VZCZCXRO1055
RR RUEHCN RUEHVC
DE RUEHGH #0500/01 3191142
ZNR UUUUU ZZH
R 141142Z NOV 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7334
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHOO/CHINA POSTS COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 7935

UNCLAS SECTION 01 OF 04 SHANGHAI 000500 
 
SENSITIVE 
SIPDIS 
 
USTR FOR CHINA OFFICE - AWINTER, TWINELAND, DKATZ, MCCOYS; IPR 
OFFICE - 
RBAE; AND OCG - TPOSNER 
DOC FOR NATIONAL COORDINATOR FOR IPR ENFORCEMENT - WPAUGH 
DOC FOR ITA/MAC: SZYMANSKI 
LOC/ COPYRIGHT OFFICE - STEPP 
USPTO FOR INT'L AFFAIRS - LBOLAND 
DOJ FOR CCIPS - TNEWBY 
FBI FOR LBRYANT 
DHS/ICE FOR IPR CENTER - DFAULCONER 
DHS/CBP FOR IPR RIGHTS BRANCH - GMCCRAY 
TREASURY FOR OASIA - DOHNER/CUSHMAN 
NSC FOR JIM LOI 
 
E.O. 12958: N/A 
TAGS: KIPR ETRD EINV EFIN CH
SUBJECT: PTO-SPONSORED IP PROGRAM BUILDS BRIDGES IN EAST CHINA 
 
SHANGHAI 00000500  001.2 OF 004 
 
 
¶1.  (SBU) Summary:  During an October 16-17 U.S. Patent and 
Trademark Office-sponsored trip to Shanghai and Nanjing, Judge 
Ronald S.W. Lew from the United States District Court for the 
Central District of California and Matthew J. Bassiur, Criminal 
Division Trial Attorney and IP Liaison to Industry of the 
Computer Crime and Intellectual Property Section of the 
Department of Justice, met with a wide-range of IP officials and 
participated in a small media roundtable with representatives 
from the local press.  The Shanghai High Court emphasized the 
breadth and depth of its ability to handle IP cases, with over 
half of its IP judges having received training overseas. 
Shanghai IP administrative officials stressed the benefits and 
effectiveness of the city's administrative enforcement, and the 
Shanghai Public Security Bureau (PSB) noted its efforts in 
tackling the increasing number and complexity of IP-related 
internet crimes.  The Jiangsu IP Administration outlined a new 
local regulation allowing administrative officials to issue 
penalties for patent infringement, and the Jiangsu High Court 
discussed its increasing IP case load and engaged in a wide 
range of judicial topics. Since the filing of the IP-related WTO 
cases, meaningful dialogue with IP officials, especially outside 
Shanghai, has been sparse.  The PTO-sponsored visit was 
invaluable in helping us re-establish engagement, particularly 
with the PSB and Jiangsu High Court.  The Consulate would gladly 
welcome similar visits in the future.  End Summary. 
 
Shanghai High Court - Proud of its IP Enforcement 
--------------------------------------------- ---- 
 
¶2.  (SBU) During a meeting with the Shanghai High Court, Vice 
Director of the Intellectual Property Division Zhu Dan and two 
other judges from the civil and criminal divisions compared 
experiences with Judge Lew and Bassiur on IP-related cases.  Zhu 
provided an overview of the IPR-related trial system in Shanghai 
Courts, noting there are 6 courts in Shanghai empowered to try 
IPR cases: the Shanghai High Court, 2 intermediate courts and 3 
district-level courts in Pudong, Huangpu, and Yangpu.  In total, 
there are 45 IPR judges in Shanghai, approximately half of whom 
received an education abroad and five who have a technical 
background.  Thus far in 2008, Shanghai courts have received 
more than 1,300 civil IPR cases and 70 criminal IPR cases. 
Foreign related cases accounted for more than 10 percent of the 
total.  In comparing the two systems, Zhu noted that while more 
than 95 percent of IPR cases settled before trial in the United 
States, in Shanghai, the average rate of settlement before trial 
is 60 percent. 
 
