Draft Copyright Law Up for Public Comment

The National People’s Congress released a draft of the Copyright Law for public comment.  Comments are due by June 13, 2020.  The NPC comments on the draft are found here.  The NPC Observer’s concise summary of the legislative history is here.   I had discussed the earlier draft, along with the NPC observer predictions regarding consideration in late 2019, here.  The draft will likely be reviewed again near the end of this year and could pass in late 2020 or 2021.

There have already been some reactions to this draft.  Aaron Wininger pointed out in a recent article the provisions regarding quintuple damages, increased statutory damages, shifting of the burden of proof, and improvement in digital rights management.  He also briefly discusses some other changes, such as the change from “audiovisual works” to “cinematographic works.”  On first glance, the draft does appear to have expanded provisions on technological protection measures and anti-circumvention of technological protection measures, although further study is necessary to determine their consistency with prior laws, regulations, China’s commitments under the WIPO Internet Treaties, etc. (See Art. 48).

“Quintuple damages” and burden-shifting appear to be the “new normal” in revisions to Chinese IP laws. These changes predate the current trade war and are part of a mounting effort to increase civil deterrence.  It remains to be seen how they will be implemented in judicial interpretations and how observable they will be in judicial practice through the publishing of relevant cases.

Prof. Liu Chuntian, a friend and colleague from Renmin University, has written an insightful quick response article regarding the draft on weixin (Chinese language only).  Prof. Liu participated in the drafting of the PRC’s first copyright law.  His principle concerns with the draft include:

  1. The concept of “audiovisual works” replaces the expression “movies and works obtained by methods similar to filming.’ This change in definition will provide protection for video games regardless of the technology that it employs.   It may also have implications for expanded protection of live webcasting of sporting events, which has been a continual problem under Chinese copyright law.   Liu suggests that China’s drafters consider borrowing from the practice of other countries, notably Brazil, which expand copyright protection using the concept of “audiovisual works” regardless of the technology.  This can mitigate the possibility of continuing the conflict in Chinese IP law (and the law of other jurisdictions) between “cinematographic works” and “audiovisual works” which have provided uncertain protections depending on the technology employed.  At the same time, according to Prof. Liu, as the new law stipulates that the right owner in an AV work belongs to the producer, it will also be important to clarify the rights of authors and composers whose works are incorporated into AV works. He suggests that the new law should clearly stipulate that the rights in these works should be controlled by the copyright holder.
  2. Liu agrees on the importance of the improvements to the civil system, including increased damages and rights to demand production of evidence.
  3. Liu generally opposes the expansion of copyright administrative authorities to the county (xian) level, noting that it would lead to the creation of over 3,000 copyright offices in China – more than the rest of the world combined. He also takes issue, as do I, with the expansion of administrative enforcement power in the copyright law, and notes that as a private property right the civil system should be the principal vehicle for enforcement. This also appears to be a “new normal” in Chinese IP legislation, which has also been urged on in recent years by US demands for enforcement campaigns and increased punishment, including increased online enforcement for copyright in the Phase 1 Trade Agreement (Arts. 1.13, 1.14).
  4. Liu also notes that it is important that copyright is considered an aspect of civil law, and that it is guided by civil law principles, including tort and contract law, as well as the on-going drafting of the Civil Code. He notes that currently there is no IP chapter in the Civil Code and it is therefore even more important for the civil law and the copyright law to be integrated.  Consistent with China’s civil law tradition and his desire to ensure that copyright is protected as a private civil right, Prof. Liu places the primacy of the creator of the work as the first subject of protection. He notes “[t]he rights of other people are all rights that come from, are obtained through legal acts, through contracts or authorization mechanisms, and regulate the rights of the acts passed on.  This is the task of other laws.”

I hope to be able to post a translation of the draft soon.  Once a translation is available, Berkeley Law hopes to convene a roundtable discussion on the amendments to exchange views and assist in providing informed comments.  Please also post your comments or corrections to this posting and send us any translation you have prepared or comments you have submitted so that I may include them in a future blog.

 

Trade Wars: A New Beginning?

Why is this year’s  Special 301 Report (the “Report”) from USTR (April 29, 2019) different from prior reports?  In prior years, this report often repeated materials found elsewhere, such as in the  National Trade Estimate Report (March 2020).  This year’s Report reflects the Phase 1 Trade Agreement (January 15, 2020) (the “Agreement”) and the subsequent Chinese Action Plan (April 20, 2020). More importantly, it also suggests how the US might wish to see the implementation of the Agreement and negotiate a Phase 2 Agreement. There are a number of welcome surprises that suggest a new beginning.

Most importantly, the Report demonstrates a renewed commitment to the rule of law and the role of markets in protecting IP.  As noted in many of the postings of this blog, these were areas that I found seriously deficient in the Agreement.  The Agreement revitalized administrative campaigns and enforcement mechanisms and encouraged punitive mechanisms.  It generally underemphasized compensatory damages and other civil remedies, including appropriate civil procedures, and did not adequately emphasize the need to let market mechanisms govern IP creation and commercialization.

The Report addresses issues that the Phase 1 Agreement war did not, such as “poor quality patents”, “the presence of competition law concepts in the patent law” and challenges faced in trademark prosecution.  The Report also notes that  there are “obstacles in establishing actual damages in civil proceedings,” including a lack of “preliminary injunctive relief.”  These are useful statements, but even more important are the references to judicial procedures.

The Report states that “Chinese judicial authorities continue to demonstrate a lack of transparency”, including publishing only “selected decisions rather than all preliminary injunctions and final decisions.”  In addition, “administrative enforcement authorities fail to provide rights holders with information.” The issue of transparency has been repeatedly reported on in this blog as key to effective oversight of the Agreement.  The Report also notes that “[a] truly independent judiciary is critical to promote the rule of law and to protect IP rights.”  The Report mentions the need for transparency in China’s IP system five separate times.  By comparison, Chapter 1 of the Agreement mentions transparency once (with respect to Geographical Indications),  and not once with respect to judicial or administrative proceedings.

The Report comes down particularly hard in favor of legal process in its discussion on the social credit system, particularly the CNIPA/NDRC  et al, Memorandum of Cooperation on Joint Disciplinary Actions for Seriously Dishonest Subjects in the Field of Intellectual Property (Patent) 关于对知识产权(专利)领域严重失信主体开展联合惩戒的合作备忘录》(the “Dishonesty Measures”) (December 5, 2018) by noting that “these measure lack critical procedural safeguards, such as notice to the targeted entity, clear factors for determinations, or opportunities for appeal.” The Report further concludes that “The United States objects to any attempt to expand the ‘social credit system’ in the field of IP.”

This statement suggests a further distancing of the administration from rhetoric and outcomes of December 2018-May 2019 when the primary goal appeared to be strong legal commitments to punish IP infringement without explicit consideration of due process.  The Dishonesty Measures were likely enacted to appease US concerns on IP on the margins of the G-20 summit (November 30- December 1, 2018).  The concern then appeared to be that they were not sufficiently well-codified, not that they lacked due process.  Larry Kudlow said after the G-20 in 2019, that IP-related provisions (most likely the Dishonesty Measures) need to be “codified by law in China” and should not just be a “state council announcement.”

I am personally gratified to see the reintroduction of concerns over due process and rule of law into the Administration’s discourse of IP, although I believe the complexity of the relationship between IP protection and the social credit system may require further study.  I suspect that it may be difficult for rightsholders commercializing their rights or seeking to enforce judgments to completely distance themselves from the social credit system.

