Page:Special 301 Report 2005.pdf/19

 enforcement continues to be seriously inadequate. In 2004, IPR infringement continued to affect products, brands and technologies from a wide range of industries, including films, music, publishing, software, pharmaceuticals, chemicals, information technology, textile fabrics and floor coverings, consumer goods, electrical equipment, automotive parts and industrial products, among many others. Rights holders report that enforcement efforts, particularly at the local level, are hampered by poor coordination among Chinese Government ministries and agencies, local protectionism and corruption, high thresholds for initiating investigations and prosecuting cases, lack of training, and inadequate and non-transparent processes.

Articles 41 and 61 of the TRIPS Agreement require effective and deterrent IPR enforcement. Consensus exists among rights holders, however, that China's current IPR system relies too heavily on enforcement by administrative authorities and is non-deterrent. Dissatisfaction with the number and substance of investigations, prosecutions, and convictions last year by local police is widespread.

In August 2004, pursuant to China's JCCT commitments, the State Council announced a year-long national campaign to crack down on IPR infringements in sectors where trademark counterfeiting and copyright infringement are concentrated, including import and export activities, trade fairs and exhibitions, distribution and wholesale markets, brand name processing and publishing. On March 31, 2005 Vice Premier Wu Yi extended this campaign until the end of 2005. This next phase will focus on food and pharmaceutical trademark and well-known mark infringements, and target street vendors of illegal pUblications, audio-visual products and software.

Industry confirms that these campaigns have in fact resulted in increased seizures of infringing materials. What happens to seized product, however, is not transparent. We continue to hear reports of seized counterfeit and pirated goods being auctioned or otherwise returned to the channels of commerce. It is also clear that cases subsequently brought by the administrative authorities have resulted in extremely low fines.

The lack of deterrence from the fines is compounded by the fact that there has been a steady decline in the number of cases that administrative authorities forward to the Ministry of Public Security for criminal investigation, even for commercial-scale counterfeiting or piracy. According to Chinese Government statistics, there were 86 transfers in 2001; 59 in 2002; 45 in 2003; and only 14 in the first half of 2004. As a result, infringers are not deterred by the risk of criminal prosecution and serving jail time. They simply consider the seizures and fines to be a cost of doing business, and are usually able to resume their operations without much difficulty. Despite receiving good cooperation from some local administrative authorities, some rights holders reported a decrease in the number of seizures of infringing products in 2004 – due to smarter pirates, not decreasing levels of infringement.

A number of U.S. right holder groups have recently stepped up efforts to monitor IPR enforcement in China and its results in the Chinese market. The United States welcomes these initiatives and urges their continuation. By promoting transparency, these private sector initiatives enhance government-to-government cooperation toward achieving effective IPR enforcement.