CONTENTS

CONTENTS ......................................................................................................................... 1
TABLE OF ABBREVIATIONS USED IN THIS REPORT ....................................................... 3
Chapter I. Introduction........................................................................................................... 4
1. Overview ........................................................................................................................ 4
2. The TRIPS agreement ....................................................................................................... 4
3. Dispute DS362 ................................................................................................................. 4
Chapter II. Analyze the dispute ............................................................................................. 5
1. Background ..................................................................................................................... 5
2. Case DS 362 .................................................................................................................... 5
3. Factual Aspects ................................................................................................................ 6
4. Argument of the parties ..................................................................................................... 7
5. Argument of the third parties ............................................................................................. 9
6. Consideration by the Panel .............................................................................................. 10
Chapter III. Conclusion........................................................................................................ 12
1. Results .......................................................................................................................... 12
2.Benefits.......................................................................................................................... 12
3. Recommendation............................................................................................................ 13
Bibliography ........................................................................................................................ 14
 TABLE OF ABBREVIATIONS USED IN THIS REPORT

DSB: Dispute Settlement Body

DSU: Dispute Settlement Understanding EC European Communities
MAT: Mutually Agreed Translation
TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights
WIPO: World Intellectual Property Organization WTO World Trade Organization
 Chapter I. Introduction
1. Overview
For years the U.S. has voiced its complaints about piracy and counterfeiting activities in
China, and the United States Trade Representative (USTR) has had China on its Priority
Watch List for allegedly not providing an adequate level of IPRs protection or enforcement
(Yang, 2009). Unable to resolve U.S. concerns, the U.S. initiated a WTO dispute against
China in April of 2007 DS362: China Measures Affecting the Protection and
Enforcement of Intellectual Property Rights. In particular, this report will analyze the dispute
DS362 followed Chinas first review after accession to the WTO and the dispute resolution
process initiated by the United States specifically on issues of intellectual property
enforcement.
2. The TRIPS agreement
In many countries, copyright piracy and trademark counterfeiting are considered as crimes.
(Dimitrov, 2009) There are differences, however, in the ways that countries enforce their IPR
laws.
TRIPS Agreement was negotiated as part of the Uruguay Round of Multilateral Trade
Negotiations in 1986 (AL., 2007) and after seven years of highly contentious negotiations, the
agreement was signed in 1994 and came into force on January 1, 1995.
As a result of the emergence of TRIPS, the main forum for rulemaking shifted from the
World Intellectual Property Organization (WIPO), a specialized United Nations agency
dedicated to promoting the protection of IP around the world (What is WIPO?, 2009)
3. Dispute DS362
Short title: China - Intellectual Property Rights
Complainant: United States
Respondent: China
Agreement: TRIPS Articles 9, 41, 46, 59, 61
Third parties: Argentina; Australia; Brazil; Canada; European Communities; India; Japan;
Korea, Republic of; Mexico; Chinese Taipei; Thailand; Turkey.
Request for Consultations received: 10 April 2007
Panel Report circulated: 26 January 2009
 Chapter II. Analyze the dispute
1. Background
Back in 2001, Chinas accession to WTO promised greater market access and a more
predictable commercial environment. As a consequence, new entrants will be encouraged to
enter Chinas market. Though companies are finding commercial opportunities in China,
there are many potential pitfalls companies should be aware of, including issues related to the
protection of intellectual property. But this is not new. As Angela Gregory already stressed in
Chinese Trademark Law and the TRIPS Agreement Confucius meets the WTO one of the
most frequently aired concerns about Chinas accession to the WTO has been that China will
not be able to implement the TRIPS agreement as to ensure that foreign IP holders will be
able to enforce their rights effectively. After Chinas accession, both the U.S. and the E.C.
allowed China a grace period to bring legislation and policy in line with WTO
requirements. Many laws had already been updated with WTO accession in mind, such as the
Copyright Law in 2001. Related Implementation Regulations were promulgated in 2002. But
reality shows that China continues to be a heaven for counterfeiters and pirates, as
enforcement measures taken to date have not been sufficient to deter massive IPR
infringements effectively. (Roque, 2011)
2. Case DS 362
On 10 April 2007, the United States requested consultations with the Government of the
People's Republic of China pursuant to Articles 1 and 4 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes ("DSU") and Article 64 of the Agreement
on TradeRelated Aspects of Intellectual Property Rights ("TRIPS Agreement") (to the extent
that Article 64 corresponds to Article XXII of the General Agreement on Tariffs and Trade
1994) with respect to certain measures pertaining to the protection and enforcement of
intellectual property rights in China.