The Report also notes that the US had initiated dispute resolution proceedings against China at the WTO regarding China’s technology licensing regime and that China revised the measures the US had challenged in March 2019. The Report concludes that “[t]he significance of these revisions is under review.”  The Report does not note that the US had agreed to suspend the WTO case due to these legislative revisions, until May 1, 2020, at which time (the date of writing of this blog) it needs to decide whether or not to reinstate this case.  Perhaps USTR did not want to show its hand regarding what it would do effective May 1, 2020 – two days after the Report was issued.  Presumably, the United States will seek an extension of time in light of the continuing “review.”

Whatever decision is made at the WTO, the US team deserves credit for the legislative changes in licensing, forced tech transfer and trademarks that were made in the spring of 2019 and for re-emphasizing due process, the market, and rule of law, in the Report and in United States advocacy for better IP protection in China.

Supreme People’s Court Calls for Public Comments on Enforcement of Intellectual Property Judgments

Addendum of April 18, 2020: Here is an English language unofficial translation of the Implementation Plan and the Guidelines for reference purposes.  If you see any errors, please advise us by comments on this blog.  The translation is provided with no representations or warranties of any kind as to content.  Readers should consult with the Chinese original in the links above, as the translation has no legal significance.  The translation is courtesy of USPTO, which claims no responsibility for any inaccuracies in the translation.

On March 15, 2020, the Supreme People’s Court of China issued a notice soliciting public comments on the Implementation Plan for the Enforcement of Intellectual Property Judgments (Draft for Public Comment) 知识产权判决执行工作实施计划(征求意见稿)and the Guidelines for the Enforcement of Intellectual Property Judgments (Draft for Public Comment) 知识产权判决执行工作指南(征求意见稿 ). Comments are due on May 15, 2020. 

According to one online commentator, one reason for these documents is that in recent years, after the establishment of the punitive compensation mechanism for intellectual property rights in China, a large number of court-enforced cases have emerged. In fact, difficulties in enforcing judgments have been of concern to China’s leadership and the Supreme People’s Court for several years and appear to be independent of the possibility of increased punitive damages. President Xi Jinping identified this issue of enforcement difficulty 执行难 in the Fourth Plenary Session of the 18th CPC Central Committee (2014). The SPC further proposed to solve this problem in two to three years at the Fourth Session of the 12th National People’s Congress. SPC President Zhou Qiang also raised this issue in a report in 2018. None of these high-level pronouncements particularly singled out intellectual property as an area of enforcement concern.

In general enforcement issues that have concerned China involve enforcement of judgments. SPC President Zhou Qiang identified that China has faced such enforcement issues as: (1) judicial difficulties in locating the person and their property because the judgment debtors conceal their property and whereabouts; (2) the traditional liquidation method is subject to a long cycle with a low success rate, and corruption often occurs during liquidation, so the court is unable to liquidate the property to be enforced; (3) local governments and powerful personnel commit corruption and intervene and hinder the enforcement; (4) many unenforced cases accrue year after year, which has led to serious social conflicts.

Enforcement issues that foreigners have identified have included matters arising as part of the judgment, and often before the execution of the judgment including increased infringement compensation, jurisdictional issues of court enforcement, the procedures when a party initiates an enforcement action, enforcement procedures of pre-litigation preservation, enforcement of administrative remedies and criminal remedies including civil compensation for criminal cases, etc.  

This is the first time that the Supreme People’s Court has formulated an implementation plan and work guidelines specifically for intellectual property rights enforcement. While this move is explicitly aimed at strengthening the judicial protection of IP rights and ensuring that effective judgments on IP cases are enforced in accordance with the law, another purpose of this initiative is likely to fulfill China’s commitments under Article 1.28 of The Phase 1 IP Agreement of ensuring expeditious enforcement of IP judgments. Article 1.28 “Enforcement of Judgments” 判决执行 provides:

1.The Parties shall ensure expeditious enforcement of any fine, penalty, payment of monetary damages, injunction, or other remedy for a violation of an intellectual property right ordered in a final judgment by its own court.

2. Measures China shall take include executing work guidelines and implementation plans to ensure expeditious enforcement of judgments, publishing its work guidelines and implementation plans within one month after the date of entry into force of this Agreement, as well as publishing online quarterly reports of implementation results.

As the main part of the Implementation Plan, Section 2 “Specific Implementation Plan” 具体实施计划 includes the following provisions: filing of enforcement of IP judgment (Art. 1), pre-litigation preservation (Art. 2), how to quickly identify and control the property of the executed person (Art. 3), assets evaluation (Art. 5), assets disposal (Art. 6), obligations of the executed person (Art. 7), handling enforcement cases offsite (Art. 10), judicial publicity (Art. 12), etc.  Generally speaking, these provisions point to the specific measures previously promulgated by the SPC, rather than making headway in new policies or experiments, or suggesting more concrete measures or working methods. In this sense, the Implementation Plan highlights out IP judicial enforcement issues are tied to general enforcement concerns.

Addendum of April 18, 2020: Here is an English language and unofficial translation of the Implementation Plan and the Guidelines, for reference purposes.  If you see any errors, please advise us by comments on this blog.  The translation is provided with no representations or warranties of any kind as to content.  Readers should consult with the Chinese original in the links above, as the translation has no legal significance.  The translation is courtesy of USPTO.

According to Article 13 of the Implementation Plan, a special section of “Intellectual Property Judgment Enforcement Publicity” on China’s Enforcement Information Disclosure Website will be published by the end of June 2020, focusing on publicizing the implementation information of intellectual property judgments, so as to facilitate transparency, public understanding,  and supervision. This appears consistent with the requirement for publishing online reports of implementation results in the Phase 1 IP Agreement. In fact, as we have previously noted, the disclosure should not only be limited to the disclosure of the enforcement of IP judgments. In order to ensure that China’s civil enforcement is observable and accessible, China would need to publish all of its IP cases, including cases involving provisional measures, as well as dockets that may include motions and settlements. Many observers, including in this blog, have noticed a large drop in publication of foreign-related IP cases since approximately January 1, 2018, which should also be addressed. Finally, it is unclear from the text of the Implementation Plan or the Phase 1 Agreement, whether China intends to publish the actual enforcement decisions to the same extent that it publishes cases, notwithstanding that many enforcement cases are now available on the SPC’s official website.

In addition, over the past several years, there has been an increasing incidence of multinational IP disputes, particularly in technology sectors. As previously noted, the Phase 1 IP Agreement also does not address the problems arising from these cases. An added problem arising from SEP cases in particular, has arisen over anti-suit injunctions and whether China should issue its own anti-suit injunctions, which was the subject of a recent conference (January 2019) at Renmin University.

In terms of execution of foreign judgments, Article 7(1) of the Guidelines mention that: “If a foreign party applies for execution, it shall submit a written application for execution in Chinese. If there are special provisions in the mutual legal assistance treaty concluded or co-joined by the country where the party is located and China, the treaty provisions shall apply.” This provision noticeably omits any reference to the Article 282 of  Civil Procedure Law, which permits enforcement of foreign judgments on the basis of reciprocity. United States courts have also occasionally enforced Chinese money judgments, including those which have an IP-related element, under the Uniform Foreign Money Judgments Recognition Act.   According to Susan Finder, the SPC is working on drafting a judicial interpretation on this issue at some time in the future.

Based on the Implementation Plan and Guidelines, it remains unclear how the enforcement of IP judgments differs from other judgments and, indeed, why it should be different from other civil, criminal or administrative matters. In the past many judicial reforms have been tested in the IP context.  The past experience of initially testing legal reforms in IP than reaching out to other areas is less evident in these two documents.  While few new specific measures have been proposed, the SPC’s release of these documents does reflect its increasing emphasis on IP rights, perhaps undertaken in response to US pressure. 

