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A Patchwork of IPR Protections

Despite improvements since the 1995 US-China MOU, IPR enforcement in China suffers from institutional shortcomings

Pitman B. Potter and Michel Oksenberg

Protection of intellectual property rights (IPR) has been a major issue in Sino-US business relations since the 1979 US-China Agreement on Trade Relations, which included provisions on establishing an IPR regime in China. Through a series of Memoranda of Understanding (MOUs) concluded with the United States between 1989-95, China agreed to expand its legislative and institutional framework for IPR protection and step up enforcement. China's willingness to reform its administrative apparatus stemmed not only from the need to avoid the imposition of punitive trade sanctions by the United States, but also from China's eagerness to elicit US support for its entry into the World Trade Organization (WTO) and promote its own industries dependent on intellectual property protection. China's proposed accession to the WTO lent impetus to IPR reform, as the obligations attendant to the WTO agreement on Trade-Related Aspects of Intellectual Property (TRIPs) required considerable effort to bring the Chinese IPR system into compliance.

Though apprehensive about the consequences of strong IPR protection for production costs, many Chinese industries and their governing ministries have heeded the calls of an emerging community of technology-oriented companies and entrepreneurs to improve IPR protection. Enforcement efforts have produced noticeable results: raids against pirate CD factories have increased; IPR violators have been fined and imprisoned; and a relatively sustained campaign to disseminate IPR rules and information to government officials and enterprise managers to increase awareness of IPR issues has been under way for some time. But despite this progress, serious violations of foreign and domestic IPR continue, particularly in the areas of computer products, videotapes, and industrial and pharmaceutical trademarks and trade names. Until PRC courts begin taking more referrals of IPR violations from the private sector, the long-term effectiveness of China's IPR enforcement effort remains open to doubt.

A Scattered Administration

Aiming to put IPR enforcement on the right track, a number of Sino-US agreements have significantly influenced China's IPR enforcement regime. The 1995 MOU, in particular, specifically addressed enforcement, noting China's establishment of an inter-agency Intellectual Property Rights Administrative Conference (zhishi chanquan bangong huiyi, BGHY), the creation of enforcement task forces within specific ministries and agencies, and the implementation of a promised "Action Plan" for strengthening IPR protection (see The CBR, January-February 1995, p.20). The Action Plan acknowledged China's establishment of the State Council BGHY formed in response to US pressure leading up to the MOU and called for it to "centrally organize and coordinate protection and enforcement of all intellectual property rights throughout the country." To facilitate its goal of laterally disseminating information and coordinating policy across institutional dividing lines, the BGHY included representatives from the major administrative departments responsible for IPR. The BGHY and the task forces set up in accordance with the MOU did not displace the pre-existing administrative apparatus, however. Authority over IPR enforcement in China remains spread across various administrative agencies--the Trademark Office under the State Administration for Industry and Commerce (SAIC) is responsible for trademarks, the China Patent Office oversees patent protection, and the National Copyright Administration handles copyright. Though these offices have the authority to refer matters to the People's Courts, their political and bureaucratic interests tend to discourage them from doing so. Despite the goal of the BGHY (replaced last spring by the State Intellectual Property Office), the Trademark Office, the China Patent Office, and the National Copyright Administration all retained their original authority to oversee registration of specific types of IPR, education and training of officials, and enforcement. Meanwhile, iss ues of international cooperation and coordination are mainly handled by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC).

The MOU also resulted in the involvement in IPR enforcement of still more administrative bodies. The Cultural Market Administration (wenhua shichang guanliju), under the Ministry of Culture, became responsible for ensuring that the products of the popular culture market, particularly videotapes, music tapes and CDs, magazines, and other print media, conformed to official ideological and moral norms. This represented a new emphasis on enforcing intellectual property rights in China's domestic culture market. Meanwhile, the State Technology Supervision Bureau (jishu jiandu ju), charged with testing the technical specifications of products marketed within China, took on responsibilities for reviewing product design and content and making formal assessments of the extent to which particular products may violate intellectual property rights. And the General Administration of Customs began investigating and penalizing imports and exports that violated IPR.

