The year of 2006 marked the fifth year since China's entry into the World Trade Organization (WTO) and the protection for intellectual property (IP) has been highlighted in various respects. Both the negotiations between China and the US and those between China and Europe emphasized that China should strengthen its protection for IP. It can be said that protection for IP was the key issue in this year. China's senior leaders as well as responsible persons from IP departments recognize that it is necessary to strengthen and stress protection for IP. Relevant policies and legislation have been adopted to promote IP protection. Meanwhile, a lack of attention to the implementation process continues to result in insufficient protection from infringement, piracy and manufacture of fakes. As the five-year transitional period since China's entry into the WTO has expired, China's IP protection in 2007 will face a more serious situation.
High Pressure from the US and Europe
    On 12 December 2006, the day when China’s five-year transitional period expired since its entry into the WTO, the United States Trade Representative (USTR) released its annual report to the US Congress concerning China's compliance with its WTO obligations. In the report, China's IPR protection again was listed as one of the fields in which "reform has been reversed or at least progress with IP implementation has been slowed down".
     During the past year, the IP conflict between China and the US became more and more severe, and the US government claimed to file complaints in several cases with the WTO regarding China’s IP protection. This topic was mentioned in the Sino-US governmental negotiations which took place in March, April, June and September of 2006. In his visit to China at the end of last year, U.S. Commerce Secretary, Mr. Carlos Gutierrez said that piracy and infringement occurring in China not only brought economic losses to US enterprises but also affected the development of a mutually beneficial economic relationship. He also mentioned that the US hoped that China would adopt the following measures within a short period of time: lower the thresholds for criminal prosecution for IP infringement; relax import restrictions for products such as US movies into China and share audio-visual product samples with international labs for tracking down pirated products. 
    The EU and Japan have also requested that China provide stronger IP protection. Last October, having changed its usual tender policy with China, the EU declared that China was the main object for its fight against IP infringement, and the EU requested that China take stricter legal measures to prevent piracy in China.   
The Chairman of the EU Trade Commission, Mr. Peter Mandelson visited China last December and IP protection was the main topic for discussion during his trip. He criticized China’s lack of adequate protection for IP in his press conference, requesting China that take stricter legal measures to prevent privacy in China, and even expressly criticized two Chinese official media outlets (CCTV and China Radio International) for persistent use of EU video materials without paying any copyright fee to the relevant manufacturers.    
    Last year, Japan also expressed that it would consider bringing joint litigation with the US, Canada and EU to the WTO with respect to China’s lack of IP protection.

The Government Pays More Attention to IP Protection

    Facing international pressure, China's senior leaders have become more aware of the importance of IP protection. Ms. Wu Yi, vice Premier and the group leader of the National Working Group on IP Protection, emphasized on several occasions the urgency and importance in realizing IP protection to prevent various IP infringements.

    On Nov. 9, when meeting with Mr. Eric Smith, Chairman of the US International IP Association, Wu Yi said that Chinese government paid much attention to IP protection and that China's IP protection was not only for compliance with its obligations to WTO but also was required for China to develop and increase its self-innovation capability. She said China accomplished the task, which took other countries several hundreds of years, of establishing a complete IP system which complies with international rules and China's practical situation, having adopted a series of measures to strengthen the enforcement of IP protection.
    China’s IP officials may feel more urgency about the seriousness of IP protection. Mr. Yang Tiejun, vice president of SIPO stated in public, "As the five-year transitional period since China's entry into the WTO has expired on Dec. 11, China's IP protection will face bigger and more direct international attacks and the situation is not optimistic."
Mr. Ma Weiye, director of the Coordination Department of SIPO pointed out that there are six issues concerning China's present IP protection situation: 1. People lack awareness of IP protection, which is a barrier for IP protection. 2. The enforcement system for IP protection is too diffuse and is under the management of various agencies, which is not good for consolidated management. 3. The power to combat IP infringement far from strong in deterring infringers so that IP infringement crimes are still serious. 4. Relevant regulations with respect to IP crimes in existing legislation are less than satisfactory to combat various infringement and other illegal activities. 5. The enforcement mechanism for infringement and other illegal activities related to IP is far from satisfactory, and the administrative law enforcement in particular is always faced with a awkward situation that there is a wish, but there is no means. 6. The cost of infringement is low while the cost of rights protection is much higher, which causes some IP owners to lose confidence in protecting their own legal rights and interests. 
Another factor reflecting China’s official attention to IP protection is the establishment of the National Working Group on IP Protection, which constitutes a coordination mechanism for IP administrative enforcement. During the past year, IP complaint centers were established in more than 50 cities, forming a complete working mechanism and process for IP acceptance, transfer, tracing, terminating, feedback and reporting, which strengthens the settlement of relevant cases.  

Gradually Increased IP Legislations

    At the beginning of 2006, the Chinese government formulated the “Guideline for IP Protection (2006 - 2007)” (hereinafter referred to as the "Guideline") and "China's Action Plan on IP Protection 2006" (hereinafter referred to as the "Action Plan"). The Guideline specifies the objectives, key points and measures for national IP protection efforts in the next two years. The Action Plan intends to draft, formulate and amend 17 laws, regulations, and other measures with respect to trademark, copyright, patent and custom protection; and the government has also drafted and amended 6 judicial interpretations.  
     The laws, regulations and judicial interpretations promulgated or implemented in or as of 2006 include the following:
     Measures for Compulsory License on Patent Implementation Concerning Public Health Problems, Measures for the Reduction or Postponement of the Payment of Patent Fees, Measures for the Protection of Intellectual Property Rights During Exhibitions, Guideline for Patent Examination, and the decision by the Supreme People's Court with respect to the amendment to the Interpretations of the Supreme People’s Court for Several Issues Concerning the Application of Law in Hearing Disputes over Computer Network Copyrights, and a notification process in regards to the establishment of a determination and registration system for well-known trademarks. 
In addition, local governments also promulgated more than 200 local regulations, rules, measures and documents with respect to IP.
    The research work on the amendment to the Trademark Law was started last year. The Financial and Economical Branch of the NPC Standing Committee has suggested putting the amendment to the Trademark Law into the legislation plan. The third amendment of the Patent Law has been launched and will be submitted to NPC for review and discussion in this March.   
    At the end of 2006, the NPC Standing Committee approved China’s entry into the WIPO Copyright Treaty and WIPO Performance and Phonograms Treaty. This means that China will improve its protection for Internet copyrights. 