Consultations were held on 7-8 June 2007 but did not lead to a resolution of the
dispute. On 13 August 2007, the United States requested the Dispute Settlement Body
("DSB") to establish a panel pursuant to Article 6 of the DSU, with standard terms of
reference.2 At its meeting on 25 September 2007, the DSB established a Panel, pursuant to
the request of the United States in document WT/DS362/7, in accordance with Article 6 of
the DSU (WT/DSB/M/239).
The Panel's terms of reference are the following: "To examine, in the light of the
relevant provisions of the covered agreements cited by the United States in document
WT/DS362/7, the matter referred to the DSB by the United States in that document, and to
make such findings as will assist the DSB in making the recommendations or in giving the
rulings provided for in those agreements."
On 3 December 2007, the United States requested the Director-General to determine
the composition of the Panel pursuant to paragraph 7 of Article 8 of the DSU. On 13 December
2007, the Director-General accordingly composed the Panel as follows: Chairperson: Mr.
Adrian Macey Members: Mr. Marino Porzio Mr. Sivakant Tiwari, Argentina, Australia, Brazil,
Canada, the European Communities, India, Japan, Korea, Mexico, Chinese Taipei, Thailand
and Turkey reserved their rights to participate in the Panel proceedings as third parties.
The Panel met with the parties on 14-16 April 2008 and on 18-19 June 2008. It met with the
third parties on 15 April 2008. The Panel submitted its interim report to the parties on 9
October 2008. The Panel submitted its final report to the parties on 13 November 2008.
3. Factual Aspects
MEASURES AT ISSUES
The measures at issue in this dispute are identified in the United States' request for
establishment of a panel as follows: 1 WT/DS362/1. 2 WT/DS362/7, attached as Annex D-1
to this report. WT/DS362/R
- Thresholds for criminal procedures and penalties
This claim brought by the U.S. concerned Chinas high thresholds for criminal
procedures and penalties. The U.S. alleged that the high thresholds violated Article 61 of the
TRIPS Agreement because they allowed Chinese infringers to structure their commercial
operations to ensure that they operated below the relevant threshold evading any criminal
liabilities. (First Written Submission of the United States, 2008). By implementing these high
thresholds, the U.S. contended that China violated Article 41 of TRIPS, which obligates
member countries to provide means for enforcement resulting in effective action. Chinas main
argument was that it employed reasonable and appropriate criminal thresholds for
counterfeiting and piracy purposes in compliance with Article 41 and 61 of the TRIPS
Agreement. China employed a narrower and more common usage understanding of
commercial scale under Article 61 of TRIPS to mean a significant magnitude of
infringement activity. China relied on Articles 1.189 and 41.590 of TRIPS to define the
standards of Article 61 of TRIPS, explaining that it retained considerable discretion with
respect to law enforcement. The panel concluded that some acts of copyright infringement
might possibly fall below all thresholds, thereby not being enforced by criminal proceedings,
but that this did not necessarily mean that it was a violation of Article 61 of TRIPS.
China has established these thresholds through the following measures:
(a) the Criminal Law of the People's Republic of China (adopted at the Second Session of the
Fifth National People's Congress on 1 July 1979 and revised at the Fifth Session of the Eighth
National People's Congress on 14 March 1997), in particular Articles 213, 214, 215, 217, 218,
and 220;
(b) the Interpretation by the Supreme People's Court and the Supreme People's Procuratorate
on Several Issues of Concrete Application of Law in Handling Criminal Cases of Infringing
Intellectual Property (adopted at the 1331st Session of the Judicial Committee of the Supreme
People's Court on 2 November 2004 and the 28th Session of the Tenth Procuratorial Committee
of the Supreme People's Procuratorate on 11 November 2004 and to be effective as of 22
December 2004)
(c) the Interpretation by the Supreme People's Court and the Supreme People's Procuratorate
on Several Issues of Concrete Application of Law in Handling Criminal Cases of Infringing
Intellectual Property (II) (adopted on 4 April 2007, at the 1422nd Session of the Judicial
Committee of the Supreme People's Court and the 75th Session of the Tenth Procuratorial
Committee of the Supreme People's Procuratorate, and to be effective on 5 April 2007); as well
as any amendments, related measures, or implementing measures.
