China to step up IP protection in China-US pact

At the 22nd session of the China-US Joint Commission on Commerce and Trade (JCCT), held in Chengdu on November 20-21 2011, China announced various plans to enhance IP protection. Among them, China aims to make permanent its Special Campaign against infringement and counterfeiting announced in October 2010, and lead enforcement efforts through a high-level central government structure led by Vice Premier Wang Qishan. Provincial officials would also have their performance assessed with reference to the level of local enforcement.

This article provides an overview of the IP topics discussed at the recent JCCT, with a focus on China's commitments on IP protection. To give the readers a fuller picture of China's recent efforts and the United States' perspective on these topics, reference is also made to China's Special Campaign and the reports of the US International Trade Commission (USITC) and the Office of the US Trade Representative (USTR).

IP protection has always been a central issue to the trade relationship between China and the United States. China remains on the USTR's Special 301 priority watch list as a country which, according to the USTR, has problems with respect to IP protection, enforcement and market access. According to a report entitled "China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the US Economy", published in May this year, the USITC estimates that firms in the US IP-intensive economy that conducted business in China in 2009 reported losses of approximately $48.2 billion in sales, royalties or licence fees due to IP infringement in China.

In the 2011 Special 301 Country Report on China, the USTR states that "China's enforcement of IP rights, as well as its implementation of its WTO obligations, remains top priorities for the United States" and that "the United States is focused on seeing significant and measurable progress in these commitments [to intellectual property generally, and software legalisation specifically] in the coming year".

The Special 301 Report also highlights concerns about China's proposed treatment of patented technology in connection with domestic standards development process. Concerns are also expressed to China regarding its innovation-related policies and other industrial policies, which are perceived to discriminate against, or otherwise disadvantage, US exports or US investors and their investments. The USTR report paid reference to the 21st JCCT, where China agreed not to "adopt or maintain measures that make the location of the development or ownership of intellectual property a direct or indirect condition for eligibility for government procurement preferences for products and services. China and the United States will continue to discuss whether this principle applied to other government measures".

The 22nd JCCT addressed important issues relating to the trade relationship between China and the US, including trade co-operations, technology and innovation policies, and IP protection. In particular, the Chinese government announced its aim to step up IP protection through a number of measures and plans, including:
  • IP enforcement leadership structure - Vice Premier Wang Qishan will lead a permanent State Council-level government structure to oversee and co-ordinate IP enforcement throughout the country. This can be regarded as a follow-up on the "Programme for the Special Campaign on Combating IP rights Infringement and the Manufacture and Sales of Counterfeit and Shoddy Commodities" announced by Premier Wen Jiabao in October 2010. This Special Campaign was led by Vice Premier Wang Qishan. During this Special Campaign, over 2,500 people were said to have been prosecuted for IP infringement. This was followed by a three-month crackdown on online shops. Under the further initiative announced at the JCCT, the level of local IP protection will be taken into account in the appraisal of provincial officials' performance.
  • Indigenous innovation - to echo the discussion at the 21st JCCT, the State Council of China has issued a mandate requiring local governments to abolish measures linking innovation policies to government procurement preferences by December 1 2011.
  • Use of legalised software - China aims to ensure the use of legalised software by all provincial governments by mid-2012, and by all municipal and county authorities by 2013. Since the start of the Special Campaign, the Chinese central government is said to have already spent over $22 million to purchase over 175,000 copies of genuine software. China will also promote the use of licensed software in private enterprises through software management pilot projects.
  • Online IP protection - in the 2011 Special 301 Report, it is estimated that there are 457 million internet users in China (as compared to 223 million in the United States) and that 99% of all music downloads in China are illegal. At the 22nd JCCT, China committed to enhance and develop laws and monitoring measures to tackle the sale of infringing goods online. In particular, China has scheduled to hold discussion with the US government in 2012 on the topics of online counterfeiting and online library copyright protection.
  • Trademarks and patents - according to the USITC report, trademark infringement was the most frequently reported form of IP infringement in China in 2009, with nearly one-third of US IP-intensive firms doing business in China citing losses associated with this form of infringement. The JCCT stated that China will continue to work with the United States and other countries to address bad-faith trademark filings and review the opposition/cancellation process. China and the United States will also exchange views on the quality and timeline of patent examination.
  • Other initiatives - China will set up a complaint centre for counterfeit drugs, and the relevant enforcement authorities in charge of drugs and the internet will work together to take action against the sale of counterfeit drugs online. The two governments also plan to organise a seminar in early 2012 to exchange views on cloud computer issues
Kenny Wong and Eugene Low, Mayer Brown JSM, Hong Kong

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