When I left off this topic yesterday, I had just finished a discussion of the first of four grounds for the US complaint against China that it was not fulfilling its obligations under the TRIPs agreement.

On to the second argument, which will be blessedly much shorter than yesterday’s lengthy post.

Here is what the USTR is alleging:

China’s Customs Regulations and Implementing Measures set forth rules for the disposal of imported goods the Customs authorities confiscate as infringing intellectual property rights. Under those rules, the Customs authorities often are required to allow seized goods back into the channels of commerce (for instance, through auctioning the goods following removal of infringing features, such as fake labels). This appears to be inconsistent with China’s obligations under Articles 46 and 59 of the TRIPS Agreement, which ordinarily require these goods to stay out of commerce.

In other words, China seizes fake stuff, removes the infringing trademarks, and then lets the products go back on the market. Is this a TRIPs violation? Let’s look at Articles 46 and 59.

Article 46 contains a few key provisions. First, it mandates that judicial authorities must have the authority to dispose of infringing goods outside the channels of commerce (e.g. destroyed). Second, the judicial authorities must have the authority to dispose of materials used to create the infringing goods outside the channels of commerce. Third, for counterfeit goods, the simple removal of an infringing trademark is not sufficient to allow the product back into the channels of commerce. Article 59 contains a restatement of 46 with regard to remedies and also states that the goods should not be re-exported.

So do we have a TRIPs violation here? Chinese customs law governs this area, and wouldn’t you know it, the General Administration of Customs passed a notice on April 4, 2007 (another coincidence?) that deals with this issue, in part. The notice (Chinese version here) deals with infringing goods that are being auctioned off, and states that if infringing marks cannot be entirely removed, the goods must be destroyed. Moreover, the rights holders must be notified/consulted before the goods are auctioned.

At first glance, the TRIPs Article 46 mandate that the goods not be released back into the channels of commerce seems to be violated if this stuff is auctioned off. Please note, however, that I am not familiar with this area of WTO law. To some degree, this all depends on what  “channels of commerce” means, and whether these auctions qualify. I’m going to have to do some research on this term to come to a conclusion on this point.