WT/DS362/R 
 Page A-1 
 
 
  ANNEX A 
 
SUBMISSIONS OF THE UNITED STATES 
 
CONTENTS PAGE 
A-1 Executive Summary of the first written submission of the United States A-2 
A-2 Executive Summary of the oral stat ement of the United States at the 
first substantive meeting A-14 
A-3 Closing oral statement of the United States at the first substantive 
meeting A-19 
A-4 Executive Summary of the rebuttal submission of the United States A-22 
A-5 Executive Summary of the oral stat ement of the United States at the 
second substantive meeting A-35 
A-6 Executive Summary of the closing oral statement of the United States 
at the second substantive meeting A-40 
 
 WT/DS362/R 
Page A-2  
 
  ANNEX A–1 
 
EXECUTIVE SUMMARY OF THE FIRST WRITTEN SUBMISSION OF  
THE UNITED STATES 
 
I. INTRODUCTION 
1. The conclusion of the Agreement on the Trade-Related Aspects of Intellectual Property 
Rights  (the "TRIPS Agreement") represented an import ant step forward in the international work on 
intellectual property rights ("IPR") protection.  As the agreement's preamble makes clear, WTO 
Members took account of the need to promote effectiv e and adequate protection of these rights.  They 
also recognized the need for new rules and disciplines concerning, inter alia , "the provision of 
effective and appropriate means for the enforcemen t of trade-related intellectual property rights, 
taking into account differences in national legal systems." 
2. The United States recognizes that China undertook major revisions to its laws to create a 
modern IPR system in its effort to meet TRIPS Agreement standards before and after its WTO 
accession in 2001.  At the same time, the United States considers that China's efforts have fallen short 
in certain areas.  The claims before this  Panel concern three such specific areas.   
II. FACTUAL BACKGROUND 
3. First
, under Chinese law, neither criminal prosecution nor conviction for certain acts of IPR 
infringement is possible unless specific monetary or  volume-based thresholds are met.  China has 
established these thresholds through provisions in the  Criminal Law of the People's Republic of China  
("Criminal Law") as further defined by binding inte rpretations of that law jointly issued by the 
Supreme People' Court and the Supreme People's Procuratorate – the Interpretation by the Supreme 
People's Court and the Supreme People's Procurator ate of Several Issues Concerning the Specific 
Application of Law in Handling Criminal Cases Involving Infringement of Intellectual Property 
Rights  ("December 2004 JI"); and the Interpretation by the Supreme People's Court and the Supreme 
People's Procuratorate of Several Issues Concerni ng the Specific Application of Law in Handling 
Criminal Cases of Infringement of Intellectual Property Rights (II) ("April 2007 JI"). 
4. Part Two, Chapter III, Section 7 (entitled "C rimes of Infringing on Intellectual Property 
Rights") of China's Criminal Law defines the acts of IPR infringement that are subject to criminal 
penalties in China.  In that Section, Articles 213, 214, and 215 criminalize certain acts of trademark counterfeiting and Articles 217 and 218 crimin alize certain acts of copyright piracy. 
5. Not all acts of trademark counterfeiting and copy right piracy are subject to criminal penalties 
in China:  criminal prosecution or conviction for an act of counterfeiting or piracy is only possible if additional prerequisites are met beyond the act of c ounterfeiting or piracy itself.   The Criminal Law 
expresses certain of these prerequisites in general te rms related to the quantity of monetary gains or 
seriousness.  For example, the act of infringement must either involve "illegal gains" that are 
"relatively large" or "enormous," or must involve "circumstances" that are "serious" or "especially 
serious."  The December 2004 JI and the April 2007 JI articulate the specific standards that must be 
met in order to trigger criminal prosecuti on or conviction for each of the offenses.  
6. The December 2004 JI quantifies the prerequisites for criminal prosecution or conviction in 
the Criminal Law in three main ways.  First , it defines some thresholds in terms of a specific 
minimum "illegal business volume" realized by the infringer.  Second , the December 2004 JI defines 
some thresholds in terms of minimum amounts of "illegal gains" reaped by the infringer.   Third , the 
December 2004 JI defines some thresholds in te rms of minimum numbers of "illegal copies".  The  WT/DS362/R 
 Page A-3 
 
 
  April 2007 JI provides a lower threshold for the mi nimum number of copies than the December 2004 
JI.    
7. Accordingly, China's Criminal Law, combined with the December 2004 JI and April 2007 JI, 
creates specific quantitative or monetary thresholds th at must be met before acts of copyright piracy 
or trademark infringement can be subject to criminal prosecution or conviction under Articles 213, 
214, 215, 217, and 218 of the Criminal Law – the provisions in the Criminal Law directed against 
trademark counterfeiting and copyright piracy.  
8. Second , China maintains a set of measures that coll ectively establish a clear hierarchy of rules 
governing the disposal of imported goods that Ch inese Customs authorities confiscate as infringing 
intellectual property rights.  Under those rules, the Customs authorities are only permitted to destroy 
the infringing goods as a last resort.  Before they ha ve the power to take this step they must first 
attempt to dispose of the goods in one of several other ways – by selling them to the right holder, 
transferring them to public welfare organizati ons, or auctioning off the seized goods following 
removal of infringing features.    
9. The following measures create th is compulsory scheme:  the Regulations of the People's 
Republic of China for Customs Protection of Intellectual Property Rights  ("Customs IPR 
Regulations"), the Implementing Measures of Customs of th e People's Republic of China for the 
Regulations of the People's Republic of China on Customs Protection of Intellectual Property Rights 
("Customs IPR Implementing Measures"), and Announcement No. 16 of the General Administration 
of Customs ("Customs Announcement No. 16").     
10. Third , the Copyright Law of the People's Republic of China (the "Copyright Law") provides 
the legal basis within China for protecting and enfo rcing the copyrights of authors in their literary, 
artistic and scientific works, as well as the legal b asis for protecting and enforcing "related rights".  
The first sentence of Article 4 provides that "[w] orks the publication or distribution of which is 
prohibited by law shall not be protected by this Law." 
11. A number of Chinese laws and regulations proh ibit the publication or distribution of works 
under various circumstances.  These ci rcumstances may relate to the cont ents of the work in question.  
They may also relate to the status of a work w ithin the process through which the contents of a work 
must be reviewed and approved.  For example, the Regulation on the Administration of Films 
generally governs the "production, import, export,  distribution and screening of films within the 
territory of the People's Republic of China . . .".  The Films Regulation provides that for some period of time after the creation of a film, until that f ilm has been submitted for content review and has 
completed that review unchanged, the film cannot le gally be imported, distributed or projected.   
12. Similar content review systems, with similar prohibitions on publication or distribution in the 
absence of successful conclusion of the content revi ew process, apply with respect to products other 
than films.  Particularly a ffected are publications; audio a nd video products; and electronic 
publications.  The relevant measures include:  the Regulation on the Management of Publications  
which applies certain rules to publications such  as newspapers, periodical s, books, audio and video 
products, and electronic publications; the Regulation on the Management of Audiovisual Products , 
which applies inter alia  to the publishing, production, reprod uction, import, wholesale, retail, and 
rental of recorded audio and video tapes, records, and audio and video CDs; and the Regulations on 
the Management of Electronic Publications , which applies to certain electronic publications.  WT/DS362/R 
Page A-4  
 
  III. CHINA'S THRESHOLDS FOR CRIMINAL PROCEDURES AND PENALTIES ARE 
INCONSISTENT WITH CHINA'S OBLIGATIONS UNDER ARTICLES 61 AND 41.1 OF THE TRIPS AGREEMENT 
13. The thresholds in China's Criminal Law and the December 2004 and April 2007 judicial 
interpretations (collectively China's "criminal thr esholds") do not meet the minimum standard in the 
TRIPS Agreement because they prevent criminal  procedures and penalties from being applied in 
many cases of wilful trademark counterfeiting and copy right piracy on a commercial scale.  China's 
measures are therefore inconsistent with Article 61, first sentence, Article 61, second sentence, and 
Article 41.1 of the TRIPS Agreement.  
A. A
RTICLE  61, FIRST SENTENCE , OF THE TRIPS  AGREEMENT  
14. The first sentence of Article 61 of the TRI PS Agreement provides 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."  In this context, "provide for" means to "take appropriate measures in view of a possible event; make adequate preparation."  The phrase 
"Members shall provide for . . ." thus means that Me mbers have an obligation to include in their law 
criminal procedures and penalties that apply in  cases of wilful commercial scale trademark 
counterfeiting and copyright piracy.   
15. The first sentence of Article 61 also conveys th e breadth of situations where the criminal 
procedures and penalties are to be provided for; i.e., " at least  in cases of wilful trademark 
counterfeiting or copyright piracy on a commercial s cale" (emphasis added).  The words "at least" in 
Article 61, first sentence, make clear that Article 61 sets a floor for WTO Members:  Members must 
provide for criminal procedures and penalties to be  applied to the entire set of cases within this 
universe.  Members are not required to provide fo r criminal procedures and penalties for other types 
of IPR infringement.  However, only providing fo r criminal procedures and penalties to be applied in 
some cases  of "wilful trademark counterfeiting and copyright piracy on a commercial scale," but not 
in others, does not fulfill the obligations in Article 61.  
16. The term "trademark counterfeiting" is not de fined in the TRIPS Agreement, although other 
provisions in the TRIPS Agreement help to clarify its meaning in Article 61.  Article 15.1 of the 
TRIPS Agreement provides minimum standards for the subject matter of a trademark.  The rights required to be conferred by a trademark ar e set out in TRIPS Agreement Article 16. 
17. The ordinary meaning of "counterfeit," when used as an adjective, is "[m]ade in imitation, not 
genuine."  As a verb, it means to "[i]mitate (an action, thing, etc.) with intent to  deceive [or] [m]ake in 
fraudulent imitation of something else; devise (som ething spurious) and pass it off as genuine."  
18. Footnote 14 to Article 51 of the TRIPS Agreem ent (on "Suspension of Release by Customs 
Authorities") offers additional insight as to the m eaning of the noun "counterfeiting" in the context of 
the term "trademark counterfeiting," by setting out  a definition of a term, "counterfeit trademark 
goods," that uses "counterfeit" as an adjective:  "counterfeit trademark goods " shall mean any goods, 
including packaging, bearing without authorization a trademark which is identical to the trademark 
validly registered in respect of such goods, or which cannot be distinguished in its essential aspects 
from such a trademark, and which thereby infring es the rights of the owner of the trademark in 
question under the law of the country of importation." 
19. Putting these definitional elements together, the te rm "trademark counterfeiting" in Article  61 
can be properly understood as including the actions of using in the course of trade a trademark which 
is identical to, or cannot be distinguished in its essen tial aspects from, a validly registered trademark.   
The United States notes that although it has raised ot her concerns with respect to Articles 213 through  WT/DS362/R 
 Page A-5 
 
 
  215 of the Criminal Law, the United States does not cl aim in this dispute that  the coverage of these 
provisions fails to cover the full extent of the term "trademark counterfeiting." 
20. The term "copyright piracy" likewise is not de fined in the TRIPS Agreement, although other 
TRIPS Agreement provisions help clarify its meaning.  As a preliminary matter, Section 1 in Part II of 
the TRIPS Agreement ("Copyright and Related Right s") provides certain minimum standards for the 
availability, scope, and use of copyright and relate d rights in the legal regimes of WTO Members.  
Specifically, Article 9.1 of the TRIPS Agreement provides, inter alia , that all WTO Members shall 
comply with Articles 1 through 21 of the Paris Act of July 24, 1971 of the Berne Convention for the 
Protection of Literary and Artistic Works  (the "Berne Convention").  Further, Articles 14.1 and 14.2 
of the TRIPS Agreement require Members to give performers, inter alia , the possibility of preventing 
certain acts, and to give producers of phonograms (sound recordings) the right to authorize or prohibit 
the direct or indirect reproduction of their sound recordings.  
21. The scope of the word "copyright" in the te rm "copyright piracy" can be understood more 
fully by reference to footnote 14 to Article 51 of the TRIPS Agreement.  Specifically, footnote 14 provides that "[p]irated copyright goods" shall m ean any goods which are copies made without the 
consent of the right holder or person duly authori zed by the right holder in the country of production 
and which are made directly or indirectly from an article where the making of that copy would have 
constituted an infringement of a copyright or a related right under the law of the country of 
importation." 
22. The phrase "copyright piracy" (in Article 61) a nd "pirated copyright goods" (in footnote 14) 
are related linguistically.  Moreover, a "pirated g ood" is one kind of physical product of "piracy".  
Therefore, the context provided by the reference to  "a related right" in footnote 14 confirms that the 
term "copyright piracy" in Article 61 must be unders tood to extend to piracy that infringes either a 
copyright or a related right (such as the rights of performers and producers of phonograms).  The 
United States notes that although it has raised othe r concerns with respect to Articles 217 and 218 of 
the Criminal Law, the United States does not claim in this dispute that the coverage of these 
provisions fails to cover the full extent of the term "copyright piracy". 
23. The interpretation of the term "wilful" is not at  issue in this dispute.  The United States does 
not claim, in this dispute, that any state of mind requirements contained in Articles 213-219 of the Criminal Law and the December 2004 and April 2007 j udicial interpretations are inconsistent with 
China's WTO obligations.  
24. The ordinary meaning of the word "scale" varies depending on the context.  Here, the context 
indicates that "scale" means "relative magnitude or extent" or "degree; proportion".  It also can 
encompass "a standard of measurement, calculation, or  estimation."  It follows that an assessment of 
the "scale" of counterfeiting or piracy is an ass essment of the magnitude, extent, or degree of 
counterfeiting or piracy, relative to some standard.  Article 61 provides that standard by use of the 
word "commercial," whose ordinary meaning is "p ertaining to, or bearing on commerce," "interested 
in financial return," "likely to make a prof it," or "regarded as a mere matter of business." 
25. Two points bear emphasizing here.  First , by using the term "commercial scale ," the TRIPS 
Agreement makes clear that WTO Members must cr iminalize acts that reach a certain extent or 
magnitude; in other words, that WTO Members must  do so even where there is no evidence that the 
infringer has a commercial motive or purpose.  Second
, in using the term " commercial  scale," the 
TRIPS Agreement draws a link to the commercial mark etplace – where those "interested in a financial 
return" or engaged in "a matter of business" opera te, and where business-minded IPR infringers take 
the fruits of their counterfeiting or piracy.  Thus, the concept of "commercial scale" extends both to 
those who engage in commercial activities in order to make a "financial re turn" in the marketplace, 
and who are, by definition, therefore operating on a commercial scale, as well as to those whose WT/DS362/R 
Page A-6  
 
  actions, regardless of motive or purpose, are of a sufficient extent or magnitude to qualify as 
"commercial scale" in the relevant market.  That said , it is the former activity that forms the focus of 
the submission.   
26. The first
 set of problems with China's criminal thresholds arises from their structure. 
Specifying certain levels of "illegal business volume, " "illegal gains," or numbers of "copies" that 
must be met before criminal prosecution or convic tion is possible, and then , in addition, dictating 
restrictive calculations of those thresholds, eliminates whole classes of commercial scale counterfeiting and piracy from risk of criminal prosecution and conviction. 
27. Under Article 213 of the Criminal Law and the December 2004 JI, counterfeiting that 
involves use of an identical trademark on the same kind of commodities must meet one of the 
following two thresholds before criminal procedur es or penalties can be available:  an "illegal 
business volume" of more than RMB 50,000 (US$6,925), or "illegal gains" of more than RMB 30,000 (US$4,155).  
28. Turning first to the RMB 50,000 (US$6,925)  "illegal business volume" threshold, the 
December 2004 JI makes clear as an initial matter that meeting this threshold requires finding 
evidence of "manufacture, storage, transportation, or sales" of infringing products.  If this activity 
does not reach the threshold, it is completely shie lded from the possibility of criminal counterfeiting 
prosecution or conviction that woul d be triggered by this test.   The extent or magnitude of 
"manufacture, storage, transportation, or sales," when carried out by businesses, is "on a commercial 
scale" because it is these kinds of activities, when  undertaken by businesses for a particular market, 
that provide a basis for assessing what constitutes "co mmercial scale" for that market.  By setting an 
exemption from criminal prosecution and conviction for counterfeiting activities when there is less 
than RMB 50,000 in "illegal business volume, " China has exempted businesses from criminal 
procedures and penalties for counterfeiting where tho se businesses' activity of "manufacture, storage, 
transportation, or sales" realizes less than that amount. 
29. Moreover, the calculation methodology required  for such "illegal business volume" creates 
added barriers to prosecution of commercial scale c ounterfeiting and piracy (whether carried out by 
businesses or others) because it is not a calculation of the value of the legitimate non-infringing goods with which the counterfeit goods compete; instead, it is a calculation based on the prices through 
which the counterfeit goods undercut legitimate merc handise.  Thus, the value of "illegal business 
volume" for a quantity of counterfeit merchandise can be far less than the value of an equivalent 
quantity of legitimate merchandise.   
30. In addition, for at least some types of pr oducts — such as personal care products or small 
electronics – many commercial activities ta ke place on a scale where the value of legitimate  goods 
involved is less than RMB 50,000 (US$6,925) (the "illegal business volume" threshold).  It follows 
that commercial scale buying and selling activities involving counterfeit goods of these types will 
involve values below that threshold. 
31. The RMB 30,000 (US$4,155) "illegal gains" or  "amount of profit" threshold is also 
problematic for two reasons.  First , a business should not have to be profitable in order to be viewed 
as operating on a "commercial scale".  Requiring a minimum profit level of RMB 30,000 thus will not 
capture all relevant counterfeiting activity.  Second , because the "illegal gains" threshold requires a 
calculation that shows profits, i.e., revenue minus expenses, of at  least RMB 30,000, the revenue 
realized must exceed RMB 30,000.  Since the revenue  calculation in turn is based on sales at prices 
likely to be deeply discounted to undercut sal es of legitimate goods, the situation replicates the 
problems described above.  Indeed, the "illegal gains"  threshold for many low-margin products is in 
fact higher than the RMB 50,000 "illegal business volume" th reshold.  The lower the profit margin is 
for a product, the higher the volume of products n eeded to meet the "illegal gains" threshold.   WT/DS362/R 
 Page A-7 
 
