On January 23rd, a group of 16 leaders from politically conservative institutions sent a letter addressed to President Donald Trump lauding the Trump Administration’s decision last summer to initiate an investigation into Chinese trade practices regarding intellectual property. The investigation, authorized under Section 301 of the Trade Act of 1974, was aimed at identifying instances where U.S. technologies have been forcibly transferred to Chinese entities as a cost of entering the Chinese domestic market as a foreign entity.
“For too long, this communist, nonmarket nation, as well as other trade competitor nations, has skirted the rules meant to ensure fairness, competitiveness, and due process to American and other nations’ companies. The time has come for accountability for misconduct toward American firms, because the cost of not doing so comes in lost U.S. technological leadership, lost U.S. jobs, diminished U.S. economic growth, lopsided trade imbalance, and U.S. national security vulnerabilities.”
The letter from conservative leaders gave full support to the White House’s actions in investigating forcible tech transfer as well as “other means of taking U.S. firms’ IP,” noting that China was listed in the priority watch list identified in a Special 301 Report issued from the office of the U.S. Trade Representative (USTR) last April. That report identified several challenges posed to U.S. intellectual property owners by the Chinese government including a lack of policies for strong, effective protection of IP, low market access for IP-intensive products and technologies, as well as limited effectiveness of civil enforcement in Chinese courts. In explaining why China was placed on the priority watch list in the Special 301 Report, the USTR noted that, “China is home to widespread infringing activity, including trade secret theft, rampant online piracy and counterfeiting, and high levels of physical pirated and counterfeit exports to markets around the globe.”
China’s reputation as a bastion for counterfeiting and IP-infringing activities was further driven home this January with the USTR’s release of the 2017 Out-of-Cycle Review of Notorious Markets, a non-exhaustive list of online and physical markets which have contributed to commercial-scale copyright piracy and trademark counterfeiting. Of the 43 total notorious markets identified in the USTR’s report, three online markets and six physical markets operated within China. This includes Taobao.com, an Alibaba subsidiary and the largest mobile commerce destination in China which has been the most concerning e-commerce platform among small- and medium-sized enterprises (SMEs) seeking assistance from U.S. governmental agencies for IP enforcement. China also has a strong connection to notorious markets operating outside of that country including Canada’s Pacific Mall in Markham, Ontario, considered to be the largest Chinese mall in the western world.
While the development of piracy on e-commerce platforms such as Taobao has arisen in recent years, problematic Chinese IP trade policies identified by the USTR have been in place for a few decades now. Going back to the early 1980s, there has been evidence that China forces foreign entities seeking to enter the domestic market to enter into joint ventures with Chinese domestic firms. As part of these business arrangements, the foreign entity is typically required to transfer tech and other IP to the Chinese domestic firm. Such forcible tech transfer, however, operates in direct conflict with China’s status as a member state of the World Trade Organization (WTO). Paragraph 7.3 of China’s Protocol of Accession to the WTO, which was issued in November 2001, which requires China to cease and desist its enforcement of trade and foreign exchange balancing requirements so that the right of importation or investment is not conditioned on the transfer of technology.
However, anyone who has been paying attention to the development of the current IP regime in China knows that the past year has seen various indications that the Chinese federal government is recognizing the national economic importance of respecting intellectual property rights. Last summer, Chinese President Xi Jinping made remarks on the subject of intellectual property at an major Chinese economic forum. The fact that the president of a communist nation would publicly speak on the subject of intellectual property rights is unusual enough but President Xi called for IP infringers to “pay a heavy price” for disrespecting intellectual property rights.
The strong rhetoric on intellectual property enforcement from Chinese political leadership appears as though it’s being backed by increasingly strong actions. The number of copyright deals have been increasing at the Beijing International Book Fair. China’s copyright regulator told domestic and foreign music companies last September to follow international practices for reducing piracy and improving legitimate licensing activities. Last August, a Chinese court handed out the largest damages award for a trademark infringement case in that country’s history. Although the $1.5 million damages award handed to U.S. apparel company New Balance for its trademark infringement suit isn’t a huge award compared to trademark damages handed out elsewhere, it does represent a changing viewpoint in China regarding the rights of private entities holding intellectual property.
“The 301 investigation represents a good first step toward asserting rules-based accountability and recommitting to an American IP-based competition policy… Consistent advocacy reinforced by appropriate strong action by our own authorities against foreign abusers would send a clear signal to all our trade competitors. Our businesses must be able to count on the U.S. government’s insisting that rules-based agreements be backed by rules-based conduct. This would reclaim the moral high ground and help restore our foundation.”
The recent letter to President Trump from conservative leaders is the latest indication that right-leaning institutions and think tanks have been more engaged with the debate surrounding the current U.S. intellectual property system. Last September, a group of conservative organizations wrote to the U.S. Senate to identify amendments to a defense spending bill that would undermine the Bayh-Dole Act, specifically provisions of that law that protect the certainty and exclusivity of IP transferred from research funded by the U.S. Department of Defense for private commercialization. Many conservative thought leaders have also contributed to the filing of amicus briefs in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, currently before the U.S. Supreme Court. By and large, these conservative pundits have argued for the abolishment of the Patent Trial and Appeal Board (PTAB) for the threats that it has posed to commercial investment in patented technologies, championing patents as private property rights. Though Republican leadership in Washington may not be taking the side of small entities and individual inventors owning patents in recent years, conservative institutions appear to be stepping up their advocacy outside of the party line.