VZCZCXRO6903
RR RUEHCN RUEHGH
DE RUEHGZ #0503/01 2320914
ZNR UUUUU ZZH
R 200914Z AUG 09
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0861
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0230
RUEHBJ/AMEMBASSY BEIJING 0670
RUEHCN/AMCONSUL CHENGDU 0167
RUEHHK/AMCONSUL HONG KONG 0233
RUEHGH/AMCONSUL SHANGHAI 0168
RUEHSH/AMCONSUL SHENYANG 0178
RUEAUSA/DEPT OF HHS WASHINGTON DC 0017
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC 0020
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC 0084
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0132
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC 0015
RUCNFB/FBI WASHINGTON DC 0014
RUEAIIA/CIA WASHDC 0221
RUEKJCS/DIA WASHDC 0217

UNCLAS SECTION 01 OF 03 GUANGZHOU 000503 
 
SENSITIVE 
SIPDIS 
 
State for EAP/CM - SFlatt; EEB - JUrban, TMcGowan 
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 PGOV CH
SUBJECT: South China IPR: Rights Holders Reiterate Need for 
Sustained Engagement 
 
REF: A) 2008 GUANGZHOU 720, B) 2008 GUANGZHOU 132, C) 2007 GUANGZHOU 
1241 
 
¶1. (SBU) Summary: American brand owners said Guangdong Province 
remains the global source for most counterfeit and infringing 
products during an August 11 introductory meeting with the Consul 
General.  Executives highlighted continued concerns about weak IPR 
enforcement in South China and suggested additional opportunities 
for USG engagement to help address some of the enforcement problems. 
 They believe that high-level business and government support for 
the U.S. Chamber of Commerce's planned Guangdong IPR Forum in 
October would be an effective opportunity to engage with senior 
provincial and municipal leaders and help focus local attention on 
the need for solutions to IP infringement problems.  Rights holders 
reiterated their suggestion that incoming administration senior IP 
officials visit IPR hotspots like south China as early as possible 
to see problems first-hand.  Rights holders raised many of the same 
concerns about the impact of IPR infringement on society and the 
economy of south China that we raise with local officials. 
Continuing coordination will help ensure that we're sending a 
unified message.  End summary. 
 
Enforcement Problems Have Not Abated 
------------------------------------ 
 
¶2. (SBU) Representatives of Cisco, Apple, Mattel, Nike and Procter 
and Gamble each described recent developments and continuing 
challenges in protecting intellectual property rights in south China 
during an August 11 meeting with the Consul General.  In addition to 
reiterating long-standing concerns such as the need for local 
enforcement agencies to allocate more personnel and resources to IP 
issues (ref A), rights holders also reported an increase in 
transshipment cases in which seized products were manufactured in 
south China but transited other jurisdictions including Hong Kong 
and the Middle East before arriving in markets in the United States, 
Europe and elsewhere.  One business representative said 30% of his 
company's U.S. product seizures appeared to have originated in Hong 
Kong, although further investigation revealed that infringing 
products were produced in south China and transshipped. 
 
¶3. (SBU) Rights holders also complained that enforcement 
authorities' unwillingness to take action against retail violators 
of IP rights is a continuing problem.  Local protection of violators 
has continued in cases where local branches of China's 
Administration of Industry and Commerce (AIC) refuse U.S. business 
requests to raid "notorious markets," shopping malls and other 
large-scale retail sites that sell large quantities of counterfeit 
goods.  Other enforcement officials also refuse to accept cases 
involving Internet sales of counterfeit and infringing products on 
the grounds that purchases of evidence by rights holders and their 
contracted investigation agencies constitute "entrapment."  Rights 
holders suggested that the U.S. Government's annual 301 process 
should designate additional "notorious markets" as a way to increase 
pressure on China to take action in these retail cases, and 
Internet-related local enforcement bodies might benefit from 
 
GUANGZHOU 00000503  002 OF 003 
 
 
training with FBI's Computer Crime and Intellectual Property Section 
(CCIPS) and other training in order to improve enforcement 
cooperation. 
 
¶4. (SBU) Lax enforcement against production and distribution 
offenders is also a major problem, according to brand owners.  One 
long-standing issue is refusal of local enforcement agencies to 
destroy or at least trace and verifiably liquidate machinery used 
for producing counterfeit and infringing products, as well as the 
printing machines used to produce packaging and other promotional 
materials.  Without this change, rights holders said violators' 
machines frequently resume operations within days of seizures and 
enforcement actions are rendered meaningless. (Note: Some machines 
in question are valued at US$1 million or more. End Note.) Another 
problem in certain jurisdictions occurs when local authorities 
conduct a raid and seize infringing products but subsequently refuse 
to issue seizure reports that are necessary to escalate the case to 
civil or criminal prosecution.  One business representative said 
this situation had occurred more frequently in the last year because 
of protection of local violators during the global economic 
downturn. 
 
Strong Support for IP Forum in South China 
------------------------------------------ 
 
¶5. (SBU) Business representatives pledged their best efforts in 
attracting participation of executives from the their U.S. and Asia 
headquarters at the U.S. Chamber's South China IP Forum that is 
planned for late October 2009.  Rights holders expressed optimism 
that high-level participation from Washington-based U.S. officials 
and important U.S. business leaders could attract key provincial and 
municipal leaders from Guangdong and the Pearl River Delta, the 
origin of most American companies' greatest IP infringement 
concerns.  Rights holders told the Consul General that such a 
conference could help address many specific IP-related problems and 
help increase government transparency across the board, which is a 
fundamental weakness of China's IP enforcement regime. 
 
USG Role Improving IPR Protection in South China 
--------------------------------------------- - 
 
¶6. (SBU) Participants reiterated their 2008 call for continued 
engagement with local authorities on IP issues to help improve IPR 
protection in this critical region (ref A).  Rights holders 
emphasized that regardless of format or participants, the most 
effective U.S. government contribution to south China IP enforcement 
in 2009 would be high-level USG visits, especially by incoming 
administration IP officials, to Guangdong and Fujian provinces to 
see the problems first-hand.  The visits could be independent of a 
specific event, or could be tied to routine bilateral meetings like 
the JCCT IPR Working Group. 
 
¶7. (SBU) Brand owners also encouraged continued USG support for 
Chinese government outreach including a planned delegation from the 
General Administration of Quality Supervision, Inspection and 
 
GUANGZHOU 00000503  003 OF 003 
 
 
Quarantine (AQSIQ) that will visit the United States in October and 
feature visits to Silicon Valley and other key IP-related sites. 
Business representatives said they are encouraged by increased brand 
protection activities by growing Chinese brands including Huawei, 
Lenovo and Lining (sporting goods) in key south China problem areas, 
and USG engagement can help foster broader support for improved IPR 
protection. 
 
Comment - A United Front 
------------------------ 
 
¶8. (SBU) U.S. rights holders made many of the same arguments for 
increasing IPR enforcement in China that we make in our efforts to 
convince the public and their local government representatives that 
improved IPR protection is preferable to "full employment" by 
factories that produce infringing and counterfeit products.  Such 
factories do not pay local taxes, nor do they ensure legal and 
ethical protections for their workers including contributing to 
social security or meeting minimum wage requirements.  Infringers 
damage local society by producing unsafe products without regard for 
environmental protection and other public interests.  Continuing 
coordination with U.S. rights holders on the ground in south China 
will help us ensure that local officials are hearing a unified 
message.  End Comment. 
 
GOLDBECK