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 It is important to recognize that there were some improvements in China's IPR situation in 2011. Specifically, the Chinese Government continued to carry out the Special IPR Enforcement Campaign that was begun in 2010, which resulted in some improvements in targeted sectors. In November 2011, Premier Wen Jiabao announced that this campaign would be made permanent, through the creation of a National Leading Group on IPR Enforcement. In addition, in a significant shift, Chinese Internet giant Baidu reached a landmark agreement with international music rights holders to ensure that its online music platform transmits legal content. Following that agreement, USTR removed Baidu from the Notorious Markets list. The United States is encouraged that on April 22, 2012, China's Supreme People's Court issued a draft Judicial Interpretation entitled Regulations for the Applicability of Laws in Hearing Cases Regarding Civil Disputes Concerning Infringement on Information Network Broadcasting Rights. This draft measure is intended to clarify, among other issues, legal standards surrounding inducement of infringement. The United States looks forward to the adoption of a Judicial Interpretation consistent with China's past JCCT commitments.

Despite these signs of progress, IPR protection and enforcement in China remain a significant challenge. Significant concerns persist in light of continuing high levels of trademark counterfeiting and copyright piracy, including over the Internet, the persistence of notorious physical and online markets selling IPR infringing goods, the manufacture and availability of counterfeit pharmaceuticals, the lack of effective means to protect pharmaceutical test and other data against unfair commercial use, as well as disclosure, and the export of counterfeit goods of all sorts, including products posing significant risks to the environment and human health and safety. Many knowledge-based industries remain concerned that the Chinese government is using certain policies intended to promote "indigenous innovation" to disadvantage foreign enterprises through measures or actions that effectively coerce the transfer of IPR from foreign rights holders to domestic entities. A recent alarming increase in cases involving the theft of trade secrets in China, as well as cases of trade secret theft that occur outside China for the benefit of Chinese entities, also demonstrate that there is a systemic lack of effective protection and enforcement of IPR. The failure to impose deterrent penalties that are sufficient to change behavior is another continuing concern that affects all forms of IPR. These matters will continue to be a top bilateral priority for the foreseeable future.

In March 2011, the State Council extended through June 2011 the Special IPR Campaign begun in October 2010. The Special IPR Campaign continued targeting a broad range of IPR violations including copyright piracy and trademark counterfeiting over the Internet, distribution of infringing optical discs and publications, counterfeit cell phones, counterfeit pharmaceuticals, counterfeit seeds, and counterfeit bulk commodities for export.

U.S. industry reported positive enforcement developments in several of the sectors that the Special IPR Campaign targeted. During the Campaign, the National Copyright Administration of China (NCAC) identified key copyright infringement cases for special investigation and supervision. NCAC also named 18 popular video websites for close supervision and follow-up (including website shutdown when appropriate) for allegedly providing a wide variety of pirated material, including UUsee, Sina, Letv, Youku, Sohu, Baidu, Ku6.com, Joy.com, PPStream, verycd, Tudou, QQ.com, 56.com, Xunlei, Baofeng, Funshion, PPTV, and pipi.cn. U.S. industry 27