 
  32. Under Article 214 of the Criminal Law and th e December 2004 JI, the sale of goods bearing 
counterfeit trademarks must meet a threshold of RM B 50,000 (US$6,925) in "amount of sales" before 
criminal procedures or penalties can be available.  Pursuant to the December 2004 JI, the "amount of sales" refers to "all the illegal income gained or due to be gained from selling the goods that bear 
counterfeit trademarks."  By only focusing on the income gained or due to be gained from sales of the 
counterfeit goods, the "amount of sales" value threshold appears to apply to an even smaller subset of 
transactions than the "illegal business volume" thre shold under Article  213 (which includes other 
activities, such as the manufacture, storage, and transportation of infringing goods).   
33. Under Article 215 of the Criminal Law a nd the December 2004 JI, the forging or 
unauthorized reproduction of another's registered trademark must meet one of the following three 
thresholds before criminal procedures or penalties can be available:  an "illegal business volume" of 
more than RMB 50,000 (US$6,925) ; "illegal gains" of more than  RMB 30,000 (US$ 4,155); or 
20,000 copies.  Because the "illegal business volume" and "illegal gains" thresholds are the same as 
for Article 213, the problems identified with respect to  those thresholds apply with similar force.  The 
copy threshold of 20,000 likewise provides no mean s to capture all commercial scale counterfeiting.  
To the contrary, it provides an exceedingly high threshold.  A factory could store 19,999 counterfeit 
logos of a designer brand, and still evade the a pplication of the Article 215 copy threshold.  
34. Under Article 217 of the Criminal Law and the December 2004 JI, copyright or related rights 
infringement committed for the purpose of making profits  must meet one of three thresholds before 
criminal procedures or penalties can be available under Article 217:  an "illegal business volume" of 
more than RMB 50,000 (US$6,925) ; "illegal gains"of more than RMB 30,000 (US$4,155); or 1,000 
copies.  (The April 2007 JI amended the Decembe r 2004 JI by providing a copy threshold of 500 
copies for Article 217 violations.)   
35. The RMB 50,000 (US$6,925) "illegal business volume" threshold presents analogous 
problems to Articles 213 and 215 above, thereby sh ielding substantial piracy operations from the 
threat of criminal sanction under the thresholds.  Moreover, the "illegal business volume threshold" 
can shelter commercial scale activities from criminal prosecution, regardless of how it is calculated.  
Sales activities involving legitimate DVDs, software, music CDs, or books, can take place beneath 
this threshold.  If commercial activities involving legitimate DVDs, CDs, software, or books would 
not meet the "illegal business volume" thres hold, commercial scale activities  involving pirated goods 
will be far less likely to meet it. 
36. The RMB 30,000 (US$4,155) "illegal gains" thres hold in Article 5, first paragraph, of the 
December 2004 JI also presents real barriers to cap turing all commercial scale piracy.  The problems 
posed directly parallel the problems in the counterfeiting context described above. 
37. Likewise, despite a new, lower threshold of 500 copies under Article 217, the copy threshold 
continues to exclude acts of commercial scale piracy.  For example, if a copyright pirate makes 499 
reproductions or a retailer stocks 499 copies in a st ore, they could not be prosecuted or convicted 
under Article 217 of the Criminal Law based on the co py threshold, because the relevant threshold of 
500 copies provided by the April 2007 JI would not be met.   
38. Under Article 218 of the Criminal Law and the December 2004 JI, specific sales of infringing 
reproductions for the purpose of making profits mu st meet a threshold of RMB 100,000 (US$13,850) 
in "illegal gains" before criminal procedures or penalties can be available under Article 218.  The 
problems identified in the paragraphs above a pply with even greater force in this case.  
39. The second  set of problems with China's criminal th resholds stems from the fact that Chinese 
authorities must rely on this very limited set of one-size-fits-all numerical tests to find commercial scale counterfeiting and piracy that can be subject to  criminal prosecution or conviction.  By focusing WT/DS362/R 
Page A-8  
 
  solely on business volume, copy, and profit threshol ds that can only be met by counting finished 
goods, China's criminal thresholds require Chinese law enforcement  officials to disregard other 
specific, telling indicia of commercial scale pira cy and counterfeiting– from relevant physical 
evidence of a commercial scale pirating or counterfeiti ng operation to consideration of the impact the 
piracy or counterfeiting has on the commercial marketplace and by extension, right holders. 
40. For example, China's thresholds rely solely on finished counterfeit or pirated goods to 
determine whether the thresholds are met; they do not consider components of counterfeit or pirated 
products.  These components include packaging used  for pirated CDs or DVDs, fabrics used for 
designer products, cartridge housings for video game s, and other materials used to make counterfeit 
products.  Seizure data collected in the course of  Nintendo of America's anti-counterfeiting campaign 
in China confirms this problem.  The data indicate that, in many instances, a meaningful proportion of 
the seizures includes components of finished vide o game products, such as cartridge housings, cases 
and packaging, and other related materials and implements, such as hardware and manuals.  
41. Indeed, as demonstrated above, China's crim inal thresholds permit commercial scale 
counterfeiting and piracy operations  to continue in a safe harbor, without threat of criminal 
prosecution or conviction, so long as the pirates a rrange their commercial activities to avoid meeting 
the very specific threshold tests that China uses.   
42. Seizure data compiled by certain right hold ers regarding their anti-piracy and anti-
counterfeiting efforts in China provide a vivid illust ration of the problems the Chinese thresholds have 
created.  The Report on Copyright Complaints, Raids and Resulting Criminal Actions in China ("CCA 
Report") was prepared by the China Copyright Alliance ("CCA").  The CCA Report summarizes 
seizure data relating to administrative raids of susp ected infringing products in retail markets in four 
major cities in China:  Beijing, Shanghai, Shenzhen , and Guangzhou.  The data were collected over a 
two-year period (January 2006 - November 2007).  
43. In the aggregate, the CCA seizure data show  that significant quantities of retail sales of 
infringing product takes place in China at levels belo w China's thresholds.  Indeed, less than 20% of 
retail establishments selling copyright-infringing  music CDs or DVDs met the lowest relevant 
threshold.  Therefore, the vast majority of re tail outlets – a classic example of commercial scale 
activity – faced no possibility of criminal prosec ution or conviction under the Chinese criminal 
thresholds.    
44. Moreover, the CCA seizure data collected since the copy threshold for copyright piracy was 
changed to 500 copies in April 2007 confirm how rapidly counterfeiters and pirates respond to 
changes in China's criminal thresholds.  A stri king congruence becomes evident when comparing the 
two sets of "below-the-thresholds " seizure data (i.e., for calendar year 2006 and for the period from 
April 5, 2007 to November 30, 2007), where the co py thresholds were 1000 and 500, respectively.  
More than 80% of all administrative raids in both of these two time periods netted evidence falling 
below the thresholds in effect at the time.  
B. A
RTICLE  61, SECOND SENTENCE , OF THE TRIPS  AGREEMENT  
45. The second sentence of Article 61 provides th at "[r]emedies available shall include 
imprisonment and/or monetary fines sufficient to provi de a deterrent . . . .".  However, as noted, the 
criminal thresholds create a safe harbor that precl udes the availability of th ese criminal remedies in 
many instances of wilful trademark counterfeiti ng and copyright piracy on a commercial scale.  
Accordingly, China's thresholds are also inc onsistent with China's obligations under the second 
sentence of Article 61.  When the conduct is not ev en subject to criminal prosecution or conviction, 
the law neither makes "available" a remedy nor creates any "deterrent".  WT/DS362/R 
 Page A-9 
 
 
  C. ARTICLE 41.1  OF THE TRIPS  AGREEMENT  
46. As a result of the criminal thresholds, China fails "to provide for" criminal procedures and 
penalties to be applied in cases of wilful tr ademark counterfeiting or copyright piracy on a 
commercial scale as required by Article 61, first sentence.  Consequently, China's measures at issue are also inconsistent with China's obligations under Article 41.1 of the TRIPS Agreement to make 
these enforcement procedures "available" under its law. 
IV. CHINA'S MEASURES FOR DISPOSING OF CONFISCATED GOODS THAT 
INFRINGE INTELLECTUAL PROPERTY RIGHTS ARE INCONSISTENT WITH CHINA'S OBLIGATIONS UNDER ARTICLE 59 OF THE TRIPS AGREEMENT 
47. The second set of US claims concerns how the Chinese customs authorities must handle 
infringing goods seized at the border.  The United States requests that the Panel find that (1) the 
compulsory sequences of steps set out in the Ch inese measures at issue m ean that Chinese customs 
authorities lack the authority to order destruction or disposal of infringing goods in accordance with 
the principles set out in Article 46 of the TRI PS Agreement, and (2) the measures at issue are 
therefore inconsistent with China's obligati ons under Article 59 of the TRIPS Agreement. 
48. Part III, Section 4, of the TRIPS Agreement im poses obligations related to border measures in 
the context of enforcement of intellectual property righ ts.  In particular, the first sentence of Article 59 
provides that "[w]thout prejudice to the other rights of action open to the right holder and subject to the right of the defendant to seek review by a judicial authority, competent authorities shall have the 
authority to order the destruction or disposal of in fringing goods in accordance with the principles set 
out in Article 46 ." (Emphasis added).  
49.  Article 46 of the TRIPS Agreement is contai ned in Section 2 ("Civil and Administrative 
Procedures and Remedies") of Part III of the TRIP S Agreement.  The first and fourth sentences of 
Article 46 are pertinent to the obligation in Article 59.  The first sentence discusses both 
"destr[uction]" and "dispos[al]," the two terms in Artic le 59.  By its terms, Article 46 requires that the 
judicial authorities of a Member "shall have" the authority to destroy infringing goods or to dispose of 
them outside the channels of commerce so as to a void causing harm to the right holder.  Transposing 
this requirement to the context of Article 59, th e applicable principle must be that a Member's 
competent authorities for border enforcement "shall have" the authority to destroy infringing goods or to dispose of them outside the channels of commerce so as to avoid causing harm to the right holder.   
50. The fourth sentence of Article 46 elaborates on the requirement that a judicial authority shall 
have the authority to dispose of infringing goods outsi de the channels of commerce.  In particular, for 
counterfeit trademark goods, removing the unlawfully  affixed trademark will not suffice to permit 
release of the good into the channels of commerce,  other than in exceptional cases.  Thus, in the 
context of Article 59, the applicable principle mu st be that a Member's competent authorities for 
border enforcement shall not permit release of seized counterfeit trademark goods into the channels of 
commerce if the unlawfully affixed trademark is  removed, other than in exceptional cases. 
51. The border measures that govern the disposal  and destruction of goods found to infringe 
intellectual property rights are described above.  In particular, Article 27 of the Customs IPR 
Regulations and Article 30 of the Customs IPR Implementing Measures mandate a compulsory sequence of steps (or "items") th at Chinese Customs must take in deciding how to treat goods seized 
at the border that it has determined infringe intellectual property rights. 
52. First
, neither of the two components of the compulsory first "item" accords with Article 46 
principles.  The first item contains two parts.  Cu stoms ascertains whether th e infringing goods can be 
used for "public good"; if so, Customs gives the goods  to the relevant "public welfare organization".  WT/DS362/R 
Page A-10  
 
  Customs may also allow the right holder to purch ase the goods "for compensation" – i.e., Customs 
offers the right holder the opportunity to buy the go ods that infringe on the right holder's intellectual 
property rights.  The option under which a right hol der can buy the infringing goods is not disposal 
"in such a manner as to avoid any harm caused to th e right holder":  anyone who has to pay for goods 
that violates his or her own patent, trademark or copyright is harmed in the amount of the payment.    
53. The second component of the first "item" – wh ere Chinese Customs gives infringing goods to 
"public welfare organizations" – may or may not be  available in a given case.  Where a donation to a 
charity is an option, and the donation has the right-hol der's consent, this may be a socially beneficial 
disposition of infringing goods that also observes the principles of Article 46.  On the other hand, allowing counterfeit goods to be used, even for "p ublic good," can be harmful to a right holder in 
certain cases.   
54. Second
, where the public welfare organization transf er is unavailable, and the right holder 
does not elect to purchase the infringing goods, the Customs authorities must turn to the second 
"item" relating to auction of the confiscated goods .  This second "item," which is also compulsory 
(once the first "item" has not led to disposal of the goods), likewise does not comport with the 
principles of Article 46.  Putting the seized goods up for auction obviously both precludes destroying 
them, and introduces them into commerce.  Moreove r, taking this action without the right holder's 
consent can cause great harm to the right holder.    
55. Third , for counterfeit trademark goods, the auction pr ovision is also inconsistent with the 
principle in the fourth sentence of Article 46, unde r which goods can be introduced into the channels 
of commerce after removal of the unlawfully affi xed trademarks only "in exceptional cases".  Nothing 
about the Chinese customs measures suggests that the auctioning of these goods after removal of the 
infringing mark is permitted only in "exceptional cases".  Indeed, under Chin a's customs measures, 
Chinese customs authorities never have the authorit y to destroy goods whose infringing features can 
be removed. 
56. Finally, as explained above, the first and second "items" are compulsory prerequisites to the 
third item (destruction).  Accordingly, where any of the options in the first or second "item" is 
available, Chinese customs authorities are not, as a ma tter of Chinese law, authorized to destroy the 
infringing good or otherwise dispose of the good in a way that either is outside of the channels of commerce or handled in a manner that avoids harm caused to the right holder.  Consequently, in all 
those circumstances, the Chinese cust oms authorities lack the authority to order the destruction or 
disposal of infringing goods in accordance with the pr inciples of Article  46 of the TRIPS Agreement.  
As a result, China's measures are inconsistent  with Article 59 of the TRIPS Agreement. 
V. CHINA'S DENIAL OF COPYRIGHT AND RELATED RIGHTS PROTECTION AND 
ENFORCEMENT TO WORKS THAT HAVE NOT BEEN AUTHORIZED FOR PUBLICATION OR DISTRIBUTION WITHIN CHINA IS INCONSISTENT WITH THE TRIPS AGREEMENT 
57. Under the Berne Convention and the TRIPS Agre ement, with very limited exceptions, a work 
acquires copyright protection immediately and auto matically.  Copyright arises immediately upon a 
work's creation and, unlike patent rights and trad emark rights, which may be (and often are) made 
conditional upon application and registration, copyright protection cannot be conditioned on the 
successful completion of any formalities, but instead arises automatically.   
58. Because of the first sentence of Article 4 of the Copyright Law, however, China's copyright 
regime does not meet this standa rd.  Article 4 of the Copyright Law provides that  "[w]orks the 
publication or distribution of which is prohibited by law shall not be protected by this Law.  
Copyright owners, in exercising their copyright, shall not violate the Constitution or laws or prejudice  WT/DS362/R 
 Page A-11 
 
