VZCZCXRO4864
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #1241/01 3300239
ZNR UUUUU ZZH
R 260239Z NOV 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6693
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHIN/AIT TAIPEI 9424
RUEAUSA/DEPT OF HHS WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJL/DEPTJUSTICE WASHDC
RHMCSUU/FBI WASHINGTON DC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 03 GUANGZHOU 001241 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM - JYAMOMOTO AND EB/IPE - EFELSING 
STATE FOR INL - JVIGIL 
USTR FOR CHINA OFFICE - AWINTER; IPR OFFICE - RBAE; AND OCG - 
SMCCOY 
COMMERCE FOR NATIONAL COORDINATOR FOR IPR ENFORCEMENT 
COMMERCE FOR CISRAEL 
COMMERCE FOR MAC 3204/LRIGOLI, ESZYMANSKI 
COMMERCE FOR MAC 3043/MCQUEEN 
COMMERCE FOR MAC 3042/SWILSON, JYOUNG 
COMMERCE FOR NWINETKE 
LOC/COPYRIGHT OFFICE - MPOOR 
USPTO FOR INT'L AFFAIRS - LBOLAND, EWU 
DOJ FOR CCIPS - MDUBOSE 
DOJ FOR SCHEMBTOB 
FTC FOR BLUMENTHAL 
FBI FOR LBRYANT 
DHS/ICE FOR IPR CENTER - DFAULCONER, TRANDAZZO 
DHS/CBP FOR IPR RIGHTS BRANCH - GMACRAY, PPIZZECK 
ITC FOR LLEVINE, LSCHLITT 
 
E.O. 12958: N/A 
TAGS: ETRD KIPR ECON WTRO PGOV CH
SUBJECT: CONSUL GENERAL'S IPR ROUNDTABLE - COMMUNICATION AND ACTION 
 
REF: BEIJING 7192 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. Not for release outside U.S. government channels. Not 
for internet publication. 
 
¶1. (SBU) Summary: Internet-based intellectual property rights (IPR) 
infringement continues to remain a pressing concern in south China, 
according to U.S. business people who participated in the Consul 
General's Annual IPR Roundtable on November 20, 2007.  The 
participants also complained of inconsistent IPR enforcement among 
Chinese agencies, including different standards of evidence to begin 
an investigation, unclear thresholds to initiate a criminal 
prosecution, and different formulas used to value seized counterfeit 
goods.  They noted poor coordination among Chinese enforcement 
agencies and asked for help in encouraging local officials to accept 
their offers to provide IPR training.  In addition, they expressed 
interest in receiving more information from U.S. Customs and Border 
Protection on seizures in the United States and asked for Consulate 
assistance in arranging a meeting with one of the express delivery 
companies that has yet to take action on combating internet piracy. 
End summary. 
 
Internet Infringement Increasing 
-------------------------------- 
 
¶2. (SBU) Websites that illegally market and sell counterfeit 
products directly to customers in China and around the world remain 
a threat to doing business for companies like Nike, according to 
Nike Brand Protection Manager Bill Wei.  Wei noted that China has no 
unified process for accepting complaints and closing down such 
sites; complainants are required to show evidence that the website 
has actually sold product and made a profit before authorities will 
act in many cases.  Chris Cosgrove, Regional Manager of Asia 
Investigations for Mattel, also remarked upon losses due to internet 
sales of infringing products, but emphasized the greater problem of 
business-to-business sales of wholesale lots of infringed goods. 
 
¶3. (SBU) Internet piracy was a key topic at this year's roundtable - 
as it was in 2006 - and the main IPR challenge to the recording 
industry in China.  Rodney Tsui, Regional Operations Manger for 
IFPI, said there were thousands of websites in China offering 
illegal music downloads and called enforcement efforts "hopeless." 
He echoed the comments of Nike's Wei, pointing out that it is too 
difficult to prove that the infringers make a profit. 
 
Hong Kong Registering Infringing Company Names 
--------------------------------------------- - 
 
¶4. (SBU) Many IP-infringers in China register multiple Hong Kong 
company names to take advantage of a weak name registration system 
that presents major challenges to U.S. IP owners.  Freeman Zhang of 
Colgate-Palmolive described infringers who may have registered as 
many as 16 different Hong Kong companies, misrepresenting themselves 
as "Hong Kong Colgate" and "Colgate Hong Kong."  Other participants, 
including Nike and Motorola, similarly expressed dismay, even as 
they pointed to Hong Kong's positive record with other aspects of IP 
enforcement. 
 
Inconsistent Enforcement among Chinese Authorities 
--------------------------------------------- ----- 
 
 
GUANGZHOU 00001241  002 OF 003 
 
 
¶5. (SBU) Just getting an investigation under way is a big problem, 
with provincial and local Public Security Bureau (PSB) officials 
demanding different amounts of evidence from U.S. companies to look 
into IP-infringement activities in their jurisdictions, according to 
Microsoft Senior Regional Manager Estee Tam.  Local PSB officials, 
on the other hand, often frown on IP owners investigating cases 
independently without first coordinating with law enforcement.  U.S. 
companies must sometimes "shop around" for a qualified enforcement 
body that will investigate a case.  Tam said his company spent 
months raising an enforcement case with authorities in different 
Chinese jurisdictions before a local PSB office agreed to 
investigate and prosecute an illegal software ring.  The Consul 
General pointed out that many U.S. companies are not able to spend 
the time and money necessary to follow Microsoft's example in cases 
such as this one, but said that the USG would try to be of 
assistance wherever possible. 
 