Addendum of April 18, 2020: Here is an English language unofficial translation of the Implementation Plan and the Guidelines for reference purposes.  If you see any errors, please advise us by comments on this blog.  The translation is provided with no representations or warranties of any kind as to content.  Readers should consult with the Chinese original in the links above, as the translation has no legal significance.  The translation is courtesy of USPTO, which claims no responsibility for any inaccuracies in the translation.

Written by Mark A. Cohen with the assistance of  Xu Xiaofan

MofCOM Releases Draft Foreign Investment Complaint Rules: How Good Will It Be For Forced Tech Transfer?

On March 23, 2019 the Ministry of Commerce released its  Rules for Foreign Investment Complaints (Draft for Public Comment (外商投资企业投诉工作办法[征求意见稿]) (the “Rules”).  Comments are due by April 22.  This is one of several recent Phase 1 / trade responsive initiatives that have been announced or are expected in the near term from China.  This blog will focus on the IP aspects of the Rules, notably those provisions that can be used to address forced technology transfer and protecting trade secrets.

The Rules seek to implement Article 26 of the Foreign Investment Law, which provides as follows:

The State establishes working mechanisms for complaints by foreign-invested enterprises, promptly handles the issues raised by foreign-invested enterprises or their investors, and coordinates and improves the relevant policy measures.

Where foreign-invested enterprises and their investors consider the administrative acts of administrative organs and their employees to have infringed upon their lawful rights and interests, they may petition for a resolution through the working mechanisms for complaints by foreign-invested enterprises.

Where foreign-invested enterprises and their investors consider the administrative acts of administrative organs and their employees to have infringed upon their lawful rights and interests, in addition to petitioning for a resolution through the working mechanisms for complaints by foreign-invested enterprises in accordance with the provisions of the previous paragraph, they may also petition for administrative reconsideration or initiate administrative litigation in accordance with law.

A major concern by the Trump Administration had been to prohibit forced technology transfer by China, through making tech transfer a condition of foreign investment approval or other means.   Article 2.1 of the Phase 1 Agreement addresses this concern:

  1. Natural or legal persons (“persons”) of a Party shall have effective access to and be able to operate openly and freely in the jurisdiction of the other Party without any force or pressure from the other Party to transfer their technology to persons of the other Party.
  2. Any transfer or licensing of technology between persons of a Party and those of the other Party must be based on market terms that are voluntary and reflect mutual agreement.

Article 23 of  The Foreign Investment Law, which predates the Phase 1 Agreement addressed this concern as well:

Administrative organs and their employees shall, in accordance with law, maintain the confidentiality of the trade secrets of foreign investors or foreign-invested enterprises that they learn in the course of performing their duties, and must not disclose or unlawfully provide them to others.

The proposed Rules set up a working group (工作机构), coordinated by MofCOM with counterpart agencies down to county levels (Art. 2) to handle foreign investment complaints.  This complaint process is not exclusive of other legal remedies, such as administrative reconsideration or litigation, “letters and visits” (petitioning), etc. (Art. 8).  The Rules afford the possibility of initiating parallel track procedures, provided applicable legal limitations periods are adhered to for legal actions.  However, if these alternative legal procedures are accepted, the MofCOM process will be terminated:

Art. 19.3 During the handling of a complaint, if the complainant initiates administrative reconsideration, administrative litigation and other procedures on the same complaint, or an application is filed with a higher level complaint agency or disciplinary inspection, supervision, letters and visits and has been accepted, the complainant shall be deemed to apply for withdrawal of the complaint.

投诉处理期间,投诉人就同一投诉事项提起行政复议、行政诉讼等程序的,或者向上级投诉工作机构或者纪检、监察、信访等部门提出申请并已被受理的,视同投诉人申请撤回投诉。

The Rules also set up the basic procedural requirements for making a complaint, including types of documentation, representation, response time, and potential remedies (Chapter 2).   Once a completed complaint is filed, the Working Group will have seven days to advise the complainant that the complaint has been accepted. Trade secrets and private information are to be protected in the process (Art. 21).  Final decisions are required within sixty days of acceptance (Art. 18).  The complaint acceptance process does afford MofCOM the possibility of delaying due to incomplete complaints (Art. 14).

The principal remedy of this process appears to be a mediated response with the offending agency (依法公正进行协调处理,推动投诉事项的妥善解决) (Arts. 15, also Arts. 17, 19). Other possible outcomes procedures include recommending that local governments change their procedures or rules (Art. 17).

How effective are such procedures likely to be?

Although this process may afford some individuals a useful alternative channel to resolve forced technology transfer and effect policy changes, I am doubtful it will afford much relief in most licensing/trade secret cases.  An earlier administrative effort to protect trade secrets through the National IPR Leading Group also didn’t deliver much relief as far as I know.   Trade secret matters are very difficult to handle in China’s administrative processes due to concerns about local economic influences, uncertain procedures to maintain confidential information, fears of retaliation, etc.  In general, foreign companies have been reluctant to sue national and local Chinese government agencies, with the significant exception of patent and trademark validity challenges.  Of particular concern is that possibility of retaliation against those who file complaints.  As USTR noted in the Section 301 Report:

As U.S. companies have stated for more than a decade, they fear that they will face retaliation or the loss of business opportunities if they come forward to complain about China’s unfair trade practices. Concerns about Chinese retaliation arose in this investigation as well. Multiple submissions noted the great reluctance of U.S. companies to share information on China’s technology transfer regime, given the importance of the China market to their businesses and the fact that Chinese government officials are “not shy about retaliating against critics.”

Moreover, there are competing channels to trade secrets that are improving. China has made significant advances in civil judicial protection of trade secrets, which should be utilized where appropriate.  Technical trade secrets appeals are now being heard by a new national appellate IP court.   SAMR also has plans to draft an administrative rule on stopping trade secret infringement(禁止侵犯商业秘密若干规定).

Finally, it is difficult for me to conceive of a complaint mechanism that essentially is being made to the same agency or group of agencies that approve the actual investment, rather than the agenc(ies) in charge of protecting trade secrets.  Should complaints fail to materialize, it  may also be interpreted by China as a lack of concern about the issue, rather than concerns about the effectiveness and risks of the process.

My perspectives on this process have been clear.  As I stated in an earlier blog:

[N]ewly amended provisions in the new Foreign Investment Law prohibiting forced technology transfer are likely to have little impact absent effective complaint and legal challenge procedures, such as the creation of a foreign investment ombudsman and/or appeals to the newly established IP court.  The inclusion of a non-discrimination position in administrative licensing procedures is also welcome news, although it may be similarly difficult to monitor and enforce.

While there is nothing harmful in the Rules, I continue to believe that appeals to a competent, specialized court or creation of an independent ombudsman would likely best serve foreign interests.

The Phase 1 IP Agreement: Its Fans and Discontents

How much will the IP Sections of the Phase 1 Agreement (the “Agreement”) with China change  IP strategies in China?   For the most part, the Agreement adds much less than its appearance might suggest.  Many of the important changes that the Agreement memorializes have recently been codified into law or set into motion for forthcoming codification.  There are some important prospective changes in the text, particularly regarding pharmaceutical patent protections and in civil and criminal enforcement.  If these changes are well-implemented, that could augur significant changes in the future.  Nonetheless, a cautious approach should be taken to these changes as well, as many of them have a long history of disappointing US rightsholders.  An additional problem with the Agreement is its reliance on administrative mechanisms that have a track record of not providing sustained protection for IP rights.

