Intellectual Property Rights and the Concerning between China and the USA

Introduction

Intellectual property rights (IPR) are the privileges bestowed on any individual over their innovations or brainchild. The rights gift the person, special priority over the use of their creation for a stipulated period. The rights encompass copyrights and rights allied to copyrights, which involves privileges given to the creators of art. The gist of copyright work is to propagate and incentivize creativity and creative work. The second part is industrial property rights which includes, but not restricted to, the fortification of distinctive trademarks and geographical indications. It also includes the protection of industrial property purely to precipitate inventions, the proliferation of technology, and the culmination of design. Upon this second domain, there is sanctity of innovations (fortified by patents), industrial designs and, above all, trade secrets.

Universality of Treatment

The degree of protection and enforcement of these rights is relative to the country. At the time of globalization and rapid proliferation of goods, services and technology amongst countries, it has become increasingly difficult to protect intellectual property adequately and the rights they bear. There have been cases of blatant intellectual robbery of copyrights, trademarks, secrets, patents and those that have remained unpunished, especially when a developing country was the victim. Consequently, the need to fortify these rights homogenously in an increasingly homogenous world was paramount. The need grew stronger because intellectual property became vital in trade and an emerging source of discord between the countries and their international trade relations. Ergo, internationally binding intellectual property rules were viewed as the only remedy with regards to the protection of rights and settling of disputes in the cases they occurred. The World Trade Organization (WTO) was obliged to formulate and execute these rules.

The WTO is an international organization with the all-important task of oversight on the international trade for its member countries. It is also the judge and jury in the cases of disputes based on trade policies and intellectual property. Their mandate is to stimulate understanding preferably through discussions, but if required, WTO can invoke sanctions. Their mandate stems from the agreement on trade-related aspects of intellectual property rights (TRIPS) negotiated between the years 1986 to 1994, in Uruguay. TRIPS is an agreement that tries to create uniformity in the protection of intellectual rights in the world. It decrees minimum levels of protection that every government must abide and provide for its colleague WTO members. 

The Trips Agreement

The memorandum covers five broad spectrums. They include the following objectives:

• Application of the basic principles of intellectual property and trading systems.
• Adequate protection of intellectual property and its inherent rights.
• Adequate enforcement of those rights in the respective member countries and their territories.
• Procedure of settlement of intellectual property disputes.
• The transitional agreements controlling the period of the new system’s introduction

The elaborated TRIPS Agreement, however, reverses a country’s legal system; however, they have to meet the minimum precedent stipulated by the agreement. Most importantly, all WTO members agreed (in ‘single undertaking’) and are bound by this agreement. In recent years, a number of disputes with regards to intellectual property rights have been brought to the fore of WTO (Anderson, 2002). The most controversial being the discord between the United States and China in 2007. However, before delving into the United States versus China melee, it is important to obtain a legal backdrop and the less prolific (but equally important) legal battles on the TRIPS Agreement and WTO stage.

Long Transition Periods and Billions in Losses

The TRIPS Agreement, in its infinite wisdom, granted a generous leeway for developing countries that served to incense the United States. The agreement gave these countries up to ten years to morph their domestic legal frameworks into full compliance with the standards enshrined in the agreement (Bhala, 2008).  In those ten years, the United States lost billions of dollars as a result of copyright infringement and product losses. Instead of staying idly, the United States decided to resort to legal measures. Due to the aggressive bilateral program using special 301, section 301, the Generalized System of Preferences (GSP) Program and similar projects, the United States administration successfully managed to bring most of these ‘developing’ countries to the required level within months of the minimum threshold required to meet the TRIPS standard (Bhala, 2008). For example, Egypt, South Korea, Brazil, Venezuela, Turkey, Thailand, and Poland belong to  this clique of ‘developing countries’. Together, they have caused the United States a staggering amount of $1.8 billion losses as a result of IPR infringement. If they slipped into the recluse of TRIPS, maintained their transition period rights, and the amounts of losses accrued remained constant, the U.S economy would lose an estimated sum of 7 billion dollars. Considering this situation and the fact that they still had to deal with China, the United States had to find a way to protect their economy.

