VZCZCXRO5904
RR RUEHCN RUEHVC
DE RUEHGH #0545/01 3500448
ZNR UUUUU ZZH
R 150448Z DEC 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7421
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 0451
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8027

UNCLAS SECTION 01 OF 03 SHANGHAI 000545 
 
SENSITIVE 
SIPDIS 
 
USTR FOR CHINA OFFICE - TSTRATFORD, AWINTER, TWINELAND, DKATZ; 
IPR OFFICE - RBAE; AND OCG - TPOSNER 
DOC FOR NATIONAL COORDINATOR FOR IPR ENFORCEMENT - WPAUGH 
DOC FOR ITA/MAC: SZYMANSKI, YOUNG 
LOC/ COPYRIGHT OFFICE - STEPP 
USPTO FOR INT'L AFFAIRS - LBOLAND 
DOJ FOR CCIPS - TNEWBY 
FBI FOR LBRYANT, KSHIRLEY 
DHS/ICE FOR IPR CENTER - DFAULCONER 
DHS/CBP FOR IPR RIGHTS BRANCH - GMACRAY 
TREASURY FOR OASIA - DOHNER/CUSHMAN 
NSC FOR LOI, SHRIER 
 
E.O. 12958: N/A 
TAGS: ETRD KIPR ECON EINV PGOV TINT CH
SUBJECT: IPR INTERNET PROGRAM BUILDS CAPACITY IN EAST CHINA 
 
SHANGHAI 00000545  001.2 OF 003 
 
 
¶1.  (SBU) Summary:  During a November 20-21 U.S. Patent and 
Trademark Office (PTO)-sponsored trip to Nanjing and Shanghai, 
Department of Justice Trial Attorney Tyler Newby, Federal Bureau 
of Investigation Supervisory Special Agent Kiffa Shirley, and 
PTO Trade Policy Analyst Susan Tong held two capacity-building 
seminars on investigating and prosecuting Internet-related 
intellectual property (IP) cases.  A wide-range of IP 
administrative officials, Public Security Bureau (PSB) officers, 
prosecutors, and judges participated in a lively exchange with 
the delegation on issues including liability of final users, 
criminal thresholds, evidence collection, case valuation, and 
possibilities for further cooperation.  The delegation also 
participated in a roundtable with representatives from U.S. 
industries in Shanghai on ways to protect IP on the Internet. 
Interest and willingness to engage on the issue among officials 
is a reflection of the growing push to crack down on 
Internet-based piracy in East China.  End Summary. 
 
Jiangsu: Challenges on Internet-Related IP Cases 
--------------------------------------------- --- 
 
¶2.  (SBU) In Jiangsu, the provincial IP Administration hosted 
the seminar, which was attended by Jiangsu Public Security 
Bureau Cybercrime Division official Pu Tiangao, Jiangsu 
Procuratorate Officer Wang Xiangying, Jiangsu High Court Judge 
Tang Maoren, and Deputy Director of the Jiangsu IP Office Yang 
Xuejing.  Yang emphasized that Jiangsu is focusing on IP 
protection on the Internet as a part of the province's overall 
effort to protect IP.  He also noted that the Jiangsu Provincial 
IP Strategy, which is based on the national IP Strategy, will be 
released at the end of this year.  Yang also emphasized that 
Jiangsu attaches great importance to communication and 
cooperation with the U.S. Government and American industries on 
IP protection, noting Jiangsu's current benchmarking project 
with the U.S. Chamber of Commerce. 
 
¶3.  (SBU) Following the presentation, Chinese attendees posed a 
wide variety of questions:  Under what circumstances are 
undercover operations considered entrapment?  Is it considered a 
crime for the general public to download pirated software from 
the Internet in the United States?  What is the threshold for 
criminal liability on copyright infringement on the Internet? 
How does the FBI monitor instant messaging such as MSN to 
collect evidence?  Who controls or manages the Internet Service 
Providers in the United States? 
 
