U.S. claims win in WTO piracy case

Wins on two of three claims against China

WASHINGTON -- The United States has won two out of its three claims in a landmark case against China's copyright and trademark protection regime, a U.S. trade official said on Thursday, contradicting other trade sources who said China won the bulk of the ruling.

"In response to published press reports, we can confirm that the panel agreed with the United States on two out of three U.S. claims," said the U.S. trade official, who asked not to be identified because the World Trade Organization panel draft interim report has not been made public.

"We are, of course, still reviewing the report, but so far are very pleased that the panel has found that China has violated its WTO obligations," the trade official said.

The case, one of several dogging relations between the two economic superpowers, involves Chinese protection of intellectual property such as films and software.

Washington launched the dispute last year out of frustration at rip-offs of films, branded goods and other trademarked property openly available in Chinese cities -- as in many other parts of Asia.

The International Intellectual Property Alliance, a coalition of U.S. music, movie, book and software industry groups, conservatively estimates that piracy in China cost them more than $3.7 billion in lost sales in 2007.

The United States argued that China violated WTO rules by barring copyright protection for movies, music and books that have not been approved by state censors for legitimate sale in the Chinese market.

This "allows copyright infringers to profit at the expense of the legitimate rightholder, without fear of being subjected to enforcement procedures and remedies for copyright infringement," the U.S. Trade Representative's office said in one of its documents filed in the case.

Trade sources said the United States won on that issue.

But the panel ruled Washington did not prove a second claim that China's "thresholds" for bringing criminal prosecutions against pirates are so high they effectively permit commercial scale pirating and counterfeiting, the sources said.

However, shortly after the United States filed its case last year, China dropped its threshold for bringing a criminal prosecution to 500 copies of pirated material down from 1,000 previously, said Justin Hughes, professor of law at the Benjamin N. Cardozo School of Law in New York.

Washington's third main complaint focused on the disposal of counterfeit goods, such as fake designer bags, seized by Chinese customs authorities.

One trade source said the panel ruled China violated the WTO agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) by allowing counterfeit goods to be auctioned after the infringing trademark is removed.

A second trade source said the panel found that on some points TRIPS did not apply and on other points Washington had not established that the Chinese rules infringed TRIPS.

WTO dispute panels rarely change their decision between interim and final rulings. The panel said in July it expected to issue a final report by November.

"You'd have to say it was a split decision," Hughes said. But "this is really just the beginning of a long process of figuring what the enforcement standards are under the TRIPS agreement."

The United States has filed a second case challenging China's market access barriers to legitimate film, music and books, which Washington argues allows the Chinese market for pirated goods to flourish.
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