VZCZCXRO6646
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1014/01 1070242
ZNR UUUUU ZZH
P 170242Z APR 09             ZDK
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 3478
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHIN/AIT TAIPEI 7219
RUEHKO/AMEMBASSY TOKYO 2508
RUEHUL/AMEMBASSY SEOUL 1161
RUEHMO/AMEMBASSY MOSCOW 9286
RUEHGV/USMISSION GENEVA 2421
RUEAHLC/DHS WASHDC
RUCPDOC/USDOC WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMCSUU/FBI WASHINGTON DC

UNCLAS SECTION 01 OF 04 BEIJING 001014 
 
SENSITIVE 
SIPDIS 
 
State for EAP/CM - PPark and EB/IPE - DBubman 
State for EB/TPP - EMagdanz and INL - JVigil 
State for EB/CIP - WWitteman and RDaley 
USTR for China Office - AWinter; IPR Office - 
Kalvarez, JRagland, and SMcCoy 
Commerce for National Coordinator for IPR 
Enforcement 
Commerce for MAC ESzymanski 
Commerce for MAC SWilson, JYoung 
LOC/Copyright Office - STepp 
USPTO for Int'l Affairs - LBoland, EWu, STong 
DOJ for CCIPS - MDubose and 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 
State for White House OTP Ambassador Richard Russell 
 
E.O. 12958: N/A 
TAGS: ETRD EIND KIPR ECON CH
 
SUBJECT: CHINA/IPR: ECONOMIC DOWNTURN WEAKENING IPR 
ENFORCEMENT 
 
BEIJING 00001014  001.3 OF 004 
 
 
This cable is sensitive but unclassified and is not 
for Internet distribution. 
 
Ref A: Beijing 4527 
Ref B: Beijing 3732 
Ref C: Guangzhou 0043 
 
Summary 
------- 
 
¶1. (SBU) China is facing increased difficulty in 
enforcing intellectual property rights (IPR) and 
preventing "local protectionism" during the economic 
downturn, Chinese government officials at the 
Supreme People's Court (SPC) and Ministry of 
Commerce acknowledged to a recent U.S. government 
delegation.  A top IPR judge outlined her view that 
preserving local businesses and jobs is a higher 
priority than ceasing infringement.  U.S. businesses 
confirm a trend toward weaker enforcement, 
describing reluctance by Chinese authorities to 
pursue criminal IP cases and citing recent examples 
of especially low administrative penalties for 
counterfeiters.  Chinese officials continue to avow 
commitment to protecting IPR, but like the rest of 
the Chinese government, minimizing the negative 
impact of the downturn may be their most important 
goal.  End Summary. 
 
SPC Judge Invokes Public Interest 
--------------------------------- 
 
¶2. (SBU) In December 2008, Chinese media reported 
that the chief intellectual property (IP) judge of 
the country's Supreme People's Court had suggested a 
public interest test to determine whether those 
infringing the rights of others should be ordered to 
stop (Ref A).  Newspaper reports said Judge Kong 
Xiangjun proposed that, in cases where the public 
interest was not violated, an infringer should be 
ordered to pay damages to the right holder rather 
than cease the illegal activity.  In order to 
mitigate the effects of the downturn in China, the 
senior IP judge appeared to support selective or 
deferred law enforcement to protect jobs and avoid 
the collapse of local businesses, especially China's 
vulnerable small and medium-sized enterprises.  At 
the time, the SPC would not confirm the accuracy of 
Judge Kong's quoted remarks. 
 
It's Not Business Protection... 
------------------------------- 
 
¶3. (SBU) In an April 2 meeting with visiting USG 
officials, Econoff asked SPC Presiding IP Judge Yu 
Xiaobai and IP Judge Ma Xiurong to clarify Judge 
Kong's December statement. (Note: Judge Kong 
himself, originally scheduled to host the meeting, 
cancelled at the last minute due to a "leg injury." 
End Note).  Judge Yu said it would be a 
misinterpretation of Judge Kong's remarks to think 
 
BEIJING 00001014  002.2 OF 004 
 
 
that the SPC would avoid ordering an injunction to 
save a domestic enterprise from collapse.  She noted 
that SPC President Judge Wang Shenjun has repeatedly 
called for those who violate laws to bear 
responsibility for their actions, even during the 
global financial crisis. 
 
...It's Just Business Preservation 
---------------------------------- 
 
¶4. (SBU) However, Judge Yu continued, "we" must all 
face the fact that compensation levels sought by 
right holders for IPR infringement may not be 
available as local businesses struggle through the 
economic crisis.  Therefore, she suggested, the 
better approach would be to avoid issuing an 
injunction, and instead allow the infringing 
enterprise to continue its operations so that it 
might pay the damages in the future.  Quoting a 
Chinese idiom, she said "you should not drain the 
pond to catch the fish," elaborating that closing 
down a business and causing jobs to be lost is not 
the best solution in cases of infringement.  Judge 
Yu therefore was making a subtle distinction: the 
court would not refrain from issuing an injunction 
expressly to save a domestic enterprise from 
collapse.  The court would, however, do so in order 
to preserve the company so that it could eventually 
fulfill its obligations to pay damages to right 
holders. 
 