Criminal Enforcement Mechanisms

While administrative enforcement tools have multiplied, the role of the criminal law apparatus--public security bureaus (PSBs), procuracy prosecutors, and People's Courts, collectively referred to as the gongjianfa organs--has also grown (see p.12). Intellectual property owners and PRC enforcement bodies generally file criminal complaints with the PSBs, rather than directly with prosecutors, though the procuracy is also authorized to act on complaints it receives directly. PSBs have new duties in the enforcement regime. For example, PSBs now conduct raids on and arrest violators, and IPR violations are included in their "strike-hard" campaigns against corruption, as well as the sao huang campaigns against pornography and other materials considered offensive. The People's procuracies, from the local to the central levels, prosecute IPR violators according to provisions in the PRC criminal law. The criminal divisions (xingshi shenpanting) of the People's Courts are also hearing more IPR-related criminal cases brought by local People's procuracies. The overlap of criminal and IPR jurisdiction within the specialized chambers of the People's Courts, combined with the dearth of trained IPR specialists and the glut of criminal law judges, results in a tendency to run IPR cases through the criminal divisions. If a criminal case entails civil damages, the actions may be heard simultaneously by the criminal court. But it is more common for courts to stay the civil proceeding until the criminal case closes, after which civil action may proceed regardless of whether criminal liability is found. However, if the court determines that criminal conviction of the defendant will undermine the capacity of the civil plai ntiff to collect on a damage award, or if the civil claim is brought well before the criminal charge is filed, the court may be willing to hear the civil claim first. These judicial practices appear to derive from a rather liberal interpretation of provisions in the recently revised PRC Criminal Procedure Law that require simultaneous hearings for criminal and civil cases except under special circumstances. Also involved directly in IPR enforcement is the Chinese Communist Party. Given that its political-legal apparatus (zhengfa xitong) is involved at the central level in criminal law enforcement, IPR enforcement is becoming an immediate agenda item for the Party's political-legal committees at the central and local levels. While more Party attention to IPR protection has the potential to increase the effectiveness of the state's administrative organs in IPR enforcement matters, challenges to Party decisions and policies on enforcement will probably be downplayed and withheld from the scrutiny of the businesses and individuals affected. Nonetheless, the Party's involvement indicates that IPR enforcement now extends beyond the government regulatory domain to which it had been confined previously.

Ongoing Dilemmas

Though awareness of IPR has undoubtedly improved in recent years, the greater attention being paid to administrative and criminal law enforcement, rather than to private prosecutions, raises ot her problems for long-term IPR protection. Continued centralization of the administrative apparatus signifies that IPR enforcement remains largely a government, rather than a private-sector, matter. Further improvements in IPR enforcement will depend on resolving a number of longstanding dilemmas inherent in China's legal and political systems, particularly the state's primary role in enforcement and ongoing bureaucratic conflicts over administrative and enforcement authority. The emphasis on public enforcement and punitive sanctions has reinforced and legitimized increased intrusion of the Party and government into commercial relations. The state has become a directly interested party in virtually all enforcement processes, straining the limited resources of enforcement agencies, which face inflated expectations yet often lack the capacity to meet them. The emphasis on state-centered enforcement highlights problems of technical proficiency and training in IPR issues, as the state becomes the primary source for and consumer of technical knowledge rather than private businesses and individuals. But the resources available to the state for building a cadre of experts to assist in IPR administration and enforcement have shrunk. Further, as state officials have had to decide which of the increasing number of violations receive a portion of the limited resources, corruption and influence-peddling have grown, which in turn has af fected the consistency of IPR enforcement.

Moreover, state-centered enforcement makes economic actors dependent on the good will of state agencies, hardly a circumstance likely to contribute to the emergence of a market economy. While it is still too early to reach firm conclusions on the extent to which criminal penalties are imposed and their possible deterrent effect, the punitive approach to IPR violations seriously detracts from the compensatory imperative of private prosecutions. Jailed violators may serve as a deterrent to future violations but are unlikely to be in a position to pay compensation for their own offenses. Party and government intrusion into IPR matters, most notably, the Cultural Market Administration's activities and the strike-hard and sao huang campaigns, has also expanded the opportunity to impose ideological and moral preferences on the market. While the courts are increasingly involved in criminal law enforcement actions, enforcement authorities, educators, and administrative officials have repeatedly expressed preference for such administrative mechanisms as mediation over judicial means for resolving IPR disputes. While this preference is justified by reference to the still-nascent state of the intellectual property chambers (zhishi chanquan shenpanting) of the People's Courts, which are charged with hearing cases of IPR violations but confined mainly to the intermediate level and above, it is clear that bureaucratic and political interests are playing a significant role. To the extent that IPR disputes generate fees, legitimize demands for more staff and larger budgets, and strengthen the role of dispute resolution agencies as dispensers of patronage, administrative agencies have a strong interest in capturing the "market" for IP dispute resolution.