 
  the public interests."  On its face, the first sente nce of this provision denies immediate, automatic 
protection to certain works of creative authorship. 
59. This provision of China's Copyright Law has important negative consequences.  By denying 
copyright protection to works that should have it, Artic le 4 allows copyright infringers to profit at the 
expense of the legitimate rightholder, without fear of being subjected to enforcement procedures and 
remedies for copyright infringement.  Indeed, works that have already been created but cannot legally 
be published or distributed are denied copyright pr otection at a time when they most need it:  when 
they cannot access the market, but when illegitimate c opies are available.  Pirated copies of films, 
publications, music, and other creative works are wide ly available in China.  Furthermore, pirated 
copies often reach the market before legitimate co pies do.  Pirates, of course, do not wait for the 
results of content review or other regulatory approvals. 
60. Article 9.1 of the TRIPS Agreement provides that all WTO Members shall comply with 
Articles 1 through 21 of the Berne Convention, except that WTO Members do not have rights or 
obligations under the TRIPS Agreement in resp ect of the rights conferred under Article 6 bis of the 
Berne Convention or of the rights derived therefro m.  In addition, China and the United States are 
both parties to the Berne Convention. 
61. Several of the Berne Convention articles with which China must comply pursuant to TRIPS 
Article 9.1 are relevant in this dispute.  To begi n with, Article 5(1) of the Berne Convention provides 
that  "[a]uthors shall enjoy, in respect of th e works for which they are protected under this 
Convention, in countries of the Union other than  the country of origin, the rights which their 
respective laws do now or may hereafter grant to th eir nationals, as well as the rights specially granted 
under this Convention."  Furthermore, Article 2 of the Berne Convention defines the "works for which 
[authors] are protected under this Convention, " as that phrase is used in Article 5(1).   
62. The "rights specially granted under [the Berne Convention]," as mentioned in Article  5(1), 
refer to the various minimum rights required unde r the Berne Convention, including the exclusive 
right to authorize:  the reproduction of protected wo rks;  translation of protected works; adaptations, 
arrangements and other alterations of protected works; and public performance and communication to 
the public.  In this connection, it is important to emphasize that the exclusive right to authorize such 
economic activities is also the right to prohibit them ; that is, the holder of these exclusive rights has 
the right to prevent others from exploiting the work (for profit or otherwise) without permission.  Additionally, Article 5(2) of the Berne Convention pr ovides, in relevant part, that "[t]he enjoyment 
and exercise of these rights [ i.e., the rights mentioned in Article 5( 1)] shall not be subject to any 
formality . . . ." 
63. First
, contrary to China's obligations under Ar ticle 9.1 of the TRIPS Agreement (and the 
provisions of the Berne Convention referenced in Ar ticle 9.1), the first sentence of Article 4 of the 
Copyright Law denies copyright protection to works that are entitled to such protection.  Article 4 of the Copyright Law excludes from copyright protec tion an entire category of works – "works the 
publication or distribution of which is prohibited by  law" – but that exclusion from protection is not 
permitted or even contemplated by the Berne Conven tion.  Berne Convention Ar ticle 2(1) makes clear 
that the works protected by the Convention include " every  production in the literary, scientific and 
artistic domain, whatever may be the mode or form of its expression" (emphasis added), and Article 2(6) further makes clear that these works mu st enjoy copyright protection everywhere that the 
Berne Convention applies.  The exclusion from prot ection contained in Article 4 of the Copyright 
Law is contained nowhere in the Berne Convention.  That exclusion, therefore, is prohibited by the 
Berne Convention. 
64. Moreover, Article 4 denies to the authors of such  works the broad set of rights enumerated in 
Article 10 of the Law.  The rights in Article 10 largely encompass the rights contemplated by the WT/DS362/R 
Page A-12  
 
  provisions of the Berne Convention.  Authors of the works that are denied the protection of the 
Copyright Law also do not benefit from the remedies specified in Articles  46 and 47 of the Copyright 
Law, which provide civil liability (and in some c ase, administrative and/or criminal liability) for 
copyright infringement. 
65. Consequently, by denying the protection of Articles 10, 46 and 47 of the Copyright Law to 
certain works, the first sentence of Article 4 of the Copyright Law means that the authors of those 
works do not enjoy the minimum rights that are "specially granted" by the Berne Convention.  As a result, Article 4 of the Copyright Law does not comply with the requirements of Article 5(1) of the Berne Convention, and thus it also does not comply with China's obligations under Article 9.1 of the 
TRIPS Agreement 
66. Furthermore, as noted above, Article 5(2) of the Berne Convention prohibits subjecting the 
enjoyment and exercise of the rights mentioned in Ar ticle 5(1) to any formality.  However, China has 
made protection and enforcement under the Copyrigh t Act dependent on the formality of successful 
conclusion of content review.  The Copyright Law' s protection attaches only after such a work has 
been submitted for content review, and, if it passes that review unchanged, an authorization to publish 
and distribute the work has issued.  As a formal ma tter, therefore, copyright protection is dependent, 
in part, on the issuance of the authorization to publish and distribute resulting from successful 
conclusion of the content review process.   
67. To condition copyright rights on the successful co mpletion of the content review process is to 
make those rights "subject to a formality," as that te rm is interpreted in accordance with the customary 
rules of interpretation of public international law.  In this context, "subject" can be defined to mean 
"dependent or conditional upon, resting on the assump tion of"; and "formality" can be defined as "a 
formal or ceremonial act; a legal, authorized or customary procedure." 
68. Because content review is a formal, legally required procedure in China, and because the 
exercise and enjoyment of copyright rights are, for many works, dependent upon submission to and 
successful completion of content review, the content review process makes the exercise and 
enjoyment of copyright "subject to a formality" wi thin the meaning of Article 5(2).  By making 
protection under the Copyright La w dependent on successful completion of content review, China's 
law thus is inconsistent with China's obligations under Article 5(2) of the Berne Convention.  China's 
law therefore is also inconsistent with China's ob ligations under Article 9.1 of the TRIPS Agreement. 
69. It is also important to emphasize that these inconsistencies with the TRIPS Agreement do not 
arise because China prohibits certain works from bein g published or distributed in China.  The TRIPS 
Agreement does not obligate China, or any other WTO Member, to permit all works to be published 
and all works to be distributed.  Instead, the in consistencies arise from China's decision to deny 
copyright protection and enforcement to the works that it prohibits.  
70. Second
, depending on the construction given to Artic le 4, its first sentence may also be 
inconsistent with China's obligatio ns under Article 14 of the TRIPS Ag reement.  Article 14.1 of the 
TRIPS Agreement requires WTO Members to give performers, inter alia , the possibility of preventing 
certain acts, and Article 14.2 of the TRIPS Agre ement requires WTO Members to give producers of 
phonograms (sound recordings) the right to authorize or prohibit the direct or indirect reproduction of their sound recordings.  The Copyright Law furnish es the legal basis within China for protecting these 
so-called "related rights" of performers and sound recording producers.   
71. It is unclear whether Article 4 of the Copyright Law operates to deny the protection of the 
Law to performances (or their fixations) and sound recordings whose publication or distribution is 
prohibited.  Article 4 uses the term "works," a term that is defined in Article 3 of the Copyright Law.  
Sound recordings and performances (and their fixa tions) do not appear, strictly speaking, to be  WT/DS362/R 
 Page A-13 
 
 
  "works" within the meaning of Article 4.  The United States is not certain that Article 4 is meant to be 
limited to "works" that are the subject matter of  copyright, as opposed to encompassing as well the 
subject matter of related rights (such as performances and sound recordings).  Therefore, to the extent 
that Article 4 of the Copyright Law is interprete d as applying to performances (or their fixations) and 
to sound recordings, it is also inconsistent with  China's obligations under Article 14 of the TRIPS 
Agreement. 
72. Third , as a consequence of the foregoing, China fail s to ensure that enforcement procedures 
as specified in Part III of the TRIPS Agreement ar e available to copyrighted works that should be 
protected upon creation in order to permit effectiv e action and expeditious remedies against copyright 
infringements.  Among other problems, China fails to  provide for criminal procedures and penalties to 
be applied in certain cases of willful copyright piracy  on a commercial scale.  China is therefore not in 
compliance with its obligations under Article 41.1 and Article 61, first and second sentence, of the 
TRIPS Agreement. 
73. The first sentence of Article 41.1 of the TRIPS Agreement provides that "Members shall 
ensure that enforcement procedur es as specified in this Part [ i.e. Part III of the TRIPS Agreement, 
which comprises Articles 41 through 61] are availabl e under their law so as to permit effective action 
against any act of infringement of intellectual prope rty rights covered by this Agreement, including 
expeditious remedies to prevent infringements and remedies which constitute a deterrent to further 
infringements."  The "enforcement procedures as specified in this Part" include, inter alia , a number 
of civil judicial procedures concerning the enforcement of copyright and related rights.  To the extent that these procedures are made available in Chinese la w, it is Chapter V of the Copyright Law ("Legal 
Liability and Enforcement M easures") that does so.   
74. However, because of Article 4 of the Copy right Law, the enforcement provisions of 
Chapter V of the Copyright Law are unavailable for works, whose distribution or publication is not 
authorized or otherwise prohibited in China.  Therefore, as a result of Article 4 of the Copyright Law, China fails to ensure that enforc ement procedures as specified in Part III of the TRIPS Agreement are 
available under its law so as to permit effective ac tion against infringements, including expeditious 
remedies to prevent infringement of copyrights and (t o the extent covered by Article 4) related rights 
with respect to certain works, performances and sound recordings.   
75. Additionally, because criminal procedures under Article 47 of the Copyright Law are not 
available at all with respect to works whose dist ribution or publication in China is prohibited, no 
criminal procedures or remedies are available when piracy of those works occurs on a commercial 
scale.  Consequently, notwithstanding the provisions  of TRIPS Agreement Article 61, first and second 
sentence, China does not provide for or make av ailable criminal procedures and penalties to be 
applied in certain cases of wilful copyright piracy on a commercial scale. 
VI. CONCLUSION 
76. For the reasons set forth in the submission, the United States respectfully requests the Panel to 
find that China's measures, as set out in the US pane l request, are inconsistent with China's obligations 
under the TRIPS Agreement.  The United States furthe r requests, pursuant to Article 19.1 of the DSU, 
that the Panel recommend that China bring its me asures into conformity with that Agreement. WT/DS362/R 
Page A-14  
 
  ANNEX A–2 
 
EXECUTIVE SUMMARY OF THE ORAL STATEMENT OF  
THE UNITED STATES AT THE FIRST SUBSTANTIVE MEETING 
 
 
 I. CHINA'S CRIMINAL IPR THRESHOLDS FOR CRIMINAL PROCEDURES AND 
PENALTIES   
1. While Part III of the TRIPS Agreement deals w ith a number of enforcement procedures, such 
as civil, border, and administrative measures, Article 61 is the only provision that focuses on criminal 
penalties and procedures.  And conversely that also means that only criminal penalties and procedures 
can fulfill the obligations in Article 61. 
2. The words "at least" in the first sentence of  Article 61 lay a floor for WTO Members.  
Providing for criminal procedur es and penalties to be applied in some cases  of "wilful trademark 
counterfeiting and copyright piracy on a commercial scale," but not in others, does not fulfill the 
obligations in Article 61.  China appears to argue th at this Panel's scrutiny of its implementation of the 
TRIPS Agreement standards on criminal procedures and penalties is somehow inappropriate because 
it concerns criminal law.  However, like all WTO Members, China has agreed  to ensure that its 
criminal laws against piracy and counterfeiting meet TRIPS Agreement standards.   
3. China also appears to argue that Article 1.1 and Article 41.5 permit it to "define" the 
standards of Article 61 based on its own method of  implementation and its own enforcement resource 
constraints.  Article 1.1 deals with the method of implementing China's TRIPS Agreement 
obligations, not whether they should implement them in the first place.  Article 41.5 is concerned with 
similar issues.  Articles 1.1 and 41.5 do not alte r the obligations in Article 61, and China must 
implement Article 61 in a way that respects its terms. 
4. Turning to "on a commercial scale" in Article 61:  First , by using the term "commercial 
scale ", the TRIPS Agreement makes clear that WTO Members must criminalize acts of infringement 
that reach a certain extent or magnitude.  Second , in using the term " commercial  scale," the TRIPS 
Agreement draws a link to the commercial market place – where business-minded IPR infringers take 
the fruits of their counterfeiting or piracy.  
5. According to China, the US position is that commercial scale only means commercial 
purpose.  That is not the US view; indeed, such an  interpretation would read the word "scale" out of 
the term.  That said, an infringer engaged in pursuing financial gain in the marketplace is acting on a "scale" that is "commercial".  And, the "scale" of what is "commercial" in each market will vary by 
many factors, such as the object of the infringement and the market for the infringed items. 
6. While China alleges that we wrongly interpret "c ommercial scale" by looking at the ordinary 
meaning of the individual words "commercial" a nd "scale", the US interpretation is based on the 
customary rules of interpretation of public international law. 
7. China proposes to replace the term "commercial scale" with a phrase that TRIPS Article 61 
does not contain:  "a significant magnitude of activ ity," but this proposal reads "commercial" out of 
Article 61.  China relies upon a discussion of th is term by a WIPO Committee of Experts on 
Counterfeiting and Piracy in 1988.  It is uncle ar what status this document has under the Vienna 
Convention  rules; and in any case, the WIPO Committe e's document provides confirmation of the 
interpretation suggested by the United States.  WT/DS362/R 
 Page A-15 
 
 
  8. China fails to make criminal procedures and penalties available for all  wilful trademark 
counterfeiting and copyright piracy on a commercial scal e because its criminal IPR thresholds create a 
safe harbor for pirates and counterfeiters.  The first  fundamental problem is that China's thresholds are 
set at such a level, and calculated in such a way,  that they preclude prosecution or conviction of 
infringing activity involving values or volumes that  are below the thresholds but are still "on a 
commercial scale."  
9. With respect to the Article 213 trademark counterfeiting thresholds, there are many classes of 
commercial scale activity that take place under tho se thresholds.  Indeed, the "illegal business 
volume" threshold directs Chinese prosecutors and judges to base this calculation on the prices of 
counterfeit goods as a default.  As many commercial  activities in legitimate markets, such as personal 
care products, take place where the value of the goods  involved is less than the RMB 50,000 "illegal 
business volume" thresholds, the commercial scale activities involving counterfeit goods of these 
types will routinely involve va lues below that threshold. 
10. Another example is demonstrated by the RM B 30,000 "illegal gains" threshold.  This 
threshold can similarly miss many classes of commerci al scale activity, and thus, requiring a profit 
level of RMB 30,000 will not capture all "commercial scale" activities.   
11. Similar safe harbor problems exist with the Articles 214 and 215 thresholds as well as China's 
thresholds for copyright piracy.  For example, the Article 217 500-copy threshold excludes acts of 
commercial scale piracy, as a copyright pirate that makes 499 reproductions or a retailer that stocks 
499 copies in a store could not be prosecuted or convicted on that basis under Article 217. 
12. The second  fundamental problem is that Chinese authorities must rely on a limited set of one-
size-fits-all tests to find commercial scale counterfeiti ng and piracy that can be subject to criminal 
prosecution or conviction.  A range of considerati ons should be probative of "commercial scale," but 
China's rigid criminal thresholds preclude their use.  They are ill-adapted to the diversity of 
commercial activity and allow commercial scale counterfeiting and piracy to escape prosecution.   
13. China does not explain or justify how its boundaries of criminal liability capture all 
commercial-scale counterfeiting and piracy.  China's choices for its non-IPR  criminal thresholds has 
no bearing on this Panel's assessment of whether China meets its obligations under Article 61 of the 
TRIPS Agreement.   China's argument that its "evidentiary" provisions should not be subject to 
Article 61 scrutiny is without merit;  whether calcu lated over one hour or over many years, China's 
thresholds create a safe harbor.  China concedes that  if an administrative penalty in a prior seizure 
action is applied (often China's preferred remedy), it wipes the slate clean and those prior seizures 
could not be counted on to meet the thresholds. 
14. The CCA Report submitted by the United States illu strates the safe harbor created by China's 
thresholds.  First , it provides an example of the scale of commerce in China for certain pirated 
products.  Second , it shows significant quantities of retail sales of infringing product take place in 
China at levels below China's thresholds.  Third , a comparison of two sets of "below-the-thresholds" 
seizure charts in the US submission shows more th an 80% of all administrative raids in both of these 
two time periods netted evidence falling below the thresholds in effect at the time.  
15. China's criminal IPR thresholds are also inc onsistent with the second sentence of Article 61 
and Article 41.1.  China confirms that if the Pane l finds that China's criminal IPR thresholds are 
inconsistent with the first sentence of Article 61, it  must also find an inconsistency with the second 
sentence of Article 61 and Article 41.1.  We also  disagree with China's unsupported assertion that the 
United States bears an "especially high bu rden of proof in advancing this claim." WT/DS362/R 
Page A-16  
 
  II. CHINA'S BORDER MEASURES FOR DISPOSAL OF CONFISCATED GOODS 
16. Article 59 provides in pertinent part that the "c ompetent authorities shall have the authority to 
order the destruction or disposal of infringing g oods in accordance with th e principles set out in 
Article 46."  For the purposes of this dispute, this requires focus on two of the sentences in Article 46.  
First , a Member's competent authorities for border enfo rcement "shall have the authority to order that 
goods that they have found to be  infringing be ... disposed of outside the channels of commerce in 
such a manner as to avoid any harm caused to the right holder, or ... destroyed."  Second , "[i]n regard 
to counterfeit trademark goods, the simple removal of  the trademark unlawfully affixed shall not be 
sufficient, other than in exceptional cases, to perm it release of the goods into the channels of 
commerce." 
17. Contrary to Article 59, China's Customs author ities lack the requisite authority to order the 
destruction or disposal of infringing goods in acco rdance with these Article 46 principles.  This is 
because Article 30 of the Customs IPR Implementing Measures, which implements Article 27 of the 
State Council Customs IPR Regulation, sets out a co mpulsory sequence of steps that Customs must 
follow in deciding how to treat seized goods that it de termines infringe intellectual property rights.    
18. China states that Article 59 does not require a gran t of unconditional authority to its agencies.  
However, the TRIPS rules do not require  China to destroy or dispose of all such goods in accordance 
with the principles in the first sentence of Article  46.  The pertinent issu e is whether Customs is 
permitted by law to make decisions in particular  circumstances.  "Authority" means that China 
Customs should have the power to choose among any of the options – in accordance with the 
Article 46 principles – from the outset when the good s are found to be infringing, and thereafter until 
the goods are finally dealt with.    
19. In the initial step of the compulsory hierarch y, Customs must decide whether the infringing 
goods can be used for "public good."  If the answer is yes, Customs must either give the goods to a 
"public welfare organization" or Customs may in stead allow the right holder to purchase the goods 
"for compensation." 
20. China has confirmed that donation to "public we lfare organizations" will not be available if 
the goods are unsuitable for donation.  In cases wh ere the goods are suitable, the United States is 
pleased to learn that China Customs has donated sei zed goods to charities such as the Red Cross of 
China.  China further cites to a general obligati on to "implement necessary supervision" when goods 
are used for "social welfare purposes."  However,  Article 17 of the Law on Donation for Public 
Welfare (Exhibit US–59) authorizes public welfare organizations to sell donated goods on the market 
in some cases.  This demonstrates that China's donation option does not ensure that the goods remain 
outside the channels of commerce and avoid harm to the right holder. 
21. Where donation is not appropriate, Chinese authorities must offer the infringing goods for 
sale to the right holder.  This mandated action does not permit disposal "in such a manner as to avoid 
any harm caused to the right holder," as Article 46 requires, as by paying for such goods, right holders 
will suffer financial harm in the form of pa yment for goods that infringe their rights. 
22. Where transfer to a public welfare organization is unavailable, and the right holder does not 
purchase the infringing goods, the Customs authorities mu st turn to the public auction step.  China's 
public auction does not comport with the principles incorporated into Article 59.  Putting seized goods 
up for public auction introduces them into the chan nels of commerce and does not dispose of them in 
a manner that avoids any harm to the right holder.  China does not contest that its public auction is 
introduction into the channels of commerce.  On these grounds alone, however, the mandatory auction 
provided by China's measures is inconsistent with the Article 46 principles.   WT/DS362/R 
 Page A-17 
 