The IP-related sections are found in Chapter 1 of the Agreement (“Intellectual Property”) and Chapter 2 (“Technology Transfer”).  Chapter 1 is divided into the following sections: General Obligations, Trade Secrets and Confidential Information, Pharmaceutical-Related Intellectual Property, Patents, Piracy and Counterfeiting on E-Commerce Platforms, Geographical Indications, Manufacture and Export of Pirated and Counterfeit Goods, Bad-Faith Trademarks, Judicial Enforcement and Procedure in Intellectual Property Cases, and Bilateral Cooperation on Intellectual Property Protection. Chapter 2 concerns Technology Transfer and is not divided into separate sections.

There are many concerning textual aspects of the Agreement.  For example, it is unclear why “Technology Transfer” was not considered an IP issue in the Agreement.  Additional ambiguities are supplied by inconsistent use of legal language as well as differences in the English and Chinese texts, both of which are understood to be equally valid (Art. 8.6).  A careful reading shows that in many cases the Agreement does not afford any new progress on particular issues, but merely serves as a placeholder on issues that have long been under active discussion (e.g., on post-filing supplementation of pharmaceutical data in patent applications).  There are also several provisions that appear to break new ground, such as in consularization of court documents by foreigners and enforcement of civil judgments.

Reactions from the dozens of people I spoke with about the Agreement in the US and China have been mixed.   One prominent Chinese attorney thought that Chinese IP enforcement officials were now much more likely to be responsive to US requests in forthcoming enforcement proceedings.  Several individuals thought that the Agreement would be a great stimulus to IP agencies and the courts in their enforcement efforts as well as in drafting new laws, regulations and judicial interpretations.  Many academics were perplexed by the unclear language in the Agreement.  Some experts shared my view that the Agreement places an undue emphasis on the wrong issues, such as punitive damages, administrative campaigns, and criminal punishment at the expense of compensatory civil compensation.  Due to the numerous errors and inconsistencies in the Agreement, many people speculated that the negotiators on the US side and/or the Chinese side may not have been adequately consulting with experts, bringing to mind the Chinese expression of “building a chariot while the door is closed (without consulting others)” (闭门造车).  The administrative and Customs enforcement provisions were dismissed by many as out of date or just for show.  On the other hand, it did appear that the Chinese negotiators did rely upon their interagency experts.  Susan Finder, the author of the Supreme People’s Court (SPC) Monitor, told me that the SPC (and likely the Supreme People’s Procuratorate [SPP]) provided input to the Chinese negotiating team.

Review of the Individual Sections and Articles

The trade secret provisions generally memorialize amendments already made to China’s Anti-Unfair Competition Law, including an expanded scope of definition of “operator” (Art. 1.3), acts that constitute trade secret infringement (Art. 1.4), as well as a shifting of burden of proof in civil proceedings where there is a reasonable basis to conclude that a trade secret infringement has occurred (Art. 1.5).  Interestingly, the United States asserts in this section that it provides treatment equivalent to such shifting of a burden of proof.  I am unaware of any nationwide burden-shifting in US civil trade secret proceedings, except – as a stretch – insofar as US discovery proceedings provide an opportunity to compel production of evidence from an adverse party.  This view was also shared by others I had spoken to.

The trade secret provisions also require China to provide for preliminary injunctions in trade secret cases where there is an “urgent situation”.   The use of preliminary injunctions to address early-stage trade secret theft has long been under discussion between the US and China.  This is an awkward hybrid of Chinese and English legal standards.   Generally the test in Chinese law for “action preservation”  as in US law for “preliminary injunctions” is whether there is irreparable injury arising from such urgent situation which necessitates provisional relief (See Sec. 101 of Civil Procedure Law)  An “urgent” situation which is not likely to cause irreparable injury does not require granting of a preliminary injunction.   China’s judicial practice currently permits the use of preliminary injunctions where there is a risk of disclosure of confidential information (关于审查知识产权纠纷行为保全案件适用法律若干问题的规定, Art. 6.1).  It appears likely that the current test for preliminary injunctions are unaffected by this provision, and the provision just memorializes current Chinese law –  notwithstanding that is unclear about the standards and scope of action preservation procedures in China

The Agreement also uses inconsistent nomenclature to describe preliminary injunctions.  As noted, the Chinese text does not refer to preliminary injunctions but refers to an overlapping concept of “action preservation.” Other provisions of the English language text of the Agreement discuss “preliminary injunctions or equivalent effective provisional measures” (Art. 1-11).

Historically, Chinese judges have been highly reluctant to issue preliminary injunctions.  As Susan Finder has noted in an email to me, the language in the Agreement also does not address the underlying structural problem that judges may be reluctant to give injunctions because they are concerned they will be found to have incorrectly issued them, and hence held accountable under the judicial responsibility system.  The Agreement also does not account for the fact that provisional measures serve a different function in the Chinese system compared to the United States.  China concludes its court cases far more quickly than the United States, thereby providing more immediate relief, often without needing recourse to provisional measures if there is not an urgent need.

The Agreement also requires China to change its trade secret thresholds for “initiating criminal enforcement.” (Art. 1.7).   The Agreement does not specify what measures are to be reformed, such as the Criminal Law or Judicial Interpretations,  or standards for initiating criminal investigations by public security organs and/or the procuracy and State Administration for Market Regulation (SAMR) administrative enforcement agencies (See, e.g., 关于公安机关管辖的刑事案件立案追诉标准的规定(二)).  The issue of what constitutes “great loss” for calculating criminal thresholds has itself been the subject of discussion and changing standards over the years.

As mentioned in Susan Finder’s November 26, 2019, blogpost, a judicial interpretation on trade secrets is on the SPC’s judicial interpretation agenda for 2020, scheduled for issuance in the first half of the year.  Additional guidance may be expected from the procuratorate, SAMR, and Ministry of Public Security to address criminal enforcement issues.

Consistent with the Foreign Investment Law, the Agreement also prohibits government authorities from disclosing confidential business information (Art. 1.9).

The Pharmaceutical-Related Intellectual Property section of the Agreement requires China to adopt a patent linkage system, much as was originally contemplated in the CFDA Bulletin 55, but subsequently did not appear in the proposed patent law revisions of late 2018. Linkage will be granted to an innovator on the basis that a  (a) company has a confidential regulatory data package on file with China’s regulatory authorities,  and (b) where a third party, such as a generic pharmaceutical company, seeks to rely upon safety and efficacy information of the innovator.  The drafters seem to be describing a situation similar to an Abbreviated New Drug Application (ANDA) in the United States under the US Hatch-Waxman regime.  According to US procedures, a generic company needs to demonstrate, inter alia, bioequivalent safety and efficacy to an innovator’s pharmaceutical product in order to obtain regulatory approval.  Notice is thereafter provided to the patent holder or its licensee of the application for regulatory approval to address the possibility that the generic company may be infringing the innovator’s patent(s).

This linkage regime, if properly implemented, with be an important step for Chian’s struggling innovative pharmaceutical sector.  China’s proposed linkage regime also extends to biologics (Art 1.11).  Taiwan has also recently introduced a linkage regime.

In order to implement the linkage regime, the Agreement requires an administrative or judicial process for an innovator to challenge a generic company’s market entry based on the generic company’s infringement of a patent held by the innovator  As drafted, the Agreement omits a requirement to amend China’s patent law or civil procedure law to permit a court to act when there is an “artificial infringement” by reason of approval of an infringing product for regulatory approval, notwithstanding the lack of any infringing manufacturing, use or sale of the product prior to its introduction into commerce in China. The lack of a concept of “artificial infringement” could make it especially difficult to implement a civil linkage regime in China.  The US Chamber of Commerce and the Beijing Intellectual Property Institute (BIPI) had previously recommended revising Article 11 of China’s patent law to address this issue.  BIPI had noted in its report that “Lacking of artificial infringement provisions results in lacking [sic] of legal grounds for the brand drug company to safeguard their legal rights.” This provision likely reflects continuing turf battles between the courts and China’s administrative IP agencies in enforcing IP rights.  Implementation of a linkage regime by China’s National Medical Products Administration (NMPA) may be possible in the alternative, as a matter of its regulation of pharmaceutical products, however, there may be concerns that NMPA lacks the necessary expertise and independence to properly adjudicate pharmaceutical patent disputes.