 - Disposal of goods confiscated by customs authorities that infringe intellectual property
rights
The United States claims that China's measures for disposing of confiscated goods that infringe
intellectual property rights are inconsistent with China's obligations under the TRIPS
Agreement. In this regard, the measures at issue are:
(a) the Regulations of the People's Republic of China for Customs Protection of Intellectual
Property Rights (adopted at the 30th Ordinary Meeting of the State Council on 26 November
2003, published by the State Council on 2 December 2003, and effective from 1 March 2004),
in particular Chapter 4 thereof
(b) the Implementing Measures of Customs of the People's Republic of China for the
Regulations of the People's Republic of China on Customs Protection of Intellectual Property
Rights (adopted at an Administration Affairs Meeting of the General Administration of
Customs on 22 April 2004, issued by the General Administration of Customs with Order No.
114 on 25 May 2004, and effective from 1 July 2004), in particular Chapter 5 thereof
(c) General Administration of Customs Announcement No. 16 (2 April 2007); as well as any
amendments, related measures, or implementing measures. WT/DS362/R
-Denial of copyright and related rights protection and enforcement to works that have not been
authorized for publication or distribution within China
The U.S.s claim addressed Chinas denial of copyright protection and enforcement to
works that are not in accordance with Chinas censorship regulations. According to the U.S.,
Article 4 of Chinas Copyright Law did not provide the protection to all works that was required
under Article 9.1 of TRIPS because the law denied copyright protection to works that had been
banned for publication, distribution or both under Chinese law.47 Furthermore, since the
enforcement provisions under Chinas Copyright Law were unavailable with respect to works
denied copyright under Article 4 of that law, this was arguably inconsistent with the
enforcement requirement under Article 41.1 of the TRIPS Agreement (Panel Report, n.d.)
In this regard, the measures at issue are:
(a) the Copyright Law of the People's Republic of China (adopted at the 15th Session of
the Standing Committee of the Seventh National People's Congress on 7 September
1990, and amended according to the Decision on the Revision of the Copyright Law of
the People's Republic of China, adopted at the 24th Session of the Standing Committee
of the Ninth National People's Congress on 27 October 2001), in particular Article 4; 3
as well as any amendments, related measures, or implementing measures.

4. Argument of the parties

The United States claims that Article 4 of China's Copyright Law denies the protection of the
Copyright Law to certain categories of works, and refers to the text of that sentence. The United
States recalls that China, during a review of its legislation in the Council for TRIPS in 2002,
explained that this sentence referred to works of which the publication or distribution was
prohibited by such laws and regulations as the Criminal Law, the Regulation on the
Administration of Publishing Industry, the Regulation on the Administration of Broadcasting,
the Regulation on the Administration of Audiovisual Products, the Regulation on the
Administration of Films and the Regulations on the Administration of Telecommunication.
The United States gives examples of four regulations that prohibit the publication or
distribution of works under various circumstances.
The United States claims that Article 4 of China's Copyright Law denies to the authors
of works "the publication or distribution 15 of which is prohibited by law" the broad set of
rights enumerated in Article 10 of the Copyright Law, which largely encompasses the rights
contemplated by the provisions of the Berne Convention (1971). Nor do authors of works
denied protection of the Copyright Law benefit from the remedies specified in Articles 46 and
47 of the Copyright Law. Consequently, the authors of such works do not enjoy the minimum
rights that are "specially granted" by the Berne Convention, 14 United States' first written
submission, paras 68-69, referring to Review of Legislation (China) in document IP/Q/CHN/1
This translation was taken from China's notification to the Council for TRIPS in
IP/N/1/CHN/C/1. The parties later agreed that it should be translated as "publication and/or
dissemination". WT/DS362/R Page 12 inconsistently with Article 5 of that Convention.