 
  23. China asserts that right-holders' formal right  to comment before the auction assists in 
avoiding harm to the right holder.  However, that is not a right to prevent the goods from being 
auctioned.  A public auction can cause great harm to the right holder, since the infringer or importer 
can simply purchase the seized goods at the auction. 
24. With respect to counterfeit trademark goods in pa rticular, this public auction step is also 
inconsistent with the principle in the fourth sente nce of Article 46, which provides that goods can be 
introduced into the channels of commerce after remo val of the unlawfully affixed trademarks only "in 
exceptional cases." China's claim that the obligati on is not a principle within the meaning of 
Article 59, is at odds with its plain meaning.  Ch ina does not cite limiting language in Article 59 that 
selectively incorporate the obligations in Article 46.  
25. Only if auction is not possible does China Cu stoms gains the power to destroy the infringing 
goods.  We recall that China's measures ensure this step will not be reached if any of the previous 
options are available.  Therefore, in those situa tions, Chinese customs authorities are not, as a matter 
of Chinese law, authorized to destroy the infringing good. 
26. China argues that it has "substantial discretion" to determine that an infringing good is not 
suitable for the disposal options and therefore has au thority to order destruction.  However, China's 
Customs Implementing Measures states that when cer tain facts are present, Customs officials must 
dispose of the goods only in the manner stipulated.  In each  of those circumstances, Chinese customs 
authorities lack the authority to order the destruction of infringing goods. 
III. ARTICLE 4 OF CHINA'S COPYRIGHT LAW 
27. Article 4, first sentence, provides that "[w]orks the publication or distribution of which is 
prohibited by law shall not be protected by this La w."  China's first submission has not resolved a 
number of concerns about the legal  operation of Article 4 – the text of which provides a clear and 
straightforward denial of copyright protection.  China's focus on the actions of its NCAC leaves 
unresolved the concerns that, as a matter of law, the first sentence of Article 4 denies copyright 
protection to works whose content is still being reviewed.  
28. Most importantly, the Chinese submission app ears to concede that Article 4 is TRIPS-
inconsistent.  China admits that the first sente nce of Article 4 denies protection to works whose 
contents are prohibited.  Moreover, the NCAC confirms that, for the purpose of administrative 
proceedings, Article 4 denies copyright protection to "works whose contents are illegal."  China 
therefore appears to confirm that it denies copyright protection to works containing illegal content that Chinese authorities determine is prohibited by law.    
29. Indeed, contrary to China's obligations under TRIPS Article 9.1 (and the provisions of the 
Berne Convention referenced in Article 9.1), Article  4 denies copyright protection to works that are 
entitled to such protection.  Berne Article 2(1) st ates that works protected by the Convention include 
"every  production in the literary, scientific and artis tic domain . . ."  (emphasis added), and 
Article 2(6) further states that these works must en joy copyright protection everywhere that the Berne 
Convention applies.  Article 4's blanket exclusion fo r certain illegal works, therefore, is inconsistent 
with the Berne Convention.  
30. Moreover, because Article 4 denies copyright protect ion to certain works, the set of exclusive 
rights in Article 10 of China's Copyright Law are also  denied to such works.  As a result, Article 4 
does not comply with the requirements of Berne Article 5(1), which specifies certain guaranteed exclusive rights.  And indeed, without copyright protection, right holders cannot enforce their rights in 
the work.  Therefore, authors of  the works also do not benefit from the remedies for infringement WT/DS362/R 
Page A-18  
 
  specified in Articles 46 and 47 of the Copyright Law.   Accordingly, China is not in compliance with 
its obligations under Article 41.1 and Article 61, fi rst and second sentence, of the TRIPS Agreement. 
31. China has not addressed the US concerns about the impact of content review on copyright 
protection.  First , the United States is not in a position to accept that the NCAC's actions are a 
definitive interpretation of Article 4, at least with  respect to China's TRIPS obligations to afford 
criminal and civil remedies for copyright infringem ents heard by the courts and procuratorate.  
Second , with respect to the Zheng Haijin case, it is not clear why this document is responsive to the 
US arguments; according to the NCAC, the publishe r in question had violated Chinese laws on book 
publication numbers, not Chinese laws regarding content.  Third , courts apply the law in cases under 
adjudication, and not the NCAC.  In fact, China's Supreme People's Court issued a guidance 
document (Exhibit US-60) in this case, and appears to have considered that copyright protection was 
contingent on the work's successful completion of content review. 
32. To the extent that the first sentence of Ar ticle 4 makes the exercise and enjoyment of 
copyright rights in civil and criminal matters de pendent upon the successful completion of some type 
of content review, Article 4 appears also to be inconsistent with Berne Article 5(2), and thus, 
inconsistent with Article 9.1 of the TRIPS Agreement for that reason as well. 
  WT/DS362/R 
 Page A-19 
 
 
  ANNEX A–3 
 
CLOSING ORAL STATEMENT OF THE UNITED STATES AT THE  
FIRST SUBSTANTIVE MEETING 
 
 
 
1. On behalf of the United States, we would like to begin by thanking the Panel, the Secretariat 
staff, and the delegation of China for their tim e and attention during our session this week.   
I. INTRODUCTION 
2. At the end of this first meeting of the Panel, taking into account the submissions and 
statements that have been provided by both the Par ties and the Third Parties, we would like to offer 
some observations.   
3. In our view, the meeting this week has provided useful discussions to assist the Panel's 
assessment of whether the three sets of China's meas ures that we have challenged are consistent with 
the TRIPS Agreement.  
4. First, we commend to the Panel the views expre ssed by Third Parties that there is no special 
burden of proof required for this dispute.  Indeed, like all disputes, the burden of proof provided by 
the Understanding on Rules and Procedures Governing the Settlement of Disputes   ("DSU") governs 
here.  We are pleased to note that China now appear s to agree that no higher burden of proof applies 
for any of the claims in this dispute.1 
5. We believe that the meeting this week confirms  that the United States has fully demonstrated 
that the Chinese measures at issue are inconsiste nt with the relevant provisions of the TRIPS 
Agreement. 
II. CHINA'S CRIMINAL IPR THRESHOLDS FOR TRADEMARK COUNTERFEITING 
AND COPYRIGHT PIRACY  
6. The obligations in Article 61 are strai ghtforward and unambiguous.  Members must 
criminalize all wilful commerc ial-scale trademark counterfeiti ng and copyright piracy.  WTO 
Members must implement this minimum standard in their domestic IPR regimes.  
7. We would commend in particular to the Panel the views expressed by a number of the Third 
Party WTO Members that the minimum enforcement standards established by Article 61 for all WTO Members are not modified by Article 1.1 or Article  41.5 of the TRIPS Agreement.  To the contrary, 
the United States recalls the language of the first sen tence of Article 1.1;  that China must "give 
effect" to the obligations of Article 61.    
8. Turning to Article 61, it is unfortunate that Ch ina's oral statement repeats the misreading of 
the position of the United States regarding the prop er interpretation of "on a commercial scale" in 
Article 61.  As we set out in paragraph 108-110 of  our first submission and paragraph 17 of the US 
oral statement, commercial scale does not
 mean commercial "purpose" or commercial "intent".  
9. Please allow me to clarify the US position again.  The US position is based on the well-
established principles that govern treaty interpre tation in WTO dispute settlement pursuant to 
Article 3.2 of the DSU.  Those who are engaging in commercial activities (and thus do have a profit 
                                                      
1 China's first oral statement, para. 39. WT/DS362/R 
Page A-20  
 
  motive) are acting on a "scale" that is "commercial".  But, that is not the end of the analysis.  The 
"scale" of what is "commercial" in each market will necessarily vary  by many factors, including the 
object of the infringement and the market for the infringed items. 
10. Indeed, while the TRIPS Agreement obligatio n to provide for criminal procedures and 
penalties for acts of  "commercial scale" tradem ark counterfeiting and copyright piracy remains 
unchanged, the factual situations
 that represent "commercial scale" may indeed change over time, as 
technologies and market conditions evolve.  
11. On the other hand, the TRIPS Agreement deals with non-criminal remedies in other sections 
of Part III of the TRIPS Agreement.  Therefore, a Member's non-criminal remedies are neither the 
subject of Section 5 of the TRIPS Agreement oblig ations concerning "crimi nal procedures," nor are 
they relevant in dealing with a Memb ers' compliance with those obligations. 
12. When we apply the Article 61 standard, it is evident that Ch ina's measures do not provide for 
criminal penalties and procedures for all wilful  commercial-scale counterfeiting and piracy.  
13. The first fundamental problem is that China's threshol ds are set at such a level, and calculated 
in such a way, that they do not permit prosecution or conviction of infringing activity involving values 
or volumes that are below the thresholds but are still "on a commercial scale".     
14. The second fundamental problem is that the structure of the thresholds requires Chinese 
authorities to rely exclusively on a limited set of one-size-fits-all tests for counterfeiting and piracy 
that can be subject to criminal prosecution or co nviction under Chinese law.  A range of factors are 
capable of being probative of "commercial scale," but  China's rigid criminal thresholds preclude their 
use.  In this connection, the United States would not e the many potentially relevant factors raised by 
several third party WTO Members.   
15. Mr. Chairman, and Members of the Panel, the United States appreciates the sincere efforts of 
dedicated law enforcement officials throughout China who are trying to fight counterfeiting and 
piracy.  Unfortunately, in this inst ance, the law is an obstacle.   
16. It is regrettable that, under China's criminal IPR thresholds, its prosecutors and judges cannot, 
as a matter of law, reach the acts of "commercial sc ale" piracy and counterfeiting that fall in the safe 
harbor from criminal procedures and penalties that are below the thresholds' flat volume or value 
metric.  This state of the law is also incons istent with China's obligations under the TRIPS 
Agreement.   
III. CHINA'S BORDER MEASURES FOR DISPOSAL OF CONFISCATED GOODS 
17. With regard to our second claim, as explained in  our first submission and our oral statement, 
China's Customs regulations create a mandatory hi erarchy of actions that binds China's Customs 
authorities.  The rigidity of this system constr ains Chinese Customs authorities, so that in many 
circumstances, they do not have the authority, much  less the discretion, to act  in accordance with the 
principles in the first sentence of Article 46 concerni ng proper disposal or destruction of goods.   
18. We note in this regard that China has not cont ested the relevance or compulsory language of 
the Customs IPR Implementing Measures.2  Rather, China now asserts that China Customs has 
sufficient discretion to act in accordance with Article  46 principles.  It does so by characterizing 
Customs' fact finding obligations, which determine which step in the hierarchy is applicable, as 
"discretion".  However, this assertion ignores the plain text of China's measures.  
                                                      
2 Exhibit US-6  WT/DS362/R 
 Page A-21 
 
 
  19. When China Customs reaches a given step in its hi erarchy, if a particular fact situation is 
presented, the Customs IPR Implementing Measures require  Customs to take certain prescribed 
actions that do not satisfy the principles of Artic le 46.  Yet Article 59 obligates Members to provide 
authority consistent with these principles.   
20. The rigid Chinese system likewise prevents Ch inese authorities from meeting the principle in 
the last sentence of Article 46, since once auction becomes the required step in China's hierarchy, 
China Customs is required, where feasible, to au ction goods after the infringing mark has been 
removed.  
IV. ARTICLE 4 OF CHINA'S COPYRIGHT LAW AND THE DENIAL OF COPYRIGHT 
PROTECTION 
21. The text of Article 4.1 is straightforward.  Artic le 4, first sentence, provides that "[w]orks the 
publication or distribution of which is prohibited by law shall not be protected by this Law." 
22. Nothing China has presented overcomes the plain meaning of that provision – that Article 4.1 
denies copyright protection to content that has not b een approved.  As we note in our oral statement, 
China's reliance on the NCAC administrative actions does not demonstrate that Article 4.1 operates 
contrary to its text.  Accordingly, the evidence c ontinues to indicate that China does not satisfy its 
TRIPS obligations (including those incorporated fro m the Berne Convention) to provide the full range 
of rights and to provide those rights upon the creation of the work without the imposition of formalities.  Moreover, this means that China does not afford civil and criminal remedies for 
infringements heard by the courts.   
23. In light of the foregoing, the United States believes that Article 4.1 of China's Copyright Law 
is inconsistent with China's obliga tions under the TRIPS Agreement.  
V. CONCLUSION 
24. Mr. Chairman, and Members of the Panel, we would again like to thank you, and the 
Secretariat staff assisting you, for your efforts on this  dispute, and for your time and attention this 
week.  We look forward to receiving the written vers ion of your questions, and to filing our responses 
and our rebuttal submission.  We also look forward to seeing you again in June.   WT/DS362/R 
Page A-22  
 
  ANNEX A–4 
 
EXECUTIVE SUMMARY OF TH E REBUTTAL SUBMISSION  
OF THE UNITED STATES 
 
I. INTRODUCTION  
1. This submission will show how China's argume nts in its first written submission, oral 
statement at the First Panel Meeting, and Res ponses to the Panel's Questions fail to rebut the 
demonstration in the US first submission that China' s measures in certain areas are inconsistent with 
its obligations under the TRIPS Agreement.    
II. CHINA'S THRESHOLDS FOR CRIMINAL PROCEDURES AND PENALTIES FOR 
TRADEMARK COUNTERFEITING AND COPYRIGHT PIRACY ARE INCONSISTENT WITH CHINA'S OBLIGATIONS UNDER ARTICLES 61 AND ARTICLE 41.1 OF THE TRIPS AGREEMENT 
2. The United States has met the burden of proof by successfully demonstrating that China's 
measures are inconsistent with China's obligations  under the first and second sentences of Article 61 
and Article 41.1 of the TRIPS Agreement.  The Un ited States, and a number of third parties, have 
provided numerous concrete illust rations of how China's thresholds permit wilful trademark 
counterfeiting and copyright piracy on a commercial scale to exist.  China has not disputed that acts of 
"wilful trademark counterfeiting and copyright pira cy" occur in many cases without triggering these 
criminal thresholds, and as the US has demonstrat ed, China does not provide criminal penalties and 
procedures for many of these acts that  are "on a commercial scale".  
A. A
RTICLE 61, FIRST SENTENCE , OF THE TRIPS  AGREEMENT  
3. The obligation in the first sentence of Article 61 is comprised of a number of elements.  China 
"shall provide for" criminal procedures and penalti es "to be applied" "at least" in cases of "wilful 
trademark counterfeiting and copyright piracy" "on a commercial scale".  China observes that the core 
aspect of this claim is the meaning of the term "on a commercial scale".  The United States agrees and 
has provided an interpretation for "commercial scal e" that accords with the customary rules of 
interpretation reflected in the Vienna Convention .  
4. The US explanation of the term "commercial s cale" is set out in detail in the US first 
submission.  In particular, two features emerge from th e ordinary meaning of the term.  First, by using 
the term "commercial scale ," the TRIPS Agreement makes clear that WTO Members must criminalize 
acts of infringement that reach a certain extent  or magnitude.  Second, in using the term " commercial  
scale," the TRIPS Agreement draws a link to th e commercial marketplace – where business-minded 
IPR infringers take the fruits of their counterfeiting or  piracy.  Thus, it is clear that the ordinary 
meaning of "commercial scale" extends to tho se who engage in commercial activities, including 
manufacturing, distribution, and retail sales. 
5. China claims that the US position is that co mmercial scale only means commercial purpose.  
That is demonstrably not the US view.  That said, an infringer seriously engage d in pursuing financial 
gain in the marketplace is necessarily acting on a "scale" that is "commercial," and therefore falls 
within the ordinary meaning of the term.  However,  the meaning of the term "commercial scale" does 
not depend on the intent of the infringer.  An in fringer with a different intent may or may not be 
acting on a "scale" that is "commercial".   WT/DS362/R 
 Page A-23 
 
