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Global Piracy On The Policy Radar
by William New
The technology and copyright industries are tying their future success to growth in overseas markets, especially large, recently opened economies like China and Russia. But they are increasingly recognizing that their success depends on the ability to protect U.S. intellectual property in those same markets. That recognition has not been lost on U.S. policymakers, who have elevated enforcement of laws against piracy and counterfeiting to unprecedented priority levels.
The senior U.S. negotiator at the World Trade Organization last week said Russia's rising piracy rates are a chief reason why negotiations for that country's accession to the WTO are dragging. And the Financial Times reported Thursday that Deputy U.S. Trade Representative (USTR) Peter Allgeier also threatened that the United States would withdraw trade preferences worth billions of dollars for Brazil if that country fails to improve intellectual property enforcement.
But the biggest market and biggest piracy haven is China. Overall U.S. exports to China rose 38 percent in the first half of 2004 and totaled $23 billion, according to Mark Bohannon, general counsel and senior vice president of the Software and Information Industry Association (SIIA). Tech exports rose 69 percent during that period, more than any other sector, he said.
Intellectual property rights (IPR) enforcement is "perhaps the most troublesome area of China's WTO compliance," Charles Freeman, assistant USTR for China affairs, said last week.
A Renewed Focus On Enforcement
Events were held in the past week on China and Russia, and legislation addressing piracy is moving through the House and Senate.
The House Government Reform Committee held a hearing on protecting U.S. innovation abroad and heard criticism of the National Intellectual Property Law Enforcement Coordination Council for its failure to find a clear mission as government anti-piracy coordinator. A Senate appropriations bill would increase funding for the council.
The Senate Judiciary Committee, meanwhile, is slated early this week to address an anti-piracy bill, S. 2560, that would create a USTR chief negotiator for intellectual property enforcement and establish an intellectual property office at the State Department. Industry backs the ideas, which also are in a House bill, H.R. 5117, introduced last week. In addition, industry has urged more U.S. law enforcement and customs agents at home.
The problems in China appear to be paramount in industry circles. Bohannon said intellectual property protection is the highest priority in the coming year for the U.S. Information Technology Office (USITO) in Beijing. USITO membership includes the tech group AeA, the Computer Systems Policy Project, the Information Technology Industry Council, the Semiconductor Industry Association, SIIA, the Telecommunications Industry Association, and more than 50 high-tech companies operating in China.
"USITO members are among the world's leaders in holding copyrights, patents and trademarks, and without concrete steps to effectively deter what is currently ubiquitous infringement in China, this highly contentious issue will impede the continued progress in the U.S.-China trade relationship," he said.
Bohannon testified at a hearing on China's compliance with the market-opening commitments that nation made upon joining the WTO in December 2001. The hearing was held by the interagency Trade Policy Staff Committee (TPSC), a group led by the Office of the U.S. Trade Representative. The U.S. government must prepare an annual review of China's WTO compliance by December.
The Industry Consensus On China
U.S. estimates put Chinese piracy rates persistently higher than 90 percent in all types of intellectual property, including movies, music, videogames and software. Counterfeiting of U.S. products is equally high. Industry says billions of dollars are lost annually through lack of protection abroad.
At the opening of the TPSC hearing, USTR's Freeman highlighted several meetings between senior U.S. and Chinese officials this year. He said that during the April meeting of the Joint Commission on Commerce and Trade (JCCT), the two sides launched "an active engagement on IPR enforcement."
USTR will review China's actions under the U.S. Special 301 process in early 2005 "to determine whether China is making substantial progress toward its announced objective of significantly reducing IPR infringement," Freeman said. USTR on Sept. 17 issued a call for industry input on China's IPR compliance.
Bohannon said China is violating WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPs), which requires member countries to provide enforcement and criminal remedies that deter infringement and to allow for effective civil search orders to uncover infringement. He also said China has not lived up to an agreement not to interfere in patent royalty negotiations involving Chinese and foreign businesses, which could violate TRIPs.
Jim Gradoville, chairman of the American Chamber of Commerce in China, and Jeff Bernstein of Emerge Logistics, on behalf of the chamber in Shanghai, told the TPSC hearing that China's intellectual property problems are worsening. "IPR is the one major area that we believe China is not in conformity with its WTO undertakings -- to ensure enforcement that effectively deters infringement," they said.
They said their members report increased exports of pirated and counterfeit goods from China. They also said that otherwise "okay" laws are being weakened by "loopholes, lack of clarity, administrative bottlenecks" and widely varying local enforcement varies widely.
But they dubbed a newly announced Chinese government IPR action program "very encouraging and impressive." The program aims to integrate government efforts and coordination across the provinces, strengthen enforcement throughout the distribution chain, release a judicial interpretation on criminal standards by year's end, take steps to move administrative cases to criminal courts, and to address online piracy and the export of counterfeit goods. A number of industry representatives mentioned those issues.
Bernstein said 91 percent of chamber members believe China has ineffective enforcement for intellectual property, and 93 percent said China's poor IP protection has negatively impacted their businesses.
Headed In The Right Direction?
Kevin Dempsey, a partner at Dewey Ballantine, said the Software Industry Alliance supports a three-prong strategy for increasing IP protection in China.
He said China must change its laws to ensure that penalties deter infringement and "not merely an infringer's cost of doing business." Second, China should increase public awareness of the benefits of IP protection, including economic, health and safety benefits. And businesses must work to protect their own intellectual property as well as that of their customers and third parties, he said.
Bob Vastine, president of the Coalition of Service Industries, said piracy and counterfeiting at the wholesale and retail levels and online "remain rampant due to lenient penalties, uncoordinated enforcement among local, provincial and national authorities, and the lack of transparency in China's administrative and criminal enforcement." Vastine listed several specific measures to counter piracy and counterfeiting, such as streamlining censorship clearance procedures for optical media, which give an advantage to pirates by delaying legitimate products in China.
Speaking about a report on China's WTO compliance, Robert Kapp, president of the U.S.-China Business Council, said, "To no one's surprise, the most far-reaching problem our report isolates is the continuing pervasiveness of intellectual property violation[s] in its myriad forms."
U.S industry and government have cautiously praised China for making progress on policies to protect intellectual property and lift barriers to its markets for information technology. "The question that remains," Freeman said, "is whether China is independently moving in the right direction on WTO compliance matters."
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