Verifying Legitimacy - A Real Struggle 
-------------------------------------- 
 
¶4.  (SBU) Attendees also noted obstacles in handling 
Internet-related IPR cases in China such as verifying the 
legitimacy of products sold on the Internet as well as the 
legitimacy of material that can be downloaded.  Wang said that 
China is unlike the United States where industry associations, 
such as the Motion Picture Association and/or the rights holder, 
verify authenticity.  In China, such authentication by an 
industry association or rights holder would be regarded as 
biased and lacking in authoritativeness.  Chinese enforcement 
authorities prefer to find an independent technical appraisal 
entity to do the authentication.  However, it is difficult to 
find an entity that is both qualified to verify legitimacy and 
considered sufficiently objective. 
 
¶5.  (SBU) Jiangsu officials also stressed the importance of 
cooperation in the global age for tackling cross-border 
Internet-related crime.  PSB Cybercrime Division official Pu 
pointed out that the Jiangsu PSB has conducted several cases on 
Internet gambling, but it was difficult for them to continue the 
investigation when they found that the ISPs were located in the 
United States.  Newby encouraged him to refer the case to the 
Joint Liaison Group (JLG) or contact the Legal Attachi at the 
U.S. Embassy in Beijing.  Pu also mentioned a certain case, 
which had been jointly investigated by .U.S. and Chinese law 
enforcement officials through the JLG and is currently in the 
hands of the Suzhou Procuratorate.  He noted this case was a 
 
SHANGHAI 00000545  002.2 OF 003 
 
 
good example of joint cooperation. 
 
Shanghai: Eager for Further Cooperation 
--------------------------------------- 
 
¶6.  (SBU) Attendees at the Shanghai seminar, which was hosted by 
the Shanghai IP Administration, included Shanghai PSB Economic 
Crime Investigation Division (ECID) Deputy Director Tang 
Xiliang, Shanghai PSB Cultural Protection  Section official Fu 
Zukang, Shanghai Procuratorate Litigation Department Deputy 
Director Guo Feili, Shanghai High Court Criminal Division 
Assistant Director Zhou Qiang, Shanghai No.2 Intermediate Court 
Judge Fei Ye, Shanghai Copyright Bureau official Shi Shidong, 
and six other IP-related officials.  Guo described Shanghai's 
procuratorate system, noting that IP criminal cases are usually 
handled by the procuratorates at the district level.  When cases 
are referred from the PSB, it is at the discretion of 
procuratorate to decide if the prosecution should go forward. 
 
¶7.  (SBU) According to Guo, most criminal Internet-related IPR 
cases are related to copyright infringement, especially Internet 
game piracy through private servers.  Shanghai Procuratorate has 
also looked at cases of counterfeit medicine and clothes sold 
over the Internet.  However, Shanghai's investigation and 
prosecution of Internet-related IP cases is still at the 
beginning stage.  Guo acknowledged that the Shanghai 
Procuratorate still lacks knowledge of how to handle these 
cases.  Currently, the Shanghai Procuratorate is consulting with 
technical and legal specialists to boost their capabilities, as 
well as reaching out to victims of Internet-based piracy.  The 
Shanghai Procuratorate also works closely with the Shanghai 
Public Security Bureau, especially the Internet Supervision 
Department, for technical support.  Guo also addressed the need 
for international coordination, particularly mentioning cases of 
counterfeit pharmaceuticals sold via the Internet.  In his 
experience with such cases in Shanghai, it has been difficult to 
collect evidence to secure a conviction. 
 
Shanghai PSB Welcomes Further Cooperation with the U.S. 
--------------------------------------------- ---------- 
 
¶8.  (SBU) Shanghai PSB ECID Deputy Director Tang welcomed the 
opportunity to coordinate with U.S. authorities on IP-related 
cases.  He said he is also willing to cooperate on a specific 
case raised by Newby, which has a Shanghai connection and is 
related to the notorious case of an American citizen convicted 
several years ago due to his role in selling pirated DVDs.  That 
earlier case was a landmark in bilateral legal cooperation on 
IPR-infringement cases.  Tang and other attendees asked a broad 
range of questions on IP-related issues, including the FBI's 
case valuation methods, FBI practices on ex officio 
investigations, and rights holders' participation in the 
evidence gathering and witness process. 
 