 
  6. China also alleges that the United States wrongly interprets the ordinary meaning of the term 
"commercial scale" by looking at the meaning of the individual words "commercial" and "scale".  
However, that is a completely acceptable method for in terpreting a term and is similar to that followed 
by past panels and the Appellate Body. 
7. China invites the Panel to ignore the ordinary meaning of "commercial scale," as explicated 
by the United States, and instead substitute a concep t that China has labeled "significant magnitude of 
activity" which is not consistent with the Vienna Convention  customary rules.  First , China's proposed 
interpretation is at odds with the ordinary meaning of "commercial scale".  Its reads "commercial" out 
of Article 61, by essentially replacing "commercial" w ith "significant" and further, the word "scale" 
means a " certain extent or magnitude," not a " significant extent or magnitude".  While China claims 
that its proposed meaning derives from "commo n usage" and from "statements of the TRIPS 
negotiating parties," China provides no evidence that the Uruguay Round negotiations distilled any 
sort of prevailing understanding of "commercial sc ale" from the unrelated sources cited by China.  
These isolated references are clearly insufficient to constitute any sort of "common usage".  In these 
other sources, where "commercial scale" is used in  the context of "production" or "manufacturing" 
there is no suggestion that "commercial scale" would not  apply to other acts – for example, retail sale.  
Further, Article 61 does not contain references to "m anufacturing" or "production" – it refers instead 
simply to "counterfeiting" and "piracy". 
8. China's reliance on a 1988 WIPO Committee of  Experts on Counterfeiting and Piracy 
document and accompanying discussions does not provide  support for its proposed interpretation of 
Article 61 on numerous grounds.  Fi rst, it is unclear what status this document has under the Vienna 
Convention  – as China has not argued that it should be taken into account pursuant to Article 31 or 
Article 32 of the Vienna Convention .  In fact, this WIPO document does not constitute an appropriate 
"supplementary means of interpretation" within the scope of Article 32 of the Vienna Convention for 
many reasons.  The  WIPO Committee proceedings  were independent of the TRIPS negotiations, 
there was no consensus on the document, and the WI PO Committee of Experts (much less the country 
members of WIPO) did not adopt the document China has cited.  
9. Even assuming that the document could be considered as a "supplementary means of 
interpretation," the normal application of the Vienna Convention principles to the term "commercial 
scale" does not leave its meaning "ambiguous or obscure" or leads to "manifestly absurd or 
unreasonable results".  Therefore, it could only be pr operly used to confirm an interpretation reached 
by means of the rules in Article 31 of the Vienna Convention .    
10. In this context, the WIPO document serves to confirm the US interpretation, as it underscores 
the US view that the scope of commercial scale cannot be reduced merely to a value or volume 
metric.  Instead, a variety of open-ended factors wo uld need to be taken into account:  including the 
"circumstances" surrounding the manufacture, as well as "the will to make a profit" and the way that 
the goods "are intended to be used ," in addition to the "quantity of goods".  China's rigid and high 
numerical thresholds is far from these open-ended set  of factors.  The United States, supported by a 
number of third parties, believes that a range of  quantitative and qualitative factors should be taken 
into account to ensure that all "commercial scale"  activities are subject to this discipline.  
11. Furthermore, the WIPO Committee's "definition" of "commercial scale" did not form the 
basis of the negotiations on TRIPS Article 61.  There was no "definition" adopted by the WIPO 
Committee;  and even though China is correct th at the WIPO Committee's Model Provisions were 
brought to the attention of the TRIPS negotiation participants, the particular concept of "on a 
commercial scale" in Article 61 emerged in the TRIPS negotiations.  The focus of the initial 
discussions cited by China differs sharply from the context in which the term "commercial scale" 
ultimately was used by the TRIPS negotiators, i.e ., to define which acts of trademark counterfeiting 
and copyright piracy must be subject to criminal procedures and penalties. WT/DS362/R 
Page A-24  
 
  12. China also fails in its attempt to use the WIPO  document as support for its efforts to limit the 
scope of Article 61 to only "larger-scale" activitie s such as the manufacture of infringing goods.  
Nothing in the ordinary meaning of "commercial" imp lies that it is limited to the industrial context.  
Had the TRIPS negotiators intended the obligations to apply only to industrial-level production, they 
presumably would have used the term "industrial scale"  and not commercial scale.  In any event, the 
reference to "manufacturing on a commercial scale" was not included in the final text of Article 61.  
The omission of "manufacture"– where it was presen t in the WIPO document – tends to confirm that 
other commercial activity, such as retailing and wh olesaling, is included in the meaning of "on a 
commercial scale" in Article 61.  Furthermore, the do cument also provides that retail sale can also be 
an act of counterfeiting or piracy, referring back to the principles in the manufacturing section to 
incorporate the concept of "commercial scale" into the retail context.    
13. The WIPO Committee discussions also do not  provide support for China's proposed 
interpretation of "commercial scale" as "broad and fl exible standard".  China's arguments is misplaced 
to the extent that China is claiming that this di scussion demonstrates a consensus for variable meaning 
to this term as used in Article 61, or provides a basis for China not to comply with the obligation in 
that Article.  The meaning of this term in Article 61 is clear and its application is uniform across all 
WTO Members.   
14. Second
, China's purported context for interpreting Article 61 is also unavailing.  China's 
argument that Articles 1.1 and 41.5 allow China to de fine for itself the obligations of Article 61 is 
contrary to plain text of these provisions.  First, as made clear by the text of the final sentence, Article 
1.1 deals with the method by which a Member implements TRIPS Agreement obligations, not 
whether or to what extent a Member should implement them in the first place.  While during the 
TRIPS negotiations, WTO Members expressed diverse views on various draft provisions of the TRIPS Agreement, the negotiators coalesced around the final text of the TRIPS Agreement.  The first 
sentence of Article 1.1 states that Members shall "give effect to these provisions" and therefore 
because Article 1.1 does not alter the obligations in Article 61, China must implement Article 61 in a 
manner that reflects its terms. 
15. Likewise, Article 41.5 deals with the implementation of a Member's Part III enforcement 
obligations, not the substance of the obligations th emselves.  The thrust of the second sentence of 
Article 41.5 concerns the distribution of enforcemen t resources between the enforcement of the law in 
general and the enforcement of intellectual prope rty rights.  Article 41.5 does not provide an 
exception or affect the scope of the substantive oblig ations of Article 61.  The United States is not 
arguing that China should alter how China enforces its laws in general; rather, the United States 
argues that China's criminal thresholds fall s hort of the minimum standards in Article 61. 
16. Whether China chooses to actually prosecute relatively smaller cases of wilful trademark 
counterfeiting or copyright piracy "on a commercial scale" is not at issue in this dispute.  
Consequently, the level of resources China choos es to dedicate to such prosecution is, from the 
perspective of the legal claims in this dispute, beside the point. 
17. China's other contextual arguments for "comme rcial scale" are similarly unavailing.  China's 
arguments that the TRIPS Agreement and Berne Convention "do not set forth a definition of 
infringement" are simply beside the point because the United States does not claim in this dispute 
that, leaving aside the thresholds, there are substan tive types or categories of acts constituting "wilful 
trademark counterfeiting or copyright piracy" (as tho se terms are used in Article 61) for which China 
has failed to make criminal procedures and pena lties available under Articles 213, 214, 215, 217, and 
218.  Rather, it is that China does not make them available for all acts of "wilful trademark counterfeiting or copyright piracy" that are "on a commercial scale".    WT/DS362/R 
 Page A-25 
 
 
  18. Furthermore, China's accusation that the US is  "impos[ing] a fixed, concrete international 
standard" of "commercial scale" is also mispl aced.  Establishing an obligation concerning the 
minimum enforcement provisions of WTO Members must have in place is precisely what the TRIPS Agreement does.  Additionally, China's assertions that  Article 61 lacks "specificity" gain China no 
ground.  No amount of comparison to other prov isions in the TRIPS Agreement and other WTO 
Agreements assist China in escaping the requirements of Article 61.     
19. Third
, China's claims regarding the object and purpose of the TRIPS Agreement are 
unavailing.  A fair reading of the Preamble doe s not support China's position.  Moreover, giving 
meaning to Part III of the TRIPS Agreement, including Article 61, is not "harmonizing" legal systems.  China is free to provide an enforcement regime consistent with, for example, systems in 
effect in countries of the "civil law" traditions. 
20. Fourth
, China's resort to the subsequent actions of Members provisions do not provide any 
evidence of "subsequent practice in the applica tion of the treaty" under Article 31(3) of the Vienna 
Convention  establishing any agreement by WTO Members re garding the interpretation of Article 61.  
The provisions of US free trade agreements are not relevant to this Panel' s interpretation of the 
covered agreement, i.e., the TRIPS Agreement.  Sim ilarly, China fails in its attempts to claim that 
practices by certain third parties to the dispute ar e some type of "subsequent practice" within the 
meaning of the Vienna Convention.  These claims are refuted by those third parties. 
21. Fifth , China also hints at the argument that "com mercial scale" might have a special meaning 
provided for under Article 31(4) of the Vienna Convention .  However, there is no evidence, either in 
the Chinese submissions or elsewhere, of a "special meaning" for "commercial scale". 
22. Sixth , China's reliance on the negotiating history of  the TRIPS Agreement is also unavailing.  
For the reasons stated above, China's claims that  the negotiating record of the TRIPS Agreement 
provides confirmation for its view of the "commercial scale" standard ("counterfeiting and piracy of a significant scale") is incorrect and supports the US position. 
23. Finally, China's arguments that deference to its criminal law should also be disregarded.  
China's arguments amount to an invitation to the Pa nel to abandon the treaty interpretation principles 
that WTO Members have agreed shall govern this  Panel's work.  These arguments regarding the 
special nature of criminal law have no bearing on  the core question:  whether China has fulfilled its 
obligations under Article 61.  When China became a WTO Member, it also agreed to ensure that its 
criminal laws against piracy and counterfeiting meet the standards in the TRIPS Agreement.  
Furthermore, while China urges the Panel to take into account " in dubio mitius ," in this case, there is 
no need to rely on this concept, as the meaning of "commercial scale" is reached through the general 
rules of interpretation reflected in Article 31 of the  Vienna Convention .  
B. C
ONTRARY TO ARTICLE 61, CHINA 'S MEASURES FAIL TO PROVIDE CRIMINAL PROCEDURES 
AND PENALTIES FOR WILFUL TRADEMARK COUNTERFEITING AND COPYRIGHT PIRACY ON A COMMERCIAL SCALE
 
24. China's criminal thresholds create a safe har bor, preventing criminal procedures and penalties 
from being available for all instances of comme rcial scale counterfeiting and piracy. Instead of 
denying this core safe harbor problem , China attempts to disagree with the degree but not the reality 
of the inconsistency.  The first  fundamental problem with China's thresholds is that they do not permit 
prosecution or conviction of infringing activity invo lving values or volumes below the thresholds but 
that are still "on a commercial scale".  At no point  does China claim that criminal prosecution or 
conviction under Articles 213, 214, 215, 217, and 218 is possible for any  trademark counterfeiting or 
copyright piracy below the thresholds themselves.  Indeed, China does not rebut the core issue raised WT/DS362/R 
Page A-26  
 
  by the US with respect to the Article 61 claim:  th at if a case fails to meet at least one of the 
thresholds, that fact will preclude criminal prosecution and conviction.   
25. China takes a different tack:  it attempts to wh ittle away at the size of the safe harbor.  First, 
China seizes on certain US explanations regarding the nature of the thresholds and attempts to show 
that "commercial scale" activity can be captured in some circumstances.  However, the application of 
any or
 all of the alternative thresholds still leaves mu ch commercial-scale piracy and counterfeiting 
immune from criminal prosecution or conviction.  Furthermore, China concedes that in calculating 
certain thresholds the price of the legitimate good is  used by courts only as a last option.  This 
valuation methodology exacerbates the safe harbor pr oblem by creating a larger safe harbor than 
would exist if China used a methodology based on the prices of legitimate goods.  
26. Second, China takes issue with the US characteriz ation of the operation of the thresholds and 
mistakenly appears to argue that the provisions c oncerning the calculation of the thresholds under the 
measures at issue should not be subject to scrutiny under Article 61.  What China calls "evidentiary" 
standards are, in fact, relevant to whether China meets the Article 61 obligation:  they cause "criminal 
procedures" and "criminal penalties" not to be "applied" in some cases of wilful trademark 
counterfeiting and copyright piracy.  Indeed, China' s thresholds provide a substantial safe harbor 
capable of sheltering commercial operations, thus inviting counterfeiters and pirates to structure their 
commercial operations in a way take advantage from the thresholds. 
27. China's arguments about the operation of the thr esholds, including that the thresholds can be 
calculated over a prolonged period of time and can count goods in other warehouses, likewise do not 
overcome the US case.  First, Article 12 of the December 2004 JI makes clear that the values of 
"illegal business volume," "illegal gains" and "amount of sales" can only be cu mulated if engaging in 
such acts has not resulted in the imposition of an administrative penalty or criminal punishment.  
China admits that the imposition of administrative pe nalties is often its prefer red remedy.  Second, the 
"illegal business operation" threshold is structured so  as to exclude many cases of "commercial scale" 
piracy and counterfeiting – regardless of whether goo ds at other warehouses or in transportation can 
be counted.  
28. The second  set of problems with respect to China's thresholds stems from the fact that 
Chinese authorities must rely on a very limited set of one-size-fits-all numerical tests.  A range of considerations should be probativ e of "commercial scale," but China's rigid criminal thresholds 
preclude their use; the thresholds fail to reach some classes of commercial-scale piracy and counterfeiting not only because of their magnitude, but also because of what they do – and do not – 
measure.  The thresholds do not measure reliable indicia of a commercial-scale piracy or 
counterfeiting operation, such as "worn molds" for pressing pirated products or counterfeit marks or 
other materials and implements of such an operation.    
29. China argues around the issue of whether its thresholds can reach beyond the metrics of 
"illegal business volume," "illegal gains," "amount of sales," or "copies" to capture cases of 
commercial-scale piracy and counterfeiting that are probative of "commercial scale" but do not neatly 
fit under these categories.  First, while China cl aims that criminal measures are available for the 
crimes of attempt and preparation, this does not address the concerns of the United States.  Worn 
molds and similar reliable evidence would be evidence of a completed crime
; that is, the worn mold 
supports the conclusion that co mmercial-scale infringement already has occurred.  Attempt and 
preparation are "inchoate" or uncompleted crimes and despite the probative value of this evidence for 
proving a particular completed crime, evidence such  as worn molds, which are implements used to 
commit the crime, unfinished products and non- infringing packaging is not cognizable under the 
metrics of China's thresholds.  WT/DS362/R 
 Page A-27 
 
