The President mentioned China four times in his State of the Union address on January 24, 2012.   Although it’s a bit unclear what his game plan is, it seems that he is looking closely at IP-related claims.  “It’s not right when another country lets our movies, music, and software be pirated,” Obama said:  “Tonight, I’m announcing the creation of a Trade Enforcement Unit that will be charged with investigating unfair trade practices in countries like China. “

What will be the nature of this Trade Enforcement Unit? During the Bush administration, a “top to bottom” review at the U.S. Trade Representative’s office resulted in the creation of a China trade enforcement unit within USTR that took the lead on China trade cases at the WTO.  Claire Reade, the current Assistant USTR for China was the head of that unit.  The Obama administration has also actively supported the work of the newly re-invigorated IPR “Czar”, Victoria Espinel, who has also been looking into a range of IPR-related issues in China.   Perhaps the President is also looking at consolidating government agencies, as USTR Amb. Ron Kirk has recently stated.  Or perhaps it is nothing new at all, as the lack of reaction from the Chinese press seems to suggest.

China may already understand that China-related issues tend to become politicized during any presidential election year, but especially one where the economy remains fragile.  Short term grandstanding by U.S. politicians may be  easily dismissed by China’s leadership, as the Chinese reaction to the recent anti-China campaign commercial of Michigan Senatorial candidate Pete Hoekstra  shows.  It  contains  numerous  linguistic and economic errors. From the long range perspective, however, excessive politicization of complicated IPR issues in China is not likely to be to anybody’s benefit – government or industry.  More importantly, politicization can divert scarce resources.  Rather, when there are facts to support claims, they should be brought forward, without hyperbole and, if necessary, in court or the WTO.

There are lessons that the Administration can learn from several notable experiments in 2011 in dealing with overseas infringement problems. One of them was widely noticed: the extensive report published by the US International Trade Commission China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy (Investigation No. 332-519, USITC Publication 4226, May 2011).   The USITC report was based on surveys sent to over 5,000 US firms in IP –intensive areas.   The report calculated that losses from IPR infringement in China were approximately $48 billion in 2009, which may be an understated figure as losses in less IP-intensive sectors of the economy are not recorded in this report.  According to the USITC, firms in this segment of the U.S. economy also spent approximately $4.8 billion in 2009 to address possible Chinese IPR infringement in 2009.  We need more analytical  data like this – or if the government doesn’t conduct the survey, it should at least rely on surveys and analyses of others in making policies.

In another effort, the prestigious U.S. Court of Appeals for the Federal Circuit (“CAFC”), our national appellate patent court, confirmed in TianRui Group Co. Ltd. v. Int’l Trade Comm’n, No. 2010-1395 (Fed. Cir. Oct. 11, 2011) the extension of the USITC’s “Section 337” jurisdiction to trade secret theft occurring in China even if the domestic manufacturer was no longer practicing the trade secret.  Section 337 is a potent tool since the actual manufacturer exporting the infringing product need not be a part of the case for it to proceed and infringing goods to be denied entry into the United States.   By extending the reach of Section 337 cases to trade secret infringements occurring overseas but affecting US markets,  it gave companies  here a remedy to secure the home market against underpriced overseas competition that unfairly benefits from trade secret theft.

The frustration with overseas infringements has also compelled courts to consider creative claims that might be seen as extending their jurisdiction.  Among these, two luxury goods companies brought suits in New York against Bank of China, China Merchants Bank and the Industrial and Commercial Bank of China to have the banks freeze assets in accounts owned by the alleged counterfeiters and turn over information about the clients.

States are also working individually and together to see if products that benefit from infringing inputs that may originate from overseas are causing unfair competition in their markets, and to encourage the federal government to take counterpart action.  In another important effort, on November 4, 2011, the National Associations of Attorneys General wrote a letter, signed by 36 state Attorneys General, to the Federal Trade Commission that they were each “seeking ways to use the traditional power of our offices to address the unfair advantage that results when foreign and other manufacturers use stolen information technology, including pirated software, to illegally slash costs.” The letter asked the FTC to  apply Section 5 of the Federal Trade Commission Act, the counterpart legislation to State unfair competition laws,  to address such acts.  In addition, the letter noted that Washington State and Louisiana have recently enacted laws to precisely address the type of harm caused by overseas competitors that use pirated software to compete with US companies.   Considering the allegedly high incidence of business software piracy in China, these measures could also develop into meaningful tools to address piracy that affects US markets and might otherwise be difficult to reach by US courts or rightsholders.

In many respects,   the current situation involving overseas intellectual property infringements follows the federalist course that Justice Brandeis famously described which creates a “laboratory” for “novel … economic experiments. “  Some of the solutions are to likely found in the States themselves, while others may be found in more aggressive exploitation of existing trade remedies and, as the President has suggested, better coordination of the tools that are available to address them.