too infrequently, to provide deterrence. Consequently, infringers view administrative seizures and fines merely as a cost of doing business. Civil damages for infringement are likewise inadequate.
Exacerbating its enforcement difficulties, China maintains market access barriers, such as import restrictions and restrictions on wholesale and retail distribution, which can discourage and delay the introduction into China's market of a number of legitimate foreign products that rely on IPR. The United States challenged certain restrictions in connection with a WTO dispute filed in April 2007. (See Section I above for further information.)
China's market access barriers create additional incentives to infringe products such as movies, video games, and books, and lead consumers to the black market, thereby compounding the severe problems already faced by China's enforcement authorities. An example of such a barrier is a Ministry of Culture circular regarding digital music was issued in September 2009. That circular bars providers of imported – but not domestic – digital music from distributing their content online unless they obtain content approval, and meet unrealistic obligations, such as a entering into mandatory exclusive licensing arrangement with a wholly Chinese-owned entity. The United States is also very concerned about a troubling trend whereby China adopts policies that unfairly advantage domestic or "indigenous" innovation over foreign innovation and technologies. In November 2009, Chinese government agencies issued the Circular on Launching the 2009 National Indigenous Innovation Product Accreditation Work, requiring companies to file applications by December 2009 for their products to be considered for accreditation as "indigenous innovation products." This Circular, and revisions to it issued in April 2010, provides for subsequent catalogs to be issued that provide preferential treatment in government procurement to any products that are granted this accreditation. Provinces and municipal governments have also reportedly issued their own "indigenous innovation" catalogs related to government procurement. The Circular, and the April 2010 revisions, contain provisions that allow Chinese authorities to require that R&D on products receiving accreditation be conducted, at least partially, in China. The United States has raised concerns regarding this and other problematic criteria with Chinese authorities.
Draft Regulations for the Administration of the Formulation and Revision of Patent-Involving National Standards, released for public comment in November 2009 by the Standardization Administration of China (SAC), raise concerns regarding their expansive scope, the feasibility of certain patent disclosure requirements, and the possible use of compulsory licensing for essential patents included in national standards. If adopted in their current form, these provisions may have the unintended effect of undermining the incentives for innovation and, by discouraging foreign rights holders from participating in the development of standards in China, depriving the standard setting process of potentially superior technology.
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