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UNCLAS SECTION 01 OF 05 GUANGZHOU 000244 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
State for EAP/CM - JYamamoto; EEB - AColeman, JBoger 
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/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 - GMcCray, PPizzeck 
ITC for LLevine, LSchlitt 
 
E.O. 12958: N/A 
TAGS: ETRD KIPR ECON WTRO PGOV CH
SUBJECT: Guangdong Officials Express Willingness to Cooperate to 
USTR IPR Director 
 
REF: A) GUANGZHOU 132, B) GUANGZHOU-USTR EMAIL, MARCH 25, 2008 
 
¶1. (SBU) Summary: In cordial meetings with Jared Ragland, Director 
of the U.S. Trade Representative's Office of Intellectual Property 
and Innovation, Guangdong provincial and municipal officials 
described recent successes in enforcing intellectual property rights 
(IPR), as well steps they plan to take to further strengthen 
enforcement and their willingness to work with the U.S.  Clearly 
problems remain and U.S. IPR owners detailed their frustrations with 
enforcement mechanisms and procedures.  End summary. 
 
Guangdong Officials Concerned about Section 301 
--------------------------------------------- -- 
 
¶2. (SBU) Guangdong Intellectual Property Office (GD IPO) officials 
described how Guangdong is building an innovation-based society and 
the role of its "IPR Strategic Plan," enacted in 2007.  Wang Hu, 
Deputy Director of the Coordination and Administration Division 
pointed out that Guangdong ranked first again in the number of 
patent filings last year, as it had for the past thirteen years.  He 
also highlighted four IPR-related initiatives under way: 
 
--Promoting IPR public awareness through IPR Protection Week in 
China.  IPR Protection Week starts on April 20, and culminates with 
World IPR Day on April 26.  GD IPO released its "White Paper" on IPR 
protection progress over the past year on April 24. 
 
--Educating students in primary and middle schools, and universities 
to respect IPR.  In 2002, GD IPO began IPR education by including 
information on the concept and practice in local textbooks in 
Guangzhou.  By 2006, the program was expanded to the entire 
province.  Separately, three universities in the province have 
established IPR curricula:  Jinan University, South China Institute 
of Technology, and Sun Yat-sen University. 
 
--IPR enforcement through administrative means.  GD IPO handles 
administrative patent enforcement, and penalizes those who attempt 
to pass themselves off as patent holders.  GD IPO also governs the 
IPR complaint centers at the Canton Trade Fair in the spring and 
fall. 
 
--Regional cooperation.  Since 2003, GD IPO has worked closely with 
the Hong Kong Intellectual Property Department.  In 2004, GD IPO 
established a pan-Pearl-River-Delta IPR cooperation regime, 
involving nine provinces, Hong Kong, and Macau. 
 
¶3. (SBU) In a meeting with AIC officials, Director Ragland commended 
the agency's success in disrupting the storage and selling of 
counterfeit automotive parts.  The Quality Brands Protection 
Committee (QBPC) deemed this case to be one of the twelve best IPR 
cases for 2007 and 2008.   Guangdong AIC Deputy Director General 
Jiang Haiping pointed out that the AIC has strengthened protection 
of "famous trademarks," as well as well-known foreign brands.  In 
2006, the Guangdong AIC cracked down on several trademark 
counterfeiting rings concerning Nike footwear worth several million 
renminbi (RMB).  The AIC also was active in protecting the 
trademarks of DuPont and General Motors.  Jiang noted that, as of 
the end of 2007, 380,000 trademarks had been registered in Guangdong 
Province; the province has led all of China in trademark 
registrations for the past twelve years. 
 
 
GUANGZHOU 00000244  002 OF 005 
 
 
¶4. (SBU) Jiang also emphasized AIC efforts to clean up wholesale and 
retail markets.  Since March 2006, when the Guangdong AIC launched a 
campaign against trademark infringement in large local wholesale and 
retail markets, the AIC has opened 95 cases, of which 47 concerned 
American trademarks, leading to the seizure of 1.25 million 
counterfeit products.  Five cases were transferred to the Public 
Security Bureau (PSB) for criminal prosecution.  Affected American 
trademarks include Nike, Levis, Oil of Olay, Mickey Mouse, the 
National Basketball Association, and Procter & Gamble. 
 
