Page:Special 301 Report 2004.pdf/12

 and the Supreme People's Procuratorate that:
 * appropriately lowers thresholds for applying criminal sanctions for acts of IPR infringement; and
 * stipulates guidelines for applying criminal sanctions for the import, export, storage, and transport of counterfeit and pirated products and for online piracy.

The new judicial interpretation is an attempt to remedy China's failure to make effective use of its criminal enforcement regime to address IPR issues. Administrative authorities routinely fail to refer cases involving commercial-scale IPR infringements for criminal investigation and prosecution. The number of criminal cases for counterfeit trademarks, while growing, remains inadequate, and the Government initiates very few criminal actions against copyright piracy. When such actions do result in convictions, the penalties applied are insufficient to deter further IPR infringement.

We have noted a number of significant deficiencies in China's application and interpretation of its Criminal Code. First, monetary value thresholds must be met before prosecutors will initiate a criminal investigation. These thresholds are too high, resulting in the failure of the Government to pursue criminal action against all commercial-scale infringements. Second, criminal prosecutors and/or courts impose, in some instances, extraneous proof-of-sale requirements. Third, criminal sanctions are seldom applied for cases involving import/export, transport, storage, and distribution of infringing goods. The problem of monetary value thresholds is exacerbated by the fact that valuation calculations are not usually done using the price of the legitimate good. We expect the new judicial interpretations to address all of these issues and generate stronger criminal sanctions against commercial-scale counterfeiters and pirates.

2. Continue and intensify a national campaign against IPR infringing activities including:
 * a crackdown on counterfeit trademarks, pirated audio-visual and software products, patent infringements, and other violations of IPRs;
 * investigation and issuance of criminal sanctions in a number of cases;
 * raids on the retailers of pirated CDs and DVDs;
 * closure of production enterprises engaged in counterfeiting and piracy; and
 * increased inspections of exports.

Retail sale and export of pirated and counterfeit products remains a significant problem in China. We expect this national campaign to bring about an immediate and noticeable improvement, and will monitor its implementation to determine whether it meets that expectation. In recent years, China has conducted large numbers of raids on suspected counterfeiters and pirates, but the penalties applied following such raids have not deterred infringement. We expect the new campaign to generate stronger administrative penalties and an increased number of referrals for criminal investigation and prosecution. These steps are needed if the intensified campaign is to have the desired effect of deterring future infringements.

3. Implement new customs regulations, increasing customs authorities' criminal enforcement actions against IPR-infringing imports and exports, and relax surety requirements.

New customs regulations came into effect on April 1, 2004, and we expect China to immediately take action to halt the growing stream of counterfeit and pirated goods being exported from China. In 2003 China accounted for 66 percent of all U.S. Customs and Border Protection seizures of IPR-infringing goods. China is also a major source of counterfeit and pirated exports to Japan, the EU, and other third-country markets. China fails to refer a sufficient number of cases involving export to criminal investigation and prosecution and also fails to pursue investigations to capture the producers of the counterfeit and pirated goods. We expect the new regulations to remedy this situation. Chinese Customs