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DE RUEHCN #0028/01 0350254
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O 040254Z FEB 10
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3725
RUCPDOC/USDOC WASHDC IMMEDIATE 0062
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHCN/AMCONSUL CHENGDU 4449

UNCLAS SECTION 01 OF 04 CHENGDU 000028 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/CM 
 
E.O. 12958: N/A 
TAGS: ECON EIND EINV ETRD PGOV KIPR CH
SUBJECT: CHONGQING'S IPR ENVIRONMENT: VIEWS FROM THE GOVERNMENT, A 
CHINESE COMPANY, AND AMERICAN BUSINESSES 
 
REF: A) 09 CHENGDU 300, B) CHENGDU 023 
 
CHENGDU 00000028  001.2 OF 004 
 
 
¶1. (U) This message contains Sensitive But Unclassified 
information.  Not for Internet distribution. 
 
 
 
¶2. (SBU) Summary and Comment: Chongqing officials expressed 
their willingness to cooperate with the USG to further 
intellectual property rights (IPR) protections during a recent 
meeting with Consul General, noting the necessity of progress on 
this front both for attracting international investment, and to 
protect the long-term interests of Chinese companies. 
Highlighting the oft-stated goal of building Chongqing into a 
"model IPR city," they described various strategies toward this 
end.  However, one of Chongqing's largest motorcycle 
manufacturers seemed unimpressed with official progress, 
emphasizing the difficulties it faced in resolving IPR issues 
with other Chinese companies.  A group of American business 
representatives were generally positive regarding municipal 
government support in IPR violation cases, but regarded pursuit 
of cases through civil courts as ineffective. 
 
 
 
¶3. (SBU) Comment: Post believes that the Chongqing Government, 
given the forward-leaning commitment to IPR of former Commerce 
Minister and current Party Secretary Bo Xilai, would be an ideal 
partner should the Patent and Trademark Office (PTO) seek 
collaborative partners in southwest China.  PTO could also 
assist the IPR degree program at a local university and recruit 
local Chinese companies, such as a motorcycle manufacturer 
Zongshen, as partners lobbying for stronger IP protection.  End 
Summary and Comment. 
 
 
 
¶4. (U) During January 12-14 travel to Chongqing, Consul General 
(CG), Senior Commercial Officer, EconOff and ConOff met with 
official and business contacts to discuss their views on IPR. 
This included: 1) a joint meeting with representatives of the 
Chongqing IPR Bureau, the Trademark Division of the Chongqing 
Industrial & Commercial Bureau, and the Chongqing Copyright 
Bureau; 2) a visit to the headquarters of Zongshen Industrial 
Group, one of Chongqing's major motorcycle manufacturers; and 3) 
a joint breakfast meeting, coordinated through the American 
Chamber of Commerce, with the heads of several U.S. companies 
with Chongqing operations. 
 
 
 
Bo Xilai's "IPR model city": 
 
Officials on Goals, Strategy, Accomplishments 
 
--------------------------------------------- 
 
 
 
¶5. (U) Xiang Hu, Vice Director of Chongqing IPR Bureau, 
recounted that, in April 2009, the government of Chongqing 
officially started implementing the strategy of Party Secretary 
Bo Xilai to develop Chongqing into an "IPR model city."  Toward 
this end, they established a leading group for IPR work within 
the IPR Bureau, headed up by Vice Mayor Tong Xiaoping.  Xiang 
explained that the goal of building Chongqing as a "model IPR 
city" was to: 
 
 
 
-- raise the awareness of entrepreneurs, cadres, scholars, and 
citizens of Chongqing that "protecting IPR means protecting the 
economy and development"; --- encourage people to develop more 
patents and trademarks while respecting others' IPR; and, 
 
-- help domestic companies to understand international IPR 
issues, and international companies to understand domestic IPR 
issues. 
 
 
 
¶6. (U) Xiang further elaborated that Chongqing's IPR strategy 
was comprised of "one key line, two main actions, three 
structures, and four projects" (yi tiao zhuxian, liang da 
xingdong, sange jizhi, si da gongcheng).  He explained these as 
follows: 
 
 
 
 
CHENGDU 00000028  002.2 OF 004 
 
 
-- "One key line" refers to the overarching priority placed on 
IPR as the key to establishing Chongqing as a destination for 
world-wide investment. 
 