¶5. (SBU) Officials at both the Guangdong IPO and AIC asked about the 
coming Special 301 report for China.  One AIC official commented 
that the 301 Report was not helpful in promoting dialogue on the 
issues.  Director Ragland noted that U.S. law requires the 
submission of the Special 301 Report as well as the National Trade 
Estimate.  He explained that the U.S. Congress plays an important 
role in U.S. trade policy, and the 301 Report assists the Congress 
in gaining a better understanding of our trading relationships.  The 
Report is a useful tool for the U.S. to help frame our bilateral 
discussions on IPR issues and the preparation process is an open and 
transparent one, he said. 
 
Shenzhen Officials Tout Progress 
-------------------------------- 
 
¶6.  (SBU) During Director Ragland's visit to the Shenzhen IPO, 
Deputy Director Wang Youming pointed out that the Shenzhen 
Government had just released new initiatives aimed at strengthening 
IPR protection.  They also allow punitive damages in addition to 
compensatory damages.  Local rules have been amended to lower the 
criminal threshold for corporate and individual infringement.  In 
addition, Deputy Director Wang said the Shenzhen IPO had provided 
IPR training to the general public, especially for small and 
medium-sized enterprises, as well for enforcement staff. 
 
¶7. (SBU) Officials from the Economic Crimes Investigation Division 
(ECID) of the Shenzhen PSB told Director Ragland that since 2003 the 
ECID has worked on 466 cases, worth RMB 2.2 billion (about USD 300 
million).  They solved 239 cases and seized RMB 962 million of 
counterfeit and pirated product.  Each year, the ECID handles 70 to 
80 IPR cases, accounting for only 3% of its case volume.  Most of 
the local cases concern trademark infringement followed by 
trade-secret cases.  Patent disputes make up only a small fraction 
of the workload. 
 
¶8. (SBU) ECID IPR Unit Director Wang described the division's work 
in Operation "Summer Solstice" a copyright case involving 
counterfeit Microsoft software originating from China.  In a July 
2007 joint action involving the FBI and the SZ ECID, raids were 
conducted simultaneously in Dongguan and Shenzhen; 18 suspects were 
arrested.  Infringing copies of Microsoft products included 
Microsoft Office 2003 and 2007, Vista 2007, and Windows XP, as well 
as fake certificates of authenticity and packaging.  Wang said the 
pirated products were of unusually high quality.  He also briefed 
Director Ragland on the recent disruption of a sophisticated 
trademark counterfeiting operation.  Finnish Customs notified the SZ 
ECID that counterfeit Nokia cell-phones were being traced to a 
manufacturing facility in Shenzhen.  The SZ ECID solved the case 
with very limited information, apprehending the operation's leader, 
Yang Zongqing, and charging him with counterfeiting the Nokia 
trademark and selling fake Nokia cell-phones. 
 
GUANGZHOU 00000244  003 OF 005 
 
 
 
¶9. (SBU) Wang said the ECID plans to maintain a high profile on IPR 
crimes.  In 2006, it began a three-year training program for ECID 
officers to help improve their abilities to spot and intercept 
shipments of fake and counterfeit goods.  ECID plans to promote 
greater IPR public awareness through on-line updates and advice on 
its web site.  The agency also is working to improve the case 
transfer mechanism between administrative IPR offices and the 
police.  The SZ ECID is establishing a dedicated IPR enforcement 
team now that the Shenzhen Municipal Government has agreed to fund 
40 new ECID positions.  Lastly, ECIDs from other areas of China have 
been exchanging information and best practices at seminars organized 
by the Ministry of Public Security. 
 