Industry: Problems Exist But Progress Is Being Made 
--------------------------------------------- ------ 
 
¶9.  (SBU) In a separate Shanghai roundtable with U.S. business 
representatives, Newby, Shirley and Tong discussed 
Internet-related IP enforcement in China.  Besides inquiring 
about U.S. law enforcement practices and law regarding 
Internet-based piracy, business representatives outlined some of 
the hurdles they face in China on IP protection, most notably 
the verification of pirated DVDs and CDs.  It is difficult to 
find an agent to verify pirated copies although there is a 
government lab in Shenzhen that has the requisite testing 
capabilities.  In even the most obvious cases of pirated DVDs, 
Chinese enforcement authorities insist on a report from a 
neutral agent.  Quality Brand Protection Committee (QBPC) 
Chairman Jack Chang said the local PSB awareness of IP 
enforcement was improving due to QBPC's and others' efforts. 
QBPC has signed a Memorandum of Understanding with several local 
PSBs to help boost enforcement.  Regarding procuratorate offices 
in East China, he said there is a general hesitancy to prosecute 
IPR cases, which affects PSB willingness to investigate. 
 
SHANGHAI 00000545  003.2 OF 003 
 
 
Greater efforts need to be taken to promote IPR awareness among 
procuratorate offices and judges in criminal divisions, Chang 
recommended. 
 
A Groundbreaking Counterfeit Case In Shanghai 
--------------------------------------------- 
 
¶10.  (SBU) Chang also noted that the "Shanghai Initiative," in 
which the PSB initiates cases based on prima facie evidence at 
an early stage, is going well, but it is sporadically 
implemented throughout Shanghai.  He illustrated a case in the 
Qingpu District of Shanghai involving fake auto parts.  The 
Shanghai Administration of Industry and Commerce was the first 
to catch wind of the infringement and immediately notified the 
PSB.  Together the two agencies investigated the case, and, 
according to Chang, PSB involvement in the early stages of the 
case was key to collection of evidence and preservation of the 
infringer's assets.  When it came to case valuation, there was 
no label price on the seized goods although the infringer 
provided some trade contracts showing a very low price.  The AIC 
and PSB declared that the contracts were unable to be verified 
and instead calculated the damages based on the price of 
legitimate products.  Chang stressed this was unique to the 
Qingpu case and offered an example of a separate case involving 
General Electric products in Shanghai's Minhang District.  The 
PSB in Minhang calculated the damages based on the much lower 
price shown in the contract, which was provided by the 
infringers. 
 
¶11.  (SBU) In the Qingpu case, the value of the detained 
products was RMB 120 million (USD 17.7 million).  From the total 
amount of detained products, there were 19 right holders who 
confirmed products were counterfeit and valued at RMB 8.2 
million RMB (USD 1.2 million).  Accordingly, the Shanghai AIC 
fined the infringer RMB 7.5 million (USD 1.1 million), which is 
considerably high in comparison to a typical fine.  The PSB's 
investigation also came on came top of AIC's fine, which is 
unusual because PSB seldomly accepts cases after AIC has already 
"punished the infringer."  In addition, one suspect in Shanghai 
was convicted; however the Taiwan leader of the Qingpu criminal 
operation fled back to Taiwan to avoid arrest. 
 
Comment 
------- 
 
¶12.  (SBU) The PTO-sponsored program on Internet-based piracy is 
the result of an initial request from the Shanghai IP 
Administration to receive U.S. expertise on the topic.  Shanghai 
and Jiangsu IP officials have long told us they are keen to be 
in the forefront of China's efforts to prosecute 
Internet-related IP cases.  Their efforts to reach out to their 
U.S. counterparts and the savvy questions they posed 
demonstrated they have seriously considered the issue and are 
trying to move towards more aggressive enforcement. 
Capacity-building programs such as this one go far in showing 
U.S. commitment to working on this international issue at a 
local level, where a real difference can be made. 
 
¶13.  (SBU) Cleared by Acting IPR Attache in Beijing. 
CAMP