¶6. (SBU) Criminal thresholds also differ among Chinese 
jurisdictions, with many U.S. companies preferring to focus 
enforcement efforts in north China rather than the south.  Although 
the criminal thresholds for IP infringement cases were officially 
reduced in April 2007, participants reported that local 
municipalities like Shenzhen in south China still require a much 
higher standard before taking enforcement action on behalf of IP 
owners.  James Luo described Motorola's policy of confirming that 
criminal thresholds are exceeded by at least 150 percent before the 
company submits an enforcement request to Chinese authorities. 
 
¶7. (SBU) Problems persist in how seized counterfeit goods are 
valued, but there is sign of improvement, according to the 
roundtable participants.  Luo explained that in a recent case, 
Shenzhen authorities had used a formula to calculate the value of 
seized goods that returned a value nearly equal to the retail price. 
 Although still slightly lower than retail, the value was much 
higher than the street price of counterfeit goods, which has often 
been used in the past. 
 
¶8. (SBU) Participants also lamented interagency coordination 
problems among Chinese IP enforcement bodies.  The Technical 
Supervision Bureau (TSB) can often be relied upon to act when 
counterfeit products can be shown to pose a risk to consumer health 
or safety, but participants also told how local TSB branches can be 
reluctant to enforce IP rights in other cases.  The Administration 
for Industry and Commerce (AIC) is similarly inconsistent, often 
engaging in what appears to be local protectionism for infringers of 
copyrights and trademarks.  Motorola's Luo commented that in those 
cases where TSB initiates the investigation, the handover of 
evidence to PSB once it becomes a criminal case can be problematic. 
As a result, Motorola always endeavors to bring cases directly to 
PSB without involving other agencies. 
 
Rejected Offers to Provide Training 
----------------------------------- 
 
¶9. (SBU) U.S. IP holders in south China are often frustrated by the 
failure of local Chinese agencies to take up their offer to provide 
training in IPR enforcement.  Procter and Gamble Legal Counsel Gary 
Zeng described his company's efforts to arrange training for local 
PSB, TSB and AIC officials.  He noted that the firm was particularly 
eager to provide product identification training in Shantou, 
Guangdong.  He asked the Consulate to assist in P&G's outreach by 
encouraging local agencies to work with U.S. companies and accept 
 
GUANGZHOU 00001241  003 OF 003 
 
 
training offers.  Mattel's Cosgrove endorsed this approach. 
 
Unique Challenges for Patent Holders 
------------------------------------ 
 
¶10. (SBU) Patent violation cases are extremely difficult to pursue, 
according to DTS Digital Entertainment Greater China Managing 
Director Kin Chan.  He said his attorney had advised him not even to 
pursue patent infringement law suits because they would be too 
expensive and afforded little opportunity for success.  He urged 
that the Chinese work with us to devise a special channel to pursue 
patent cases.  Commenting that companies in China often see foreign 
technology patents as a form of imperialism, Chan called on the U.S. 
Mission to continue its efforts to explain the importance of IPR 
protection to China's economic development. 
 
U.S. Government Can Help - Customs Information... 
--------------------------------------------- ---- 
 
¶11. (SBU) U.S. company representatives from several industries were 
united in their desire for access to more U.S. Customs data after 
seizures take place in the United States.  Chris Cosgrove from 
Mattel and Kin Chan from DTS both reported excellent cooperation 
with U.S. Customs, including receiving shipping data after 
counterfeits were seized in U.S. ports.  Other U.S. companies, 
including Motorola and Colgate-Palmolive, indicated they too would 
like to receive this type of information, specifically the container 
number and port of embarkation for any Chinese counterfeit shipments 
seized in the U.S.  Without this information, participants said the 
investigative trail turns cold in China. 
 
...And Reaching Out to Express Delivery Companies 
--------------------------------------------- ---- 
 
¶12. (SBU) U.S. companies described express delivery services as a 
key link in China's counterfeit sales supply chain.  Nike's Bill Wei 
said a Consulate-hosted roundtable discussion among major private 
express delivery companies last year had been highly successful at 
enhancing cooperation between these companies and IP owners, but 
representatives of the government's EMS service did not participate 
and have not been as cooperative.  He asked that the Consulate host 
a follow-up discussion with express delivery companies, including 
EMS, to further cooperation and help prevent future delivery of 
infringing products. 
 
Comment - Communicating B2G, G2B and B2B too 
-------------------------------------------- 
 
¶13. (U) The Roundtable gave U.S. IP holders a chance to express 
their individual and shared IPR enforcement concerns with the Consul 
General and other Congenoffs. In turn, we briefed on what the 
government is doing to assist them and undertook to further our 
dialogue in addressing their concerns.  In addition, the 
participants took advantage of the opportunity to communicate with 
each other and identify ways they can work together to enhance 
industry efforts to improve IPR protection in south China.  The 
addition of a new PTO officer - Conrad Wong - was commented upon 
favorably by local U.S. company reps and rights holders. 
 
GOLDBERG