 
 
-- "Two main actions" describes the Chongqing government's 
intent to help the city's companies protect their IPR overseas 
and, at the same time, help international companies to protect 
their IPR in Chongqing.  To assist Chongqing-based companies, he 
said, the IPR Bureau was providing information on relevant 
international conventions, bilateral treaties, etc. and inviting 
foreign experts to give lectures on IPR.  In terms of assistance 
to individual companies, he noted that they recently assisted 
the Lifan Group to resolve an IPR issue in the United States. 
 
 
 
-- "Three structures" focuses on building an IPR public service 
structure.  First, they are building an IPR data bank for 
reference by would-be inventors.  Second, in 2008 they set up a 
call center for IPR-related complaints, modeled on the IPR 
complaint call centers Bo Xilai set up nationwide during his 
tenure as Minister of Commerce.  They did not have statistics 
for 2009 yet, but reported that they logged 600 calls in 2008, 
mostly for patent and copyright infringements.  They did not 
provide details regarding what kind of results the hotline 
produced.  Third, they are working to build an IPR "coordinating 
structure" among the government organizations involved in IPR 
work. 
 
 
 
-- "The four projects" include 1) assisting companies to ensure 
they gain maximum economic benefits from their own intellectual 
property; 2) helping key industry groups, such as the motorcycle 
industry, to develop and protect their patents; 3) helping key 
industrial zones with their IPR issues; and 4) educating more 
IPR talent in Chongqing. 
 
 
 
First IPR University Degree Program in China 
 
-------------------------------------------- 
 
 
 
¶7. (U) On the last point, Xiang reported that in 2007, the city 
established the nation's first IPR degree program at the 
Chongqing University of Technology.  The program helps to 
address a national need for improving China's knowledge base on 
IPR issues, especially since joining the World Trade 
Organization (WTO).  The first group of students will graduate 
this year, and are expected to have good employment prospects. 
The program has benefited from cooperation with Japan and 
Europe, he noted, but so far has had few contacts in the United 
States.  He expressed hope for greater cooperation with U.S. 
institutions in the future. 
 
 
 
Tackling Trademark and Copyright Infringements 
 
--------------------------------------------- - 
 
 
 
¶8. (U) Cheng Qiuxiang, Director of the Trade Mark Section of the 
Chongqing Industrial and Commerce Bureau, and Xiu Wei from the 
Law Section of the same Bureau, discussed their 
trademark-related work.  Cheng said that his office actively 
protected trademarks by working with courts, the Public Security 
Bureau (PSB), Customs, and the Quality Inspection Bureau. 
Chongqing also works with 12 other provinces and cities in 
China's west to protect trademarks, he said.  In 2008, the 
Bureau discovered many problems in the protection of both 
domestic and international trademarks and the situation got even 
worse in 2009, he reported.  They handled around 1,209 trademark 
cases over the last two years, many of them related to foreign 
trademarks, citing Nike, Philips, and Gucci as examples.  "We 
hope that in future all the international companies and foreign 
countries will help us to protect IPR and conduct investigations 
on relevant cases in Chongqing," he said. 
 
 
 
¶9. (U) Xiu Jiawei, Deputy Coordinator of the Copyright 
 
CHENGDU 00000028  003.2 OF 004 
 
 
Management Section of Chongqing Copyright Bureau, reported that 
they had, over the last two-three years, been cracking down on 
copyright violations such as pirated computer software.  At the 
present, he claimed, most government organs and state-owned 
enterprises are no longer using pirated computer software.  They 
have also been working with major publishing houses in the city, 
such as Chongqing Publishing Group, to protect copyrights.  He 
asserted that the number of illegal/pirated CDs and DVDs 
available on Chongqing's streets has gone down significantly 
over the last few years. 
 
 
 
A Chinese Motorcycle Company's Perspective: 
 
Domestic IPR Problems and Center-Provinces Contradictions 
 
--------------------------------------------- ----- 
 
 
 
¶10. (SBU) Zuo Zongshen, Chairman and President of Chongqing 
motorcycle giant the Zongshen Group, told Consul General his 
company is not currently facing any serious international IPR 
issues.  (In the past, Zongshen had an IPR dispute with Honda, 
but it was smoothly resolved, he claimed.)  However, Zongshen is 
facing significant domestic IPR problems, including around 20 
current violation cases.  Zuo said that the domestic cases are 
difficult to tackle.  Although he believes that the policy and 
legal structure is basically sound, poor implementation is the 
main challenge.  Close links between companies and local 
governments are the main obstacle he identified, noting that if 
he sued a company in Guangdong, the Guangdong government would 
protect it.  Likewise, for suits within Chongqing, the 
government will often ask him to back off due to "shared 
interests" between the company and government.  Therefore, he 
asserted, "there are many companies in China, particularly 
military companies and other big state-owned companies, 
violating my IPR, but it's very hard for me to deal with it." 
 
