WTO issues ruling on U.S. v. China IP dispute: A hollow victory for the U.S.

On January 26^th, the World Trade Organization (WTO) issued a ruling on an intellectual property (IP) dispute between the United States and China. While many news organizations reported the WTO panel's ruling as a victory for the U.S., the truth is somewhat more complicated. While the WTO ruled for the U.S. on some points, China prevailed on other, perhaps more important points.

The activities of Chinese counterfeiters are a serious concern to Western nations. Estimates of lost software, movie, and music sales due to Chinese piracy range from $2.2 billion to $3.7 billion. (Some estimates are even higher—although the methodologies used for the calculations may be questionable.) It is estimated that 60% of the counterfeit goods entering Europe were made in China. Although China has often claimed to be cracking down on violations of intellectual property, the U.S. considers those claims to be mere "sound and fury."

In its complaint against China, the U.S. alleged three things: (a) that Chinese copyright law didn't extend coverage to enough works; (b) that Chinese customs practices wrongly allowed confiscated counterfeited goods to reenter the market; and (c) that the threshold for criminal counterfeiting in China is too high. The WTO panel decided point (a) in favor of the U.S., point (c) in China's favor, and returned a mixed decision on point (b).

The U.S. used its win on point (a) to declare victory in the overall dispute. China had previously denied IP protection to works which were prohibited by law. China had argued that prohibiting the publication or dissemination of such works functioned as an alternative to IP protection. The WTO disagreed—although a work is banned in a country, it is still entitled to IP protection under the Berne Convention and TRIPS.

The WTO ruling on point (b) was a partial victory and loss for both sides. As Professor Michael Geist explains, "With the exception of one practice (removal of trademark from counterfeit trademarked goods), the panel upheld all of China's border measures including the distribution of confiscated goods to the Red Cross, the resale of the goods to rights holders (if they are interested), the auction of certain goods, or the destruction of the goods."

The ruling on point (c) was a clear victory for China. The U.S. had argued that the Chinese criminal laws against counterfeiting imposed requirements for prosecution that were almost impossible to meet—making the laws insufficient to protect intellectual property and a violation of the TRIPS agreement. The WTO panel found that the U.S. did not meet the burden of proof on point (c), and allowed China's criminal law on IP to stand. Thus, as Forbes puts it, "counterfeiters, for the time being at least, have no fear of being criminally prosecuted."

With counterfeiting in China likely to continue to go relatively unpunished, the WTO probably won't give any practical satisfaction to the U.S. However, China is once again vowing to cooperate in the fight against piracy. "As we continually strengthen domestic intellectual property rights, we will continue to promote international exchanges and co-operation on IPR and promote the healthy development of global trade relations." Although reductions in piracy are not happening as fast as the U.S. might like, there are signs that the situation is improving—and that the reduced piracy will help not just the U.S., but Chinese companies as well.