The United States submitted more detailed arguments with respect to content review
in relation to Article 5(2) of the Berne Convention (1971)
China responds that copyright vests upon creation and is independent of publication.
Article 2 of the Copyright Law grants full copyright protection by expressly incorporating into
Chinese law the rights conferred under international agreements, including the Berne
Convention and the TRIPS Agreement. In contrast, Article 4 of the Copyright Law is extremely
limited in scope. China, like many other countries in the world, bans from publication and
dissemination such works as those that consist entirely of unconstitutional or immoral content.
Article 4 simply provides that such a work shall not be protected by the Copyright Law.
China argued in its first written submission that the application of Article 4 was not dependent
on content review or any other regulatory regime related to publication and that the only result
of a finding of prohibited content in that process was a denial of authority to publish, not a
denial of copyright. Specifically, China argued that works that fail content review were not
denied copyright protection.
Article 17 of the Berne Convention (1971) subjects to the sovereign power of
governments all of the rights otherwise granted by that Convention. At the first substantive
meeting with the Panel, the United States stated that China's written submission appeared
simply to concede that Article 4 of its Copyright Law was inconsistent with its obligations
under the TRIPS Agreement because it admitted that Article 4 denies protection to works
whose contents are prohibited.
At the same meeting, China confirmed parts of its first written submission but clarified
that, with respect to a work edited to pass content review, it would protect copyright in the
edited version of the work, including against copies of the unedited version that infringed
copyright in the edited, approved version.
With respect to works that failed content review, China informed the Panel that it
intended to provide additional written comments and clarification of its position later. China
provided its additional comments together with its responses to the Panel's questions after the
first substantive meeting and asked the Panel to rely on these additional comments to the extent
that they were inconsistent with its first written submission. China confirmed that it would
protect copyright where a work was edited to pass content review. Where no authorized edited
version had been created, it would enforce copyright in the legal portion of the original work
against copies of an unauthorized edited version.
However, it would not enforce copyright against unedited, prohibited copies of an
unedited, prohibited work that failed content review. At the same time, in response to the
Panel's questions, China submitted that Article 4 of the Copyright Law did not affect the vesting
of copyright under Article 2 of that Law. China asked the Panel to note that under the Chinese
system of copyright, "copyright" and "copyright protection" are distinguishable.
To the extent that Article 4 of the Copyright Law would come into play with respect to
a work, it would operate not to remove copyright, but to deny the particularized rights of private
copyright enforcement.
The United States notes that China admits that it denies copyright protection to certain
works whose contents Chinese authorities determine are prohibited by law and submits that,
therefore, China has confirmed that it is acting inconsistently with its obligations under Article
9.1 of the TRIPS Agreement. The United States rebuts China's arguments as follows: first, even
if Article of the Copyright Law grants protection to foreigners' works, Article 4 denies
protection to those for which publication or distribution is prohibited by law. Article 2 cannot,
by the terms of Article 4, apply to such works. Second, as Article 4 denies the exclusive rights
enumerated in Article 10 of the Copyright Law, the minimum set of exclusive rights guaranteed
by Article 5 of the Berne Convention (1971) is denied to such works.
The distinction between "copyright" and "copyright protection" is not found in the
text of the Berne Convention and is irrelevant. Third, Article 4 creates significant commercial
uncertainty and, where it is clear that a work has been denied copyright protection, allows
pirates to profit at the expense of the legitimate right holder, including by exporting. Article
17 of the Berne Convention (1971) does not permit Members to deny copyright protection to
authors in their respective works.24 7.23 China responds that the United States has failed to
make a prima facie case with respect to its view that copyright protection is contingent upon
content review (see paragraph 7.145 below). The whole claim with respect to Article 4 of the
Copyright Law must therefore fail. With respect to the claim of a facial violation, there is a
strong presumption that a Member's law is WTO-compliant and the United States has offered
no evidence in support but the text of Article 4(1) of the Copyright Law itself. Article 2 of the
Copyright Law directly implements an author's rights under the Berne Convention into
Chinese law. The scope and operation of Article 4(1) of the Copyright Law are extremely
limited.25 The sovereign power to prohibit works, recognized in Article 17 of the Berne
Convention (1971), permits Members to maintain a provision of law such as Article 4(1) of
the Copyright Law.26
5. Argument of the third parties
Argentina considers that Article 4 of the Copyright Law appears to deny to works that are
prohibited or not permitted the protection established in Article 10 of the Copyright Law,
which contains the rights enumerated in the Berne Convention (1971). This does not imply
that China has no right to prohibit the publication or distribution of certain kinds of works. In
fact, Article 17 of the Berne Convention (1971) contemplates such a possibility
Canada notes that China has admitted that Article 4 of its Copyright Law refers to works,
including those of the Berne Union, that the Chinese authorities find unconstitutional or
immoral, and that these works are not protected in China. Canada does not see how this
conclusion is affected by the second sentence of Article 2 of the Copyright Law as Article 4
seems to take precedence. Canada agrees that Members can prohibit the publication and
distribution of work but considers that Members do not have a right to deny copyright
protection to them.
