Chinese Court for First Time Upholds U.S. Firm’s Copyright : Piracy: Size of penalty in Disney case is seen as a test of its commitment to crack down on intellectual property theft and avoid sanctions.

For the first time, a Chinese court has recognized a U.S. company’s copyright, taking a critical step toward what experts say could be general protection for foreign goods and ideas in China.

In a ruling Wednesday, the court agreed with Burbank-based Walt Disney Co. that a Chinese publisher and its distributor had pirated children’s books bearing a Mickey Mouse logo and based on Disney’s animated films.

It was the first copyright violation case brought by a U.S. company that went to trial in a court in China, a hotbed of intellectual property piracy that costs U.S. companies hundreds of millions of dollars annually.

Experts say the decision could be significant for U.S. companies if it signals China’s intentions to adhere to international standards on patent, trademark and copyright protection.

“This looks to be a significant development in that courts and governmental authorities in that part of the world now appear to be showing greater respect for the intellectual property of U.S. companies,” said Gary Reback, head of the intellectual property practice at the Palo Alto law firm Wilson, Sonsini, Goodrich & Rosati.

China has been under pressure from the United States to crack down on companies that illegally copy U.S. companies’ ideas and goods, especially in technology, software, publishing, films and recordings. On June 30, U.S. Trade Representative Mickey Kantor placed China on the U.S. government’s “Super 301” list of countries believed to tolerate intellectual property piracy and began a six-month investigation of theft accusations.

Under the 301 regulations, if China fails to resolve the U.S. complaints, it could face trade sanctions equal to the amount of losses the U.S. companies attribute to such piracy. In 1993, Kantor’s office said, those losses were more than $800 million in copyright theft alone.

The trade office said 94% of computer software in use in China is pirated, and the situation in compact and laser discs is reportedly even more egregious. CDs, CD-ROMs and laser discs counterfeited in China are now flooding worldwide markets, officials say.

The ruling by the recently formed intellectual property division of the Beijing People’s Intermediate Court ended the liability portion of the trial. The penalty phase will follow, a Disney official said.

Observers say the size of penalties imposed in the Disney case will be a major test of China’s commitment to its piracy crackdown. U.S. companies have complained that in the past when they tried to protect their rights under trademark infringement laws, the few penalties imposed by Chinese courts have been minuscule. In an earlier Disney case involving trademark infringement, a Chinese publisher was fined only $91.

China is seeking admittance to the World Trade Organization, which is governed by the General Agreement on Tariffs and Trade.