China IPR, Thanksgiving and “The Room Where It Happens”

“No one really knows how the game is played
The art of the trade
… no one else is in  
The room where it happens.”

(Lin Manuel-Miranda, from the musical “Hamilton”)

I never met Joe Biden, although I did work on IP for him in China.  My work for the Vice President over the Thanksgiving holiday of 2013 has influenced my attitude towards interagency dialogues with China on economy and trade, including who should be in “the room where it happens.” 

I received a phone call from the White House on Friday November 29, 2013 to be part of the advance team for Vice President Biden to negotiate IP issues as part of his meetings in Beijing.  The Chinese Embassy issued me a visa in a matter of hours and my PTO team was able to get me a ticket at the last moment. I reluctantly said goodbye to my family gathered for the holidays, and I was on a plane that weekend. 

My discussions in Beijing involved post-filing supplementation of data in pharmaceutical patent applications.  One does not normally think of the Vice President leading these types of discussions.  However, the meetings were held at the Ministry of Finance under the auspices of the US-China Strategic and Economic Dialogue (S&ED), which was chaired by Treasury and had originally been initiated by Secretary Hank Paulson under the leadership of George W. Bush, Jr with the abbreviation at that time of the “SED” (often pronounced like “said”).   The SED added a new, higher level IP negotiations beyond the Joint Commission of Commerce and Trade (JCCT), which was chaired by USTR and the Commerce Department. 

Zhu Guangyao, the Vice Minister of the Ministry of Finance, hosted the negotiations as he worked in the counterpart ministry in China to the Treasury Department.  I  knew Zhu from prior Treasury-led IP discussions, which he hosted but had largely absented himself from.  The discussions, however, were concluded in time for a fact sheet encompassing the range of bilateral economic relations that was released on Thursday, December 5.  My  blog appeared on my return of December 6.   The IP outcome had been downplayed constituted a mere 3.2% of the overall fact sheet text.  In the spirit of the season, I was nonetheless grateful for such high-level support.

Why did Biden negotiate IP under the “framework of” the  S&ED? The S&ED had been initiated by Secretary Paulson as an omnibus, authoritative integrated negotiating process with China.  It provided the broadest possible interagency support.  The Secretary of Treasury chaired the “economic” track, and the State Department chaired the “strategic” track.  The first meeting in December 2006 brought IP into Treasury’s interagency umbrella by highlighting the role of “effective intellectual property protection” in “competitive markets.”  At one of those first working-level meetings,  I sat warily on the backbench watching an impressive team of IP colleagues from China, all of whom I knew, negotiate with seasoned Treasury officials whom they did not know, and who were also new to Chinese legal and/or IP issues.  The negotiations were part of efforts on both sides to avert a WTO case that had been threatened by the United States. The WTO case in preparation involved copyright piracy and trademark counterfeiting, including Customs remedies, and the Chinese team was staffed with experts on enforcement of these rights.  Treasury led with a  discussion around Schumpeter’s economic views of disruptive innovation.  It was a great engagement – if you were an academic.  Technology-related IP, such as patents, trade secrets and licensing, were not part of that WTO case.  The WTO case was nonetheless filed on the 10th of April 2007.   I was in “the room where [those discussions] happened,” but without a speaking role.

The S&ED was intended as a “super-dialogue” mechanism to resolve issues that could not be resolved through other mechanisms.   At their best, super-dialogues, whether led by Treasury or the JCCT, offered an opportunity for difficult issues to be progressively “elevated” from “lower” agency-led expert discussions to “higher” political discussions for their ultimate resolution. The 2013 meeting afforded such an opportunity.  At their worst,  the super-dialogues could produce a number of negative outcomes: issues and agencies were alienated from the process or subsumed into macro-economic discussions; issues were horse-traded against other concessions in a manner where line agencies lost control; Cabinet-level or high-level agency officials wasted their time in high-level meetings with little relevance to their agency; and non-experts led discussions to no avail, such as that meeting in 2007.

