The United States is filing actions against China with the World Trade Organization (WTO) in Geneva tomorrow. The claims charge that China, a member of the WTO, has failed to comply with agreed rules to protect intellectual property rights (IPR) and has created market barriers for the trade of legitimate music, movies and publications.

"This is not a step taken lightly," said Mitch Bainwol, RIAA chairman/CEO. "Such action happens only after years of advocacy by all levels of our government to encourage the Chinese to match their rhetoric with action. And it comes after making plain to the Chinese the consequences of their inaction. This development is nothing to celebrate -- it is unfortunate that China has not yet decided to embrace its international responsibilities. This failure to abide by international standards and obligations is in no one's interest -- least of all China's, whose cultural and economic opportunities are completely stifled by the quagmire of piracy."

U.S. Trade Representative Susan Schwab revealed the WTO filing this afternoon during a press conference in Washington, D.C. To demonstrate one of the problems with China's copyright law, the U.S. official had 500 DVDs and CDs -– the "threshold" of pirated units that must be seized to criminally prosecute an individual -- piled in the room. If just one pirated unit was taken away from the pile and 499 units were then seized in China, Schwab said, the individuals would be prosecuted in an administrative court and fined as if they received a parking ticket. Although the threshold was lowered last week from 1,000 units to 500 units, Schwab said, it still creates an unacceptable "safe harbor" for music and movie pirates.

While noting that Chinese officials have increased seizures of pirated product, there are other loopholes in the law as well, Schwab said. Currently, China only makes it a crime to reproduce and distribute unauthorized music and movies. The individual must be caught performing both activities -- rather than copying or distributing -- before the individual could be prosecuted for infringement. This makes protecting rights more difficult.

Also, if Chinese officials seize pirate or counterfeit products at their borders, they typically remove any labels or logos that infringe trademark rights and then sell the products to the highest bidder. Under WTO rules, Schwab says, officials cannot just remove labels and release the product into commerce.

Schwab said that China's copyright law also fails to protect rights holders while they are waiting for censorship approval. This is a mandatory approval that must be obtained before music and movies may be legitimately sold in China. Until there is approval, a rights holder cannot complain about any infringement. When a new release rolls out in the global marketplace before censorship approval in China, Schwab said, pirates move into the market "leaving only leftovers" for rights holders.

In the market-access claim, the U.S. is arguing that China had promised to eliminate monopolies by state-run import companies. While the country dismantled the monopolies for most imports, China did not do so for movies, music and some publications. Currently, only specially authorized state-owned companies can import these products. As a result, rights holders cannot shop for the best way to get product into China, which gives pirates and counterfeiters "a leg up," Schwab said.

China's laws also prohibit and discriminate against foreign companies through various distribution barriers, Schwab said.

"Record companies are eager to invest [in China], to develop local artists internationally, to bring international music to Chinese audiences and to stimulate economic partnership with Chinese industries," said John Kennedy, IFPI chairman/CEO, in a statement. "This is impossible until China does more to improve the legal landscape on which the music industry depends to do its business."

Schwab noted that U.S. and Chinese officials have been working closely for years on IPR and market access issues. The filings should not be viewed as hostile actions against China, she said, but as a way to compartmentalize their differences and to take advantage of the arbitration process with the WTO.

"This is a welcome and logical next step in efforts to spur progress in China," said MPAA Chairman and CEO Dan Glickman. "Fair market access and respect for the intellectual property of other countries are basic conditions of membership in the global community which China committed to live by when it sought acceptance into the WTO. This action is fair, timely and appropriate."

Tomorrow's filings are formal requests for the WTO to institute "settlement
consultations." Under WTO rules, if officials for the U.S. and China do not resolve the matter within a 60-day period, then the U.S. may refer the matter to a WTO dispute settlement panel.

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