Document: 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
Document codes: WT/DS362/R
Complainant: U.S.
Respondent: China
Third parties: Argentina, Australia, Brazil, Canada, EU, India, Japan, South Korea, Mexico, Taiwan, Thailand, Turkey
Dispute stage: Panel
Agreements cited: Art. 61, 41.1, 46, 59, 9.1, 14, 3.1  Intellectual Property (TRIPS)

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

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 criminalize 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 prosecution 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

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 collectively 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 circumstances 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 legally 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.

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 are 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 (something 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 term "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

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 profit," 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 marketplace – 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

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 needed to meet the "illegal gains" threshold.

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 application 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 apply 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

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 illustration 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".

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 obligations under Article 59 of the TRIPS Agreement.
48. Part III, Section 4, of the TRIPS Agreement imposes obligations related to border measures in
the context of enforcement of intellectual property rights. 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 infringing 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 the infringing goods can be
used for "public good"; if so, Customs gives the goods to the relevant "public welfare organization".

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 affixed 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

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 their 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 Convention. Berne Convention Article 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

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 term 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 obligations 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 furnishes 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

"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 law, it is Chapter V of the Copyright Law ("Legal
Liability and Enforcement Measures") 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 panel request, 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 that China bring its measures into conformity with that Agreement.

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 that 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.

8. China fails to make criminal procedures and penalties available for all wilful trademark
counterfeiting and copyright piracy on a commercial scale 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 values 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 burden of proof in advancing this claim."

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 determines 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 payment 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.

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

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, first 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.

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 time 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.

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 Members' compliance with those obligations.
12. When we apply the Article 61 standard, it is evident that China'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 thresholds 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 instance, 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 concerning 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

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 from 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 obligations 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.

ANNEX A–4

EXECUTIVE SUMMARY OF THE 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 the 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 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. An in fringer with a different intent may or may not be
acting on a "scale" that is "commercial".

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 interpreting 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 WIPO 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.

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 flexible standard". China's arguments is misplaced
to the extent that China is claiming that this discussion 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 enforcement 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 short 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".

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

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 penalties is often its preferred 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.

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

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

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 dispute 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 obligations 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.

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 accordance 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 reason, 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.

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 hierarchy, 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 obligations 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)

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 authorities lack the authority, as a matter 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.

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 inconsistent 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 "unconstitutional". 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 copyright 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.

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 that China bring its measures into conformity with
the TRIPS Agreement.

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

necessary to consider multiple factors to decide whether 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 structured 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 commercial-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 liability" is of no consequence with respect to infringers

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 commerce 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 prevent their auction, this payment causes financial harm.

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 the 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

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.

ANNEX A–6

EXECUTIVE SUMMARY OF THE CLOSING 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 been 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 that 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 terms 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 "commercial scale" in any specific case will vary.

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 marketing 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 worth 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 United 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

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 breach, 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 outcomes. And we have further 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 analogy 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 China 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 reject 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 protection 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 disseminated 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

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 sentence of Article 4 of China's Copyright Law.