VZCZCXRO0328
OO RUEHGH
DE RUEHCN #0023/01 0281256
ZNR UUUUU ZZH
O 281256Z JAN 10
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3716
INFO RUCPDOC/USDOC WASHDC IMMEDIATE 0057
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUEHOO/CHINA POSTS COLLECTIVE
RUEHCN/AMCONSUL CHENGDU 4439

UNCLAS SECTION 01 OF 03 CHENGDU 000023 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/CM 
DEPT PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON EIND ETRD EINV PGOV KIPR KJUS CH
SUBJECT: CHENGDU IPR JUDGE ON FOREIGN COMPANY CHALLENGES, LOCAL COURT 
STRUCTURE 
 
CHENGDU 00000023  001.2 OF 003 
 
 
¶1. (U) This cable contains sensitive but unclassified 
information - not for Internet distribution. 
 
 
 
¶2. (SBU) SUMMARY.  Effective intellectual property rights (IPR) 
enforcement is a continuing challenge for judges and attorneys 
in Southwest China, according to a sitting judge on Chengdu's 
IPR court and a former-judge-turned-attorney.  While asserting 
China's IPR laws had significantly strengthened, both agreed 
that enforcement remains challenging, citing difficulties both 
in proving losses, and in collecting damages against Chinese 
companies that can quickly hide assets.  Neither believed that 
foreign companies are at a disadvantage in China's legal system, 
but stated that they often face difficulties understanding 
Chinese law and procedure.  Chengdu's court structure includes 
specialized IPR judges in two district courts, as well as at the 
intermediate and high court levels.  While the sitting judge 
stated that all IPR decisions are posted on the Internet, a 
review of the relevant sites indicates only a portion are 
posted.  END SUMMARY. 
 
 
 
¶3. (SBU) On January 6, Consul General, EconOff, and ConOff met 
to discuss IPR enforcement in Southwest China with Chen Ruizi, a 
sitting judge on one of Chengdu's intellectual property courts, 
and Wu Tao, an attorney with a Chinese law firm and a former 
judge of Chengdu's intellectual property court from 2003 to 2007. 
 
 
 
Problems with Enforcement of Chinese IPR Law 
 
-------------------------------------------- 
 
 
 
¶4. (SBU) Chen and Wu both asserted IPR laws in China had 
steadily strengthened, but acknowledged that enforcement 
remained a challenge.  Wu highlighted that proving a connection 
between IPR infringement and a defendant's illegal gains is the 
biggest challenge faced by plaintiffs in order to collect actual 
damages.  There are no regulations on how to submit expert 
evidence on this issue, he noted.  Thus, the courts are more 
likely to rely on statutory fines, which do not require a 
determination of damage, but are capped at 1 million RMB (USD 
147,059).  (Note: This amount was recently doubled from a cap of 
500,000 RMB.  End Note.) 
 
 
 
¶5. (SBU) Even when damages are assessed, noted Chen, collection 
is likely to be difficult.  Chinese law stipulates that an 
infringing company must be left with sufficient assets to 
continue operations after payment of damages.  If they regard 
the amount as too high, the infringer will often simply transfer 
most of the company's assets to third parties or shell 
corporations, leaving the infringing company with just enough 
capital to continue operations.  As a result, the Chengdu courts 
have a large backlog of open enforcement cases on their docket. 
 
 
 
¶6. (SBU) Nevertheless, our interlocutors expressed optimism that 
needed changes in China's IPR legal system to strengthen 
enforcement were gradually being made.  Wu cited the Supreme 
Court's recent decision to double the statutory ceiling for IPR 
infringement fines as a demonstration of greater commitment to 
enforcement.  (See para 4 above.)  However, they did not provide 
any additional concrete examples of how enforcement was being 
improved. 
 
 
 
¶7. (SBU) Rather, they highlighted the importance of other legal 
routes for resolving IPR cases.  In fact, said Chen, alternative 
dispute resolution is often more effective.  About 70-80 percent 
of IPR cases before her court end up being settled through 
mediation or arbitration before final judgment, a trend she 
encourages.  However, Chen admitted, enforcement of settlement 
agreements is also a problem. 
 
 
 
¶8. (SBU) Chen and Wu also stated that procuratorates in the area 
 
CHENGDU 00000023  002.2 OF 003 
 
 
were now more willing to bring criminal IPR infringement cases. 
Facing the possibility of jail time may be a more powerful 
disincentive for would-be violators than fines, they noted.  Wu 
mentioned a criminal trade secret infringement case, just 
concluded in Chengdu, which resulted in the imprisonment of the 
Japanese defendant.  The defendant allegedly shared trade 
secrets from his employer, a Japanese company, with a Chinese 
company. 
 