 
 
¶11. (SBU) Zuo went on to say that there are many contradictions 
between the official IPR policies at the central and local 
levels, and between official IPR policies and other official 
policies.  "The whole system in China is very complicated and 
there are a lot of problems," he said, blaming the government 
for prioritizing gross domestic product (GDP) over IPR 
protection. 
 
 
 
American Businesses: Local Government Support, 
 
Preventive Policies Key to IPR Protection 
 
--------------------------------------------- - 
 
 
 
¶12. (U) During an AmCham-organized breakfast meeting with Consul 
General, the heads of the Chongqing operations of Briggs & 
Stratton, Cummins, Visteon, Oracle and Hewlett-Packard discussed 
their experiences with IPR issues.  Those that have been 
operating in Chongqing for a longer period all reported 
encountering multiple IPR violations over the years.  The more 
recent arrivals - Visteon and Hewlett-Packard -- said they had 
not yet encountered any major IPR issues, but fully expect 
issues to arise as their businesses expand. 
 
 
 
¶13. (U) The discussion revealed that, when addressing IPR 
violations, US companies in Chongqing tend to rely on personal 
relationships with government officials to solve them, rather 
than legal structures and procedures.  When these companies did 
decide to pursue court cases, they typically pursued violations 
through criminal, rather than civil, law channels.  This meant 
first gaining Chongqing government support for their case in 
order to secure the necessary follow through by the Public 
Security Bureau to investigate violations.  This often took 
time, they noted, but was generally successful.  Cummin's 
General Manager described the time and effort involved as just 
the "reality of doing business here."  Briggs & Stratton's 
General Manager noted that, "The government is very powerful and 
can be helpful" and added that IPR protection for wholly owned 
foreign enterprises was often more difficult than for joint 
ventures with strong state-owned enterprise (SOE) partners. 
 
CHENGDU 00000028  004.2 OF 004 
 
 
None reported successful resolution of any cases via civil 
courts. 
 
 
 
¶14. (U) The company representatives also emphasized the 
importance of setting up comprehensive structures to protect IPR 
up front.  Visteon's General Manager noted that their software 
algorithms comprise their key proprietary technology, so they 
give local engineers access to only the portion of the software 
needed for their work.  All of Briggs & Stratton's current 
supplier agreements specify Briggs & Stratton ownership of the 
designs and stipulate steep monetary penalties if parts are sold 
outside their supply chain (a requirement which suppliers 
initially balked at, but ultimately signed.)  Cummins' General 
Manager said they invested a lot of time educating their 
suppliers on what they could and could not do.  If Cummins found 
a supplier selling a proprietary part elsewhere, they simply cut 
that supplier off, he said.  Cummins also emphasized the 
importance of their legal office in proactively chasing down IPR 
issues as they arose.  A dedicated IPR law specialist in their 
Beijing office provided support to Cummins, as needed. 
 
 
 
IPR Lawyers Face Steep Learning Curve, Low Rewards Says 
Chongqing Attorney 
 
--------------------------------------------- --------- 
 
 
 
¶15. (U) A partner from an attorney's office that has handled IPR 
cases in Chongqing (and who joined the meeting with US 
companies) confirmed that filing civil IPR cases was difficult, 
so that plaintiffs often had to shift to a criminal approach. 
It was still difficult for lawyers to earn much income from IP 
cases - she said that those who are specializing in IP work were 
not happy with their income.  She also noted that the IP lawyers 
faced a steep learning curve, especially when dealing with 
multiple patents within a single product.  Nevertheless, 
interest in IPR issues was increasing on the part of legal 
actors, she believed. 
 
 
 
Comment: PTO Engagement with Chongqing Officials, University, 
and Companies; British Consulate on Possible IPR Initiatives 
 
--------------------------------------------- --------------- 
 
 
 
¶16. (U) Post believes that the Chongqing Government, given the 
forward-leaning commitment to IPR of former Commerce Minister 
and current Party Secretary Bo Xilai, would be an ideal partner 
should PTO seek collaborative partners in southwest China.  PTO 
could also consider assisting the IPR degree program at 
Chongqing University of Technology.  Zongshen Motorcycle 
(septel) and other local Chinese firms might also be recruited 
as partners in support of stronger IP protection. 
 
 
 
¶17. (U) Finally, we note that the British Consul General in 
Chongqing informed us that their mission is also reviewing 
possible IPR initiatives in Chongqing.  He expressed interest in 
coordinating with any USG initiatives on this issue. 
BROWN