China wins 2-1 in U.S. IP case at WTO: source

GENEVA (Reuters) - The World Trade Organization (WTO) has found in China's favor in two out of three counts in a case involving protection of intellectual property rights brought by the United States, a trade source said on Thursday.

However, in Washington a U.S. trade official said the United States had won two out of three claims in the landmark case.

"We are, of course, still reviewing the report. But so far we are very pleased that this panel has found that China has violated its WTO obligations," said the official, who declined to comment further citing the confidentiality of the report.

The case, one of several dogging relations between the two economic superpowers, involves Chinese protection of intellectual property such as films and software.

Washington launched the dispute last year out of frustration at rip-offs of films, branded goods and other trademarked property openly available in Chinese cities -- as in many other parts of Asia.

The United States argued that China has not done enough to tackle counterfeiting and piracy on a commercial scale, while China said its measures to protect intellectual property were in line with WTO rules.

The trade source, who asked not to be identified, said a WTO dispute panel had backed the U.S. claim that Chinese copyright laws were not in line with Beijing's international commitments.

But the panel found for China on two other counts, the source told Reuters. It rejected the U.S. claim that China's criminal code does not protect IP sufficiently.

And on U.S. claims that Chinese customs rules allow goods that infringe IP rights to be sold rather than destroyed, the panel found that on some points the WTO's agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) did not apply, and on other points Washington had not established that the Chinese rules infringed TRIPS.

The dispute panel hearing case communicated its decision to both parties in an interim ruling, several sources said. WTO dispute panels rarely change their decision between interim and final rulings.

In July the panel said it expected to issue a final report by November.

The case was the first brought against China on its enforcement of intellectual property rights.

(Editing by Dominic Evans)