IPR INTERNET PROGRAM BUILDS CAPACITY IN EAST CHINA

UNCLAS SECTION 01 OF 03 SHANGHAI 000545

SENSITIVE
SIPDIS

USTR FOR CHINA OFFICE - TSTRATFORD, AWINTER, TWINELAND, DKATZ;
IPR OFFICE - RBAE; AND OCG - TPOSNER
DOC FOR NATIONAL COORDINATOR FOR IPR ENFORCEMENT - WPAUGH
DOC FOR ITA/MAC: SZYMANSKI, YOUNG
LOC/ COPYRIGHT OFFICE - STEPP
USPTO FOR INT'L AFFAIRS - LBOLAND
DOJ FOR CCIPS - TNEWBY
FBI FOR LBRYANT, KSHIRLEY
DHS/ICE FOR IPR CENTER - DFAULCONER
DHS/CBP FOR IPR RIGHTS BRANCH - GMACRAY
TREASURY FOR OASIA - DOHNER/CUSHMAN
NSC FOR LOI, SHRIER

E.O. 12958: N/A
TAGS: ETRD KIPR ECON EINV PGOV TINT CH
SUBJECT: IPR INTERNET PROGRAM BUILDS CAPACITY IN EAST CHINA

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1. (SBU) Summary: During a November 20-21 U.S. Patent and
Trademark Office (PTO)-sponsored trip to Nanjing and Shanghai,
Department of Justice Trial Attorney Tyler Newby, Federal Bureau
of Investigation Supervisory Special Agent Kiffa Shirley, and
PTO Trade Policy Analyst Susan Tong held two capacity-building
seminars on investigating and prosecuting Internet-related
intellectual property (IP) cases. A wide-range of IP
administrative officials, Public Security Bureau (PSB) officers,
prosecutors, and judges participated in a lively exchange with
the delegation on issues including liability of final users,
criminal thresholds, evidence collection, case valuation, and
possibilities for further cooperation. The delegation also
participated in a roundtable with representatives from U.S.
industries in Shanghai on ways to protect IP on the Internet.
Interest and willingness to engage on the issue among officials
is a reflection of the growing push to crack down on
Internet-based piracy in East China. End Summary.

Jiangsu: Challenges on Internet-Related IP Cases
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2. (SBU) In Jiangsu, the provincial IP Administration hosted
the seminar, which was attended by Jiangsu Public Security
Bureau Cybercrime Division official Pu Tiangao, Jiangsu
Procuratorate Officer Wang Xiangying, Jiangsu High Court Judge
Tang Maoren, and Deputy Director of the Jiangsu IP Office Yang
Xuejing. Yang emphasized that Jiangsu is focusing on IP
protection on the Internet as a part of the province's overall
effort to protect IP. He also noted that the Jiangsu Provincial
IP Strategy, which is based on the national IP Strategy, will be
released at the end of this year. Yang also emphasized that
Jiangsu attaches great importance to communication and
cooperation with the U.S. Government and American industries on
IP protection, noting Jiangsu's current benchmarking project
with the U.S. Chamber of Commerce.


3. (SBU) Following the presentation, Chinese attendees posed a
wide variety of questions: Under what circumstances are
undercover operations considered entrapment? Is it considered a
crime for the general public to download pirated software from
the Internet in the United States? What is the threshold for
criminal liability on copyright infringement on the Internet?
How does the FBI monitor instant messaging such as MSN to
collect evidence? Who controls or manages the Internet Service
Providers in the United States?

Verifying Legitimacy - A Real Struggle
--------------


4. (SBU) Attendees also noted obstacles in handling
Internet-related IPR cases in China such as verifying the
legitimacy of products sold on the Internet as well as the
legitimacy of material that can be downloaded. Wang said that
China is unlike the United States where industry associations,
such as the Motion Picture Association and/or the rights holder,
verify authenticity. In China, such authentication by an
industry association or rights holder would be regarded as
biased and lacking in authoritativeness. Chinese enforcement
authorities prefer to find an independent technical appraisal
entity to do the authentication. However, it is difficult to
find an entity that is both qualified to verify legitimacy and
considered sufficiently objective.


5. (SBU) Jiangsu officials also stressed the importance of
cooperation in the global age for tackling cross-border
Internet-related crime. PSB Cybercrime Division official Pu
pointed out that the Jiangsu PSB has conducted several cases on
Internet gambling, but it was difficult for them to continue the
investigation when they found that the ISPs were located in the
United States. Newby encouraged him to refer the case to the
Joint Liaison Group (JLG) or contact the Legal Attachi at the
U.S. Embassy in Beijing. Pu also mentioned a certain case,
which had been jointly investigated by .U.S. and Chinese law
enforcement officials through the JLG and is currently in the
hands of the Suzhou Procuratorate. He noted this case was a

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good example of joint cooperation.

Shanghai: Eager for Further Cooperation
--------------


6. (SBU) Attendees at the Shanghai seminar, which was hosted by
the Shanghai IP Administration, included Shanghai PSB Economic
Crime Investigation Division (ECID) Deputy Director Tang
Xiliang, Shanghai PSB Cultural Protection Section official Fu
Zukang, Shanghai Procuratorate Litigation Department Deputy
Director Guo Feili, Shanghai High Court Criminal Division
Assistant Director Zhou Qiang, Shanghai No.2 Intermediate Court
Judge Fei Ye, Shanghai Copyright Bureau official Shi Shidong,
and six other IP-related officials. Guo described Shanghai's
procuratorate system, noting that IP criminal cases are usually
handled by the procuratorates at the district level. When cases
are referred from the PSB, it is at the discretion of
procuratorate to decide if the prosecution should go forward.