The Agreement also does not reference regulatory data protection, which was one of China’s WTO obligations, nor does it reference China’s efforts to adopt an ‘orange book’ similar to the US FDA’s to govern patent disclosures and regulatory data protection as recommended by CFDA Bulletin 55.  This section also reiterates in general terms a commitment by China to provide for post-filing supplementation of data in pharmaceutical patent matters, which has been a long-standing request of the US reflected in several JCCT commitments.  Permitting post-filing supplementation is necessary to support a linkage regime.  In the absence of any meaningful patent grants, China’s patent linkage commitments would be a hollow outcome.

The  Patent section continues the focus on pharmaceutical IP by providing for patent term extension due to regulatory delays for pharmaceutical patents, including patented methods of making and using pharmaceutical products (Art. 1.12).  The draft patent law already provides for patent term extension.  The additional encouragement is welcome.

There are no provisions in this Agreement addressing non-pharmaceutical patent concerns.   Companies that may have concerns about such issues as:  standards-essential patent prosecution or litigation, low-quality patents, patent trolls, procedures involving civil or administrative litigation involving patents or Customs enforcement of patents, China’s increasing interest in litigating global patent disputes for standards-essential patents, the relationship between industrial policy and patent grants, expanding the scope of design patent protection, China’s amending its plant variety protection regime and acceding to the most recent treaty obligations, etc.,  will find that their issues are not addressed.

Section E on “Piracy and Counterfeiting on E-Commerce Platforms” addresses “enforcement against e-commerce platforms”.  By its terms, it does not specifically discuss e-tailers, online service providers or other third parties.

The text (Art. 1.13) seeks to clarify and update the E-Commerce Law by “eliminat[ing] liability for erroneous takedown notices submitted [presumably by rightsholders] in good faith,”  extending mandating a time period of 20 days for rightsholders to file an administrative or judicial response to a counter-notification, and penalizing counter-notifications taken in bad faith.  Joe Simone (SIPS) has told me this Article’s 20 day period may require an amendment to the E-Commerce law, which currently requires a 10 day period.

Article 1.14 specifically addresses infringement on “major” e-commerce platforms. As part of this commitment, China also agreed to revoke the operating licenses of e-commerce platforms that repeatedly fail to curb the sale of counterfeit and pirated goods.  It is unclear from this text if this provision is limited to “major” platforms as the title suggests (in both English and Chinese), or to platforms of any size as the Article itself states.  In addition, it is unclear what kind of “operating license” is involved auch as a general business license or a license to operate an internet business.  Whatever license is involved, this remedy has theoretically been available for some time for companies that sell infringing goods.  As I recall, past efforts to use license revocations to address IP infringement had little success.  Smaller enterprises might be able to circumvent the license revocation, perhaps by transferring businesses to another platform  In the past, companies also evaded enforcement obligations by establishing a new business incorporated or operated under their name or that of a relative or friend.  This provision, similar to other IP provisions of the Agreement, rehashes earlier JCCT commitments with apparent disregard to lessons previously learned or developments in Chinese law and its economy.

Article 1.14  notes, unlike other Articles which note that the United States has equivalent procedures, tellingly states that the United States “is studying additional means to combat the sale of counterfeit or pirated goods.”  According to news reports, the USTR has threatened to place Amazon on the  list of “notorious markets.” Since the publication of the Agreement, Peter Navarro at the White House has also threatened to crack down on US platforms due to the increased pressure of the trade deal to “combat the prevalence of counterfeit or pirated goods on e-commerce platforms.”

The Geographical Indications (GI) Section (F) continues long-standing US engagement with China with respect to its GI system.   The Agreement requires that multi-component terms that contain a generic term will not be protected as a GI, consistent with prior bilateral commitments.  China will also share proposed lists of GI’s it exchanges with other trading partners with the US to help ensure that generic terms are not protected as GI’s.  The competing GI systems of the United States and China have been the subject of decades of diplomacy.  This Section arguably is intended primarily to show political support for American companies that manufacture or distribute generic food and other products that compete with GI-intensive products such as wine and cheese.  It is also likely intended to support US advocacy around these issues at the WTO, WIPO and bilaterally.

Section G requires China to act against counterfeit pharmaceuticals and related products, including active pharmaceutical ingredients (API) and bulk chemicals (Art. 1.18).  It is unclear if these APIs need to be counterfeited to be seized, or if they should be liable for seizure because they are low quality or contribute to the manufacturing of counterfeit goods.  The issue of API’s and bulk chemicals contributing to the production of counterfeit medicine has long been a discussion point between the US and China and had been the subject of JCCT outcomes.  Providing API’s to counterfeiters is already a crime and civil violation.  It can also give rise to administrative liability, although administrative agencies have often not prioritized contributory liability.  Thanks to Joe Simone again, for providing me with the benefit of his experiences in this area.

China is also required to act against “Counterfeit Goods with Health and Safety Risks” (Art. 1.19).  The text does not explicitly address unsafe products that do not bear a counterfeit trademark or the enforcement agencies that will implement this commitment.  Generally, the burden of enforcing against counterfeit products belongs to trademark enforcers, rather than enforcement officials involved in product quality or consumer protection violations.  However, the NMPA and/or the Ministry of Industry and Information Technology are specifically named as enforcement agencies in a related provision to this one (Art. 1.18).

This section also seeks to address “Manufacture and Export” of these goods, including “block[ing]” their distribution (chapeau language).  It does not elaborate on how such cross-border steps will be undertaken – such as by Customs agents, law enforcement authorities, cooperation between food and drug regulatory agencies, or through bilateral or multilateral law enforcement cooperation.

The failure to clearly designate a responsible agency in these administrative and law enforcement commitments can lead to problems with enforcing IP rights.  The academic literature, including that of Prof. Martin Dimitrov,  has suggested that when multiple agencies have unclear and overlapping IP enforcement authority, they may be more inclined to shirk responsibility.  I hope that coordination mechanisms for these and other outcomes have been well-negotiated to address this issue.

Article 1.20 addresses the destruction of counterfeit goods by Customs, in civil judicial proceedings and in criminal proceedings.  Article 1-20(1) requires Customs to not permit the exportation of counterfeit or pirated goods  Due to the growth of e-commerce and B2C exports from China via online platforms, container-sized seizures have become rarer, and the practical consequences of this provision may be limited.  Moreover, rightsholders have not often complained of Customs’ destruction procedures.  A WTO case brought by the United States involving Chinese customs destruction procedures also failed to identify losses to the United States by reason of China’s not disposing of seized goods outside of the channels of commerce consistent with its WTO obligations to seize goods on import  (DS362) (see 0% auctioned on imports, below).  At that time, when containerized shipment seizure was more common, only 3.7% of imported and exported goods were auctioned by value and 1.9% by shipments.   7.351ds362

My former colleague, Tim Trainer,  has identified what is new in the Agreement in Customs as seizures in transit.

The Article does not define what is a “counterfeit” good, or whether manufacturing a product for export may constitute an infringement of the rights of a third party that holds the right in China, which is the so-called OEM problem.  In a typical OEM scenario, the importer in a foreign country owns the relevant rights in the importing country, but not in China.

