WTO Dispute Settlement: Case DS362

Heike Wollgast

Senior Legal Officer, Building Respect for IP Division

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Overview

The WTO Dispute Settlement mechanism

Previous case law in IP enforcement matters

Case DS362 (2009):- Parties- Measures at issue- Panel findings

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WTO Dispute Settlement Mechanism

Introduced into the multilateral trading system in the Uruguay Round (1994)Formal framework for settling disputes between WTO Member StatesGuidance on TRIPS interpretation Priority: amicable settlement through consultations Stages of procedure: - 60 days: Consultations, mediation- 45 days: Panel set up and 3 (possibly 5) panelists appointed by

Dispute Settlement Body (DSB), following consultations with parties - 6 months: Final panel report to parties- 3 weeks: Final panel report to WTO members- 60 days: DSB adopts report (if no appeal)

Total: 1 year (without appeal)- 60-90 days: Appeals report- 30 days: Dispute Settlement Body adopts appeals report

Total = 1y 3m (with appeal)

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Previous IP enforcement case law

Few cases addressing Part III of the TRIPS Agreement

Cases subject to amicable settlement:- US v Denmark (WT/DS/83) – Availability of provisional measures- US v Sweden (WT/DS/86) – Availability of provisional measures- US v EC/Greece (WT/DS/124, 125) – Availability of civil and criminal measures against unauthorized broadcasting - US v Argentina (WT/DS/196) – Availability of provisional measures against patent infringements

Panel reports (marginal role of enforcement) - EC v US (WT/DS/176) - Access to civil judicial procedures (Art. 42)- US/Australia v EC (WT/DS/174, 290) - Protection and (generally) enforcement relating to national treatment (GI)

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Case DS362 - Parties

Complainant: US

Respondent: China

Third Parties: Argentina, Australia, Brazil, Canada, EU, India, Japan, Korea, Mexico, Chinese Taipei, Thailand and Turkey

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Case DS362 – Measures at issue

Chinese legislation and implementing measures in three areas:

Thresholds for criminal procedures and penalties in cases of willful trademark counterfeiting and copyright piracy – Articles 61, 41.1 TRIPS

Disposal of goods confiscated by customs – Articles 46, 59 TRIPS

Denial of copyright protection and enforcement to works that have not been authorized in China – Articles 9.1, 41 TRIPS, Article 5 Berne Convention

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Case DS362 – Panel Findings

1. Thresholds for criminal procedures and penalties in cases of counterfeiting and piracy – Articles 61, 41.1 TRIPS

Article 61 TRIPS: « Members shall provide for criminal procedures and penalties to be applied at least in cases of willful trademark counterfeiting or copyright piracy on a commercial scale. (…) Members may provide for criminal procedures and penalties to be applied in other cases of infringement of intellectual property rights, in particular where they are committed willfully and on a commercial scale. »

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Case DS362 – Panel Findings

1. Thresholds for criminal procedures and penalties in cases of counterfeiting and piracy – Articles 61, 41.1 TRIPS

Chinese criminal law introduces various thresholds for acts of trademark and copyright infringement (e.g., value of infringing goods; amount of illegal gains; number or reproduced works)Motives: Significance of various illegal acts for public and economic order; prioritization of enforcement, prosecution and judicial resourcesKey question: Levels in China’s thresholds too high to capture all cases on a commercial scale?On a commercial scale?Parties’ approaches (examples): - “undertaken with a view to profiting”- “any commercial act with the exception of trivial commercial activities”Panel definition: “If carried at the magnitude of typical or usual commercial activity with respect to a given product in a given market”

Case DS362 – Panel Findings

1. Thresholds for criminal procedures and penalties in cases of counterfeiting and piracy – Articles 61, 41.1 TRIPS

Thresholds are not per se inconsistent, as long as levels comply with these benchmarks

Complainant has to prove that this is not the case – such evidence not established by the US

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Case DS362 – Panel Findings

2. Disposal of goods confiscated by customs

“Compulsory scheme” of border measures under Chinese Customs IPR Regulations : - Donation to social welfare bodies (53%); - Sale to right holder (0.65%);- Auction (after eradicating the infringing features) (0.87%);- Where the infringing features are impossible to eradicate, destruction (44.9%).

