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RUEKJCS/DIA WASHDC 0432

UNCLAS SECTION 01 OF 04 GUANGZHOU 000084 
 
SENSITIVE 
SIPDIS 
 
State for EAP/CM; EEB - JBonilla, JSpeck, JUrban, TMcGowan 
State for INL - JVigil 
USTR for China Office - KAlvarez, AWinter; IPR Office - RBae; and 
OCG - SMcCoy 
Commerce for National Coordinator for IPR Enforcement 
Commerce for MAC 3204/ESzymanski 
Commerce for MAC 3043/NMelcher 
Commerce for MAC 3042/SWilson 
Commerce for NWinetke 
LOC/Copyright Office - MPoor 
USPTO for Int'l Affairs - DKappos, SBarner, LBoland, EWu 
DOJ for CCIPS - MDuBose 
DOJ for SChembtob 
FTC for Blumenthal 
FBI for LBryant 
DHS/ICE for IPR Center - THipelius, TRandazzo 
DHS/CBP for IPR Rights Branch - GMcCray, PPizzeck 
ITC for LLevine, LSchlitt 
NSC for LOI 
 
 
E.O. 12958: N/A 
TAGS: ETRD KIPR ECON PGOV CH HK
SUBJECT: South China IPR: Enforcement Still the Problem, High-Level 
U.S. Engagement Remains Critical 
 
REF: A) 2009 GUANGZHOU 619, B) 2009 GUANGZHOU 503, C) 2009 GUANGZHOU 
320, D) 2008 GUANGZHOU 720 
 
GUANGZHOU 00000084  001.2 OF 004 
 
 
¶1. (SBU) Summary:  Rights holders came to the Consul General's IPR 
Roundtable on January 28 and 29, with a clear message: Problems 
remain serious and continued high-level U.S. engagement is critical 
to improving the situation.  Representatives of 39 south China-based 
rights holders and law firms praised extensive U.S. Government 
support and participation in last October's Pearl River Delta Forum 
on Innovation and Intellectual Property, but wasted no time in 
asking for more engagement in 2010 to keep up momentum that the 
conference generated.  Rights holders said the scale of south China 
IPR problems had not decreased in the last two years, with criminal 
penalties for IP infringement seldom imposed and administrative and 
civil enforcement failing to deter infringement activity.  Rights 
holders also used the opportunity to exchange information, and 
suggested the need for a more coordinated approach to detect repeat 
offenders and locations with high concentrations of infringement 
activities.  End summary. 
 
Keep Up the Momentum 
-------------------- 
 
¶2. (SBU) Attendance set a record at the Consul General's IPR 
Roundtable, which was held over two sessions on January 28 and 29, 
2010, to maximize participation of south China-based rights holders. 
 Almost 40 participants representing individual companies, law firms 
and industry associations joined the discussion at the U.S. 
Consulate in Guangzhou.  Rights holders told the CG that 
participation of Commerce Secretary Gary Locke, Ambassador Jon 
Huntsman, and Deputy Director of the Patent and Trademark Office 
Sharon Barner at the Pearl River Delta Forum on Innovation and 
Intellectual Property on October 27, 2009 in Guangzhou set the stage 
for engaging Guangdong provincial leaders and sent a powerful signal 
of the U.S. Government's commitment to this issue in south China 
(ref A). 
 
¶3. (SBU) Participants said that 2010 is an opportunity to build on 
the momentum created by last fall's IP Forum and offered two 
specific ideas for high-level USG engagement with provincial and 
local authorities.  First, rights holders voiced concern that they 
had not been able to reconnect with Guangdong Party Secretary Wang 
Yang after the conference, which many see as critical for creating 
the political conditions that encourage working-level local 
officials to take meaningful action against infringers.  Rights 
holders requested that Secretary Locke send Wang a letter referring 
to the success of last fall's conference and requesting new action 
from provincial and local authorities.  The second idea from rights 
holders was for Ambassador Huntsman host one or more large-scale IPR 
activities, focusing on Beijing and key cities such as Shenzhen, in 
order to bring together business leaders and government officials 
from both sides to jointly address IPR concerns. 
 
¶4. (SBU) In addition to rights holders' two specific 
 
GUANGZHOU 00000084  002.2 OF 004 
 
 
recommendations, participants in the CG's roundtable also called on 
the U.S. Government to continue capacity building and other 
engagement efforts in south China, including dispatching more 
high-level visitors to personally meet with provincial and local 
officials.  Rights holders said that too often, efforts to engage in 
south China are short-lived or characterized as one-off meetings, 
which makes it easier for local officials to put on a good face for 
the visit and then revert to unhelpful postures after U.S. officials 
depart.  More frequent visits would show a pattern of commitment 
that could better influence local political will and improve 
protection for IPR in the province that many American business 
leaders still call the infringement "heart of darkness." 
 