¶3.  (SBU) Zhu further outlined how the Shanghai High Court 
allocates cases, particularly those involving several different 
causes of action.  According to guidance from the Supreme 
People's Court, IPR tribunals should hear disputes on technical 
contracts, unfair-competition cases and anti-monopoly cases. 
Counterfeit pharmaceutical case, as well as those cases 
involving money laundering and fraud, automatically fall under 
the jurisdiction of a criminal tribunal.  Zhu also pointed out 
that some IPR cases, which involve complex technical issues, are 
assigned to judges who have the relevant technical background. 
 
¶4.  (SBU) Regarding the issue of technical advice for IP-related 
cases, Zhu explained that complicated IP cases are handled 
through a "technical appraisal process."  The parties in a case 
may choose, with mutual agreement, a third party to conduct the 
technical appraisal. The court will designate one if an 
agreement cannot be reached.  In some cases, the court will 
appoint a technical expert as an assessor or consultant directly 
to the court. 
 
¶5.  (SBU) On the issue of damages, damages can be calculated 
under the Judicial Interpretation by the amount of infringing 
goods multiplied by the average profit of the rights holder, 
said Zhu.  However, there is no clear guidance whether damages 
should be calculated based on retail price or wholesale price. 
According to Zhu, it depends on the specific case.  If the 
producer is involved in counterfeiting, the wholesale price is 
generally applied.  If a retailer is involved, the retail price 
 
SHANGHAI 00000500  002.2 OF 004 
 
 
is used as the instrument of measure.  Regarding the price 
difference between legitimate goods and counterfeit goods, Zhu 
said if the rights holder makes a claim for damages, which is 
calculated based on his/her loss, the price of legitimate goods 
might be applied.  But, if the rights holder makes a claim for 
damages, which is calculated on the infringer's profits, the 
price of the counterfeit goods might be utilized. 
 
Shanghai PSB:  Internet IP Crime on the Rise 
-------------------------------------------- 
 
¶6.  (SBU) In a meeting with the Shanghai Public Security Bureau 
(PSB) Economic Crimes Investigation Division (ECID) Vice 
Director Tang Xiliang and six other officers, Judge Lew and Mr. 
Bassiur discussed both internal and international cooperation, 
resource allocation, and the rising number of IP-related 
internet crimes.  Tang emphasized the importance of 
international cooperation on IPR crime investigations, 
especially on cases involving the internet.  He was pleased with 
the degree of cooperation between China and the United States on 
transnational crimes, adding that the task force initiated 
between the Ministry of Public Security and the United States 
helped successfully resolve several crimes with a Shanghai 
component.  According to Tang, the Shanghai PSB also plays an 
integral role in that city's implementation of the National IP 
Strategy, and has a unit under the leadership of Yao Jianda, 
which is solely dedicated to IP-related crimes.  The Shanghai 
PSB also is dedicated to working closely with the municipality's 
IP administrative agencies to ensure effective cooperation. 
 
¶7.  (SBU) Tang acknowledged that the PSB's ECID does not have 
enough resources to effectively deal with every IP-related case. 
 The PSB gives priority to and reserves resources for crimes 
involving terrorism and offenses that affect people's health and 
safety.  In deciding which IP-related cases to investigate, the 
PSB must consider jurisdiction, the amount and value of goods 
involved, and the nature of those committing the crime, such as 
whether recidivists or members of organized crime are involved. 
If there is a conflict over jurisdiction in a case, the Ministry 
of Public Security makes the final decision about the 
jurisdiction.  The PSB also considers whether there is 
sufficient evidence to successfully prosecute the case. 
 
¶8.  (SBU) Tang also noted that his office is grappling with a 
rapidly increasing number and complexity of internet-related IP 
crimes.  To develop a cadre of officers with the capacity to 
deal with internet-related IP crimes, Shanghai PSB has 
established special training programs and sent several Shanghai 
PSB officers abroad for training, including the United States. 
The ECID also works with the Shanghai Internet Supervision 
Department when special support is required.  (Note: The 
Internet Supervision Department also is under the Shanghai PSB.) 
 