Difficulty with IP Protection

    Although more legislation related to IP was introduced in China in 2006, it does not mean that there is adequate IP protection, as the implementation process is of greater importance. Some foreign officials have said, “We trust Wu Yi but we do not trust China’s local governments”. In their view, piracy is closely related with local finances. 

    From July until October last year, 10 national departments jointly launched an action against the piracy of audio-video and computer software (“the 100 Day Anti-Piracy Action”). In these 100 days, China confiscated various illegally published 58,377,000 disks and dealt with more than 10,000 relevant cases. About 13,000,000 pirated audio-video and computer software products, were destroyed. The achievement of this joint action was much better than similar past actions. 

     Did the destruction of 13,000,000 pirated audio-video disks lower the rate of the general public’s use of pirated products? A according to statistics from China audio & video association, the total sales of audio products (including music and video) were about 5 billion disks. But the present production capability of the entire legal production line is only for 0.6 billion disks. This figure proves an idea in the industry: more than 90% of the audio-video market in China is under the control of piracy producers. In such a circumstance, it is quite easy for the general public to buy pirated products. However, we should also recognize the progress that has been made by the Chinese authorities in attacking pirated products. They have come to realize that the 100 Day Anti-Piracy Action is far from being adequate. Therefore, during last December this action was updated to a “Day-to-day Anti-Piracy Action for IP Protection”.
     The weak local law enforcement and light punishment meted out have always been the key issues criticized by the US and EU. Last November, the Ministry of Public Security announced the IP infringement cases that had occurred during the first 10 months of 2006: 1,904 cases were filed, an increase of 31.5% compared with the same period of the previous year. The procuratorate authority also included the strengthening of judicial protection for IP in its working plan for 2007. Mr. Jia Chunwang, the top prosecutor of the Supreme People's Procuratorate, emphasized that the national procuratorate shall attack IP crimes in accordance with relevant laws and regulations and work to strengthen the protection for IP.

Infringement Litigation Gaining Influence and the Copyright Fees Charged Aroused Disputes

     Last year, some key infringement cases were concluded, including Louis Vuitton, Chanel and other 3 internationals brands vs. Silk Street Market, and the Great Wall Trademark infringement case, for which the awarded damages was RMB 10 million. The People’s Court upheld the litigation claims in these two cases. 
     In 2006, one feature of the relevant IP litigations was the increase in the number of cases involving foreign parties in Beijing and Shanghai.
     In March, French Hennessy Corporation brought a lawsuit in Shanghai against Zhu Hai Xiangmutong Company for trademark infringement. On Dec. 4, the final judgment ordered the defendant to compensate Hennessy Corporation RMB 300,000.
In April, for “Louis Vuitton, Chanel and other 3 internationals brands vs. Silk Street Market”, Beijing High People’s Court ruled in favor of Louis Vuitton, Chanel and other 3 internationals brands, and the 5 businessmen selling pirated products in the Silk Street market and the Silk Street Clothes Ltd. Co. were ordered to jointly compensate each of the 5 brands RMB 20,000. 
     Shanghai Di Kai Audio-Video Products Ltd. Co. was sued by 6 US movies companies due to its sale of pirated disks from 21 movies (Paramount Pictures Inc., Columbia Pictures Corp, New Line Cinema, Twentieth Century-Fox Film Corporation, Universal Picture Co, Disney Corp). On Dec. 25, these 6 companies prevailed and received RMB 158,000 in compensation.
     On Dec. 27, the First Intermediate People’s Court of Beijing announced the judgments of 17 foreign IP cases, and 13 famous foreign enterprises including, US Pfizer Inc. and Disney Company, had won their cases. After the judgments were announced, Su Chi, vice president of the First Intermediate People Court of Beijing, said that 20% of the IP cases in this court involved foreign enterprises, among which 90% of the claimants were foreign enterprises and 60% of them won their cases. 
     Among the top 10 IP infringement cases announced by the Beijing High Court, half of them involved copyright disputes. More and more copyright owners began to get compensation for economic losses through litigation. But the KTV copyright fee collected by the China Audio-Video Association aroused a great dispute. Guangzhou Culture and Entertainment Association firstly rejected such payment and questioned the legality of such payment and fee standard. This was the last confrontation related to the IP protection in 2006. 

      In 2007, China will face more challenges in IP protection. During the process of China’s entry into the WTO, IP played an important role. The topic of IP protection will continue among China and the US, European countries and Japan. The Chinese government will face a serious test. How they will resolve the IP protection disputes between China and other countries is still unknown. The new phase of IP strategy shall come into force during the first half of 2007. The purpose of this strategy is to create and accumulate China’s own IP rights and to improve China’s national core competitive capability. From this strategy we may see that the protection of IP is also needed for China’s self-development and for the improvement of its creative and innovative capability.