During my tenure in the government, I believe that Chinese IP officials also easily recognized when there was an inexpert negotiator at the table.  They must certainly have wondered how Treasury officials or other trade generalists could be negotiating IP-related concerns.    Often the high-level US experts were also inadequately schooled in Chinese law, as Chinese legal scholar Jamie Horsley recently pointed out. Thankfully, most of my interagency colleagues on a working level were reasonable people and they knew when they had to delegate more granular negotiations. However, the paramount institutional authority vested with the heads of these super-dialogues, including making sure that their right people were “in the room”.   

Given the political firepower of the S&ED and JCCT, did lower-level meetings still make sense? At the same time as the S&ED meeting and the WTO case that was filed in 2007, there were other expert-level dialogues on IP.  These cooperative efforts employed far greater IP expertise but with lesser political authority.  Collaborative engagements were based on MOU’s between USPTO and SIPO, SAIC, the National Copyright Administration, and an interagency consensus that USPTO would co-chair an IP working group under the Joint Commission on Commerce and Trade among other activities.    

One of the durable outcomes of that cooperative period was initiated by a  phone call that I received from USPTO Director Dudas on December 24, 2006 to ask me to invite China to join an expanded community of five largest patent offices which would explore improving patent policy and practice.  That group is now called the IP5.  The first IP5 meeting was held in Hawaii at nearly the same time as the WTO case filing.  The IP5 structure has since expanded to include a TM5 for trademarks and an ID5 for industrial designs.  The photo above is of the first ID5 meeting in 2015.  Many issues, including expanding the scope of patent protection for graphical user interfaces, addressing bad faith trademark registrations, improving patent and trademark examination, making in-roads into post-filing supplementation of data for pharma applications, evaluating pending legislation, engaging on the role of specialized IP courts, reforming China’s technology transfer regime, discussing the role of precedent in IP cases, had made progress in these and other cooperative discussions.  In that pre-Trump era system, the additional political pressure from high-level dialogues was used to help accelerate these IP reforms in China.  These meetings were also not without political consequence – from the China side.  In some cases PTO officials, including myself were able to engage well above our bureaucratic rank – up to the Vice Premier level, including with Vice Premier Wang Yang and his predecessor Vice Premier Wu Yi.

Fast forward several years, and Janet Yellen and I were at the same meeting of the Strategic and Economic Dialogue with Treasury Secretary Jacob Lew in 2016.  That meeting showed the octopus-like reach of the S&ED, with about 30 enumerated separate sub-dialogues under the economic track alone. The role of Treasury officials in organizing bilateral IP issues was well-established.  However, I believed that our negotiations were getting strait-jacketed by an excess of scheduled talks and its consequent risks.  Indeed, in that 2016 dialogue, the principal focus was on economic policy,  trade and investment, and financial stability.   We had entered a period of  capture by the “super-dialogue” and “hyper-dialoguization” (sp).  Everyone needed to be in the room where it happens.  Other dialogues fared no better.   An earlier effort in 2014  by Commerce Secretary Penny Pritzker to  “choose a location outside of Washington” and “invite our respective business communities” to “reimagine and reinvigorate” the JCCT could hardly address the structural issues involved in a proliferation of dialogues and bureaucratic disincentives to using them effectively.

It is difficult to ascertain who was in the room during the Trump-era trade war, although photographs suggest that many of the higher-level negotiations were held by USTR, the White House and even the President himself without high ranking IP agency officials.  Photographs reveal that Chinese officials who cut their teeth on US-China trade negotiations, such as Zhu Guangyao, continued to play an active role in the Phase 1 Trade Agreement.  I wonder if  Zhu Guangyao was amused that the same post-filing supplementation of data issues from 2013 were included again as part of the 2020 Phase 1 Trade Agreement.  More likely, he did not recall those earlier discussions.

How much will a Biden administration reinvigorate super-dialogues? In an interview on CNN this year, Treasury Secretary Designate Janet Yellen has demonstrated an understanding of the complex bilateral tech issues that are now a focus of US-China economic relations.  She correctly noted that the Phase 1 Trade Agreement  doesn’t remove the “more troublesome” risk of conflict over emerging technologies.  If confirmed, Secretary Yellen will join a Treasury Department that now also plays a more direct role in tech relations through its chair of the Committee on Foreign Investment in the United States, and its sanctioning authority under the International Emergency Economic Powers Act.  However, Treasury has also been criticized as being “the very model of an unprepared generalist” – a tech mini-agency with a big mandate and without adequate tech expertise.

