Page:Special 301 Report 2010.pdf/23



China China will remain on the Priority Watch List in 2010 and will remain subject to Section 306 monitoring. China's enforcement of IPR and implementation of its TRIPS Agreement obligations remain top priorities for the United States. The United States is heartened by many positive steps the Chinese government took in 2009 with respect to these issues, including the largest software piracy prosecution in Chinese history, and an increase in the numbers of civil IP cases in the courts. The U.S. Government welcomes the continued and constructive discussions of these matters in the Joint Commission on Commerce and Trade (JCCT) and the JCCT Intellectual Property Rights Working Group. However, the overall level of IPR theft in China remains unacceptable.

The United States is also deeply troubled by the development of policies that may unfairly disadvantage U.S. rights holders by promoting "indigenous innovation" including through, among other things, preferential government procurement and other measures that could severely restrict market access for foreign technology and products.

China's IPR enforcement regime remains largely ineffective and non-deterrent. Widespread IPR infringement continues to affect products, brands and technologies from a wide range of industries, including movies, music, publishing, entertainment software, apparel, athletic footwear, textile fabrics and floor coverings, consumer goods, chemicals, electrical equipment, and information technology, among many others. The share of IPR-infringing product seizures at the U.S. border that were of Chinese origin was 79 percent in 2009, a small decrease from 81 percent in 2008.

The U.S. copyright industries report severe losses due to piracy in China. Trade in pirated optical discs continues to thrive, supplied by both licensed and unlicensed factories as well as by smugglers. These pirated optical discs are exported to markets across the region, impacting legitimate sales outside of China as well. Small retail shops continue to be the major commercial outlets for pirated movies and music. The theft of software, books and journals also remain key concerns. Business software theft by enterprises is particularly troubling as it not only results in lost revenues to software companies but also lowers the business costs of offending enterprises, and may give these firms an unfair advantage against their law-abiding competitors.

Strong action to curb trademark counterfeiting and copyright piracy on the Internet is critical to the future of IPR enforcement in China. China should significantly increase criminal