AmCham Delivers Good News 
------------------------- 
 
¶10. (SBU) The American Chamber of Commerce in South China (AmCham) 
members continue to stress the positive business environment in 
south China.  AmCham President Harley Seyedin told Director Ragland 
that despite some reports that Guangdong Province increasingly was 
averse to foreign business investment (this would be certain kinds 
of investment, of course, mainly in traditional manufacturing and 
high polluting enterprises), American investment has continued at a 
brisk pace; and the provincial government was working with domestic 
and foreign business interests to maintain Guangdong Province as an 
attractive investment area.  AmCham's IPR Committee Chair, David 
Buxbaum, also identified some strengths in the IPR protection 
environment in south China.  He told us that China had enacted some 
very good and comprehensive laws on IPR protection.  The problem he 
saw was, at times, the lack of national as well as provincial will 
to implement fully these laws.  He noted also that China needed to 
raise the salaries of judicial officials in order to insulate them 
from corruption and to raise the stature of their offices. 
Commenting that administrative IPR enforcement was relatively easy 
and quick to obtain, he argued that American rights holders should 
avail themselves of the civil remedies in China, and rely less on 
criminal prosecution. 
 
U.S. Rights Holders Identify the Problems 
----------------------------------------- 
 
¶11. (SBU) In a group meeting hosted by the Consul General, major 
U.S. IPR rights holders in the Pearl River Delta reviewed with 
Director Ragland first-hand the challenges and issues facing 
American firms in China.  Representatives from Nike, Mattel, 
Colgate-Palmolive, Motorola, and Procter & Gamble (P&G) attended. 
 
¶12. (SBU) P&G (strictly protect) complained that seizures of 
counterfeit product often are split into component parts, making it 
difficult to meet the minimum threshold of entire units for criminal 
prosecution.  The company reiterated its view that the Shantou area 
in eastern Guangdong is particularly egregious for failing to 
protect IPR.  The P&G executive commented that local government 
officials appear willing to help, but the business community is not 
especially interested in IPR protection, since counterfeiting is an 
important part of the economy.  Elsewhere in Guangdong province, 
however, she noted that P&G has developed a good relationship with 
the Luogang District PSB branch in Guangzhou, resulting in 
substantial seizures of counterfeit P&G goods. 
 
 
GUANGZHOU 00000244  004 OF 005 
 
 
¶13. (SBU) Nike (strictly protect) reported more failures than 
successes.  In February, Nike had reported some improvement over the 
last year in Fujian Province (ref B).  However, in March, the Fujian 
PSB initially refused to conduct raids when Nike presented evidence 
of infringement.  When the raids finally occurred, no infringing 
goods were found at the site, leading Nike to suspect collusion 
between the police and counterfeiters.  Company representatives have 
not been allowed to attend raids to observe the seizure of goods. 
Courts have failed to punish counterfeiters; the AIC has refused to 
do its job; and the PSB has not accepted any cases for criminal 
prosecution.  In addition, the Nike representative said that no 
agency in the Chinese Government has expressed willingness to handle 
on-line sales of counterfeit goods.  He emphasized corruption as the 
root of the problem in south China.  In one instance, the Kaiping 
AIC refused to raid a location that Nike identified as a 
manufacturing facility of counterfeit product.  Later, it was 
determined that a member of the National People's Congress owned the 
building that housed the infringing operation. 
 
¶14. (SBU) Motorola (strictly protect) complained about the lenient 
sentences in the Guangzhou Kolvo trademark-infringement case, worth 
RMB 7 million (about USD 1 million).  The company worked with the 
Guangzhou PSB's Economic Crimes Investigation Division.  Nokia, 
Sony, and Ericsson also joined Motorola's effort to stop the 
counterfeiting of cell-phone handsets and it was likely this joining 
of forces that precipitated action.  The PSB arrested ten suspects, 
releasing four of them before trial.  Though the court found seven 
defendants guilty, it then suspended all of the sentences, resulting 
in no jail-time punishment. 
 
