limited to consumers and right holders; China has estimated its own tax losses due to counterfeiting at $3.2-4 billion in 2002.
Some Progress, but Overall Enforcement Remains Inadequate
Inadequate IPR enforcement is one of China's greatest shortcomings as a trading partner. Rights holders report that enforcement efforts, particularly at the local level, are hampered by poor coordination among Chinese Government ministries and agencies, local protectionism and corruption, high thresholds for initiating investigations and prosecuting criminal cases, lack of training, and inadequate and non-transparent processes.
Most of all, China suffers from chronic over-reliance on toothless administrative enforcement and underutilization of criminal remedies. China's own 2004 data showed that it channeled more than 99 percent of copyright and trademark cases into its administrative systems and turned less than one percent of cases over to the police. The trademark and copyright industries continue to point out that administrative fines are too low to provide a deterrent, and as a result, infringers continue to consider administrative seizures and fines as a cost of doing business.
In 2005, the United States pressed China to address its over-reliance on administrative enforcement. At the 2005 JCCT, China agreed to increase the number of criminal prosecutions for IPR violations relative to the total number of IPR administrative cases.
Unfortunately, there has been no sign yet of a significant shift in emphasis toward criminal enforcement. China's reported absolute numbers of criminal cases have risen,[1] but China has not publicized corresponding administrative statistics that would reveal a shift. On the contrary, according to a trademark industry submission, officials of China's State Administration for Industry and Commerce recently indicated that the number of trademark cases transferred to the police during 2005 was expected to be less than 0.3% of the total. Right holders continued to express dissatisfaction with the number and substance of investigations, prosecutions, and convictions last year by local police.
In the 2005 Special 301 Report, the United States pledged to examine closely whether China's implementation of a December 2004 Judicial Interpretation on thresholds for criminal liability would address underlying deficiencies and actually deter counterfeiting and piracy. Following careful examination of available information, the United States has concluded that China's high thresholds for criminal liability (i.e., the minimum values or volumes required to initiate criminal prosecution) continue to be a major reason for the lack of an effective criminal deterrent. The partial reforms reflected in the December 2004 measure did not go far enough; the mandated thresholds remain so high that they make it impossible as a matter of law to prosecute many commercial infringers, especially at the retail level. The problem is made worse by China's
- ↑ According to Chinese data provided in response to U.S. requests, China initiated no copyright retail cases under Article 218 of its Criminal Law in 2004 and six cases in 2005. Under Article 217 of the same law, covering copyright reproduction and distribution, the number of cases initiated rose from 13 to 28. China's self-reported numbers of trademark counterfeiting cases initiated also rose from 53 to 98 under Article 215 (sale of counterfeit trademark goods); from 163 to 221 under Article 213 (manufacture of counterfeit trademark goods), and from 100 to 134 under Article 215 (manufacture of counterfeit trademark labels).
