The WTO, China's Media, Copyrights And Other IP. It's A Control Thing.

By Steve Dickinson

As we previously reported, the WTO decision in the copyright claim brought by the U.S. against China was recently released. As expected, the U.S. claims victory since it prevailed on two of three claims. However, careful review shows the U.S. lost. As usual, however, the WTO case was a part of a larger strategy, so the question of who won or lost is probably not relevant.

The U.S. WTO case had one serious issue: the argument that Chinese criminal sanctions are not severe enough to deter piracy. The other two issues were trivial and technical. The U.S. lost on the serious issue and won on the trivial issues. This means the U.S. lost the case. So we should just say that: the U.S. lost.

However, it was a foregone conclusion the U.S. would lose on the criminal sanctions issue. No WTO panel is going to tell a country how to organize its criminal system. The U.S. knew this from the start. So why did the U.S. bring the action at all since it knew it would lose? China has made enormous progress on IP protection since its accession to the WTO. China's reward: the U.S. brings an action with the WTO. On the surface, this was an entirely stupid thing to do. However, the U.S. does not bring these actions out of stupidity. Therefore, the useful question should be why did the U.S. bring this claim? What was the strategy?

I think there are two elements to the strategy. First, at the simplest level, the U.S. did this to appease U.S. media companies who want to see some action on the issue of market access (not piracy). This would explain why the case was so weak: it was not taken seriously by the people who brought it. Second, the whole process is part of a larger effort by U.S. media companies to "pry open" the Chinese market. The real problem in China for U.S. media companies is that the market is relatively closed. The U.S. approach to market opening is to batter down the door rather than negotiate. The U.S. approach to China on this matter has been consistent with its normal approach.

In my view, this attempt to open the market for media products will fail. The Chinese government does not see media and ideas and the rest as a "market". They see it differently. They see it as an impediment to government control. Accordingly, they have no intention of ever opening this "market". Consistent with this basic viewpoint, China makes no attempt to seriously protect its own media. Chinese film, TV, books, magazines, music, visual arts and the rest are routinely pirated and the associated businesses and artists are left undeveloped and in poverty. That is changing in small increments, but not in any serious way. Chinese film directors and actors, for example, have grown rich, but only from their earnings on foreign releases. They still complain that they make no money in China, primarily due to piracy. With that as a base, how can China protect foreigners? It simply cannot happen. If foreigners are protected, then China has to protect its own citizens first. In this area, a two tier system simply cannot work. So the whole discussion is pointless.

The fact that this is not a pure intellectual property issue can be seen by the alternative fate of patents, trademarks and trade secrets. Of course, piracy in these areas is rampant in China. However, both administrative and court based protections are also very effective in China. As I often say, the courts are good at these cases because they have so much practice. Protection of IP in this area is successful because the Chinese government views it as entirely a commercial matter. The attitude is not the same for media, with predictable results.

One area where there is real tension is copyright protection of software. Even where software is purely commercial (i.e. outside of the video game world), its protection falls entirely within the realm of copyright. It is in this area where the Chinese refusal to protect copyright is actually commercially quite damaging. China is responding not by increasing enforcement of copyright, but rather by attempting to create a special regime just for software protection. This regime will benefit both domestic and foreign software developers, so it does not fall into the trap of creating one system for domestic companies and another regime for foreign companies. Moreover, it appears that this sui generis approach to software protection may be successful.