 
Administrative Enforcement - Viable and Inexpensive 
--------------------------------------------- ------ 
 
¶9.  (SBU) The Consul General hosted a lunch for Judge Lew and 
Mr. Bassiur.  Chinese-Government guests included Vice Director 
of the Shanghai Administration of Industry and Commerce (SAIC) 
Chen Xuejun, Shanghai Copyright Bureau Copyright Department 
Director Wu Youzhang, and Vice Director of the Shanghai IP 
Administration Hong Yongqing.  Each spoke on Shanghai's 
administrative enforcement system, the limits of administrative 
authority, and the administrative burden-of-proof issues 
compared to that of civil cases.  Chen stressed that the SAIC 
regularly transfers counterfeit cases for criminal prosecution 
when there is a large volume involved and when the case has 
other "substantial implications."  In addition, criminal and 
administrative authorities are empowered to undertake joint 
law-enforcement action.  According to Hong, the Shanghai IP 
Administration annually handles about 40 patent-related cases. 
He also emphasized that, unlike the United States, China has 
administrative enforcement that allows a non-judicial option for 
rights holders to seek redress.  Chinese rights holders complain 
 
SHANGHAI 00000500  003.2 OF 004 
 
 
that their only option in the United States is expensive 
litigation, while U.S. rights holders in China have access to 
"inexpensive" administrative enforcement.  Chen also offered 
that a major reason why knock-offs continue to abound is due to 
foreign rights holders' inadequate supervision of markets. 
 
¶10.  (SBU) On copyright issues, Wu said that when the violation 
is severe enough, Copyright Bureau authorities have the right to 
seize equipment, such as copiers that produce the infringing 
material.  They can also impose a fine up to RMB 100,000 (USD 
$15,000), but this depends on the nature of the case as well as 
whether recidivism is involved.  According to Wu, most copyright 
cases in Shanghai are ex officio; the Copyright Bureau regularly 
transfers cases to the PSB according to threshold regulations. 
Although the PSB has no direct access to administrative 
agencies' databases, the agencies willingly provide information, 
on request of the PSB. 
 
Jiangsu IP Administration Continuing to Innovate 
--------------------------------------------- --- 
 
¶11.  (SBU) During a visit to the Jiangsu IP Administration, 
Department Director of Policy and Law Chen Suning provided an IP 
administrative enforcement overview of Jiangsu Province.  In 
total, Jiangsu has administrative enforcement agencies for 
patents in 13 cities throughout the province.  From 2002 through 
2006, Jiangsu administrative enforcement agencies received more 
than 400 allegations involving patent infringement, of which 350 
were closed.  Of the 400 or so cases, 50 of them involved 
foreign rights holders from diverse locations, such as the 
United States, Japan, Germany, and Italy. Disputes over 
invention patents accounted for 15 percent of all cases.  Chen 
said that the level of IPR protection has grown in direct 
proportion to local economic development.  Like the cities of 
Beijing and Shanghai and Guangdong Province, Jiangsu also has a 
high number of IP cases because of its more advanced economy and 
active enforcement. 
 
¶12.  (SBU) Chen clarified that, under current law, patent 
administrative enforcement agencies only can order the infringer 
to cease the infringing activity.  These agencies may not impose 
damages or levy fines against an infringer.  If the rights 
holder demands compensation, he or she should file a civil case. 
 According to Chen, this is the reason why there are more patent 
cases handled in Jiangsu courts than through administrative 
enforcement procedures.  However, the burden of proof in a civil 
case is much greater than that used for an administrative 
recourse.  Generally, cases handled through administrative 
procedures are simple and obvious.  Administrative cases are 
better suited towards those right holders who have difficulty 
collecting evidence and/or do not demand compensation.  However, 
Chen said that Jiangsu hopes to improve patent protection, and 
is about to release a new local regulation entitled "Patent 
Promotion Regulation."  According to the regulation, the Jiangsu 
IP Administration will have authority to issue fines for patent 
infringement, particularly for recidivist cases. 
 