United States versus China

It was a common belief that if China had becomes a member of WTO in 2001, they would have automatically abide by the TRIPS Agreement. As stated earlier the expectation of the United States (U.S) was that China would make greater efforts in their regulation and enforcement of intellectual property rights (IPRs). The root of this expectation is based on the tense trade relationship that had characterized two countries since the 1970’s. The U.S had a problem with China’s apparent neglect or indifference to the protection of copyrighted trademarks and goods, which were dispatched from the United States. The U.S had proceeded to urge China to reform their intellectual property landscape, but it was a hopeless effort (Yu, 2011). The perceived disregard of the TRIPS Agreement further aggravated the insult.

A Long Time Coming

According to the U.S, China has done zilch with regards to the guarantee of intellectual property, leading to the subsequent loss of insignificant amount of money for artistic work and industrial property. Consequently, U.S filed their complaint in 2007. The climax of a prolonged struggle pushing for appropriate enforcement of IPRs stems from 1979.

The U.S-China Agreement on Trade Relations (1979) is a two-pronged treaty stipulating the reciprocal defense of copyrights and patents. China did not adequately follow their end of the bargain. From 1979, China has recorded alarming levels of counterfeit. The research estimated it at a ninety-percentile level of counterfeiting leading to approximately $1.4 billion in losses for the intellectual owners (Chow, 2006). However, China has introduced piracy (in relation to IPR) laws, such as  the People’s Republic of China (PRC) formulated in 1982, the Patent Law of the PRC (1984), and the US-China IPR Enforcement promise of 1995.  The only problem is their effort to protect IPRs has failed dismally according to the international and U.S standards.

China had to wait fifteen years to join the WTO in 2001. They were obliged to wait because they had to perform a complete overhaul on their IPR laws. The U.S hoped to obliterate IPR law abuse in China, with the dawn of their reforms anchored in the TRIPS Agreement. The TRIPS Agreement, under the Article 61, gives a legal avenue for the member countries to pursue and call for sanctions (if necessary). Consequently, it provides evidence of a deliberate IPR violation coupled with inaction against the act and towards guaranteeing that such situation does not happen again.

The U.S gifted China a grace period allowing them to adapt to their new WTO environment. The process of adaptation required compliance with at least twenty-two of WTO’s substantive legislations and the inevitable domestic legislative changes. After the honeymoon, China was deemed complacent in their efforts to combat U.S IPR violations. The U.S had, finally, enough information and accepted the complaint to WTO.

The Complaint

April 10, 2007, fuelled by the billions of dollars in annual losses and twenty-eight years of almost non-existent American IPR protection, the U.S formally filed their complaint to WTO requesting discussions with China in relation to the following issues:

• The threshold that will call for criminal prosecution in the event of counterfeiting as well as breach of copyrights and the appropriate punitive measures.
• The confiscation of counterfeited goods by the Chinese authorities and the disposal of the respective goods following the elimination of the infringing feature.
• The criminal and penalty standard that will be used for the unauthorized distribution or production of the stipulated copyrighted works.
• The blatant or indirect denial of copyright as well as rights protection and execution with regards to the creative works of enactments, sound recordings, and production.

In the complaint filed by the U.S, they postulate several inconsistencies with the TRIPS Agreement (Harris, 2008). The first was the perceived absence of criminal processes or punitive measures for counterfeiting on a commercial scale in China. This is inconsistent with China’s prerogative under Articles 41.1 and 61 of the TRIPS Agreement.  Secondly, the obligation that stipulates infringing goods can be unrestricted into the ‘channels of commerce’ being inconsistent with China’s prerogative stipulated in Articles 46 and 59 under the TRIPS Agreement. Third, the writers of works whose publication and/or circulation have not been sanctioned seem to be alienated from the minimum level of protection (stipulated in the TRIPS Agreement and granted by the Berne Convention). Moreover, the inherent right of the writers whose publication and/or circulation requires a pre-publication or a pre-distribution review should be dependent on the decorum of the successful conclusion of the respective review. This seems to be inconsistent with China’s prerogative stipulated in Article 9.1 of the TRIPS Agreement.

