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World Trade Organization: Dispute Panel Finds for U.S. in Aspects of Dispute with China over Intellectual Property Issues

(Feb. 3, 2009) On January 26, 2009, a dispute settlement panel of the World Trade Organization (WTO) found for the United States “that large parts of China's intellectual property scheme are inconsistent with its obligations under several international treaties, including the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) … .” (Andrew Gilmore, WTO Dispute Panel Finds for US on Intellectual Property Claim Against China, PAPER CHASE NEWSBURST, Jan. 27, 2009, available at The United States had initiated the WTO proceedings against China in April 2007, alleging that the Chinese were lax in enforcing protections against copyright and trademark violations; the panel was composed in December of that year. According to the panel report, “certain provisions of China's copyright law as well as certain Chinese customs measures are inconsistent with TRIPS because they 'nullify or impair benefits accruing to the United States.'” (Panel Report, China – Measures Affecting the Protection and Enforcement of Intellectual Property Rights, WT/DS362/R, §8.3 at 146 (Jan. 26, 2009), available at; Gilmore, supra.)

Three specific alleged deficiencies in China's intellectual property rights (IPR) regime were at issue: 1) the failure of China to provide for criminal procedures and penalties to be applied in cases of willful trademark counterfeiting or copyright piracy on a commercial scale that fail to meet certain thresholds of criminality for such acts ; 2) inappropriate means of disposal of goods confiscated by customs authorities that infringe IPR; and 3) denial of copyright and related rights protection and enforcement to works not authorized for publication or distribution within China. (Panel Report at 14-15, supra.) Although the panel did find certain inconsistencies between China's Copyright Law and customs measures and its obligations under the TRIPS agreement, it held that “the United States has not established that the criminal thresholds are inconsistent with China's obligations under the first sentence of Article 61 of the TRIPS Agreement.” (Id. at 146.)

Nevertheless, a press release issued by the U.S. Trade Representative states that the panel “largely accepted” U.S. arguments on the construction of TRIPS Agreement article 61 regarding criminal enforcement obligations, agreeing “that the term 'commercial scale' in that provision means that China cannot set its thresholds for prosecution of piracy and counterfeiting so high as to ignore the realities of the commercial marketplace,” even though the panel indicated that more evidence would be necessary “to apply Article 61 thus construed to China's existing thresholds and find them wanting.” (Press Release, USTR, United States Wins WTO Dispute over Deficiencies in China's Intellectual Property Rights Laws (Jan. 26, 2009), available at
.) Overall, in the view of Acting U.S. Trade Representative Peter Allgeier, the WTO findings are “an important victory” in that “they confirm the importance of IPR protection and enforcement, and clarify key provisions of the TRIPS Agreement. Having achieved this significant legal ruling, we will engage vigorously with China on appropriate corrective actions.” (Id.)

In another pending WTO case (DS363), the U.S. accuses China of using “'measures that restrict trading rights with respect to important films for theatrical release,' audiovisual home entertainment products, and publications.” (Gilmore, supra, citing to WTO, China — Measures Affecting Trading Rights and Distribution Services for Certain Publications and Audiovisual Entertainment Products, (last visited Jan. 28, 2009).) Yet another case (DS358), announced by the USTR in February 2008, was brought by the U.S. against China for subsidizing enterprises by means of “certain measures granting refunds, reductions or exemptions from taxes and other payments” (Gilmore, supra, citing to WTO, China – Certain Measures Granting Refunds, Reductions or Exemptions from Taxes and Other Payments, (last visited Jan. 28, 2009).)