7. (SBU) According to Guo, most criminal Internet-related IPR
cases are related to copyright infringement, especially Internet
game piracy through private servers. Shanghai Procuratorate has
also looked at cases of counterfeit medicine and clothes sold
over the Internet. However, Shanghai's investigation and
prosecution of Internet-related IP cases is still at the
beginning stage. Guo acknowledged that the Shanghai
Procuratorate still lacks knowledge of how to handle these
cases. Currently, the Shanghai Procuratorate is consulting with
technical and legal specialists to boost their capabilities, as
well as reaching out to victims of Internet-based piracy. The
Shanghai Procuratorate also works closely with the Shanghai
Public Security Bureau, especially the Internet Supervision
Department, for technical support. Guo also addressed the need
for international coordination, particularly mentioning cases of
counterfeit pharmaceuticals sold via the Internet. In his
experience with such cases in Shanghai, it has been difficult to
collect evidence to secure a conviction.

Shanghai PSB Welcomes Further Cooperation with the U.S.
-------------- --------------


8. (SBU) Shanghai PSB ECID Deputy Director Tang welcomed the
opportunity to coordinate with U.S. authorities on IP-related
cases. He said he is also willing to cooperate on a specific
case raised by Newby, which has a Shanghai connection and is
related to the notorious case of an American citizen convicted
several years ago due to his role in selling pirated DVDs. That
earlier case was a landmark in bilateral legal cooperation on
IPR-infringement cases. Tang and other attendees asked a broad
range of questions on IP-related issues, including the FBI's
case valuation methods, FBI practices on ex officio
investigations, and rights holders' participation in the
evidence gathering and witness process.

Industry: Problems Exist But Progress Is Being Made
-------------- --------------


9. (SBU) In a separate Shanghai roundtable with U.S. business
representatives, Newby, Shirley and Tong discussed
Internet-related IP enforcement in China. Besides inquiring
about U.S. law enforcement practices and law regarding
Internet-based piracy, business representatives outlined some of
the hurdles they face in China on IP protection, most notably
the verification of pirated DVDs and CDs. It is difficult to
find an agent to verify pirated copies although there is a
government lab in Shenzhen that has the requisite testing
capabilities. In even the most obvious cases of pirated DVDs,
Chinese enforcement authorities insist on a report from a
neutral agent. Quality Brand Protection Committee (QBPC)
Chairman Jack Chang said the local PSB awareness of IP
enforcement was improving due to QBPC's and others' efforts.
QBPC has signed a Memorandum of Understanding with several local
PSBs to help boost enforcement. Regarding procuratorate offices
in East China, he said there is a general hesitancy to prosecute
IPR cases, which affects PSB willingness to investigate.

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Greater efforts need to be taken to promote IPR awareness among
procuratorate offices and judges in criminal divisions, Chang
recommended.

A Groundbreaking Counterfeit Case In Shanghai
--------------


10. (SBU) Chang also noted that the "Shanghai Initiative," in
which the PSB initiates cases based on prima facie evidence at
an early stage, is going well, but it is sporadically
implemented throughout Shanghai. He illustrated a case in the
Qingpu District of Shanghai involving fake auto parts. The
Shanghai Administration of Industry and Commerce was the first
to catch wind of the infringement and immediately notified the
PSB. Together the two agencies investigated the case, and,
according to Chang, PSB involvement in the early stages of the
case was key to collection of evidence and preservation of the
infringer's assets. When it came to case valuation, there was
no label price on the seized goods although the infringer
provided some trade contracts showing a very low price. The AIC
and PSB declared that the contracts were unable to be verified
and instead calculated the damages based on the price of
legitimate products. Chang stressed this was unique to the
Qingpu case and offered an example of a separate case involving
General Electric products in Shanghai's Minhang District. The
PSB in Minhang calculated the damages based on the much lower
price shown in the contract, which was provided by the
infringers.


11. (SBU) In the Qingpu case, the value of the detained
products was RMB 120 million (USD 17.7 million). From the total
amount of detained products, there were 19 right holders who
confirmed products were counterfeit and valued at RMB 8.2
million RMB (USD 1.2 million). Accordingly, the Shanghai AIC
fined the infringer RMB 7.5 million (USD 1.1 million),which is
considerably high in comparison to a typical fine. The PSB's
investigation also came on came top of AIC's fine, which is
unusual because PSB seldomly accepts cases after AIC has already
"punished the infringer." In addition, one suspect in Shanghai
was convicted; however the Taiwan leader of the Qingpu criminal
operation fled back to Taiwan to avoid arrest.

Comment
--------------


12. (SBU) The PTO-sponsored program on Internet-based piracy is
the result of an initial request from the Shanghai IP
Administration to receive U.S. expertise on the topic. Shanghai
and Jiangsu IP officials have long told us they are keen to be
in the forefront of China's efforts to prosecute
Internet-related IP cases. Their efforts to reach out to their
U.S. counterparts and the savvy questions they posed
demonstrated they have seriously considered the issue and are
trying to move towards more aggressive enforcement.
Capacity-building programs such as this one go far in showing
U.S. commitment to working on this international issue at a
local level, where a real difference can be made.


13. (SBU) Cleared by Acting IPR Attache in Beijing.
CAMP