Enforcement Still Key 
--------------------- 
 
¶5. (SBU) Leading a chorus of similar feedback about local IPR 
conditions, the representative of a prominent American cosmetics 
firm told the CG that 90% of his firm's worldwide counterfeiting 
problems can be traced to Guangdong Province, with Guangzhou's 
Baiyun District and Shantou City representing the largest problem 
areas for production of counterfeit goods.  Other health and beauty 
products companies offered similar views of the depth and breadth of 
south-China infringement problems, saying that criminal cases, which 
they said are the only "impact cases" that help improve local 
conditions, are too few to measurably improve local conditions (ref 
C).  Rights holders from all industries said that administrative and 
civil enforcement have been frequently used to penalize infringers, 
but the fines and other minor penalties are generally seen as the 
cost of doing business rather than a deterrent from engaging in 
illicit activity (ref B).  Criticisms included inconsistent 
application of existing IPR-related laws, unpredictable valuation 
methodologies for determining criminal prosecution, and allegations 
of non-transparent and protectionist behavior at each level of 
China's justice system.  In addition, participants faulted the 
civil-enforcement avenue as being too expensive, cumbersome and 
slow. 
 
¶6. (SBU) Several rights holders also complained of being unsure 
whether goods seized during administrative enforcement actions were 
actually destroyed as prescribed under Chinese law.  Many suspect 
that infringing goods were being re-introduced into the commercial 
stream as rights holders had no real ability to hold administrative 
agencies accountable for destruction of infringing goods, or to 
verify whether the goods had been destroyed.  One participant 
additionally voiced a long-standing complaint that enforcement 
agencies do not destroy the machinery used for producing counterfeit 
goods.  This shortcoming is another example of the failure of 
Chinese legal and regulatory conditions to fully address 
infringement concerns with an eye towards prevention and deterrence 
of repeat offenders. 
 
New Frontiers of Infringement 
----------------------------- 
 
GUANGZHOU 00000084  003.2 OF 004 
 
 
 
¶7. (SBU) Rights holders told the CG that a rapidly expanding 
delivery channel for counterfeit goods is express-mail and 
package-delivery services, in addition to more traditional smuggling 
via large ocean-going cargo containers.  The shift means that 
infringers are able to transport their goods more quickly to 
consumers, and exploit weaknesses in Customs and other traditional 
enforcement approaches.  Representatives of major American 
pharmaceutical companies and sporting-goods firms said this threat 
to their brands and to the public in the form of dangerous and 
sub-standard counterfeit goods cannot be ignored.  Rights holders 
said that China Customs led a special enforcement campaign in 2008 
that was very effective at seizing thousands of illicit parcels sent 
from the Shanghai area.  However, the illicit trade quickly returned 
to normal after the six-month campaign ended.  Participants voiced 
their desire for more sustained Chinese efforts to police this 
delivery channel, and to require positive ID checks for all parcels 
sent through express-mail and package-delivery services in the 
country to help investigators effectively address illicit activity. 
 
¶8. (SBU) Another rapidly growing tactic is internet-based sales of 
counterfeit goods, in addition to the long-standing problem of 
on-line piracy and illegal downloading of digital content.  On-line 
sellers of illicit goods utilize express-mail and package-delivery 
services, most often sending the packages using untraceable false 
names and addresses.  Victims of both types of on-line IP 
infringement told the CG that procedures for rights holders to have 
local authorities shut down infringing websites and listings at 
major on-line marketplaces, such as Alibaba and Taobao, have 
improved in the last year or two.  However, the procedures remain 
too cumbersome and slow to stem the growth in internet-based 
infringement activities.  One rights holder cited an internal study 
from the fashion industry, stating that recidivism among on-line 
infringers was estimated at 70-80%.  He blamed the high rate on the 
difficulty in shutting down the infringing websites, and the 
relative ease with which infringers change registration names and 
then re-list infringing products immediately following initial 
efforts to close them down. 
 
Innovations in Brand Protection 
------------------------------- 
 
¶9. (SBU) Participants suggested new cooperative approaches to help 
address widespread problems faced by many rights holders.  One idea 
was to create a database or other information system using location 
and organization information about known or suspected infringers. 
Several rights holders said that repeat infringers were common, and 
geographic locations could be traced if details about enforcement 
raids and other investigations could be shared and aggregated into a 
useful tool for rights holders.  A related idea was to organize 
meetings of rights holders' enforcement and brand-protection 
personnel to promote exchange of detailed enforcement information 
and facilitate communication.  Pursuing repeat offenders might be an 
effective way to also attract broader support from local officials 
 
GUANGZHOU 00000084  004.2 OF 004 
 
 
who often lack personnel and resources to pursue every IPR 
complaint. 
 
Expanding the Discussion 
------------------------ 
 
¶10. (SBU) Participants in the Consul General's roundtable expressed 
appreciation that the Consulate invited participation from the 
Consulates of the United Kingdom, France, Canada and Japan for the 
first time.  Economic and trade officers from each country joined 
IP-related discussions and described IPR problems facing their firms 
in south China.  Rights holders also discussed the need for 
increased engagement with Chinese rights holders, both among the 
private sector, as well as among foreign governments and local 
firms.  One novel idea for building consensus on IPR problems and 
solutions was to organize or sponsor joint- or third-party studies 
of the problem in China, or of its impact on external markets such 
as certain African countries where some experts believe that as many 
as 30% of all consumer products are counterfeit items exported from 
China.  Participants agreed that the scale of IPR problems is so 
great that no one company, industry, or firm is unique in its 
suffering, but the challenges are central to all innovators and can 
only be solved through concerted joint effort. 
 
JACOBSEN