China and IPR, part II-Patent (Copyright) (Trademark) (Etc.) Facts

This commentary explores China’s fulfillment of its intellectual property (IP) rights (IPR) obligations.[1] Herein, “compliance” requires more than Beijing’s embrace of policies, passage of laws, adoption of regulations, creation of IP administrative entities, or restructuring of its court system. It also, and more importantly for foreign IP rightsholders and their governments, demands serious reductions in IP violations, aggressiveness in identifying IP violations or responding to complaints from IP holders, the consistent imposition of meaningful penalties on IP violators, fair treatment of foreign IP holders by Chinese administrative bodies and courts, and government steps at the national and sub-national (e.g., provincial and municipal level) to deter future IPR infringements.[2] This essay concentrates on the first three aspects of compliance to the extent that national-level data sources allow an examination.[3]

Two well-known United States government (USG) resources on China’s compliance with its IPR agreements are the United States Trade Representative (USTR)’s “Report to Congress on China’s WTO Compliance” [“WTO Report”] and “Special 301 Report.”[4] The 2004 WTO Report (63), 2004 Section 301 Report (11), 2013 WTO Report (109), and 2016 Special 301 Report (30) all described China’s counterfeiting and piracy as “rampant.” The 2008 WTO Report (77) and 2008 Section 301 Report deemed them “unacceptably high” (20) while the 2012 Section 301 Report used the adjective “high” (27) and the 2016 WTO Report (126) and 2021 Section 301 Report, which emphasized online piracy, labeled it “widespread” (45) while the 2021 WTO Report described online piracy as “large scale” (50) and counterfeiting as “widespread” (51). The 2012 Section 301 Reports stated trade secret theft cases showed an “alarming” surge (27); the 2013 and 2016 WTO Reports (106 and 136) and 2016 Special 301 Report (30) all mentioned cases were growing; and the 2021 Section 301 Report reported trade secret protections suffer “serious inadequacies” (48). The 2004 Section 301 Report called the problem of software piracy “significant” (13), though the 2008 WTO Report said business software piracy rates notably fell (76). According to the 2013 WTO Report (98) and the 2012 Section 301 Report (28), software piracy among Chinese state-owned enterprises (SOEs) was “high” (98), though the former report saw “modest progress” elsewhere on the software piracy front (105). The 2016 WTO report highlighted “serious concerns” about software piracy, and modest progress in piracy rates (137-138); the 2016 Special 301 Report highlighted persistent “very high” losses from software piracy (33); and the 2021 Section 301 Report commented software legalization programs were not implemented “comprehensively” (49). The 2016 WTO Report drew attention to bad faith trademark registrations (130); the 2021 WTO Report noted “serious concerns” about them (49); and the 2021 Section 301 Report commented they were “long-standing” and “persistent” problems (40).

Turning to enforcement, the 2004 WTO Report stressed fines were too low and criminal cases and penalties insufficient (12, 64-66). The 2008 WTO Report pronounced “China has continued to demonstrate little success in actually enforcing its laws and regulations” (72) and that criminal penalties were “chronically underutilized” (72). The 2008 Section 301 Report pointed to “inadequate” IPR enforcement (20-21). The 2013 WTO Report expressed “serious” concerns” about effective enforcement (98) and reiterated criminal remedies were “chronically underutilized” (99). The 2012 Special 301 report stated there were “serious obstacles to effective [IP] protection and enforcement” (26) and a “failure to impose sufficient deterrent penalties” (27). The 2016 WTO Report opined that “effective IPR enforcement remains a serious problem” (126). For its part, the 2016 Special 301 Report asserted IPR violation remedies were “insufficient to match the level of the threat” (30). The 2021 Special 301 Report highlighted China had “weak [IP] enforcement channels” (40) and a “lack of deterrent-level statutory damage and criminal penalties” (42), though there seemed to be “more proactive efforts…to conduct investigations” (44).

Regarding the assessments of non-academic experts, in testimony to the U.S.-China Economic and Security Commission (USCC) in 2015, Mark Cohen, a former USG and corporate official, said, “we have been encouraging China for 35 years to establish an IP system that is fully compatible with international norms and that protects IP as a private right. That task is unfinished…” He added, “damages in patent cases are too low.”[5] In 2018, he again testified before the USCC, observing there was uncertainty China was using criminal remedies sufficiently.[6] During testimony to the USCC in 2022, Cohen embraced the view China’s IP administrative enforcement was “‘toothless.’”[7] Around the same time, a manager with a consultancy wrote that the European Union saw China as a top priority because of the “scale and persistent of problems” with respect to IPR protection and enforcement.”[8] In contrast, an attorney with a global law firm countered “rightsholders are enjoying stronger enforcement of their intellectual property (IP) rights” with data for 2018 and 2020 showing increases, some notable, in civil lawsuits, damage awards, criminal cases, trademark infringement fines, and Customs seizures. Moreover, foreign IP holders are winning cases and awards that are much larger than before.[9] Similarly, two Carnegie Endowment for International Peace fellows touted China’s IPR record was “getting better and better,” partly due to improving IP enforcement.[10]

Switching to academic treatments, one piece published in 2012 stated China was the “world’s leading IP infringer.” In addition, there has been a “dramatic rise in counterfeiting and piracy over the last decade,” with “the system failing to “impose penalties strong enough to serve as a deterrent.”[11] Another study published the following year accentuated that one of the facts that stands out ten years after China acceded to the WTO is that IP theft is still “pervasive.” Nonetheless, there still had been improvements in the administrative and criminal enforcement of laws and regulations, more civil litigation, and more efforts to surmount local protectionism.[12] Around the same time, Peter K. Yu, a leading academic researcher on China’s IPR practices, wrote “China continues to struggle with the protection and enforcement of intellectual property rights” and has “massive piracy and counterfeiting problems.”[13] In 2019, he restated these views, quipping “with respect to intellectual property, China remains the poster child of a norm breaker.”[14] That same year, two scholars reiterated many of the points made above. For them, China’s problems with “high” or “unacceptable” levels of IP infringement and feeble/low/light/ineffective/insufficient penalties and criminal measures persisted.[15] Two years earlier, an article strongly negative about China’s compliance with its IPR obligations put forth the standard litany of Chinese IP violations and charged they had “risen dramatically,” jumped, or “increased.” It also maintained “the enforcement regime is weak and the underlying problem likely getting worse.”[16]

The preceding exploration makes patently clear that “work in progress” hardly is a suitable label for describing China’s compliance with its IPR obligations. Problems have persisted for decades and/or have, in some cases, not only failed to improve, but worsened. Furthermore, new challenges such as trade secret theft (discussed) and the questionable application of anti-monopoly and cybersecurity provisions, data leakage, and indigenous innovation policies (not discussed) have appeared. This review also show China’s IP enforcement remains inadequate and penalties too low. While there is some evidence enforcement is improving, it is far from obvious it is significantly improving, particularly for foreign IP holders.

The next piece in this series will ponder the reasons why China’s “practical compliance” remains so challenging.