Article 1.20(2)(d) requires the courts to order that a rightsholder be compensated for injury from infringement in civil judicial procedures, presumably when goods are seized.  It is unclear to me why the Agreement does not address the critical issue of affording adequate civil damages generally, why it is limited to the Customs context, and why the Agreement does not generally address the overuse of low statutory damages in IP-related civil disputes generally.

The Agreement requires that materials and implements which are “predominantly” used in the creation of counterfeit and pirated goods shall be forfeited and destroyed.  This “predominant use” test is derived from the TRIPS agreement. It regrettably provides a basis for goods that are demonstrated to have a less than dominant use (e.g.,  49.9 percent) to avoid forfeiture and destruction.   A better test might have been to encourage China to use a “substantial use” test, or a test based simply on use in commercial-scale counterfeiting and piracy.  IP owners may wish to consider using judicial asset preservation measures by the courts in order to address issues involving the seizure of goods that are also used for legitimate manufacturing purposes.

Destruction of counterfeit goods by Market Supervision Bureaus in administrative trademark enforcement proceedings is not discussed in this Agreement and has been an area of concern by rightsholders in the past.  This omission is concerning as China’s administrative enforcement of trademarks has historically been a highly active area of IP enforcement on behalf of foreign rightsholders.

Section H addresses the bad-faith registration of trademarks.  No specific action is required by China in the text.  I have previously discussed the importance of expanding concepts of “good faith” in IP protection in China with hopes that it would be addressed in resolving the trade war and had specifically noted two issues addressed in the Agreement: bad-faith registration of trademarks, and ensuring that employees were covered objects of China’s trade secret law.  Certain steps have already been undertaken by relevant agencies to address the important issue of bad faith trademark registrations, including:  supporting oppositions/invalidation against marks filed in bad faith and with no intention to use (Article 4 of the Trademark Law);  addressing the problem of trademark agencies that knowingly facilitate those bad faith trademark filings under Article 4, and imposing administrative fines against bad faith trademark applicants for a purpose other than use or judicial punishments against pirates that bring trademark infringement lawsuits against brand owners victimized by bad-faith registrations.

Given the lack of identified concrete next steps in this important area, China may not be planning to do little more legislation in this area in the near future, and/or waiting to better evaluate the impact of recently implemented measures and policies, including provisions allowing fines to be imposed against trademark pirates. Joe Simone has suggested that one helpful measure to consider in the future might be for courts to award compensation for legal and investigation fees in bad faith cases, ideally by the same courts handling invalidation and opposition appeals.

Section I requires the transfer of cases from administrative authorities to “criminal authorities” when there is a “reasonable suspicion based on articulable facts” that a criminal violation has occurred.  “Criminal authorities” are not defined.  This could include the Ministry of Public Security and/or the Procuracy. The intent behind this provision is likely to ensure more deterrent penalties for IP violations and avoid the use of administrative penalties as a safe harbor to insulate against criminal enforcement.  This problem of low administrative referrals is an old and thorny one.  In bilateral discussions of the last decade, we would often inquire about the “administrative referral rate” of China, which is the percentage of administrative IP cases that were referred to criminal prosecution, which has historically been quite low. See National Trade Estimates Report (2009) at pp. 101-102.  However, if administrative agencies are required to transfer cases to the Public Security Bureau or Procuratorate, it will have little impact unless these agencies accept the case and initiate prosecutions.  A loophole in this text may be that it does not mandate that a case is accepted after it has been referred by administrative agencies, thereby risking non-action by prosecutors.  As administrative agencies have more limited investigative powers, the evidence provided by administrative authorities may also often be insufficient to initiate a criminal investigation.

Article 1.27 requires China to establish civil remedies and criminal penalties to “deter” future intellectual property theft or infringements.  These requirements are also found in the TRIPS Agreement.  The English language text of the Agreement conflates the role of civil remedies and criminal penalties and their deterrent impact.   Civil remedies should, at a minimum, deter or stop (制止,阻止) the defendant from repeating the infringing act, whereas criminal remedies might also provide broader social deterrence (威慑 as in nuclear “deterrence”, which is found in the Chinese version of the Agreement).  This paragraph and the Agreement more generally do not underscore the important role of compensatory civil damages in providing deterrence.

The Agreement also requires China to impose penalties at or near the maximum when a range of penalties is provided and to increase penalties over time.

These provisions regarding criminal enforcement generally reflect concerns articulated in the unsuccessful WTO IP case the US brought against China to lower its trademark and copyright criminal thresholds  (DS362).  However, the lost lesson from that case is that criminal thresholds are not as important as other factors in creating deterrence. Prosecutors may still decline in fact to prosecute cases, even if they are required by law to accept cases.  Law enforcement may also lack adequate resources. Judges may also have discretion in imposing sentences.  The calculation of the thresholds themselves, whether based on illegal income or harm caused, may be difficult to assess.  The civil system also needs to play a robust role in creating respect for IP.  The proof of the limited impact of lowering criminal thresholds is that criminal IP cases significantly increased in China after it lost the WTO case.  After the United States “lost” that WTO case, the number of criminal IPR cases rapidly increased to a high of approximately 13,000 in 2013.  Whether the Chinese data  of 2013 was calculated to include only IPR-specific crimes or crimes that may encompass IPR-infringing products (such as involving substandard products), this was a dramatic increase from approximately 2,684 criminal IP cases or 907 IPR infringement crimes from 2007.  The bottom line is that simply increasing criminal cases through lower thresholds may not be enough to create a healthy IP environment.

Another issue of concern is that foreigners have often been named as defendants in serious civil or criminal cases. The first significant criminal copyright case in China involved American defendants distributing counterfeit DVD’s.  More recently, patent preliminary injunction cases were granted in favor of two different Chinese entities in two cases against American defendants (Micron and Veeco). The largest patent damages case involved the first instance decision in Chint v. Schneider Electric (330 million RMB).  The NDRC investigation of Qualcomm similarly pioneered high antitrust damages in an IP licensing matter.  In many instances,  the final decisions in pioneering cases where foreigners lost were also never published.  Given this track record, we might not want to be advocating for harsher enforcement in the absence of greater commitments to due process and transparency.

The Agreement also pioneers by providing for expeditious enforcement of judgments (Article 1.28).  According to Susan Finder, the SPC already lists judgment debtors in its database.  This is a welcome area of engagement and should also be supported by continuing transparency in this area.

Over the past several years, there has been an increasing incidence of multijurisdictional IP disputes, particularly in technology sectors.  The Agreement does not address the problems arising from these cases.  It does not mention that China does not enforce US judgments, although the US has begun enforcing some Chinese money judgments, nor does it address the practice of many Chinese courts to fast track their decision making to undercut US cases.  Generally, US lawyers cannot conduct discovery in China and formal international procedures to collect evidence are slow.  Both Chinese and US courts often rarely apply foreign law, even when such law may be more appropriate to resolution of a dispute.  Based on a recent program I attended at Renmin University, it also appears likely that Chinese courts will issue their own anti-suit injunctions soon.  The Agreement also does not require anything further in terms of judicial assistance in gathering evidence.  These are areas for potential cooperation as well as confrontation.  Indeed Berkeley and Tsinghua have held a continuing series of conferences on this topic.  At the recent Renmin University conference, British, German, US and Chinese judges exchanged their views on these topics in a cordial and productive manner.  It is my hope that this topic is an area of collaboration, not confrontation.

