China, India named on U.S. piracy, patents black list

By Krista Hughes

WASHINGTON (Reuters) - The United States named China and India on a watch list for countries that aren't doing enough to fight intellectual-property crimes, warning of trade-secret theft in China and the proliferation of generic drugs and counterfeiting in India.

The U.S. Trade Representative resisted lobbying by the U.S. Chamber of Commerce and pharmaceutical industry to censure India with the "worst offender" tag in its annual scorecard on how well countries protect U.S. patents, copyrights and other intellectual property (IP) rights.

The United States instead kept India, which is in the midst of elections, on its Priority Watch List along with China and eight other countries. It would start a special review of India in the fall and "redouble" efforts to address concerns with the new government, the USTR said.

Some were disappointed that the USTR failed to name India as a "priority foreign country" - a label that can eventually lead to trade sanctions or the loss of trade benefits - although others stressed it was not off the hook yet.

Orrin Hatch, the top Republican on the Senate Finance Committee and one of four top lawmakers who ordered an investigation into Indian trade policies last year, said the country was a "textbook example" of poor practices regarding intellectual property.

"A stronger response is required to dissuade other countries from adopting similar policies," he said in a statement.

Intellectual property lawyer Steven Tepp, the president of consultancy Sentinel Worldwide, said the planned special review allowed the USTR to change India's ranking and should tell the Indian government the issue needed "urgent attention".

A USTR official, who spoke on condition of anonymity, said the purpose of the review was to assess the new government's level of engagement and the USTR was not contemplating a change in India's status in 2014. A new process would start in 2015, he added, and stakeholders could give their input.

"Labeling India as a Priority Foreign Country just as a new government comes to power would have meant that relations would start off on the wrong foot, but the potential penalty which would be levied against India will now hang over bilateral relations," said Center for Strategic and International Studies adjunct fellow Persis Khambatta.

INTELLECTUAL PROPERTY WORRIES

The USTR said India's limits on the approval of pharmaceutical patents, a convoluted process for patent challenges and the fact that the government was considering opening a series of patented drugs to generic manufacturers created "serious challenges" for some innovators.

The spread of pirated goods in India, a stalwart of the U.S. IP black list, was also worrying. The report noted estimates that counterfeiting and smuggling lost copyright holders almost $12 billion in 2012.

Shops in Nehru Place market in India's capital New Delhi primarily deal in computer peripherals, but it has also been classified as one of the most notorious markets for piracy in the world.

Pirated versions of copied software programs of companies such as Adobe and Oracle and various operating systems of Microsoft are on sale. The compact disc of Windows 7 operating system costs 100 rupees ($1.66), compared with about $100 for an original copy.

Alok, who sells pirated games in the market, said he does not know about the losses incurred by companies because of piracy. "I only care about my daily wage of 130 rupees," he said.

China, with the world's largest Internet user base, had low revenue from digital sales of movies and music, suggesting widespread piracy, the USTR said, while counterfeit goods were readily available online. Promises that government offices would only use legal software had not led to a jump in sales, it said.

The USTR said it had "significant concerns" about the theft of trade secrets and urged the government to take steps to stop Chinese companies taking advantage of overseas competitors.

Despite ongoing concerns about copyright, no action would be taken against last year's "priority foreign country," Ukraine, due to the current political situation, the USTR said.

The USTR also removed Italy from the intellectual property black list altogether after it took new steps to combat copyright piracy over the Internet.

($1 = 60.4225 Indian Rupees)

(Reporting by Krista Hughes; Additional reporting by David Brunnstrom in Washington and Manoj Kumar and Aditya Kalra in New Delhi; Editing by James Dalgleish and Ken Wills)