It is my hope that Biden appointees can find a balanced way to ensure that the United States government engages with China with pragmatic goals in mind without the strait jacket of excessive, redundant and inexpert meetings.  As the United States engages with the outside world, the lesson of the past several years remains that dialogues are never the ultimate solution. With respect to China,  tariffs may continue to need to be part of the picture, particularly if other multilateral solutions are ineffective.  Unilateral sanctions also require strategic depth to be effective.  I believe the Phase 1 Trade Agreement could have been much improved through the contribution of experts

No matter what strategy is undertaken, negotiations can only be part of an effective strategy if the right people participate “in the room where it happens.”

Three New Reports Proposing Policies for China Engagement

Three reports were recently released on Chinese law, Chinese science cooperation and US-Chinese relations with recommendations for the incoming administration. Here is a summary:

The Brookings Institution’s report “The Future of US Policy Toward China – Recommendations for the Biden administration” has a chapter on “Revitalizing Law and Governance Collaboration with China”  written by Jamie Horsley. 

Ms. Horsley urges the renewal of legal engagement with China.   She draws heavily on IP engagement for her suggestions.  She notes that “the U.S. Patent and Trademark Office hosted its first Chinese delegation [in 1979] and explained the American patent system to officials working on China’s first laws governing intellectual property (IP). U.S.-China IP law exchanges helped promote the establishment of specialized IP courts, introduced the practice of amicus briefs in IP proceedings, and supported China’s development of a form of case precedent to enhance uniformity of court judgments. All of these developments were informed by U.S. law and practice and are contributing to a procedurally and substantively fairer system of IP law in China.”  This cooperation, she further notes, has “promoted more professional and accessible courts and specialized intellectual property tribunals in which foreign plaintiffs are winning a majority of their patent infringement cases.”

As a further example of successful cooperation, Ms. Horsley points out that “the U.S. Department of Justice joined with Commerce in 2016 to hold the first high-level U.S.-China Judicial Dialogue, which brought officials and judges from both countries to discuss case management, alternative dispute resolution, precedent, and evidence in civil and commercial cases.” In fact, a principal focus of this program was also, IP. In preparation for those meetings the USPTO reached out to several prominent Chinese IP judges, including Justice Tao Kaiyuan of the SPC, the former President of the Beijing IP Court (Su Chi), Chief Judge He Zhonglin of the International Cooperation Division at the SPC and formerly of the SPC IP Tribunal, and former Deputy Chief Judge Wang Chuang of the SPC IP Tribunal (now with the SPC’s national appellate IP court).  These four judges are in the picture above, taken at the 2016 meetings. 

The second report, “Meeting the China Challenge: A new American Strategy for Technology Competition” was prepared by  the Working Group on Science and Technology in US-China Relations under the leadership of University of California San Diego Prof. Peter Cowhey. I was part of that Working Group.

IP issues play a role in many of the recommendations of the report.  The report criticizes a prior ban on US participation in standards setting activities with Huawei as counterproductive.  It also views NIST support for IP rights in standards setting processes as helpful to new market entrants in standards setting.  It expresses concern over Chinese efforts to dominate standards essential patents (SEPs) in 5G.  However it is agnostic over the quality of Chinese SEPs, noting that “the purpose of this Working Group is not to settle debates about the significance of the total number of patents in 5G standards versus an emphasis on the technological significance of specific patents. This group agrees that China has set a policy goal of being the overall leader in setting global 5G standards. The question for us is how to respond.”

The report also urges oversight of China’s pharmaceutical-related IP reforms in implementing the Phase 1 Trade Agreement. It also urges greater strengthening of IP protection in the pharma sector in the United States through “reform[ing] [US] interpretation of the intellectual property (IP) laws to allow important new forms of biotechnology eligible for patenting by aligning its practices with those of the European Union and China.”

