authorities rely on prices indicated by the suspect or other opaque means and which do not take into 
account criteria such as unfinished goods and th e various components necessary to complete the 
infringement process (i.e. bottling/packaging).  As a result, large seizures of infringing goods are 
often considered at an unreasonable low value, wh ich is an obstacle to any serious and effective 
action.  Can China indicate if it intends to clarify this situation? 
6. Repeat offenders 
29. The Judicial Interpretations insufficiently dete r counterfeiters and pirates who have already 
been caught and punished when repeating their offe nces.  A progressive scale of punishment is crucial 
to ensure effective deterrence  Is  there any intention of introducing stronger punishments in China to 
deal with repeat offenders? 
7. Criminal prosecution for dangerous infringing goods 
30. The criminal threshold is applied in cases in  which offenders are found manufacturing and/or 
supplying infringing goods that represent a danger to  health, public safety and/or the environment.  
The EC consider that cases in which infringers are found manufacturing or  supplying counterfeited 
goods that represent a risk to health, public safety and/or environment should immediately qualify for 
criminal prosecution irrespective of the volume of goods provided, amount of sales or illegal profit.  Does China intend to remove the criminal threshol d for those manufacturing counterfeit products that 
pose a threat to health, public  safety and/or environment?  IP/C/W/503 
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  8. Suspended sentences 
31. According to the Chinese Criminal Code (Artic le 72) the sentence can be suspended for cases 
punishable by imprisonment up to three years (considered " serious cases ") under certain conditions.  
In practice, there have been quite a number of " very serious cases " (punishable by imprisonment from 
three to seven years without possibility of suspen sion), with large quantities seized, where the final 
decision was exactly three years, the court taki ng the opportunity of the ambivalence to grant 
suspension.  Can China indicate which measures it intends to take to prevent suspension in " very 
serious cases "? 
9. Information of IPR holders 
32. Under the current system in China the IPR holder has no binding legal right to be involved in 
the proceedings.  Once the claim of IP holder has been accepted, most law enforcement agencies are 
not obliged to inform him of the results of their ac tion.  On the other hand, the infringer has the right 
to defend his case and appeal to a higher authority.   Can China indicate (1) how it intends to ensure 
that IPR holders are adequately informed of the development and results of the enforcement 
procedure, and (2) if it is intended to give IPR hol ders a right to be involved in proceedings they 
initiated? 
10. Online piracy 
33. Unauthorized use of copyright and trademar ks on the Internet is becoming increasingly 
common and widespread.  Unauthorized downloads of  music, software and literary works are widely 
available, and that there are endless possibilities to  obtain pirated and counterfeited goods via internet 
portal by phone or mail order.  Can China indicat e which measures have been or will be taken to 
remedy this situation?  More specifically, can Ch ina indicate which kind of measures it has taken to 
enforce existing laws and regulations against the act of linking to, and the hosting of, websites 
offering illegal or infringing content? 
34. The application of the internet regulations ra ises many complicated legal questions for the 
relevant authorities who have been identified as be ing responsible for their enforcement causing them 
to hesitate in taking action.  This  only benefits the infringers and allo ws piracy to become endemic if 
not contained at this stage.  Can China clarify th e issue of the proper jurisdiction for taking action? 
35. Right holders, who wish to serve a notice of infri ngement to a website or to the relevant ISP, 
in the case where the operator cannot be identified, ar e currently confronted with overly complicated 
and burdensome procedures.  Can China indicate whic h measures it intends to clarify and simplify the 
situation where a website operator or ISP refuses to respond or delete the infringing content, or where 
they provide a response that does not accept responsib ility for the content and subsequently allows for 
the infringement to continue? 
36. The average damages awarded by civil courts fo r online piracy are too low and getting even 
lower.  For an infringing song they have fallen fro m Y 3000 in 2005 to Y 900 in a recent case.  As a 
result it makes more business sense for an infringing site  to wait to be sued th an to take a licence from 
a record company.  Can China indicate how it intends to address this issue? 
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