The US is considering whether to open a counterfeiting dispute with China at the World Trade Organization (WTO) over concerns about intellectual piracy.
The US software industry says it is losing out
US software, music and book publishers say they lose billions of dollars of sales in China as a result of piracy.
Other US firms claim they are also hurt by Chinese sales of counterfeit drugs, car parts and other goods.
The US has already complained to the WTO that China is essentially subsidising some of its industries.
Washington argues this means US firms cannot compete fairly and last week started legal action against China.
Now a top US trade official has said that, despite being given time to comply on copyright issues, there has not been sufficient action from China.
"Last October, we informed China we would be filing such a case, but then agreed to hold off, with the support of US industry, when China asked for further bilateral discussion," said deputy US trade representative Karan Bhatia.
However, five months later no settlement has been reached.
"If it becomes clear that negotiations will not be successful, then we will proceed with WTO dispute settlement."
The US has been threatening a WTO complaint against China since 2005 for failing to safeguard intellectual property rights.
In June 2006, European Union Trade Commissioner Peter Mandelson made a fresh call for China to do more to improve market access and cut down on piracy.
He warned China would face a backlash in Europe unless it did more to "apply rather than circumvent the rules".