Further, China’s copyright law denies protection of associated rights to the performers and producers of sound recordings throughout the period of any pre-publication or pre-circulation, which is inconsistent with China’s prerogative, stipulated under Article 14 of the TRIPS Agreement. Moreover, there are different review processes involving the pre-sanctioning and pre-circulation of Chinese works, performances, and sound recordings, compared to the same works, performances and sound recordings for the foreigners. This inevitably leads to a biased and privileged protection or execution of Chinese creative works. This issue is inconsistent with China’s prerogative outlined in the Article 3.1 of the TRIPS Agreement.

The Copyright Law’s Article 4 causes foreign writers (whose publication or circulation has not been sanctioned) not to revel in the rights granted to their Chinese colleagues. This is obviously inconsistent with China’s prerogative decreed under Article 9.1 in the TRIPS Agreement. In addition, according to the scope specified in Article 4 of China’s copyright law, the rights owners cannot impose their copyrights or related rights with respect to their creative works, not authorized for publication or circulation. China seems to act incoherently with her prerogative under Article 41.1 of the TRIPS Agreement.

The final inconsistency perceived in relation to the scope that deliberates copyright piracy on a commercial scale, consisting of unsanctioned reproduction (but not unauthorized circulation) of copyrighted works, and vice versa, does not seem to be grounds for criminal procedures and/or punitive measures as stipulated under the law of China. This is incoherent with China’s prerogative stipulated in Articles 41.1 and 61 under the TRIPS Agreement (Harry, 2008).

The Verdict

The WTO’s dispute settlement body (DSB) created a panel charged with the perilous and complicated duty to determine the legitimacy of the U.S claims, depicting China’s apparent failure to comply with its prerogative stipulated in the TRIPS Agreement. It took the panel fourteen months to announce the verdict. On January 26, 2009, the panel distributed their report to all the members, and it had some interesting findings and implications (Gervais, 2009). The panel’s conclusion was that the Chinese Copyright Law, (especially the first sentence in Article 4) was a hallmark in inconsistency with regards to China’s prerogative as stipulated in Article 5(1), formulated in the Berne Convention (1971) and enshrined under Articles 9.1 and 41.1in the TRIPS Agreement.

With reference to Chinese Customs, the panel concluded that Article 59 of the TRIPS Agreement is not a precedent pertinent to the Custom measures (because they are applied to goods meant for exportation). Moreover, the U.S had failed to provide evidence that these Custom measures were incoherent with China’s prerogative under Article 59 of the TRIPS Agreement. In addition, the panel concluded that the mentioned Custom measures incorporated the principles stipulated in the first sentence of Article 46 in the TRIPS Agreement. The panel also determined that the U.S had failed to establish or provide evidence alluding to the fact that the criminal thresholds were incoherent with China’s prerogative, as stipulated in the first sentence of Article 61 under the TRIPS Agreement.

The panel applied judicial economy in relation to the claim under Article 5(2) of the Berne Convention (1971), as assimilated into Article 9.1 of the TRIPS Agreement. They exercised the same economy with the claims postulated under Article 61 of the TRIPS Agreement (with regards to the Copyright Law) and the claims under Article 41.1 as well as the second sentence of Article 61 of the TRIPS Agreement (with reference to criminal thresholds).