Local Enforcement Increasingly Difficult 
---------------------------------------- 
 
¶5. (SBU) In a March 31 meeting at China's Ministry 
of Commerce (MOFCOM), visiting USG officials also 
inquired about reports of economic downturn-induced 
weakening of local-level IPR enforcement. 
Department of Treaty & Law Deputy Director General 
(DDG) Li Ling replied that Chinese officials are 
aware of an emerging problem of what she called 
local protectionism.  Especially during the economic 
crisis, she said, local officials are feeling 
greater pressure to promote exports and increase 
domestic demand, resulting in greater than normal 
complexities in enforcing IPR. Li assured the group, 
however, that "the central government's position [on 
protecting IPR] will never change," and stressed 
that IPR protection "is a long journey with hard 
work," adding that her ministry looked forward to 
future cooperation with the United States on the 
issue. 
 
U.S. Business Confirms Weaker Enforcement 
----------------------------------------- 
 
¶6. (SBU) Apple Inc., the California-based designer 
of Mac computers, iPods, and the iPhone, is facing 
increasingly widespread counterfeiting in China as 
its products gain in worldwide popularity (see Ref 
B).  The company hired a veteran security team 
 
BEIJING 00001014  003.2 OF 004 
 
 
accustomed to working with Chinese IP officials to 
begin making inroads to protect the company's rights 
in China.  However, the company told Econoff on 
March 27 of recent signs that Chinese officials are 
less inclined to take action against counterfeiters, 
both by referring fewer cases for criminal 
prosecution and by applying lower, non-deterrent 
administrative penalties. 
 
¶7. (SBU) Apple's security team has historically 
benefited from close cooperation with China's Public 
Security Bureau (PSB) on criminal investigations 
(i.e., seizures of counterfeit products valued above 
China's criminal thresholds).  Having prepared a 
thorough case file detailing the investigation of an 
unusually large number of laptop computers being 
prepared for distribution in China, Apple employees 
were surprised in March when the PSB refused to 
conduct the criminal raid because the raid 
threatened as many as 100 local jobs.  The PSB 
recommended that administrative action be taken 
instead; however, by the time the State 
Administration of Industry and Commerce (SAIC) 
raided the facility, the criminals had fled. 
 
¶8. (SBU) Apple has also worked productively in the 
past with the SAIC on administrative raids. 
Recently, however, SAIC officials refused to raid a 
large electronics mall in Guangdong province 
because, they said, they feared the action would 
drive away what little business still existed in the 
area.  China Customs, another historically good 
partner to the company, independently located a 
large shipment of counterfeit iPods at a southern 
Chinese port.  However, the Customs agency levied a 
mere $1,700 fine in the case, much lower than the 30 
percent of total value that the counterfeiters 
should have been penalized, and not high enough to 
be deterrent. 
 
IP Protection Still a Priority 
------------------------------ 
 
¶9. (SBU) In other recent bilateral contacts with 
Chinese IP officials, they have averred that 
bilateral IPR cooperation remains a priority of the 
Chinese government, despite the above-noted 
indications that weaker IPR enforcement is a side 
effect of the economic downturn in China.  SPC 
President Wang and IP Judge Kong have both made 
public statements in support of stricter law 
enforcement.  In fact, the bulk of their public 
comments support this view, and Wang on March 10 
told the National People's Congress that "the courts 
will improve the IPR trial mechanism, increase the 
number of IPR courts, and explore the new model of 
comprehensive IPR protection." 
 
¶10. (SBU) However, the judges have also made 
statements that, particularly when left open to 
interpretation by lower-level courts and enforcement 
 
BEIJING 00001014  004.2 OF 004 
 
 
officials, are cause for concern.  Judge Kong's 
December call for a "public interest test" is one 
example.  Another, reported by China's "Legal Daily" 
newspaper, was Wang's February 6 meeting with local 
deputies in Henan province to discuss "how the 
people's courts can provide better judicial support 
and legal service" to maintaining growth.  Wang 
"cited the impact of the financial crisis on the 
Chinese economy and admonished the courts to pay 
close attention to companies' operations, people's 
livelihoods, and social stability," and "stressed 
that Chinese courts must serve the overall situation 
of the country and the focus should be how to better 
service the nation's top priority - stable and fast 
growth." 
 
Weak Enforcement Extends Beyond IPR Law 
--------------------------------------- 
 
¶11. (SBU) While enforcement of IPR law may suffer in 
particular as China pursues domestic economic 
stability and promotes innovation of indigenous 
companies over that of foreigners, reports indicate 
that the broader rule of law may also be weakened. 
In a variety of business disputes, foreign business 
community contacts have reported that legal 
judgments have weakened in cases where there is a 
risk of destabilizing local companies and their 
employees.  The Guangdong Procuratorate in January 
issued ten measures to help local enterprises facing 
economic difficulties, including a measure to 
postpone actions against company management 
committing "small crimes," such as bribes (See Ref 
C). 
 
Comment 
------- 
 
¶12. (SBU) Despite Chinese officials' reassurances of 
their commitment to strengthening IPR protection, 
the fact that even SPC President Wang identified 
economic growth as a priority of the court is 
problematic.  Such public comments from central 
government officials may well prompt lower-level law 
enforcement officials to "do their part" in 
promoting domestic industry and protecting jobs 
during the economic crisis.  Such statements may 
well be intended as a signal to guide judicial 
decision-making toward lessened penalties and fewer 
injunctions.  If not, there is a danger that such 
guidance could be misinterpreted by overzealous 
local officials.  Moreover, the risk also exists 
that such policies could become institutionalized 
beyond the economic crisis as an effective way to 
promote indigenous innovation and meet other 
national development goals at the expense of foreign 
and domestic right holders.  We will continue to 
monitor and report on this situation.  End Comment.