WTO ruling on China IPR no end to matter

WTO ruling on China IPR no end to matter    The WTO may not have resolved China's inadequate intellectual property rights protection, but it's provided a benchmark for future improvement, according to analysis in the American Society of International Law's latest newsletter.
   The analysis addresses the findings of the recent report from a WTO panel convened to examine the U.S. government's dispute over China's IPR protection. The panel ruled in favor of the United States on two issues (copyright protection for prohibited works, and the release of seized counterfeit goods back into the stream of commerce) but against it on what constitutes 'criminal thresholds' for counterfeiters.
   The ASIL analysis said the ruling states that the United States didn't provide enough evidence that China was applying thresholds, and thus allowing counterfeiters who weren't making a significant commercial gain to continue.
   'While the report draws a roadmap for framing future claims regarding criminal thresholds, it is less clear how a government could apply some of the standards before bringing a claim,' James Mendenhall, a trade attorney with the law firm of Sidley Austin LLP in Washington, D.C., wrote in the analysis.
   'Whether the panel's finding on the thresholds claim will have a significant impact on China's IPR enforcement regime remains to be seen. Significantly, the panel did not find that China's criminal enforcement scheme was consistent with (the WTO's article on IPR rights), but only that the United States had failed to prove its claims. Consequently, the panel report gives a roadmap for future challenges that should be of interest to private parties adversely affected by China's current thresholds or any other thresholds of a similar nature. At the very least, the report may provide a basis for further constructive dialogue with China.'
   Mendenhall said that the panel focused on the differences between what constitutes 'commercial scale' and mere 'commercial activity.'
   'The critical issue with respect to this claim was the meaning of the phrase 'commercial scale,' a term never before interpreted by a WTO panel or the appellate body,' Mendenhall wrote. 'The panel concluded that 'commercial scale' activity means something different than 'commercial' activity. Specifically, the term 'commercial scale' implies a certain size threshold and not a qualitative assessment of the purpose of the activity. Furthermore, according to the panel, the threshold cannot be interpreted in the abstract, but varies with respect to individual products and markets. According to the panel, 'counterfeiting or piracy on a commercial scale refers to counterfeiting or piracy carried on at the magnitude or extent of typical or usual commercial activity with respect to a given product in a given market.' In any given case, commercial scale 'may be large or small. The magnitude or extent of typical or usual commercial activity relates, in the longer term, to profitability.' '
   Mendenhall argues that the panel was not clear enough on what constitutes the threshold.
   'Despite the panel's reference to profitability, there is no indication that the panel believed that profitability is the critical defining characteristic for 'commercial scale' activity,' he wrote. 'In fact, the panel appeared to conclude that the profitability or purpose of an individual operation is irrelevant. Under the standard enunciated by the panel, the critical question is whether the infringing activity is equal to or larger than the usual size of a business operation with respect to a given product or market. While the panel recognized that the Chinese measures 'exclude certain commercial activity from criminal procedures and penalties,' it found that this was insufficient to prove that the measures are inconsistent with (the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights, or TRIPS).'
   The entire report is available here.