The European Communities notes that China acknowledges that Article 4 of its Copyright
Law denies copyright protection for works "the publication or distribution of which is
prohibited" because of "unconstitutional or immoral" or "reactionary, pornographic or
superstitious" content. Such denial of protection is not covered by the exemptions or limited
exceptions permitted under the Berne Convention (1971) and the TRIPS Agreement. Article
17 of the Berne Convention (1971) does not allow limiting exclusive rights or even
exempting works from protection
Chinese Taipei considers that, without a content review, it can never be determined whether a
work is unconstitutional or immoral. Works that have not passed, or that fail to pass, content
review are prohibited from distribution by law, which means that they fall within the scope of
Article 4 of the Copyright Law. Clarification is required as to whether China protects works
that have not been submitted for a content review or that are pending authorization. Even if
Article 4 of the Copyright Law were limited to works that fail to pass a content review, this
withdrawal of protection would be inconsistent with the obligation under Article 9.1 of the
TRIPS Agreement and Article 5 of the Berne Convention (1971). Chinese Taipei shared the
view of both parties that China has the right to conduct content review based on Article 17 of
the Berne Convention (1971)
6. Consideration by the Panel
The Panel notes that this claim challenges China's Copyright Law, in particular Article 4, not
as it has been applied in any particular instance but "as such". The parties have disagreed on
the proper interpretation of that measure since shortly after the first substantive meeting.
Therefore, the Panel is obliged, in accordance with its mandate, to make an objective
assessment of the meaning of the relevant provisions of that measure. In this context, the
Panel is mindful that, objectively, a Member is normally well-placed to explain the meaning
of its own law. However, in the context of a dispute, to the extent that either party advances a
particular interpretation of a provision of the measure at issue, it bears the burden of proof
that its interpretation is correct.32 The Panel emphasizes that it examines the measure solely
for the purpose of determining its conformity with China's obligations under the TRIPS
Agreement.
The United States claims that Article 4 of the Copyright Law on its face denies
immediate, automatic protection to certain works of creative authorship
China responds that this claim is based on the "mistaken view" that copyright
protection in China is contingent upon successful completion of content review.35 In the
course of addressing the issue of when copyright vests under Chinese law, China
acknowledged that Article 4 of the Copyright Law denies protection to certain works due to
their content
The United States stated at the first substantive meeting that, in view of that
acknowledgement, China appeared simply to concede that Article 4 of the Copyright Law
was inconsistent with China's obligations under the TRIPS Agreement. Canada and the
European Communities, as third parties, took the same view. Argentina considered that the
text of Article 4 was straightforward. After that meeting, China clarified the terms of its
earlier acknowledgement. It clarified that Article 4 denies "copyright protection" in the sense
of enforcement but does not disturb "copyright".
The United States dismissed China's clarification as an "artificial distinction". The
Panel begins its assessment by observing that Chapter I of the Copyright Law comprises eight
articles. Article 1 sets out the purpose of the law, which includes the purpose of protecting the
copyright of authors in their literary, artistic and scientific works and the rights and interests
related to copyright. Article 2 sets out criteria of eligibility for protection. The first paragraph
(to which the Panel will refer as "Article 2(1)") may be translated as follows: "Chinese
citizens, legal entities or other organizations shall enjoy copyright in their works in
accordance with this Law, whether published or not."