In line with Articles 46, 59 TRIPS?

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Case DS362 – Panel Findings

2. Disposal of goods confiscated by customs

Article 59 TRIPS: Remedies (Customs)

“Without prejudice to other rights of action open to the right holder and subject to the right of the defendant to seek review by a judicial authority, competent authorities shall have the authority to order the destruction or disposal of infringing goods in accordance with the principles set out in Article 46. In regard to counterfeit trademark goods, the authorities shall not allow the re-exportation of the infringing goods in an unaltered state or subject them to a different customs procedure, other than in exceptional circumstances.”

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Case DS362 – Panel Findings

2. Disposal of goods confiscated by customs

Article 46 TRIPS: Other Remedies (Civil procedure)« In order to create an effective deterrent to infringement, the judicial authorities shall have the authority to order that goods that they have found to be infringing be, without compensation of any sort, disposed of outside the channels of commerce in such a manner as to avoid any harm caused to the right holder, or, unless this would be contrary to existing constitutional requirements, destroyed. (…) In regard to counterfeit trademark goods, the simple removal of the trademark unlawfully affixed shall not be sufficient, other than in exceptional cases, to permit release of the goods into the channels of commerce.”

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Case DS362 – Panel Findings

2. Disposal of goods confiscated by customs

Article 59 does not apply to goods destined for exportation (99.85%)Remedies mentioned in Article 59 (disposal and destruction) are not exhaustiveArticle 59 does not require that disposal and destruction can be ordered in all circumstances (conditions permissible), as long as one remedy is available that is in accordance with Articles 59, 46 (i.e., disposal outside the channels of commerce in such a way as to avoid harm to right holder)Donation to welfare bodies – harm to right holder? - Defective goods, quality problems (claim for compensation, harm to reputation):

Not demonstrated that defective goods have actually been donated; distribution through Red Cross to specific recipients (not « normal consumers »)- Later sales of donated goods: monitoring and control by customs under

cooperation agreement with Red Cross

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Case DS362 – Panel Findings

2. Disposal of goods confiscated by customs

Sale to right holder: Available only if right holder agrees; and available alternatively to donation

Auction (after « eradicating of infringing features »): - Not « outside channels of commerce », but Article 59 remedies not exhaustive- But: « simple removal of trademark » not sufficient under Article 46 to permit release into channels of commerce (other than in exceptional circumstances); necessary would be a sufficient alteration of the state of the goods- No exceptional cases demonstrated (sheer low number not sufficient to

establish that criterion)

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Case DS362 – Panel findings

3. Denial of copyright protection and enforcement to works that have not been authorized in China

Article 4 (1) Chinese Copyright Law: « Works the publication and/or dissemination of which are prohibited by law shall not be protected by this Law .» 

Criteria for prohibited works (examples): - are against fundamental principles established in the Constitution;- jeopardize the sovereignty and territorial integrity of the State;- propagate cults and superstition;- disrupt public order and undermine social stability;- insult others, or infringe upon legitimate rights and interests of others; - other contents banned by laws and regulations; etc.

Procedure: Mandatory content review

Case DS362 – Panel findings

3. Denial of copyright protection and enforcement to works that have not been authorized in China

Article 5(1) Berne Convention (US and China both Members), Article 9.1 TRIPS (minimum rights)- Protection of works and rights as set out under the Berne Convention- Chinese Copyright Law excludes works that have failed content review from copyright protection

Article 17 Berne Convention as defense? - Permits governments to control the exploitation of works to maintain public order- But: does not provide for complete denial of copyright protection

Article 5(2) Berne Convention, Article 9.1 TRIPS (formality-free protection) – no panel ruling

Articles 41, 61 TRIPS: enforcement procedures not available with respect to works that have been denied copyright protection

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Case DS362 – Implementation of Panel report

March 2010: China reported on legislative amendments to Chinese Copyright Law and Customs Regulations

No compliance proceedings initiated

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