 
  30. But even if certain near-finished products can  be counted against the thresholds in some 
cases, China's arguments still miss th e point.  Its thresholds will stil l exclude commercial-scale piracy 
and counterfeiting.  For example, 499 unfinished copies of a video game not yet bearing an infringing 
trademark still qualify as evidence of a "commercia l scale" operation, just as much as 499 finished 
video games bearing such a trademark.  Further, contrary to China's assertion, the cases included in 
China's first written submission that involved convi ction under the crime of "attempt" only involved 
convictions based on "unsold" but finished products and did not involve a situation where unfinished 
products or non-infringing packaging were used by the court for that conviction.  Additionally, the 
cases that China claims counted "unfinished" goods  do not assist China:  the reasoning in the first 
case, involving washing powder, is quite confused, and the case appears to be an outlier and the 
second case involving game cartridges, is inapposite, and the case did not involve the Article 213 
thresholds established by the December 2004 JI.  
31. China also does not rebut the conclusions r eached in the CCA Report on actual enforcement 
efforts.  Rather, China argues that the "statistical trends" from the data are not meaningful and that 
"the US has failed to present the correct conclusions  from the data."  Contrary to China's assertions, 
the United States does not advance any predictive th eories from the CCA Report.  The CCA Report is 
a compelling empirical study that pulls together raw data from actual conduct that occurred in the 
past.  The conclusions are plain to see:  the vast ma jority of traditional retail outlets selling recorded 
music and/or home video products – a classic example of commercial scale activity – faced no possibility of criminal prosecution or conviction under China's criminal thresholds.  
32. China's attempts to cast doubt on the conclusions  from the empirical study are unpersuasive.  
Rather than focus on the below-the-thresholds data at  the heart of this disput e, China instead focuses 
on trying to construct a US "hypothesis" based on activity happening above
 the thresholds – activity 
which is by definition criminalized and not the subj ect of this dispute.  Moreover, China's argument 
that there is no "dramatic shift" in infringing ac tivity between the two time periods simply misses the 
point.  Despite the lower 500 copy threshold that was in effect during the second time period, piracy 
and counterfeiting continued to flourish in the safe harbor below the thresholds.   
33. China's criticism of other US exhibits, such as  articles in newspapers and magazines that 
illustrate the safe harbor problem is puzzling,  as when the United States attempted to obtain 
information from China pursuant to TRIPS Article 63. 3, China declined to provide information but 
stated that relevant information was publicly av ailable through official websites, newspapers, 
magazines, and other proper channels. 
34. Based on its flawed interpretation of Article  61, China attempts to justify its TRIPS-
inconsistent regime and asserts that it has "imposed  criminal penalties for wilful infringement that 
involves a significant magnitude of activity " (its erroneous interpretation,  emphasis added) that is (a) 
appropriate within the legal structures of China, a nd (b) appropriate within the commercial context of 
China.  These arguments are without merit.   
35. First , whether China's criminal IPR thresholds ar e appropriate within the context of China's 
domestic law is irrelevant. What China chooses to do with its domestic non-IPR  criminal thresholds 
has no bearing on this Panel's assessment of whet her China meets its international obligations under 
the first sentence of Article 61 of the TRIPS Agreement.   China appears to confuse its ability to 
determine what constitutes a "commercial crime" in  its domestic law with its obligation to comply 
with the first sentence of TRIPS Article 61.  In this  dispute, the United States is seeking to ensure that 
a criminal law regime is in place where Article 61 requires China to have one (and where China, at 
the moment, does not).  
36. Second , China's arguments that its thresholds are reasonable "in terms of the scale of 
commerce in China" fail to withstand scrutiny.  China neither explains nor justifies how the WT/DS362/R 
Page A-28  
 
  boundaries of criminal liability that China has chosen in fact capture all counterfeiting and piracy that 
is "on a commercial scale" under Article 61.  China' s thresholds are not appropriate to the scale of 
commerce in China, as they miss many types of "co mmercial scale" activity and offer one size for all 
cases; they do not accommodate the realities of the ma rketplace.  Further China's statistics regarding 
the purported reasonableness of its "illegal business ope ration" threshold concedes that there is some 
"commerce" that falls below the thresholds and th ey do not shed any real light on the scope and scale 
of commerce in China.   
37. The inappropriateness of China's thresholds is borne out by other illustrations including 
Canada's citation to China's estimated per capita gros s domestic product.  It is clear that "commercial 
scale" counterfeiting and piracy is not limited to  large-scale or industrial-scale enterprises – on the 
contrary, the growth of the Internet and digita l technological advancements permit commercial-scale 
piracy and counterfeiting to occur with a computer in  a small space.  While China also argues that it 
does not have an obligation to consider the "c ommercial impact of the intellectual property 
infringement when setting its thresholds," advan ces in digital technology and the Internet, among 
other market conditions, enable piracy and counterfe iting to take place in situations that escape the 
reach of China's thresholds, even though they can have a large (and commercial) impact and are on a 
large (and commercial) scale.    
38. China's other arguments regarding the implemen tation of Article 61 are unavailing.  First, 
China's arguments regarding the ability of private pa rties to bring prosecution of certain criminal acts 
are of little relevance to the Panel's considerati on of whether China's criminal thresholds are 
consistent with China's obligations under Article 61.   China's assertion that lowering its thresholds 
"could unleash a large volume of private enforcemen t actions" is unsubstantia ted.  Second, China's 
administrative enforcement regime has no bearing on whether China meets the obligations of the first 
sentence of Article 61.  Part III of the TRIPS Agreement deals with a number of enforcement 
procedures.  Section 2 pertains to "Civil and Admi nistrative" procedures and Section 5, where Article 
61 can be found, pertains to "Criminal" procedures.  It is notable that Article 61 is the only provision 
that focuses on criminal penalties and procedures.  Conversely, that also means that only criminal 
penalties and procedures can fulfill the obligations in Article 61.    
C. CHINA 'S CRIMINAL IPR  THRESHOLDS ARE ALSO INCONSISTENT WITH ARTICLE  61, SECOND 
SENTENCE AND ARTICLE  41.1  OF THE TRIPS  AGREEMENT  
39. The United States has also demonstrated why China's criminal IPR thresholds are also 
inconsistent with the second sentence of Article 61 and Article 41.1.  China acknowledges that if the 
Panel finds that China's criminal IPR thresholds are inconsistent with the first sentence of Article 61, 
it must also find an inconsistency with the second sentence of Article 61 and with Article 41.1.  
III. CHINA'S MEASURES FOR DISPOSING OF CONFISCATED GOODS THAT 
INFRINGE INTELLECTUAL PROPERTY RIGHTS ARE INCONSISTENT WITH CHINA'S OBLIGATIONS UNDER ARTICLE 59 OF THE TRIPS AGREEMENT  
A. A
RTICLE 59 OF THE TRIPS  AGREEMENT  
40. Article 59 provides in pertinent part that the "c ompetent authorities shall have the authority to 
order the destruction or disposal of infringing g oods in accordance with th e principles set out in 
Article 46."  For the purposes of this dispute, th e relevant authority needed under Article 59 is 
detailed in two sentences in Article 46.  Read togeth er, Article 46 and Article 59 require, first, that a 
Member's competent authorities for border enforcem ent "shall have the authority to order that goods 
that they have found to be infringing be disposed  of outside the channels of commerce in such a 
manner as to avoid any harm caused to the right hol der, or, unless this would be contrary to existing 
constitutional requirements, destroyed."  Second, "[i]n regard to counte rfeit trademark goods, the  WT/DS362/R 
 Page A-29 
 
 
  simple removal of the trademark unlawfully affixed shall not be sufficient, other than in exceptional 
cases, to permit release of the goods into the channels of commerce."   
41. China advances a number of arguments that  would minimize China's obligations under 
Articles 46 and 59.  These arguments are without merit.  First , China's arguments that Article 59 does 
not require that Members provide a broad grant of authority to agencies and that China's regime 
simply "stipulates conditions and sequencing for its exercise by domestic agencies" are unavailing.  
Article 59 plainly requires full authority to be grante d to dispose of or destroy confiscated infringing 
goods in accordance with the principles of Article 46.  The broad scope of Article 59 authority 
regarding infringing goods confiscated by border authorities is clear from the absence of any restrictions on this authority in Artic le 46.  China Customs should have the power to choose among 
any legitimate options for dealing with these goods – in accordance with the principles of Article 46 – 
from the outset when the goods are found to be infringing, and thereafter until the goods are finally dealt with.    
42. China's attempts to use TRIPS Article 1.1 to argue for the acceptability of its rigidly 
constrained disposal regime are unavailing as Article 1.1 does not exempt China from complying with 
these provisions of the TRIPS Agreement.  China' s references to other Members' copyright and 
trademark laws are similarly misplaced as this disp ute concerns China's measures, not other Members' 
laws, and further, substantively, these laws do not resemble in any respect the problematic disposal 
hierarchy used by China. 
43. Second
, China also points to China Customs statistics showing the disposition of confiscated 
goods found to be infringing.  Those figures, however, provide no response to the US claim; the 
United States is not arguing that the TRIPS Agreement obligations require  China to destroy or 
dispose of all such goods in accordance with the relevant principles of Article 46.  
44. Third , China's argument that the Article 46 principle to "avoid any harm caused to the right 
holder" only obliges China to "pay due regard to potential harms to the right-holder and to refrain 
from disposition methods that consistently or sign ificantly harm the right-holder's interests" is 
contrary to the meaning of the provision.  The obliga tion is not to "pay due regard" to the interests of 
a right holder and to tolerate intermittent or "non-si gnificant" harm.  The standard requires avoiding 
any harm to the right holder.  Indeed, the definition China itself cites for the word "avoid" is "to keep 
away or refrain from; prevent from doing or happening ." 
45. Fourth , China's argument that the final sentence of  Article 46 is not incorporated into 
Article 59 is at odds with the text of Article 59.  There is no limiting language in Article 59 that would 
selectively incorporate only the obligat ions in the first sentence of Article 46.  If the negotiators of the 
TRIPS Agreement had intended to carve out specific obligations in Article 46 from being transposed 
to Article 59, they would have done so.  
46. Additionally, China's claim the principle in the last sentence of Article 46 only means that the 
"removal of the trademark is not sufficient" to permit this release is contrary to the language of Article 
46, last sentence.  China misreads the relati onship between the phrases "removal of the trademark 
unlawfully affixed shall not be sufficient" and "exceptional cases".  The phrase "other than in 
exceptional cases" means that only in exceptional cases may the competent authorities "permit release 
of the goods into the channels of commerce."  More over, while China further claims that it complies 
with the purpose behind this principle, since Chin a Customs removes all infringing features from the 
goods and takes other steps, the TRIPS Agreement does not provide for Members to only comply with 
what they identify to be a "purpose" behind a provision. WT/DS362/R 
Page A-30  
 
  B. C
ONTRARY TO ARTICLE 59, CHINA 'S CUSTOMS AUTHORITIES DO  NOT HAVE THE AUTHORITY 
TO ORDER THE DESTRUCTION OR DISPOSAL OF INFRINGING GOODS IN ACCORDANCE WITH THE PRINCIPLES SET OUT IN 
ARTICLE  46 
47. Article 30 of the Customs IPR Implementing Measures, which implements Article 27 of the 
State Council Customs IPR Regulation and binds Customs officials across China, sets out a 
compulsory sequence of steps that Chinese Cust oms must follow in deciding how to treat goods 
seized at the border that it has determined infringe intellectual property rights.  While China claims 
that its Customs authorities have the "discretion" not  to follow the prescribed steps in the hierarchy, 
the essential point in the US claim is that in  circumstances where Customs makes a certain 
determination under its measures, it is compelled to follow the option set forth in the hierarchy.  And 
in those circumstances , China Customs lacks the authority that  the TRIPS Agreement requires to opt 
for destruction or disposal in accord ance with Article 46 principles.   
48. China also asserts that its rigid disposal regi me somehow does not strictly constrain Customs 
officials' scope of action, because other generally applicable Chinese laws regarding such matters as 
safety also govern Customs authorities' decision maki ng.  However, in response to panel questions, 
China specifically concedes that Ch inese Customs officials must make particular findings under its 
disposal regime, and once they have made them , they have no discretion as to their acts.  
49. Neither alternative in the initial step of Chin a's mandatory hierarchy – donation or sale to the 
right holder –  meets the principles of Article 46.   China Customs' donation of infringing goods to 
"public welfare organizations" under the measure s at issue does not provide Customs with the 
authority to dispose of the confiscated goods  "out side of the channels of commerce in such a manner 
as to avoid any harm caused to the right holder. "  First, while China claims that its Customs 
authorities only donate goods suitable for public we lfare purposes, these standards would not prevent 
donation of usable but likely lower-quality counterfe it or pirated products that would be used by 
potential consumers of the genuine article and al so could harm the right holder's reputation.  
Accordingly, the donation option in China's measures is inconsistent with the Article 46 principle 
concerning harm to the right holder.    
50. Second, while China states its legal obligati on to supervise the use of the donated goods 
ensures that they will not retu rn to commerce, Article 17 of the Law on Donations specifically 
authorizes public welfare organizations to sell donate d goods on the market if certain circumstances 
are present.  While the Red Cross Memorandum does contain a provision obligating the Red Cross to 
"take effective measures ... entering into the cha nnels of commerce," at the same time, the Law on 
Donations makes clear that donee organizations are not required  to enter into these kinds of 
agreements, and when no agreement is in place, Chinese authorities have offered no legal argument 
that they can override the provisions of Article 17.  Accordingly, for that reaso n, China is not meeting 
its obligations under Articles 59 and 46.  
51. While China points to Article 18 of the Law on Donations in an attempt to dismiss the 
relevance of Article 17, selling the goods under Ar ticle 17 and ensuring the resulting funds continue 
to be put to the "use" prescribed in the donation agreement appears, on its face, to be an action 
consistent with the mandates of Article 18.  Likewise, a general contractual commitment such as in the Red Cross Memorandum would not override rights provided under a national law.   
52. Furthermore, China's claim that Article 30 of the Customs IPR Implementing Measures 
renders the resale option under Article 17 of the La w on Donations "null" is unavailing.  Article 30 
governs Customs' donations to a public welfare organization and Article 17 governs the donees' 
disposal of such goods after the donation, when the circumstances presented in Article 17 arise.      WT/DS362/R 
 Page A-31 
 
 
  53. The second option at the initial step in China's di sposal hierarchy, which allows Customs to 
sell the infringing goods to the right holder, does no t permit disposal "in such a manner as to avoid 
any harm caused to the right holder," as Article 46 requires.  In situations where donation is not 
appropriate, China's measures require Chinese author ities to offer the infringing goods for sale to the 
right holder.  If right holders pay for infringing goods to ensure that they are destroyed or removed 
from the channels of commerce (such as, for example, by public auction), financial harm will result in 
the form of the payment.  While China argues that th e required efforts to sell infringing product to the 
right holder advance right holder's interests, this ar gument is without merit.  It requires the untenable 
assumption that right holders are eager to buy extra product they have not ordered and whose 
production is outside the terms of their contract.  
54. Where the transfer to a public welfare organi zation is unavailable, and the right holder does 
not elect to purchase the infringing goods, the Customs authorities must  turn to the next compulsory 
step involving the public auction of the confiscat ed goods.  China's public auction process for these 
goods likewise does not comport with the Article 46 principles incorporated into Article 59.    
55. Because China's mandatory procedures strip Cu stoms of the authority to prevent auction 
when this option becomes operative in the Customs hi erarchy, the procedures are inconsistent with the 
first sentence of Article 46.  A mandated auc tion under China's measures also precludes Customs 
from having the authority to destroy these products .  While China argues that Article 59 does not 
obligate China to limit its custom s agencies to disposal outside the channels of commerce, the US 
claim concerns the scope of authority under Article  59.  Because China's mandatory public auction 
procedure does not permit China Customs to act in  accordance with the Article 46 principles, it is 
inconsistent with China's obligatio ns under the TRIPS Agreement.   
56. China's arguments regarding how its public aucti on procedure avoids harm to the right holder 
should be disregarded.  A public auction can cause great harm to the right holder, since the infringer 
whose goods have been confiscated can simply purchase the seized goods at the auction, re-affix the infringing features, and proceed to distribute th e goods.  While China focuses on the impact on the 
infringer, the Article 46 principle at issue concer ns avoiding any harm to the right holder, not 
assessing the status of the infringer.  Moreover, a right holder's ability to "comment" on China's 
measures is not a right to prevent the goods from being auctioned, and is not a means to ensure that 
the authorities act in a manner that avoids any harm to a right holder.  Additionally, even if some 
"safety" concerns will prevent a public auction, in  the many cases where the infringing features can be 
eliminated and the goods do not pose safety con cerns, the measures mandate public auction – and 
thus, entry into the channels of commerce.   
57. Further, with respect to counterfeit trademark goods, China's public auction step is also 
inconsistent with the principle in the last senten ce of Article 46.  Simply put, China does not confine 
its release of these goods into the channels of commerce to exceptional cases.  China's focus on 
actions such as reserve prices and comments from the right holder are misplaced:  the problem is that 
China's measures compel public auction if the infri nging features of the products can be eliminated, 
assuming no safety defects.   
58. In the final step of the mandatory hierarchy, if  no earlier options prove feasible, then and only 
then, China Customs gains the power  to destroy the infringing goods.  In other words, this step will 
not be reached if any of the options higher in prio rity are available.  In these situations, Chinese 
customs authorities are not, as a matter of Chinese law,  authorized to destroy the infringing good (or 
otherwise dispose of the good in a way that is bot h outside of the channels of commerce and handled 
in a manner that avoids any harm to the right holder).     
59. China does not deny that China Customs onl y possesses the authority to destroy the goods 
when the other options in its disposal hierarchy (i .e., donation, sale to the right holder, public auction) WT/DS362/R 
Page A-32  
 
  are not available.  Indeed, the cases China cites wher e China Customs destroyed infringing goods do 
not contradict the mandatory nature of the Customs disposal hierarchy.  The text of China's Customs 
IPR Implementing Measures state that when certain  facts are present, Customs officials have no 
discretion, i.e., they must dispose of the goods only in the manner stipulated.  In each
 of those 
circumstances, Chinese customs aut horities lack the authority, as a ma tter of Chinese law, to order the 
destruction of infringing goods. 
IV. CHINA'S DENIAL OF COPYRIGHT PROTECTION AND ENFORCEMENT TO 
CERTAIN WORKS IS INCONSISTENT WITH THE TRIPS AGREEMENT 
60. In its submissions, China admits that it deni es copyright protection to certain works whose 
contents Chinese authorities determine are prohibite d by law.  Moreover, the National Copyright 
Administration of China (NCAC) has confirmed that  Article 4 denies copyright protection to "works 
whose contents are illegal."  Therefore, contrary to China's obligations under TRIPS Article 9.1 (and 
the provisions of the Berne Convention referenced in Article 9.1), Article 4.1 on its face denies 
copyright protection to works that are required to be afforded protection.  
61. First , Article 4 of the Copyright Law excludes from copyright protection an entire category of 
works – "works the publication or distribution of wh ich is prohibited by law" – but that exclusion 
from protection is not permitted by the Berne Conventi on.  Pursuant to Berne Convention Article 2(1) 
and Article 2(6), China's Article 4.1 blanket exclusio n for certain works is inconsistent with the Berne 
Convention as incorporated into the TRIPS Agreement. 
62. While China asserts that under Article 2 of the Copyright Law, Chinese law "protects 
copyright from the time a work is created" as "cop yright vests upon creation," China concedes that 
Article 4.1 denies protection to certain wo rks.  Thus, China already admits that some subject matter 
does not receive protection at all since it is denied such protection as a matter of law.  While courts 
and/or competent authorities may confirm  what is illegal after the fact, such confirmation is not a 
prerequisite for concluding as a legal matter that cont ent is not protected by copyright.  Additionally, 
Article 2 of the Copyright Law cannot, by the terms of  Article 4, apply to certain works.  The Berne 
Convention (or the TRIPS Agreement) does not perm it copyright to be extended initially, but then 
rescinded for the reasons stated in Article 4.  
63. Second , because Article 4 denies copyright protectio n to certain works, the exclusive rights 
enumerated in Article 10 of China's Copyright Law, a nd all the protections of the law, are also denied 
to such works.  As a result, Article 4 of the Co pyright Law does not comply with the requirements of 
Berne Article 5(1), which specifies certain guaranteed minimum copyright protection for works, 
including a minimum set of exclusive rights.   
64. China's attempts to distinguish "copyright" a nd "copyright protection" are unavailing.  The 
relevant provisions of the Berne Convention provi de that China has obligations with respect to 
"protection" of copyright, thus, the existence of what  China calls "Article 2 copyright" – whatever that 
could mean in the absence of protection under China's Copyright Law – is not relevant to the analysis 
of whether Berne Convention-mandated "protection" is afforded.   
65. China's arguments regarding the limited "mar ketplace effect" of Article 4.1 should be 
disregarded, as the denial of copyright protection in  China has significant real-world impact, including 
commercial uncertainty for right holders and permitti ng copyright pirates to profit at the expense of 
the legitimate rightholder.  Furthermore, if right hol ders cannot enforce their copyright against pirated 
products manufactured in China, then this deprives them of a critical mechanism for preventing the 
export of such products.  WT/DS362/R 
 Page A-33 
 