The second (to which the Panel will refer as "Article 2(2)") may be translated as
follows: "The copyright enjoyed by foreigners or stateless persons in any of their works
under an agreement concluded between China and the country to which the author belongs or
in which the author has his habitual residence, or under an international treaty to which both
countries are parties, shall be protected by this Law.
" The Berne Convention (1971) is defined as an "international copyright treaty" for the
purposes of the Provisions on the Implementation of International Copyright Treaties.
Article 3 sets out a non-exhaustive list of "works" for the purposes of this Law,
including works of literature, art, natural sciences, social sciences, engineering and
technology which are created in the form of any of a series of enumerated works.
Article 4 provides inter alia that certain "works" shall not be protected by this Law.
7.39 Article 5 sets out subject matter to which this Law does not apply (that appears to
concern subject matter that falls into the public domain or is considered to lack originality).
Article 6 provides that certain works will be dealt with in other measures.
 Chapter III. Conclusion
1. Results
The Panel Report was first circulated on January 26, 2009, and it was adopted by the DSB
on March 20. Because neither country submitted the request for appeal within the allowed
period of time, the rulings from the Panel Report are considered final. The Panel has ruled as
follows.
a) The Chinese rules and measures in which the first sentence of Article 4 of Chinas
Copyright Law denies the protection to copyrighted works that have failed, or
otherwise not been approved by the Chinese censorship are inconsistent with its
obligations under the TRIPS Agreement.
b) The Chinese rules and measures in which they allow the counterfeiting goods seized
by the Chinese customs authorities to reenter the channels of commerce through
simple removal of counterfeiting features are inconsistent with its obligations under
the TRIPS Agreement. However, the Panel does not support the U.S. claims that
infringing goods after seized by customs authorities are donating to charities; and
sales of infringing goods back to the right holder have caused harms to the right
holder. The Panel also rejects the U.S. claim that the Chinese customs authorities lack
the authority to order destructions of infringing goods.
c) The United States has not provided sufficient evidence to substantiate its claim that
Chinas criminal thresholds have made criminal procedures and penalties unavailable
for certain trade counterfeits and copyright piracy.

For the United States, the results of its first WTO case against China on IP enforcement
were mixed. Although the U.S. was able to win most of its claims, it fell short to prevail on
the most important one the high thresholds to trigger criminal procedures against
counterfeiting and piracy. The Panel has ruled that existing evidence are not sufficient to
demonstrate that high thresholds help reduce the availability of criminal procedures against
copyright pirates and counterfeiters, and distributors of infringing products. This is
particularly disappointing, because the U.S. businesses and officials have repeatedly
indicated that the high thresholds are the main 91 contributing factor to Chinas deficiency of
IP enforcement. (USTR Special 301 Report).
To some extent, the unsuccessful challenge to the high thresholds is a major setback for
the U.S., which it had high hopes that the TRIPS Agreement and the dispute settlement
mechanism could bring in a breakthrough in its long struggle with IP infringement in China.
In this sense, the ruling is a major setback for the United States in appealing for more IPR
protection from China.
2.Benefits
US sent an effective signal to China about its willingness to use the WTO process, which
in turn might lead to further negotiations.
Let China know that this might just the first of a long series of IP-related challenges the
US intends to initiate against China in the near future.
Redefine the needs, limits and functioning of the worldwide copyright system.
 3. Recommendation
My own recommendation is that U.S. companies need to make it very clear to the
Chinese consumers that engaging in illicit consumption is illegal, and will face civil and even
criminal penalties.
On the other hand, the U.S. companies shall understand that it is equally important for
them to better understand Chinese laws and how the Chinese judicial system functions. A
recent study by a Western scholar even claims that the IPR is one of the very few sectors in
China that bears the sign of emerging rule of law, given the countrys overall picture of rule
by the state.298 That the U.S. companies are capable of maneuvering through the intricacies
of law and politics in China is essential for them to prevail in IP litigations and enforcing IP
rights. This is particularly the case for less well-known companies. As such, for small and
mid-size companies, they might find it is useful to form local partnership with Chinese
partners through establishment of joint-ventures. Part of the reason is that Chinese companies
are better at dealing with local authorities and red tape. Another reason is that the Chinese
authorities, as reported by U.S. business associations and government agencies, are more
willing to enforce IPRs owned by locals. (Wang)
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