In essence, the panel agreed with most of U.S’s arguments in relation to Article 61 of the TRIPS Agreement postulating that China needs to reform its threshold for the prosecution of counterfeit acts and piracy. However, the U.S failed to convince the panel of one of its crucial grievances. They implied that Chinese counterfeiters and piracy artists were emboldened by the fact that the threshold for criminal prosecution (with regards to piracy and counterfeiting) was too high. Therefore, they could continue pirating or counterfeiting and basically live scot-free. The panel refuted this claim implying that the Chinese thresholds were in accordance to China’s prerogative, as stipulated in Article 61 of the TRIPS Agreement.

Implementation

20th March 2009 was the day the report was adopted by the dispute settlement board (DSB). By April 15, 2009, China had declared its intention to implement the DSB rulings and recommendations. 29th June 2009 saw China and U.S agree that one year would be the perfect time for implementation of the formulated recommendations.

On 19 March 2010, China stated that on 26 February 2010, the Standing Committee of the 11th National People’s Congress had legalized the amendments to the Chinese Copyright Law. On 17th March 2010, the State Council adopted the decisions to revise the Regulations for Customs Protection of Intellectual Property Rights.  Thus, China had accomplished all requisite domestic legislative measures for executing the DSB endorsements and rulings.  The U.S alleged she was not in a situation to share China’s claim that it had adequately implemented the DSB endorsements and rulings. However, as of May 2012, the U.S finally conceded that China had made significant strides in the right direction with regards to obliteration of IPR abuse and stopping copyright violations. However, it was considered that China still had to implement certain improvements.

Implications and Lessons for the U.S and China

Through the disagreement, U.S sent a strong signal to China and the rest of the world, concerning its inclination to use the WTO as a platform to resolve trade disputes. This may precipitate further discussions related to intellectual property or to the matters different from the intellectual property domain. The WTO process is a part of a conglomerated strategies employed by the U.S, with regards to intellectual property policy concerning China (Yu, 2011).  As part of an integrated approach with the ultimate objective of IPR protection and the provision of access for intellectual property-based goods and services, the dissipation of the dispute has helped progress bilateral negotiations. However, some of these negotiations and other obliging efforts have been stationary during the WTO process. A part of the unique intent of the WTO complaint was to convey pressure on China, expecting that some of the concerns—whether explicitly in the complaint or not—will be decided, with or without reaching the final stage of the WTO process (sanctions).

Through the WTO process, the U.S has learnt about China‘s legal rationale and WTO related strategies. The panel report also divulges how the WTO panels will evaluate China‘s distinctive legal organization and measures (such as those judicial explanations that have a normative effect). This information is valuable not only for the U.S government, but also for the American rights owners. Considering the size of trade between China and the U.S, both countries are likely to use the WTO process regularly as a means to resolve their trade disputes.

Since the time of filing the complaints over intellectual property implementation, the U.S has filed surplus accusations against China in the domain of exportation of raw materials, grants and loans, and financial information services. Subsequently, China has also hurled WTO complaints against the U.S in the domain of anti-dumping, poultry, and tire imports. Five of seven complaints filed by China to the WTO were directed against the U.S. Through the various proposals and oral testimonials, the U.S and its rights owner obtained on record detailed material about the way in which censorship regulations, customs procedures, and criminal thresholds operate in China. They are also aware of the complexity behind Chinese calculations of the criminal thresholds. Previously unheard of information has also been brought to the fore, such as the Law on Donations for Public Welfare. All of this data will be valuable in the future to protect the interests of rights owners. To a great extent, the panel report elicits information for which the U.S worked hard, but did not acquire through a prior appeal under Article 63.3 of the TRIPS Agreement.

Finally, the report may offer the impetus needed to push for greater enhancements in intellectual property fortification and enforcement in China at a global level. In addition, the panel report will offer guidelines for future WTO disputes in the domain of intellectual property implementation against both China and other countries. Finally, the report hints to other WTO members the United States’ inclination to push for intellectual property implementation concerns through the WTO process (Yu, 2011).