The judiciary naturally defends its right to be involved in resolving IPR disputes. But without larger budgets, enhanced expertise, and increased political clout, the courts' effectiveness will continue to be limited, since enforcement of IPR judgements still depends on the uncertain cooperation of the local PSB. Recent case records suggest that uncertainties prevail as to whether the IPR or criminal divisions of the People's Courts have primary jurisdiction to hear IPR cases. In many Chinese courts, the chief judge of the IPR chamber is also the chief judge of the economic division. The poorly defined jurisdiction of the IPR and economic divisions further complicates matters and undermines the courts' capacity to compete effectively for IPR dispute resolution cases. To the extent that administrative agencies take the lead in resolving IPR disputes, this will significantly reinforce the predominance of the public administration paradigm, under which compensatory approaches to civil litigation would become less important. The emphasis on public administration and punitive sanctions that characterizes current IPR enforcement reinforces the use of IPR law as an instrument of rule rather than as a mechanism for mediating relations between economic actors. This type of enforcement could result in a system that entrenches the power of the ad ministrative bureaucracy to identify and enforce those rights it considers important, rather than a system that empowers economic actors to identify and enforce their rights to intellectual property. If allowed a greater role, private interests might be more effective in directing IPR enforcement policy toward meeting the interests of economic actors. But the current system threatens to undermine consistency in IPR protection and focus enforcement efforts on satisfying transitory policy imperatives.

Enlisting Local Support

Meanwhile, the pervasiveness of bureaucratic conflicts in China requires IPR agencies to pay close attention to managing their relations with each other at the expense of patent, trademark, trade secret, and copyright enforcement issues. This is an old story and one that the 1995 MOU attempted to address. International IPR agreements have had an impact on IPR enforcement in China, but because of bureaucratic politics and the reliance on public enforcement, these agreements also have had unintended consequences. The MOU has been relatively effective in promoting IPR enforcement mechanisms that are already consistent with the existing bureaucracy. The emphasis on public regulation, for example, draws support from Chinese political and legal norms favoring public law approaches to governance. Ironically, the MOU's emphasis on stronger IPR protection appears to provide state agencies wi th justification for increased intrusion into economic life, contradicting liberal principles of market regulation. Even more unfortunate, IPR enforcement under the aegis of the Cultural Market Administration and anti-pornography campaigns may have a chilling effect on the intellectual life that at root gives rise to intellectual property.

One lesson to be derived from the last three years is that improved IPR protection in China must accommodate local contexts and draw support from local stakeholders. Recent discussions in Shanghai, Beijing, Chengdu, and Chongqing have suggested that Chinese technology developers increasingly favor a stronger IPR regime. As more of these voices are heard, changes to the country's IPR system will become more responsive to local interests and less driven by the terms of international agreements largely imposed by foreign trading partners. While this will pose challenges for foreign businesses attempting to protect intellectual property in China, opportunities will also arise. Cooperation with Chinese technology developers may permit calls for stronger IPR protection to be made more clearly and effectively within China. Also, to the extent that China's public institutions cannot be relied upon as effective sources of private IPR protection, foreign businesses may find it useful to rely on private arrangements and relationships for supervision and enforcement. If the market reforms in China are to realize the goals of sustainable development, the private economic actors that are at the heart of China's reform should be encouraged to press for regulatory enforcement efforts. While foreign efforts to strengthen IPR enforcement in China are in many cases commendable, foreign governments and corporations should be aware that demands for enforcement are often used by bureaucratic and political interests in China to reinforce statist tendencies or to marginalize private economic actors. Improvement in China's IPR enforcement system is an integral part of continued progress toward the rule of law. At a minimum, enhanced enforcement will require institutional arrangements that include participation by knowledgeable officials to identify and prosecute violations and violators and that guarantee victims compensation.

Pitman B. Potter is a professor of law and director of Chinese legal studies at the University of British Columbia.
Michel Oksenberg is senior fellow at Stanford University's Asia Pacific Research Center.