 
  66. Third , the United States has also demonstrated in its first submission that first sentence of 
Article 4 makes copyright protection subject to a formality that is inconsistent with Berne 
Article 5(2), and therefore also inc onsistent with TRIPS Article 9.1. 
67. China's submissions do not address the US concer ns that the impact of content review on 
copyright protection constitutes a "formality" under Ar ticle 5(2).  First, while China asserts that 
copyright protection and content review are separate and that the effect of a content review process 
does not deny copyright, this is contradicted by China's own statements.  China acknowledges that it 
maintains pre-publication review with respect to th e publication and distribution of certain kinds of 
works including films and audiovisual products and ad mits that in certain cases, it does not permit 
publication until content has been approved.  China' s own admissions related to the content review 
regulations confirm that works that have been f ound to contain such prohibited content would clearly 
come under the ambit of Article 4.1, as they are "unc onstitutional".  Therefore, by analogy, where pre-
publication review is required and publication is  prohibited until the completion of a successful 
review, Article 4 denies copyright to such works.  This means that copyright protection is subject to 
the results of that review – i.e., to a formality. 
68. Second, China's arguments regarding the alle ged separation between the content review 
authorities and NCAC do not accord with the fact that  Article 4 of the Copyright Law refers to other 
laws and regulations in China that prohibit the publication or distribution of works.  First, China's 
current position does not sit well with the position that China expr essed to WTO Members before 
having to respond in this dispute:   during the 2002 WTO Review of Legislation in the TRIPS Council, 
China explained that the copyright denial in Article 4 is the result of prohibitions in other laws, not a 
separate assessment by NCAC.  Second, prominent Chinese copyright scholars writing at the time of 
the adoption of Article 4 have confirmed that the intended purpose of promulgating Article 4.1 was to 
deny copyright protection to works for which the publication or distribution of which are prohibited 
by other  laws.     
69. Third, the power to interpret Chinese law rest s with the Standing Committee of the National 
People's Congress.  Because the NCAC does not have delegated authority by the Standing Committee, 
its actions do not represent a definitive interpretation of Article 4, at least with respect to China's 
TRIPS obligations to afford civil and criminal remedies for copyright infringements heard by the 
courts and procuratorate. 
70. Moreover, China's discussion of a NCAC reply in the Zheng Haijin case fails to show that the 
content review process is separate from copyright in the work.  The guida nce issued by China's 
Supreme People's Court (SPC) in this case appears to demonstrate that the SPC considered that 
copyright protection was contingent on the work's successful completion of content review.  China's 
answer to the Panel's question regarding this SPC guidance document, however, is confusing.  First, 
China's response acknow ledges that, in the Zheng Haijin  case, the SPC "endorsed the finding that 
there was no basis to deny the protection of the copyri ght law to the work."  If China is stating that the 
SPC was endorsing a "finding" of the content review authority with respect to the copyright law , then 
that confirms the US view. 
71. However, if China is suggesting that the SPC  was merely endorsing a lower court's finding, 
then that suggestion sits very uneasily with wh at the SPC actually said.  The SPC states that 
"therefore" (i.e., for those reasons stated in the documen t) the lower court's protection of copyright 
was correct.  The United Front Department's review  and approval were indispensable to the court's 
opinion.  Additionally, China's assertion in its answer  that the "not yet been approved for publication" 
defense would fail is unsupported by the Zheng Haijin case, as the case demonstrates that, even where 
book numbers rather than content are at issue, c ourts examine the content of a publication before 
deciding whether or not copyright is protected. WT/DS362/R 
Page A-34  
 
  72. China claims that Article 4 "would not remove  the "residual copyright under Article 2," but 
rather, would "deny the particularized rights of pr ivate copyright enforcement" to works that are 
determined to be prohibited by law.  However, Be rne Article 5(2) states that both "the enjoyment and 
exercise of rights shall not be subject to any forma lity."  Therefore, a content review that affects the 
exercise of an author's rights still would impose a "formality" under the Berne Convention.  
73. Fourth , a consequence of the China's denial of copyright protection under Article 4 is that the 
provisions of Chapter V of China's Copyright Law are unavailable with respect to such works.  
Therefore, authors of such works do not benefit fro m the remedies specified in Articles 46 and 47 of 
this law which provide civil liabilit y (and in some cases, administrative and/or criminal liability) for 
copyright infringement.  Moreover, authors cannot take advantage of other remedies provided by 
Articles 48 and 49 of this law that, respectively, provide for monetary damages and the ability to seek 
a court order to stop an infringement that is being committed.   
74. China is therefore not in compliance with its obligations under TRIPS Article 41.1 to ensure 
that enforcement procedures as specified in Pa rt III of the TRIPS Agreement (including those 
provided by Articles 42, 44.1, and 45.1) are available to copyrighted works in order to permit 
effective action and expeditious remedies against co pyright infringements.  Furthermore, because 
criminal procedures under Article 47 of the Copyright  Law are not available at  all with respect to 
works whose distribution or publication in China is prohibited, no criminal procedures or remedies are 
available when piracy of those works occurs on a commercial scale.  China is thus not meeting its 
obligations under TRIPS Article  61, first and second sentence. 
75. Finally, Berne Article 17 does not authorize a c ontent review system that denies enforceable 
copyright protection (including denial of protection of the rights of reproduction, adaptation, etc.) to 
all works that have not been approved for publica tion or distribution.  The United States challenges 
the TRIPS-inconsistent copyright consequences  of Article 4.1.  That is, the content review measures 
do not create the TRIPS-inconsistency; rather they  provide one important basis for the Article 4.1 
denial of copyright protection.  
V. CONCLUSION 
76. The United States respectfully requests the Panel to find that China's measures, as set out in 
the US panel request and discussed in the submissi ons of the United States, are inconsistent with 
China's obligations under the TRIPS Agreement.  The United States further requests, pursuant to 
Article 19.1 of the DSU, that the Panel recommend th at China bring its measures into conformity with 
the TRIPS Agreement.  WT/DS362/R 
 Page A-35 
 
 
  ANNEX A–5 
 
EXECUTIVE SUMMARY OF THE ORAL STATEMENT OF THE UNITED STATES  
AT THE SECOND SUBSTANTIVE MEETING 
 
 
 
I. CHINA'S CRIMINAL IPR THRESHOLDS FOR CRIMINAL PROCEDURES AND 
PENALTIES   
1. The United States and a number of third parti es have provided concrete illustrations of how 
China's thresholds permit wilful trademark counte rfeiting and copyright piracy on a commercial scale 
to exist.  The United States has faithfully used th e customary rules of interpretation reflected in the 
Vienna Convention  to explain the meaning of "commercial scale".  First, by using the word " scale " in 
the term "commercial scale," the TRIPS Agreement makes clear that WTO Members must criminalize 
acts of infringement that reach a certain extent or magnitude .  Second, in using the word 
"commercial " in the term "commercial scale," the TRI PS Agreement draws a link to the commercial 
marketplace  – where business-minded IPR infringers take the fruits of their counterfeiting or piracy.  
Accordingly, an infringer seriously engaged in pursuing financial gain in the marketplace is 
necessarily acting on a "scale" that is "commercial," and therefore falls within the ordinary meaning 
of the term.  However, the meaning of the term "commercial scale" does not depend on the intent of 
the infringer.  
2. Could a single sale of an infringing product qualify as "commercial scale" under this 
interpretation?  That is a question that China repeated ly raises.  The answer is that it is possible, but – 
as the United States has consistently emphasized – it would depend on the circumstances, including consideration of relevant factors noted by the United States and third parties.  
3. China invites the Panel to substitute a concept that China has labeled "significant magnitude 
of activity," but this ignores the ordinary meaning of the term.  First , China now reveals that it 
believes "commercial scale" is a measure of "significant business activity."  Of course, neither "scale" nor "commercial" leads to "significant".  Further,  use of the term "commercial scale" sets up a 
contrast between "commercial" and "non-commercial" magnitudes of activity.  And so the question is 
what is "non-commercial" scale, not
 what qualifies as "significant commercial-scale activity."   
4. China provides no evidence that the Urugua y Round negotiators distilled a prevailing 
understanding of "commercial scale" from the unr elated sources cited by China; they are not 
"common usage" and are not a "special meaning" under the Vienna Convention .  China also no longer 
asks this Panel to incorporate the definitions in the draft model provisions prepared by the WIPO 
International Bureau into Article 61.  In our view , China should not be permitted to selectively refer to 
one aspect of that WIPO document – the mention of manufacturing – and then ignore the rest of the 
concept.  (In that context, China now recognizes that  "commercial scale" can be met by retail sales.)  
The document can at most be considered as a supplemental means of interpretation under the 
customary rules of interpretation; and when so considered, the document confirms the US 
interpretation. 
5. Second,  China's efforts to persuade the Panel that "commercial scale" is a "broad and flexible" 
standard is fundamentally unsound.  Article 61 must  be interpreted in accord ance with the customary 
rules of treaty interpretation; those rules do not divide treaty provisions into categories such as 
"broad" and "narrow".  Moreover, nothing about the ordinary meaning of the term "commercial scale" 
leads to ambiguous interpretations.  Any variat ion in third party views does not mean that 
"commercial scale" is susceptible to  interpretations other than the US  interpretation.  Indeed, many 
third parties have expressed views consistent w ith the United States – and noting that it may be WT/DS362/R 
Page A-36  
 
  necessary to consider multiple factors to decide wh ether a particular infringement is "on a commercial 
scale" in no way creates ambiguity or conflicts with the US views.   
6. Third , China now agrees that Article 1.1 and Article 41.5 do not allow WTO Members to 
ignore explicit TRIPS obligations.  Moreover, th e second sentence of Article 61 does not change how 
the first sentence should be interpreted;  it on ly addresses the relative severity of the criminal 
remedies
 that must be available, whereas the firs t sentence addresses the floor ("on a commercial 
scale") of what must be criminalized  in the first place.  Fourth , while China claims that criminal 
penalties must be actually applied  to fulfill the first sentence of Article 61, US practice is not at issue 
in this dispute, nor does it constitute "subsequent pr actice" in the application of the TRIPS Agreement 
by WTO Members.  Similarly, whether or not Chin a chooses to actually prosecute relatively smaller 
cases of wilful trademark counterfeiting or copyrigh t piracy "on a commercial scale" is not at issue 
here. 
7. Fifth , China also continues to seek special de ference because of its  non-common law legal 
system, but this tack should not be countenanced.  China is free to provide an IPR enforcement regime 
consistent with, for example, systems in effect in  countries with a civil law tradition.  China also 
repeatedly mis-states the basis for in dubio mitius in its second submission.  In fact, the Appellate 
Body has found that in dubio mitius  applies when the meaning is "ambiguous," and in this case there 
is no need to rely on this concept.  
8. Even under China's mistaken interpretation of "c ommercial scale," China' s regime would still 
have to be considered inconsiste nt with its obligations under the TRIPS Agreement.  For example, 
while China claims that the RMB 50,000 "illegal busin ess volume" threshold is less than 30% of the 
annual revenue of households enga ged in retail trade, it is difficult to imagine four months  of retail 
activity not being "significant" infringement activity.  
9. China's thresholds are set at such a level, and stru ctured in such a way, that they do not permit 
prosecution or conviction of infringing activity involving values or volumes that are below the 
thresholds but are still "on a commercial scale."  At no point does China claim that criminal 
prosecution or conviction under Articles 213, 2 14, 215, 217, and 218 is possible for any  trademark 
counterfeiting or copyright piracy below the thresholds .  China does not rebut the core issue:  if a case 
fails to meet at least one of the thresholds, that fact will preclude criminal prosecution and conviction.  
China essentially concedes the ex istence of a safe harbor for some commercial-scale counterfeiting 
and piracy, and instead only attempts to chip aw ay at the size of it.  China's new arguments are 
without merit.  
10. First , even China cannot say that it reaches all of the examples of counterfeiting and piracy 
cited by the United States and others – the best that  China can assert is that it reaches "most" of it.  
Second , the existence of China's valuation methodology  as a component of its thresholds is fully 
relevant; it creates a safe harbor, whether it is  based on the value of the infringing goods or  the 
legitimate goods.  By relying on prices of infring ing products, China contributes greatly to the 
capacity of the safe harbor to shelter co mmercial-scale counterfeiting and piracy.  
11. Third , while China asserts that its threshol ds can cover an extended time-frame of 
infringement, to the extent that China's IPR regi me requires not just commercial-scale activity, but 
sustained commercial scale activity, that additional requi rement does not comport with Article 61.  
Fourth , China's claims that certain "general provisions" of its Criminal Law – namely inchoate crimes 
and joint liability – can establish criminal procedures and penalties are without merit.  That "inchoate" 
crimes can be used to address evidence of potential  infringement is beside the point.  The 
inconsistency with Article 61 arises because China's thresholds rule out criminal liability based on 
evidence of actual infringement that does not meet the metrics; i.e., some actual  infringement is 
exempted.  China's argument regarding "joint liabilit y" is of no consequence with respect to infringers  WT/DS362/R 
 Page A-37 
 
 
  who work alone.  China's reference to the Zhao Chaoying  case (Exhibit CHN-12) does not 
demonstrate that below-the-thresholds activity can be captured.     
II. CHINA'S BORDER MEASURES FOR DISPOSAL OF CONFISCATED GOODS 
12. The first sentence of Article 59 provides in pertin ent part that the "competent authorities shall 
have the authority to order the destruction or di sposal of infringing goods in accordance with the 
principles set out in Article 46."  For the purposes of this dispute, this requires focus on the first and 
fourth sentences in Article 46.  China's Customs au thorities do not have the authority to order the 
destruction or disposal of infringing goods in accordance with the Article 46 principles.  
13. The United States has demonstrated the deficien cies in China's broad claims of compliance 
with Article 59 and Article 46. For example, the China Customs statistics do not demonstrate that 
Chinese officials are able to exercise full Article 46 authority in dealing with such goods.  China also 
fails in arguing that the authority to take acti on in accordance with Article 46 can be "reasonably 
conditioned" and that China simply includes certain "factors for discretion" in its Customs disposal regime.  Article 46 describes the required scope of authority both to dispose of goods and to destroy 
goods – and nowhere includes the many obstacles and conditions present in the Chinese legal regime. 
14. China's view acting with a high "probability" that  harm to the right holder will be avoided is 
enough does not accord with the text of Article 46.  Authority to dispose of goods "in such a manner 
as to avoid any harm caused to the right holder" requires a structure and process that – as the text plainly states, actually "avoids
 any harm  caused " – not that has good prospects for avoiding harm.  
15. Further, China continues to pursue a number of arguments that misread the text of the last 
sentence of Article 46.  First , while China claims that actions, such as reserve prices and comments 
from the right holder, qualify as more than the "simpl e removal" of the trademark, thus justifying its 
auctions under Article 46, the word "simple" in th e phrase means what it says:  Customs may not just 
remove the offending trademark from the goods and release such goods into the channels of 
commerce, other than in exceptional cases .  (China concedes that, under its measures, in the case of 
counterfeit trademark goods, it only removes the infringing trademark.)  Second , China's reading of 
the term "release" in the last sentence of Article 46 is contrary to the text of Article 46, which says 
release into "channels of commerce " – not "return of the goods to the infringer."    
16. China concedes that when Custom s finds certain facts are present, it is compelled to follow 
the particular step set forth in its measures.  This  is the core of the US concern.  The flowchart 
(Exhibit US-68) illustrates that in each  of the circumstances denoted w ith the word  "yes," Customs 
lacks the required authority under the TRIPS Agreemen t.  While China argues that the US needs to 
provide factual evidence of harm in the case of the donation option, our claim is based on the legal 
structure that governs Customs' decision-ma king.  The lack of Customs' authority to make these 
donations in accordance with Article 46 principles is evidenced by the Law on Public Donations, 
which authorizes the sale into commerce of donate d goods when certain conditions are present, and 
also the need for Customs to sign a donation agreement to avoid the sale of these goods. 
17. Even with a donation agreement, sale into commer ce appears to be possible.  China's Contract 
Law indicates that when a contract contains a provision inconsistent with a Chinese law, the law 
prevails over that contract provision. China Cust oms' own regulations woul d not affect charitable 
organizations' rights under the Law on Donations to  sell donated goods when circumstances change. 
18. China's measures require Customs to move to the public auction step if the right holder does 
not pay for these goods (and donation is not appropriate) .  This will in fact have an impact on right 
holders' decisions about buying the infringing go ods.  If right holders pay for infringing goods, 
wishing to ensure that they are destroyed to preven t their auction, this payment causes financial harm. WT/DS362/R 
Page A-38  
 