Jiangsu High Court - A Meeting of the Minds 
------------------------------------------- 
 
¶13.  (SBU) During a five-hour discussion, President of Jiangsu 
High People's Court Gong Pixiang, Member of the Judicial 
Committee Liu Aizhen, Jiangsu High People's Court General Office 
Director Cai Shaogang, Presiding Judge of the IPR Division Song 
Jian, Presiding Judge of the Second Criminal Division Mao 
Zhonghua, and Deputy Presiding Judge of the IPR Division engaged 
Judge Lew and Mr. Bassiur on issues ranging from rule-of-law and 
transparency to defining damages and technical appraisals in IP 
cases.  The Jiangsu High Court members freely exchanged views 
and queried Judge Lew on U.S. IP court cases, common procedures 
in U.S. District Courts, and intricacies of U.S. IP-related 
laws.  Song gave an overview of Jiangsu's IP judicial efforts, 
saying there are 6 intermediate courts handling patent cases, 
and 9 basic-level courts handling IPR cases in province.  From 
2001 to 2008, Jiangsu courts received 7,070 IPR-related 
 
SHANGHAI 00000500  004.2 OF 004 
 
 
first-instance cases, which accounted for 10 percent of the 
nation's total first-instance IPR causes of action.  Jiangsu 
closed 6,707 of these matters, or roughly 95 percent of its 
cases.  During the same period, Jiangsu received 1,008 
IPR-related second-instance cases, of which 979 were closed. 
 
¶14.  (SBU) Most infringement cases involved patents, trademarks, 
and copyrights; however, Jiangsu recently has begun to receive 
new types of cases, involving novel issues such as 
non-infringement declarations and temporary restraining orders. 
The majority of Jiangsu's IPR criminal cases involved 
trademarks.  To better protect IP, the Jiangsu High Court 
emphasizes compelling the infringer to disclose all infringement 
information, imposing civil sanctions on infringers under 
certain circumstances, and inviting technical experts to be 
involved in cases.  To increase transparency, the Jiangsu High 
Court now publishes all IP-related decisions on the internet. 
Separately, approximately 60 to 70 percent of all IP-related 
cases are settled before trial. 
 
¶15.  (SBU) Song also discussed the criteria that Jiangsu courts 
consider when issuing a temporary injunction, including the 
probability of the plaintiff prevailing in the case, the 
possibility of causing irreparable damage, the applicant's 
financial guaranty, and the public interest.  Although it may be 
difficult to determine the factors constituting "irreparable 
damage," the court also factors in the loss of the right 
holder's market share that the infringer caused.  Jiangsu courts 
issue temporary injunctions in about 80 percent of its 
IP-related cases.  Song also explained that the court considers 
the stability of the patent right when issuing temporary 
restraining orders because utility-model and design patents are 
granted with little or no substantive examination. 
 
¶16.  (SBU) On the issue of defining damages, Song noted that 
Jiangsu uses a method similar to that used in Shanghai.  If the 
rights holder calculates damages based on his/her loss, the 
price of legitimate goods normally applies.  If the rights 
holder calculates damages based on the amount of the infringer's 
profit, the price of counterfeit goods is used to determine 
fiscal harm. 
 
Shanghai Press Outreach 
----------------------- 
 
¶17.  (SBU) During an interview with three representatives of the 
local press, Judge Lew stressed the importance of the rule of 
law, and recognized that China has made tremendous strides in 
its IPR protection.  He emphasized, however, that there must be 
increased focus on IP enforcement.  The journalists asked a wide 
range of questions regarding Judge Lew's background as the first 
Chinese-American to be appointed to a Federal District Court 
judgeship.  They also queried him regarding U.S. protection of 
Chinese IPR in the United States, and his views on the state of 
IP protection in China. 
 
Comment 
------- 
 
¶18.  (SBU) Since the filing of the IP-related WTO cases, 
meaningful dialogue with IP officials, especially outside 
Shanghai, has been sparse.  Judge Lew's and Matthew Bassiur's 
visit to this consular district has nudged the door open a bit 
wider for engagement.  For example, despite multiple requests, 
this is the first meeting that the Shanghai PSB has accepted 
with the Consulate on IP issues in over two years of attempts. 
The dialogue with the Jiangsu High Court also was noteworthy for 
its open discussion,and IPR Attache Conrad Wong. 
CAMP