 
 
Foreign Litigants in Chinese IPR Cases: 
 
No Discrimination, but Lack Understanding of Chinese Law 
 
--------------------------------------------- ----------- 
 
 
 
¶9. (SBU) Both Chen and Wu asserted that foreign companies are 
not discriminated against in cases against local companies in 
Chinese courts.  According to Wu, there have been about 100 
cases involving foreign companies in Chengdu's Intermediate 
Court over the last 5 years.  Wu specifically cited cases 
brought by Dunhill, Adobe, Puma, and Monolithic Power Systems 
(MPS, an American/Chinese manufacturer of integrated circuits). 
In a follow up memo, he noted that, since 2002, more than 30 of 
these cases have involved American plaintiffs, most of whom won 
their cases. 
 
 
 
¶10. (SBU) Both complained, however, that foreign litigants often 
do not have a good understanding of Chinese law or procedures 
and, as a result, are less effective in pursuing their cases. 
For example, Chen stated that accusations against a plaintiff 
that has infringed two patents must always be filed as two 
separate cases, however closely linked.  The same concept 
applies to contracts - companies can only enforce one contract 
in one lawsuit, and must file a different lawsuit to enforce a 
second contract.  Chen said she is currently handling a case 
brought by an American company involving two contracts, and thus 
requiring two cases in the Chinese courts.  However, the 
plaintiff has so far been very resistant to dividing them, she 
said.  Wu also noted that foreign companies often do not follow 
the correct procedures in the submission of evidence.  Moreover, 
foreign companies' bias toward the witness testimony, which is 
not regarded as well as documentary evidence in Chinese courts, 
may weaken their cases in eyes of Chinese judges, he said. 
 
 
 
¶11. (SBU) Separately, Wu and Chen stressed the need for US 
companies to educate the relevant authorities to increase their 
ability to assist in IPR enforcement.  According to Wu, Chinese 
law allows customs officials to seize IPR-infringing products to 
prevent their export from China.  However, American companies 
must educate the customs officials to show them which company is 
the legitimate right-holder, and how to spot counterfeit 
products.  (Note: Wu's comments echoed statements made by Elliot 
Papageorgiou, an IPR attorney with Rouse & Co., during a 
European Chamber of Commerce event in Chengdu in October 2009. 
Papageorgiou stated that customs enforcement can be a powerful 
tool for IPR enforcement.  However, companies must first record 
their rights with customs officials, which can take up to 12 
months to process, and then train customs officials on how to 
identify infringing products.  End Note.) 
 
 
 
Chengdu Courts' Resources to Address IPR 
 
---------------------------------------- 
 
 
 
¶12. (SBU) According to Chen, two district courts in Chengdu, the 
Wuhou District Court and the court in the Chengdu High-Tech 
Zone, have specialized IPR divisions.  In addition, both the 
intermediate and high courts in Chengdu include specialized IPR 
courts.  Most of these are at the intermediate level; Wu later 
confirmed that there are 16 judges and three staffers working in 
Chengdu's specialized intermediate-level IPR courts.  (Note: Wu 
reported that the entire intermediate court system in Chengdu 
has a total of 178 judges and 206 support staff.  End Note.) 
Chen reported that her court deals with a variety of IPR cases, 
 
CHENGDU 00000023  003.2 OF 003 
 
 
including patent cases (especially patent design cases), unfair 
competition cases, internet-based IPR cases, biotech cases, 
cases involving new plant species, and circuit board IPR 
protection.  She individually handles about 70 IPR cases a year. 
 
 
 
¶13. (SBU) Comment:  The numbers cited by Wu point to the low 
number of support staff assigned to IPR judges in the 
intermediate courts (three non-judicial staff members for 16 IPR 
judges) and suggests that Chengdu's IPR judges engage in much 
more of the clerical work for their cases than their colleagues. 
 Chinese judges in general already must manage much of the work 
that is normally done by support staff and law clerks in the 
United States.  End Comment. 
 
 
 
Some IPR Decisions Posted on Internet, But an Incomplete Record 
 
--------------------------------------------- ------------------ 
 
 
 
¶14. (SBU) Chen stated that all of Chengdu's IPR court decisions 
are posted on two websites, both on the Chengdu Intermediate 
Court's website, and a website for China-wide IPR decisions. 
However, Wu admitted that he had not posted his decisions on the 
website during his tenure as a judge from 2003 to 2007, and 
doubted that all of the decisions of the court were posted 
online.  Reviewing the websites later, we found that the Chengdu 
intermediate court had most recently posted 24 cases for the 
third quarter of 2009, which appears to be a low number relative 
to their likely total case load.  Chengdu's courts, however, are 
well ahead of the national IPR website, where the most recent 
case to be posted dates to October 2008.  (See 
http://cdfy.chinacourt.org   for 
Chengdu and http://ipr.chinacourt.org 
  for national IPR court decisions.) 
BROWN