  19. Next, because China's mandatory procedures strip Customs of the authority to prevent auction 
when this option becomes operative in the Customs hierarchy, the auction procedures are inconsistent 
with the first sentence of Article 46.  A public au ction obviously is not destruction, and China does 
not dispute that it leads to release of such goods into the channels of commerce.  While China 
attempts to argue that the trademarked goods it au ctions are exempt from Article 46's protection, 
China's argument misses the point.  In Article 46 last sentence, Members have already settled the 
issue raised by China – there is no requirement for a further showing of harm to the right-holder.  
Second, we have also shown that China's public aucti on step is inconsistent with the principle in the 
last sentence of Article 46, because China rele ases these goods into the channels of commerce as a 
matter of course, rather than only in exceptional cases.   
20. As the flowchart indicates, the "destruction" step becomes operational only if no earlier 
options prove feasible.  Then and only then, Chin a Customs gains the power to destroy the infringing 
goods.  The highly limited circumstances under which Ch ina's legal regime permits destruction do not 
comport with Article 46.  
III. ARTICLE 4 OF CHINA'S COPYRIGHT LAW 
21. China has admitted that it denies copyright pr otection to certain works whose contents 
Chinese authorities determine are prohibited by law.  The text 
of Article 4.1 itself demonstrates that 
China's measure is TRIP-inconsistent and it serves as the principal "fact" dem onstrating our claim.  
We have also provided additional evidence, includi ng a discussion of statements by China's Supreme 
People's Court; an explanation of the legal forc e of Chinese judicial interpretations and the 
relationship between Chinese judicial statements and Chinese administrative agency statements;  
China's own formal statements to the WTO about th e operation of the Copyright Law; and analysis by 
recognized scholars and legal experts.  
22. First , Article 4.1 of the Copyright Law is incons istent with Berne Articles 2(1) and 2(6).  
Second , because Article 4 denies copyright protecti on to certain works, the exclusive rights 
enumerated in Article 10 of China's Copyright Law, a nd all the protections of the law, are also denied 
to such works.  As a result, Article 4 of the Co pyright Law does not comply with the requirements of 
Berne Article 5(1).  These arguments were points made in the US first submission about Article 4. 
23. The scope of the Article 4.1 exclusion is not  limited.  China's apparatus for censorship 
suggest that many categories of works are potentially  subject to being excluded from protection.  The 
ongoing rampant infringement in China, including of wo rks that have been censored or prohibited in 
China, suggests that there are serious implications for right holders  And to the extent that China 
means foreign marketplaces, the enforcement burden falls  instead on the recipient countries of 
infringing exports as right holders do not have a cruc ial tool for preventing export.  Moreover, foreign 
right holders unfamiliar with the Chinese Government 's current content preferences cannot be sure 
whether or when copyright protection will be granted or denied.   
24. Article 17 does not authorize a system that de nies all enforceable copyright protection an 
entire category of disfavored works.  If the Berne C onvention drafters had sought to do so, they could 
have expressed this by using phrases in Berne Article 2(8) or Berne Article 2 bis(1).  Indeed, the 
power to censor does not mean that a right holder is stripped of its copyright and the ability to enforce 
against third parties  who might produce or sell infringing copies  in domestic or foreign markets.  
Leading copyright scholars agree.  Censorship is distinct from a rightholder's right to authorize or 
prohibit certain uses of their expression of an idea by a third person.   
25. Third , Article 4.1 makes copyright protection subject to a formality that is inconsistent with 
Berne Article 5(2), and therefore is also inconsis tent with TRIPS Article 9.1.  China acknowledges 
that it maintains pre-publication review with resp ect to the publication and distribution of certain  WT/DS362/R 
 Page A-39 
 
 
  kinds of works, including films and audiovisual produ cts, and admits that in certain cases, it does not 
permit publication until content has been approved.  Therefore, where pre-publication review is 
required and publication is prohibited until the completion of a successful review, Article 4 by its terms makes copyright protection subject to the results of that review – i.e., a formality.  
26. The Zheng Haijin opinion demonstrates that courts exam ine the contents of a work before 
deciding whether or not copyright is protected.  I ndeed, China's statements demonstrate that when it 
comes time to enforce a copyright owner's rights in a work, they must prove that it passes content 
review in order to be awarded copyright protection.   This is a clear condition precedent to copyright 
protection (or formality) that if not followed and satisfied, prevents the exercise and enjoyment of 
rights.  Further, China has acknowledged the close overlap between the content review standards and 
what is "prohibited by law" for purposes of Article  4.1, rendering a distinction immaterial.  Moreover, 
while China claims the content review measures cite d by the United States are not referenced in the 
text of Article 4.1, there is nothing in Article 4. 1 that states that the works for which publication or 
dissemination is prohibited must be prohibited solely by the Copyright Law
.    
27. Fourth , Article 4.1 is inconsistent with TRIPS Articles 41.1 and 61 first and second sentence 
because of the exclusion of certain civil and crimin al remedies.  Article 17 does not serve to justify 
China's exclusion of these remedies.  The enforc ement of a censorship prohibition simply cannot 
replace the enforcement of copyright in the works concerned.  Indeed , a right holder's copyright rights 
include the application of certain remedies, such as civil remedies, which do not form part of the 
governmental enforcement of censorship. 
28.  With respect to DSU Article 3.7, China's stat ements in the context of this dispute have 
confirmed that this claim is "fruitful," as they ha ve reinforced our concerns that Article 4.1 is 
inconsistent with China's TRIPS obligations. WT/DS362/R 
Page A-40  
 
  ANNEX A–6 
 
EXECUTIVE SUMMARY OF THE CLOS ING ORAL STATEMENT OF THE  
UNITED STATES AT THE SECOND SUBSTANTIVE MEETING 
 
 
 
I. INTRODUCTION 
1. We noted yesterday that the second panel meeting is an appropriate time to take stock of 
where we are.  It is also an appropriate time to  recall the context within which this dispute comes 
before you.   
2. This dispute is about the legal regime that  China has put into place for protecting and 
enforcing IPR.  More precisely, it is about three speci fic aspects of that regime .  In short, our claims 
are these:  the negotiators of the TRIPS Agreement set out a structure of rules for WTO Members to 
follow with respect to the protection and enforcemen t of intellectual property rights.  In each of the 
three claims that we have advanced in this dispute,  we seek to ensure that such rules are in place in 
China, and that the rules are in accordance with the negotiated disciplines.  In our submissions, we 
have shown that – unfortunately – they are not.  
II. CHINA'S CRIMINAL IPR THRESHOLDS FOR CRIMINAL PROCEDURES AND 
PENALTIES   
3. Turning to the first aspect of China's legal regi me that we have challenged, we would like to 
make one general observation at the outset:  The fact that the measures at issue are criminal measures 
does not shield them from examination by this Pane l.  In that regard, we found surprising China's 
assertion in paragraph 28 of its Oral Statement yesterday.  China asserted that this dispute "marks the first time that a WTO panel has b een called upon to adjudicate a matter of domestic criminal law."  As 
a responding party in at least two disputes that involved aspects of our criminal law – i.e., the US – 
Gambling  dispute (in which China participated as a third party) and the US – 1916 Act  dispute – the 
United States can assure the Panel th at this is indeed not the case. 
4. Turning to the text of the pertinent TRIPS pr ovision, Article 61, first sentence, we have 
provided a full explication of how the term "co mmercial scale" should be interpreted, using the 
customary rules of interpretation in the Vienna Convention , to assist the Panel in developing an 
analytical framework for interpreting and applying the term "commercial scale" in Article 61 of the 
TRIPS Agreement.    
5. We request in particular that the Panel rej ect China's invitation to substitute the term 
"significant magnitude of activity" for "commercial scale".  It would be misguided to substitute a 
different form of words for the term that was ag reed upon by the TRIPS negotiators.  As other WTO 
panels and the Appellate Body have done for so many other term s in the WTO Agreements, this Panel 
is called upon to develop a sound analytical frame work by which to interpret and apply the 
"commercial scale" standard, not a substitute form of words.  
6. As we have stated in our submissions, although "commercial scale" has a clear meaning, that 
does not imply that every act of counterfeiting or piracy  will be analyzed in an identical fashion.  As 
is often the case with such standards, the individual circumstances will make a difference.  Indeed, we 
have provided in our submissions an analytical framework for interpreting and applying the term 
"commercial scale" that recognizes that what is "c ommercial scale" in any specific case will vary.  WT/DS362/R 
 Page A-41 
 
 
  7. In our discussions with the Panel yesterday,  we addressed how to determine whether a 
Member complies with this obligation.  In this  regard, the United States and third parties have 
mentioned a variety of factors that could be consid ered.  But, the question arises, can we enumerate 
which factors are relevant to the interpretation and application by this Panel of the term "commercial 
scale"? 
8. The answer is that all of the factors identif ied by the United States and third parties are 
potentially  relevant.  This would include factors such as the market for the infringed goods, the object 
of the infringement, the magnitude or extent of the infringement, the value of the infringed goods, whether the infringer is seeking financial gain, the means of producing the infringing goods, the means of distributing the infringing goods, the mark eting and solicitation of business, the intended use 
of the infringing goods, the impact of the infringement on the right holder, and the involvement of 
organized crime. 
9. Yet, it is difficult to present an exhaustive list of potentially relevant factors.  That is because 
it is difficult to identify in advance all
 of the circumstances under which infringers may infringe 
goods, particularly given the creativity of infringers and advances in technology. 
10. At the same time, it is important to point out th at a Member's criminal law need not consist of 
a catalog of all the potential ways of measuring commercial scale.  The TRIPS obligation requires a 
legal regime that criminalizes all wilful counte rfeiting and piracy on a commercial scale, but it does 
not mandate specific forms of legislative drafting.   The Panel must consider whether China's law 
results in a safe harbor that eliminates the possib ility of criminal liability for acts that are objectively 
"on a commercial scale." 
11. China's thresholds do not permit a consideration of these factors apart from the numerical 
thresholds themselves and thus, as the United States has demonstrated, they miss classes of "commercial scale" piracy and counterfeiting.  We have carefully described China's thresholds for 
Articles 213, 214, 215, 217, and 218 in turn, pointing out exactly how they miss "commercial scale" 
activities.  For example, we show how the " illegal business volume" thr eshold under Article 213 
shields actual
 business activity – clearly an example of "co mmercial scale".  Further, it is difficult to 
see how making or selling a little less than $6,900 wort h of counterfeit personal care products or small 
electronics would not  be "on a commercial scale."   
12. Additionally, while China has rhetorically focu sed on a single sale of an infringing copy, we 
should turn our attention back to China's Article 217 copy threshold of 500 copies.  The reality is that 
in China, a producer can make 499 copies, or a retailer can sell 499 copies, and escape prosecution 
thanks to the safe harbor created by the thresholds  for Article 217.  Again, an examination of the 
analytical framework and factors noted by the Un ited States and many Third Parties demonstrates that 
this conduct is "on a commercial scale."  
13. Likewise, "commercial scale" certainly exte nds to those who are genuinely engaged in 
commercial activities in order to make  a financial return.  The United States has provided a number of 
concrete illustrations of "commercial scale" act ivities related to trademark counterfeiting and 
copyright piracy at various stages of the commercial supply chain in China – including 
manufacturing, wholesaling, and retailing.  In this  connection, we have shown that the Chinese 
marketplace is characterized by small manufacturer s, middlemen, and distributors, and that retail 
commerce is conducted through small outlets.  (Mor eover, China now agrees that it is not just 
manufacturing that can occur "on a commercial scale.") 
14. Indeed, the seizure data provided by the CCA Report in Exhibit US-41 reinforces these 
points, since they provide a specific snapshot of  the "scale" of "commerce" in China for certain 
counterfeit or pirated products.  E ach page of the seizure data appended to the report lists businesses WT/DS362/R 
Page A-42  
 
  operating "on a commercial scale" and in many cases, raids conducted by China's own authorities 
netting seizures below the thresholds in effect at  the time.  Retail outlets – classic examples of 
commercial scale – can and do operate beneath the thresholds, and thus without the possibility of 
criminal prosecution and conviction under China's th resholds.  (We would also note that the seizure 
data submitted by Nintendo confirms these points in many respects.)  
15. Finally, China introduces a number of arguments th at invite the Panel to focus on peripheral 
matters, such as the size, scope, or impact of the breac h, rather than on whether there is a breach in the 
first place.  (The same is true for our other two claims as well.)  However, this approach does not 
provide a viable defense.  Again, we only seek to  have in place in China the rules required by the 
TRIPS Agreement. 
III. CHINA'S BORDER MEASURES FOR DISPOSAL OF CONFISCATED GOODS 
16. We turn next to the second aspect  of China's legal regime that we have challenged:  China's 
customs measures.  We have explained that, as th e text of China's Customs Implementing Measures 
states, certain facts trigger certain mandatory outcom es.  And we have furthe r explained that a number 
of those outcomes are inconsistent with the TRIPS Agreement.  
17. In paragraph 66 of its oral statement yesterday,  China suggested an an alogy between a finding 
of guilt in a criminal case and Chinese Customs authorities' purported "discretion" to make findings as 
to the existence or non-existence of the factual predicates triggering the mandatory disposal or 
destruction options under the Chin a Customs Implementing Measures. 
18. China's analogy actually illustrates the contrary  point:  Customs has no "discretion" to do 
other than what the facts
 and the text of its measures require , just as a Chinese court presumably has 
no "discretion" in determining the fact of guilt or  innocence in a criminal case.  By law, they are 
bound to pursue the step dictated by the facts.    
19. If other laws constrain Chinese Customs officials'  actions as well, they may shift what option 
is or is not operative under given facts, but they do not change the mandatory nature of the Chinese 
disposal/destruction hierarchy.  Non-Customs laws , referred to nowhere in the Customs measures, 
cannot contradict the specific, mandatory directives of the regime outlined in the Customs measures.  
We respectfully request that the Panel re ject any suggestion to the contrary.  
IV. ARTICLE 4 OF CHINA'S COPYRIGHT LAW 
20. We turn finally to the third aspect of China's legal regime for IPR pr otection and enforcement 
that we have challenged:  the first sentence of Ar ticle 4 of the Copyright Law.  Here, too, China's 
rules fail to meet the disciplines that have been ne gotiated.  In this case, the failure arises out of 
China's outright denial of copyright protection to an  entire class of works, contrary to the provisions 
of the Berne Convention (and thus contrary to the provisions of the TRIPS Agreement). 
21. The text of Article 4.1 is clear, unambiguous, and undisputed.  It denies copyright protection 
to any work that cannot lawfully be published or di sseminated in China – not just the illegal content in 
a work.  We note in passing that from time to time, China has appeared to suggest that Article 4.1 
applies only to illegal "content" – but nothing in Article 4.1, or anywhere else, supports those 
suggestions.  Indeed, the text of Article 4.1 – and for that matter the text of Article 2.2 – uses the word 
"works," not "content".  
22. China's defense largely rests on creating an artificial distinction between copyright and 
copyright protection.  But, as we have emphasi zed, the Berne Convention and the TRIPS Agreement  WT/DS362/R 
 Page A-43 
 
 
  do not countenance a distinction between "copyright " and "copyright protection" – rights holders are 
entitled to have their copyrights protected .   
23. In addition, the evidence presented by both parti es makes clear that, in some cases at least 
(including the situation considered by the Supreme People's Court in the Zheng Haijin  matter), works 
are either subject to mandatory pre-publication revi ew or must be reviewed by the relevant content 
review authority or the courts before a decision is made on whether or not copyright in that work is 
protected.  Furthermore, China has acknowledged the close overlap between the standards for content 
review and the standard for what is "prohibited by  law" for purposes of Article 4.1.  Thus, in such 
circumstances, copyright protection in China is subj ect to the formality of content review (and to the 
uncertainty of the Chinese Government 's current content preferences). 
24. Finally, China argues that Article 17 of the Berne Convention authorizes the first sentence of 
Article 4.  However, as we have emphasized in our  rebuttal and during this meeting, censorship and 
copyright cannot be equated.  In this dispute, we are challenging the copyright consequences  of the 
choices that China has made.  Article 17 does not pe rmit China to eliminate copyright protection, and 
thus Article 17 does not shelter the first sente nce of Article 4 of China's Copyright Law.