Regarding “IP Theft”, the report states that “[t]e U.S. government and private and public research laboratories should cooperate in criminal investigations and support active monitoring of patent filings, ‘shadow labs,’ and research publications to alert U.S. entities of patent fraud and IP theft….”  “Patent fraud” refers to  instances where patents may have been filed in China in violation of the rightsholder. The patents may be filed with requests for anonymity when published to avoid revealing the theft.

The third report, “The Elements of the China Challenge” was prepared by the Policy Planning Staff of the State Department.  Despite the limited focus on IP, this report shares many similar recommendations to the other reports.

One of the common recommendations involves training.  The State Department report argues that the US needs to train and develop  “a new generation of public servants — in diplomacy, military affairs, finance, economics, science and technology, and other fields — and public policy thinkers who not only attain fluency in Chinese and acquire extensive knowledge of China’s culture and history.”   Horsley’s report is more specific on consequences of untrained officials: “better understanding [of Chinese law is needed to] facilitate more effective resolution of bilateral disagreements and help ensure that bilateral agreements are enforceable under Chinese law.” She also points to “misunderstanding concerning the binding force of various Chinese documents.” This is a phenomenon I have also observed.    

Other common recommendations are to “use diplomacy to coordinate with other allies and like-minded countries” (UCSD report), and to “strengthen…at home” (Brookings).    The UCSD report particularly underscores the need for a range of technological self-strengthening steps. Importantly, the reports all recognize that the United States “must promote American interests by looking for opportunities to cooperate with Beijing subject to norms of fairness and reciprocity” (State Department).  I agree that confrontation or collaboration  is a false dichotomy in our complex engagements with China.

The Biden agency review teams would be well served by reviewing these reports to implement pragmatic approaches to better manage U.S. interests in our IP and other relations with China.  

Treating the “Foreign” Differently in Trade Secret Enforcement

Chinalawtranslate has translated the second reading of the Criminal Law amendments (XI) 中华人民共和国刑法修正案(十一), including proposed changes to the trade secret provisions of the Criminal Law.  The Chinese is available here.  The NPC Observer is tracking the passage of these amendments here.  Comments were due by November 19, 2020.  The second reading provisions on trade secrets did not change from the first reading, which I discussed here.

Both the proposed amendments to the Criminal Law and the administrative rules on trade secret enforcement establish differential treatment for trade secret enforcement when a foreign element is involved. The proposed Criminal Law provisions provide enhanced penalties when a trade secret theft is undertaken on behalf of a foreigner.  Article 3 of SAMR’s  draft proposed trade secret enforcement rules offer administrative enforcement only for Chinese trade secrets.

For readers’ convenience, here are the excerpts from Chinalawtranslate:

“17. Amend Article 219 of the Criminal Law to read:

Where any of the following acts violating commercial secrets are committed and the circumstances are serious, a sentence of up to three years imprisonment or short-term detention is to be given, and/or a fine; and where circumstances are especially serious a sentence of between three and ten years imprisonment is to be given and a concurrent fine.

(1) Obtaining commercial secrets by theft, enticement, fraud, intimidation, electronic trespass, or other improper tactics;

(2) Disclosing, using, or allowing others to use a rights holders’ commercial secrets acquired by tactics provided for in the previous item;

(3) Disclosing, using, or allowing others to use commercial secrets in their possession, in violation of confidentiality obligations or the rights holders’ demands for preserving commercial secrets.

Where one clearly knows or should know of acts listed in the preceding paragraph, but obtains, leaks, uses or allows others to use commercial secrets, it is viewed as infringements of the commercial secrets.

The Rights-holder as used to in this article refers to the owners of commercial secrets and those permitted to use commercial secrets by the owner.

18. Add one article after Article 219 of the Criminal Law to be Article 219-1:

Where commercial secrets are stolen, spied upon, sold, or illegally provided to overseas institutions, organizations, or persons, a sentence of up to 5 years imprisonment or short-term detention is given, and/or a fine; and where the circumstances are serious, the sentence is to be 5 years or more imprisonment and a concurrent fine.”