Regarding copyright, Article 1.29 provides for a presumption of ownership in copyright cases and requires the accused infringer to demonstrate that its use of a work protected by copyright is authorized.  It would also have been helpful if the US and China had discussed the problem of title by title lawsuits in China, which has also increased costs of litigation through requiring multiple non-consolidated lawsuits for one collection of songs, photos or other works.  One Chinese academic confided in me that the current practice of requiring that each individual title be the subject of an individual lawsuit was not the original practice in China’s courts and that the old practice was more efficient for both the courts and rightsholders.

The Chinese and English texts of the Agreement also differ to the extent that the English text refers to the US system of related rights, while the Chinese next refers to the Chinese (and European system) of neighboring rights.

In terms of civil procedure, Article 1.30 permits the parties to introduce evidence through stipulation or witness testimony under penalty of perjury, as well as requiring streamlined notarization procedures for other evidence.  China’s ability to implement “penalty of perjury” submissions is limited by China generally lacking a concept of authenticating a document under penalty of perjury, which also hampers lawyer’s ability to represent clients by powers of attorney.  The implementation and impact of this provision is unclear.

Article 1.31 permits expert witness testimony.  Expert witnesses are already permitted under existing Chinese law, although the trend appears to favor greater use of them.  Moreover, Chinese courts have been expanding the role of expert technology assessors to provide support for technologically complex cases.  Once again the implementation and impact of this provision is uncertain, although we can expect further developments from the courts in this area, particularly in anticipated guidance concerning evidence in IP cases.

Article 1.35 requires that China adopt an action plan to implement the IP chapter of the Agreement.  In an additional welcome development, the Agreement also supports reinstatement of cooperative relationships with the USPTO, the USDOJ and US Customs.

Chapter 2 addresses US allegations regarding forced technology transfer.  It prohibits China from seeking technology transfer overseas consistent with its industrial plans subject to the qualifier that such plans  “create distortion.”  Distortion is not defined.

Other provisions prohibit require technology transfer as a condition of market access, using administration or licensing requirements to compel technology transfer and maintaining the confidentiality of sensitive technical information.   These are consistent with the recently enacted Foreign Investment Law and other legislation.

The Technology Transfer provisions do not address whether the provisions that were removed from the TIER  are now governed by China’s Contract Law and proposed Civil Code provisions on technology transfer contracts.  Clarity on this important issue could help support the autonomy of parties to freely negotiate ownership of improvements and indemnities.  The Agreement also does not address the regulation of licensing agreements by antitrust authorities or under China’s contract law or proposed civil code for the “monopolization” of technology.  The Civil Code provisions are now pending before the NPC and could have appropriately been raised as “low hanging fruit” in this Agreement.  Antitrust concerns in IP had also been raised by several parties in the 301 report concerning IP concerns (at pp. 180-181).  Hopefully, these issues will be decided in the Phase 2 Agreement.

Some additional hope for IP commercialization is afforded by the commitments by China in the Agreement to increase its purchases of services by $37.9 billion from the United States during the next two years, which include purchases of IP rights as well as business travel and tourism, financial services and insurance, other services and cloud and related services.  Considering the central role played by forced technology transfer in this trade war, it was to be hoped that a specific commitment on purchases of IP rights might have been secured.

Concluding Observations

It is often difficult to discern the problems that the Agreement purports to address and/or the appropriateness of the proposed solution(s).    In some instances, it also appears that USTR dusted off old requests to address long-standing concerns that may also not have high value due to technological and economic changes.   For example, it is unclear to me if commitments in the Agreement regarding end-user piracy (Art. 1.23) by the government are as necessary today when software is often delivered as an online cloud-based service and not as a commodity.  The leading software trade association’s position in the 301 investigation did not mention end-user piracy as a top-four priority (p. 4). Moreover, China had already been conducting software audits for several years and piracy rates had been declining.  The commercial value of these commitments is also uncertain under China’s recent “3-5-2 Directive”, where the Chinese government is obligated to replaced foreign software and IT products completely with domestic products within the next three years.  The Agreement already contains commitments for China to increase its share of cloud-based services.  The issue does have a long and sad history. The U.S. Government Accountability Office had calculated 22 different commitments on software piracy in bilateral JCCT and economic dialogues between 2004 and February 2014.

Among the more anachronous provisions of the Agreement are the five separate special administrative IP campaigns that the Agreement mandates.  The general consensus from a range of disciplines and enforcement areas (e.g., IP, counterfeit tobacco products, pollution, and taxation) that campaigns result in “short term improvements, but no lasting change.”  Moreover, the focus of these campaigns, including Customs enforcement and physical markets appears outdated due to the growth of e-commerce platforms.

The situation was predictable: “late-term administrations may … be tempted to condone campaign-style IP enforcement, which can generate impressive enforcement statistics but have limited deterrence or long-term sustainability.” The Administration took this one step further, with enforcement campaign reports timed to be released during the various stages of the Presidential campaign.   Here are some of the administrative campaign reports we can expect, with some corresponding milestones in the Presidential campaign season:

March 15: China is required to publish an Action Plan to strengthen IP protection and to report on measures taken to implement the Agreement and dates that new measures will go into effect. (Art. 1.35)

May 15: China is required to substantially increase its border and physical market enforcement actions and report on activities by Customs authorities within three months (or by April 15, 2020) (Art. 1.21).

May 15: China is required to report on enforcement activities against counterfeit goods that pose health or safety risks within four months and quarterly thereafter (Art. 1.19).

June 15: China is required to report on enforcement at physical markets within four months and quarterly thereafter (Art. 1.22).  This report will coincidentally be released at the same time as the Democratic Party Convention.

August 15: China is required to report on counterfeit medicine enforcement activity in six months and annually thereafter (Art.. 1.18).  This report will coincidentally be released approximately one week before the Republican Convention.

September 15: China is required to report on third party independent audits on the use of licensed software within seven months, and annually thereafter (Art. 1.23).

Also, a quarterly report is required regarding the enforcement of IP judgments (Art. 1.28).

There is no explanation provided in the Agreement for the timing of each of these reports, their sequential staging or why the usual date for release of government IP reports (April 26) is not being used.

There are many other important IP areas not addressed in the Agreement.  The Agreement offered a missed opportunity to support judicial reform, including China’s new national appellate IP court, the new internet courts as well as local specialized IP courts at the intermediate level.  The Agreement also entails no obligations to publish more trade secret cases, to make court dockets more available to the public, and to generally improve transparency in administrative or court cases, which might have made the Agreement more self-enforcing.  Due to the relatively small number of civil and criminal trade secret cases and recent legislative reforms, the greater publication of cases would be very helpful in assessing the challenges in litigating this area and China’s compliance with the Agreement. The new appellate IP Court will be especially critical to the effective implementation of the important changes in China’s trade secret law as well as the implementation of the patent linkage regime.  The patent linkage provision also similarly neglects to describe the critical role of the courts in an effective linkage regime.  The Agreement to a certain extent memorializes the ongoing tensions between administrative and civil enforcement in China and regrettably reemphasizes the role of the administrative agencies in managing IP through campaigns and punishment.

The trade war afforded a once in a lifetime opportunity to push for market mechanisms in managing IP assets through a reduced role for administrative agencies and improved civil remedies in China’s IP enforcement regime.   A high cost was paid in tariffs to help resolve a problem that the Administration estimated, or exaggerated, to be as high as 600 billion dollars.   The reforms in the Agreement hardly total up to addressing a problem of that magnitude, and in many cases appear more focused on yesterday’s problems.  While the continued emphasis on administrative agencies and limited focus on civil remedies is disappointing, there are nonetheless many notable IP  reforms in the Agreement in addition to legislative reforms already delivered.  I hope that a Phase 2 agreement will deliver additional positive changes that also address the challenges of the future

Please send me your insights, comments, criticisms or corrections!  Happy Spring Festival!

Please send in any comments or corrections!