¶15. (SBU) Mattel (strictly protect) representatives complained that 
Chinese copyright protection is so weak and ineffective that it is 
not worth pursuing any prosecution for this type of violation. 
Chinese manufacturers reverse-engineer many of Mattel's toys, but do 
not copy its trademarks, which would make enforcement easier. 
Chinese design patents are not helpful in providing protection -- 
toys have a short commercial life, but obtaining the design patents 
can take a full year.  The executives also pointed out that monetary 
penalties in administrative trademark enforcement are not enough of 
a deterrent.  Like P&G, Mattel singled out Shantou, especially the 
Chung Hui district, as an area where many of its products are copied 
illegally.  In addition, the company complained that the quality of 
judges is very poor; in a patent case heard there, a judge pressured 
Mattel to settle after only one day of proceedings (judges generally 
prefer mediation and conciliation to trials).  In addition, the 
judge concluded that Mattel seized only one toy during the raid from 
which the patent suit arose, so it was entitled to compensatory 
damages for one toy only.  A Mattel representative noted that the 
Shantou courts and the PSB frequently refused to seize toy-making 
molds for infringing products, apparently because taking the molds 
would shut down the factory and put people out of work. 
 
¶16. (SBU) Colgate-Palmolive (strictly protect) reported that it 
interdicts more and more counterfeit goods each year.  The 
Colgate-Palmolive representative said China Customs had become more 
cooperative and was an increasingly important, but still not 
completely reliable, partner in IPR enforcement.  The role of China 
Customs has expanded as more counterfeit Colgate-Palmolive products 
are being exported to other countries, rather than sold locally. 
Legitimate Colgate-Palmolive products are now widely sold in Chinese 
big-box stores and grocery chains, making it much more difficult for 
 
GUANGZHOU 00000244  005 OF 005 
 
 
counterfeit products to breach supply-chain integrity. 
 
¶17. (SBU) The group of rights owners generally agreed that it was 
difficult to bring a civil lawsuit in China because it was so 
time-consuming, with many administrative hurdles, difficult 
evidentiary thresholds, and onerous documentation requirements.  By 
the time a plaintiff brings a case, the infringement may have ceased 
or the issue may be moot.  If a case were to be tried to judgment, 
enforcing the verdict would be challenging.  The group also agreed 
that infringers were getting smarter, knowing how to copy without 
tripping the criminal-liability threshold.  One member of the group 
observed that China craves stability.  Counterfeiting creates jobs, 
enhancing stability.  If counterfeiting were to stop, many would be 
thrown out of work, risking social unrest that the Communist Party 
is unwilling to tolerate. 
 
Lowu Market - Seeing the Problem on the Ground 
--------------------------------------------- - 
 
¶18. (SBU) Director Ragland toured the Lowu Commercial Center across 
the street from the Shenzhen railway station, which has been the 
target of numerous complaints from rights holders.  A cursory look 
at most merchants' displays found row upon row of stalls selling 
counterfeit apparel, handbags, sunglasses, watches, briefcases, 
computer games, and computer peripherals.  Merchants also displayed 
catalogs for consumers to peruse and order specific merchandise 
bearing counterfeit trademarks not on display in the store.  Lowu 
Center is one of several shopping complexes where rights holders 
have attempted to hold the market management responsible for store 
lessees selling infringing products through landlord-liability 
programs.  As possible evidence of some success, several prominent 
storefronts were shuttered and dark, with all merchandise removed. 
On each of their doors was a sign that read in Chinese and English: 
"Fake and unqualified seller of goods.  Closed."  In addition, 
several large signs were displayed prominently in the main hall of 
the complex, pledging to stop the sale of counterfeit and infringing 
goods, and to pursue those who do. 
 
Comment: South China Officials More Willing to Engage 
--------------------------------------------- ---- 
 
¶19. (SBU) After recent frustrations in our efforts to work with 
local officials on IPR or even get appointments, Consulate Guangzhou 
was pleased that Guangdong Provincial and Shenzhen Municipal 
Government officials agreed to meet with Director Ragland. 
Officials at each of our meetings were cordial and courteous, though 
several expressed concerns with USTR's Special 301 Report and the 
analysis concerning Guangdong Province.  Guangdong provincial and 
Shenzhen city officials expressed a desire for greater cooperation 
and interaction with USTR and the USG in general.  Dr. Ragland 
emphasized the USG's continuing interest in promoting intellectual 
property protection in south China, and expressed hope that 
cooperation would continue. 
 
¶20.  USTR did not have an opportunity to clear this cable. 
 
Goldberg