while eager to do business in china, many foreign investors remain concerned about the lack of protection and enforcement of ip rights. in a special roundtable debate organized by mip, leading figures discuss how to succeed and what needs to change in the country

emma barraclough: china is drafting new guidelines about the thresholds for bringing criminal actions against counterfeiters. there is debate over whether thresholds will be based on the value of the counterfeit goods or the genuine ones. will the new guidelines provide a sufficient deterrence?

judge jiang zhipei by the end of this year the supreme people's court will hopefully issue a judicial interpretation on this issue, which is more about how to lower the criteria for criminal action for counterfeiters. up to now there have been five drafts of the interpretation and we hope to see the final version by the end of the year. last month the supreme court asked many criminal law experts to participate in a conference about it. actually this issue is not as easy as it looks. it is not about whether people would like to protect intellectual property or not. it is more about how many people we are going to send to prison. and about how you can protect ip when china is experiencing such dramatic economic development.

westerners often like to address problems directly whereas in china people are more likely to talk about abstract concepts or the background of the issue. i prefer the western style but i think some background is necessary here. china is still a developing country. although a lot of big cities are very developed, there are still many places where people don't have enough to eat and there is a big imbalance in terms of economic development and people's lives in china as a whole. there are more urgent issues to be addressed that ip protection.

after mentioning that, we can talk about this question more directly. to be frank, counterfeiting is very serious in china. it's not only a direct problem of ip infringement. the infringement has also damaged the social order and even taken innocent people's lives. some cases are very serious. i am a judge and sometimes i want to be able to impose longer sentences or to require defendants to pay higher damages. my hope is that in the final version of the judicial interpretation we will see that threshold will separate the genuine value of the authentic goods from the illegal gains from the counterfeiting. the threshold should be based on the value of the genuine goods.

there are two challenges in the drafting of the judicial interpretation. first is in the technical field - how many people are we going to be sending to prison? that really is a big concern. the second issue is that we have this concept of illegal income in china. in the criminal law system illegal income is one of the criteria for calculating the punishment. we are faced with the issue of how to calculate the illegal income from ip infringement. in civil procedures the problem has been solved and now it is easy to calculate. you just work out how many genuine goods have been produced and sold. but in criminal ip infringement cases it can be more complex. for example, if someone makes fake rolex watches. a genuine rolex may cost, say, rmb 400,000. but does that mean that if someone makes one fake rolex they should go to prison for a long time? so experts are discussing this issue at the moment to see how the judicial interpretation on this issue fits in with other interpretations in this regard.

as a judge in civil cases and also as an expert in ip issues i welcome the issue and enforcement of the judicial interpretation - it will do a lot to help stop infringement. but on the other hand, we cannot expect too much from this, because it can't solve all our problems. i think more efforts should be made in the investigation and appeal stages. we must send criminals into court. each year the total number of civil, administrative and criminal cases relating to ip comes to about 15,000 cases in china. at the same time, other cases amount to between 5 million and 6 million each year. chinese judges have been waiting for a long time to see those criminals sentenced. we never complain about the number of ip cases. and i hope that foreign - and chinese - businesses can do more work to help send those criminals to court. i think more effort could be made on investigation work. and of course, more education in society about ip infringement issues would help too.

james haynes: first, on the question of how you value the goods. judge jiang has a good point. people who make fake watches can put any label they want on them - should they get a different jail term when they put a timex label on the watch than if they put a rolex label on the watch, when they are making the same watch either way? so there is some logic to base the punishment on the counterfeit value. but it must be realized that the penalty threshold can be adjusted so the same penalty is received no matter which value the threshold is based upon. for example, if the original watch is worth $100 in the marketplace and the counterfeit is worth $10 the threshold could be set depending upon which value is used. in other words, if the threshold is based on the value of the counterfeit good then a $10 threshold should be used, whereas if the threshold is based upon the value of the original good then the threshold could be set higher at $100. so which value you use isn't as important as to properly match the threshold to whatever valuation scheme you ultimately choose. but as judge jiang said, the actual threshold number you choose is not the final goal. the key is to find out what threshold works. where should the threshold be set to get the results desired - to be a deterrent to counterfeiting? that's the question. so, will a particular threshold be sufficient to act as a deterrent? who knows? a chinese supreme court group working on the new guidelines asked amcham for a recommendation as to where to set the level. although we suggested a value, we don't know. china is in such a unique situation right now. there is more counterfeiting going on here than anywhere else in history. a big part of the society and economy is built around creating counterfeit goods. so what will it actually take to stop counterfeiting on such a large scale? we don't have a problem of that magnitude in the west. of course, we get a few counterfeits, and we have our one famous street - canal street in new york city, where everyone says you can go and get counterfeit goods. but the us doesn't seem to be able to shut down canal street - how can china shut down a thousand canal streets in beijing alone? it's just such a different problem and i think it's got to have a chinese solution. china needs to get to work itself to determine what it takes to solve the counterfeit problem. the frustration that companies in amcham are facing is that a reduction in counterfeiting does not seem to be happening and we don't know really how to make it happen in a society as different as china. we take cases to court and everyone seems to get off and nothing seems to improve - there can be thousands and thousands of cases and you still have the counterfeiters.

eb: presumably there is support for the guidelines though?

jh: of course. penalties must increase. but back in 2002 china raised the penalties for counterfeiting trade marks from 50% of the operation value to 300% and yet counterfeiting continued to increase. of course china, with its very large population, doesn't want to throw a lot of people in jail as an answer to the counterfeit problem. but the west is feeling a lot of frustration - something's got to be done. as judge jiang said, you must start to make it economically unviable to counterfeit. now it's economically an attractive thing to do. it doesn't hurt to counterfeit, in fact you make money by counterfeiting. if you try to operate a legitimate business you won't be able to make as much money.