WTO Ruling Says China Must Bolster Its Copyright Law

Jan. 27 (Bloomberg) -- The World Trade Organization said China must destroy counterfeit software or movies that are confiscated by authorities and provide more legal protection to foreign products, in a ruling on a case brought by the U.S.

A WTO panel of judges yesterday sided with the U.S. in two of the three arguments in the complaint filed in 2007, while deciding that China doesn’t need to alter its laws that exempt small-scale counterfeiters from criminal prosecution.

“It’s a mixed victory for the United States,” said Lyle Vander Schaaf, a lawyer at Bryan Cave LLP in Washington.

At stake is an issue that has become one of the biggest irritants in the U.S.-China commercial relationship. Improvements in China’s protection of patents for products such as pharmaceuticals, auto parts and copyrights for movies and software might help American companies even more than changes its currency policies, many analysts say.

“Intellectual property protection and enforcement will become an even higher priority” for the Obama administration, Myron Brilliant, vice president of the U.S. Chamber of Commerce, said in an interview. “China has taken some steps, but IPR enforcement is not as strong as we would like it to be.”

Still, it’s not clear how much leverage the WTO ruling will give the U.S., because of the mixed decision, Vander Schaaf said.

Copyright Protection

The U.S. lawyers failed to convince the WTO that thresholds for criminal prosecution of those pirating copyrighted goods are so high they effectively allow sales on a commercial scale of illegal items. The issue of those thresholds had dominated complaints by the U.S. against China during the past four years.

China’s Ministry of Commerce said it “welcomed” the judges’ ruling on the threshold for criminal prosecution, while it “regretted” their decision to rule against the country on the two other issues relating to copyright protection and auctioning of counterfeit goods.

“China has always placed a high degree of importance to the protection of intellectual property,” spokesman Yao Jian said in a statement on the ministry’s Web site today. “We will continue to strengthen the work of copyright protection.”

Under WTO rules, both countries can appeal. If the decision is upheld, China must change those laws to conform to the judges’ ruling or the U.S. can ask for authority to retaliate against the Asian nation’s products.

Global Rules

China’s illegal copying of movies, music and software cost companies $3 billion in 2007 sales, according to an estimate by lobby groups representing Microsoft Corp.,Walt Disney Co., and Vivendi SA. The WTO complaint, brought in 2007, is the first by the U.S. against China for breaching intellectual property rights, and yesterday’s ruling is likely to help establish the global rules for patent and copyright protection.

Neil Turkewitz, executive vice president of the Recording Industry Association of America, said he hopes the decision “leads China and other WTO members to enhance their protection of intellectual property.”