Chinese Piracy Spurred by Broadband, Mobile Growth

Internet penetration rate per capita and per household is still relatively low in China, but about 64 million Chinese use broadband, Papovich said. Once online, they easily find hundreds of China-based sites offering streams, downloads or links to illegitimate music, movie, software and e-books, he said. Bit torrent (BT) sites are also multiplying. At least 4 “eMule/eDonkey” servers exist, plus more than 7 specialized MP3 search engines offering links to thousands of infringing song files, and over 8 P2P services, Papovich said in prepared testimony.

Most pirate sites run ads that provide revenue, though copyrighted materials are provided free, he said. A few P2P services do charge subscription fees, he said. Meanwhile, the music industry lost over $200 million in China in 2005 to physical and online piracy, Papovich said. About 85% of sound recordings sold in China were pirated, he said.

Enforcement against Web piracy stumbled last year over Chinese govt. decisions, Papovich told lawmakers. In 2003- 04, labels sent thousands of takedown notices to Chinese ISPs and content providers, triggering a relatively high takedown rate. But an April ruling in Beijing made takedowns harder, so ISP compliance dropped, Papovich said. China’s State Council is expected to issue new Internet rules described as a substitute for the measures that thwarted the takedown crusade.

China promised the Joint Commission on Commerce & Trade (JCCT) it would prosecute copyright piracy more often, but has done little, Papovich said. Enforcement is ineffective, he said. Compounding the issue: Problems defining crimes and criminal thresholds, making it “essentially impossible” for IP owners to secure deterrent enforcement, he said.

Papovich credited the U.S. govt. for turning up the heat on China but said those efforts must continue, especially by pushing China to make good on commitments to the WTO and JCCT. Papovich also noted Russia’s piracy epidemic, which he called “even more daunting” than China’s given Russian lawlessness and the danger and corruption IP protectors face there.

April will be big for China IP issues, said Deputy U.S. Trade Representative Karan Bhatia, herself just returned from China. The next JCCT meeting is set for April 11 in D.C.; 9 days later, Chinese President Hu Jinato meets with President Bush. On April 19 and 21, WTO members will meet in Geneva for the first Trade Policy Review (TPR) of China - a complex task, Papovich said: “to achieve the dual objectives of solving specific, immediate problems -- resorting to more muscular enforcement mechanisms where necessary -- and encouraging the long-term transformation of China into a more rules-based, open economy.” The key to gaining those aims is treating China as “a fully accountable stakeholder” in the global trading system and insisting that the country play a role commensurate with its commercial heft as the world’s 3rd largest trading power, he said.

Bhatia also touched on high-tech infringement, saying use of pirate software on Chinese govt. PCs has fallen since it made its JCCT commitments. But observers have not seen clear evidence of a resolution, he said. On the physical piracy front, the U.S. has urged China to shut down plants that put countless pirated CDs and DVDs on the street. Beijing agreed to boost criminal prosecutions, monitoring and enforcement but few more criminal copyright cases have been seen, he said.

In China, 90% of software on PCs is pirated, costing U.S. software firms of about $3.6 billion yearly, Dept. of Commerce Undersecy.-International Trade Administration Franklin Lavin said. Of every 20 film DVDs sold in China, roughly 19 are pirated, costing U.S. companies $280 million a year, he said. Commerce is posting 3 IP attaches at the U.S. embassy in Beijing and consulate in Guangzhou to make sure China keeps to its vows, he said. IP piracy “simply cannot be tolerated” and “will not be solved overnight,” U.S.-China Business Council Pres. John Frisbie told the committee. -- Andrew Noyes

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The international recording industry Wed. hailed the Chinese govt.’s stepped-up efforts to shutter pirate CD and DVD plants there. Despite the kudos, the London-based International Federation of the Phonographic Industry called for a sustained campaign of anti-piracy enforcement to control what it called “unacceptably high levels of piracy in China.” According to the IFPI, reports from Beijing indicated 6 CD and DVD plants suspected of piracy were shut down, and production at 8 other facilities was halted. Those actions followed repeated requests from the U.S. govt. for Chinese authorities to take “meaningful steps to address the country’s severe shortcomings” in intellectual property enforcement, the IFPI said. It said China is a huge potential music market but has the highest piracy level in the world -- a situation that’s “stunting the development of the indigenous Chinese industry and investment by the international community.” Elaborating on that, IFPI said China has become the 2nd-largest legal market in Asia, but its piracy level is still among the highest in the world, with more than 85% of music sales representing pirated product. Legitimate sales of recorded music were $212 million in 2004, while pirate sales were of estimated to be worth more than $400 million, IFPI said. Pressing capacity in China doubled to 4.9 billion discs from 2.4 billion in one year from 2003 to 2004.