Revised 1/23/2020, 1/27/2020

The Trump Administration and China IP Diplomacy: Old Wine In a New Bottle?

Two major China IP events occurred in late November and December. One of them was the long-awaited first phase of a settlement of the US-China trade war.  The second was the nomination of Wang Binying to replace Francis Gurry as Director-General of the World Intellectual Property Organization, a United Nations body and US reaction.  A common thread of concern over “IP Theft” unites the US perspective on these issues.  This is the first of a two-part blog, focusing first on the Phase One effort.

The First Phase Agreement

Although a final text of the 86 page agreement is reportedly being “scrubbed” by both sides to the negotiations, and will not be available until January, the Office of the US Trade Representative has called Phase One

an historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, … The Phase One agreement also…establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement.

USTR’s fact sheet outlines these accomplishments in IP:

Intellectual Property: The Intellectual Property (IP) chapter addresses numerous longstanding concerns in the areas of trade secrets, pharmaceutical-related intellectual property, geographical indications, trademarks, and enforcement against pirated and counterfeit goods.

Technology Transfer: The Technology Transfer chapter sets out binding and enforceable obligations to address several of the unfair technology transfer practices of China that were identified in USTR’s Section 301 investigation. For the first time in any trade agreement, China has agreed to end its long-standing practice of forcing or pressuring foreign companies to transfer their technology to Chinese companies as a condition for obtaining market access, administrative approvals, or receiving advantages from the government. China also commits to provide transparency, fairness, and due process in administrative proceedings and to have technology transfer and licensing take place on market terms. Separately, China further commits to refrain from directing or supporting outbound investments aimed at acquiring foreign technology pursuant to industrial plans that create distortion.

In light of prior bilateral commitments and accomplishments by the Trump Administration to date, the fact sheet adds little that is new.

Let’s pull the IP paragraph apart:

China has already amended its laws regarding trade secrets and trademarks.  The reference to pharmaceutical-related intellectual property is, however, one welcome encouragement of efforts that were recently proposed in the CCP/State Council Opinionsgulation of November 2019.  These changes were in play before the trade war was launched, but had since been delayed.  This welcome recommitment is well supported by a new national appellate IP court, as well as by a recent decision by the new appellate IP Court combining civil and administrative adjudication in a patent dispute, which may also be a harbinger of a possible combined civil/administrative adjudication with third parties in other areas, such as for patent linkage such as with the China’s food and drug authorities or patent authorities.

USTR refers to the Phase One agreement as addressing “long-standing concerns” about trade secrets and “enforcement against pirated and counterfeit goods.”  One of the “long-standing concerns” in trade secrets involved enhancing administrative enforcement of trade secrets.  This commitment was expressed in the 2012 US-China Strategic and Economic Dialogue and incorporated into plans of the National Leading Group.  Efforts to enhance “enforcement” against pirated and counterfeit goods appear is also redolent of increased administrative enforcement more generally – which downplays the significant changes underway in China’s judicial system, and have been the subject of numerous bilateral commitments under the former Joint Commission on Commerce and Trade.  For unknown reasons, many of the earlier JCCT commitments are no longer easily retrievable online, however, a list of commitments was prepared by GAO for the years 2004-2012, which demonstrates their long history.

Several factors combine to suggest that the US and China may be committing to a renewed focus on administrative enforcement: the role that administrative enforcement has played in the recent CPC-State Council Opinions on IP and other regulations, proposed legislation, and recent campaigns, and the problem of a long trade war without any acknowledged results which is affecting the markets and may drag into a presidential election cycle.  Late-term administrations may also be tempted to condone campaign-style IP enforcement, which can generate impressive enforcement statistics but have limited deterrence or long-term sustainability.    As Prof. Dimitrov has noted, IP campaigns are typically a “rapid resolution of a major problem,” done in response to a crisis or political pressure.  Prof. Mertha, another political scientist, described prior commitments to enforcement campaigns as part of the  “red face test: could the USTR state at a press conference, with a straight face, that the [trade] agreement was a good one.”  After much pain and drama, the Administration may yet be placing old wine in a new bottle, “rounding up the usual” enforcement outcomes —  as it ignores the scholarly literature surrounding campaign-driven outcomes of twenty to thirty years ago.  If these observations on Phase One are correct, then the goal of “structural change” in IP enforcement is illusive.

An administrative campaign focus would also ignore the low hanging fruit of China’s recent improvements and experiments in civil enforcement as well as pushing for further reform in administrative enforcement.  The Phase One Fact Sheet omits such pressing matters as continuing improvements in civil enforcement, long-standing problems with administrative enforcement transparency, promising developments in development of judicial precedent, the experiment of a new national appellate IP court similar to the CAFC,  the recent decline in foreign-related civil enforcement transparency, the dramatic decline in criminal IP enforcement including trade secret enforcement in the last several years, the need for rightsholders to have observable means of monitoring a trade agreement outcome in such areas as forced technology transfer or IP enforcement, or the impact of China’s aggressive antitrust regime on IP protection and commercialization, among other issues.   Enhanced punitive enforcement in enforcement, which both the US and China have also been calling for, may similarly be inconsistent with the primary goal of adequate compensation to victims of infringement. Furthermore, absent adequate procedural and substantive safeguards, this could also result in punishments being handed out to foreigners, as they have in the past.

The focus of an IP regime should instead be on transparency, fairness and adequate compensatory civil damages. Due to the many perceived weaknesses of China’s IP enforcement regime, the 2019 US-China Business Council, for example,  has noted in its 2019 survey that IPR enforcement was rated number 6 among the top 10 business challenges faced by the survey respondents.

The technology transfer language also contains much of the same old wine.  China committed to not conditioning foreign investment on technology transfer long before this trade war when it joined the WTO (2001).  It agreed at that time to provide for the “elimination and cessation of … technology transfer requirements” and that “the terms and conditions of technology transfer, production processes or other proprietary knowledge, particularly in the context of an investment, would only require agreement between the parties to the investment.“  Based on the Phase One fact sheet, it is also hard to see how Phase One agreement will add to the important additional legislative changes on this issue that China enacted earlier this year.

Rather than focus on legislative changes, the nature of the continued subsistence of forced technology transfer (FTT) is probably the more important trade issue at this time.  The 2019 Business Climate Survey of the American Chamber of Commerce in China characterized FTT as an “operational”, rather than a “legal” challenge, and placed technology transfer issues fifth in priority among IP-related concerns, well behind IP enforcement, with only 8 percent of respondents reporting it as the most significant IP issue their company faces.  This also appears to be the perspective of Prof. Prud’homme in his December 2019 presentation to the OECD, which outlines how FTT manifests itself.  Depending on the industrial sector, the Business Climate Survey notes that 41-58% of companies reported no difference in the amount of technology they shared with Chinese companies compared to other markets.  The US-China Business Council survey reached similar conclusions: technology transfer concerns ranked 24 out of 27 top concerns in the market. The Business Council further noted that only 5 percent of survey respondents report being asked to transfer technology in the past three years, yet the issue is an acute concern of affected companies in key sectors.

Has FTT declined as an issue of concern?  Earlier surveys by business chambers, before the trade war, suggested a higher incidence of FTT than is currently being reported.   Scholars and practitioners have also estimated that this issue has been exaggerated by the administration.  US data on sales of technology to China show a continued increase in technology licenses, as well as increases in licenses to unrelated parties, which may suggest greater confidence in the market and legal system.  One may argue about the sufficiency of the data, although the legal reforms and recent changes confirm to me that the principle strategic issue is how to ensure that technology is not lost through extra-legal /“operational” measures.

Another concern is that remedies for FTT  may end up again being another opaque process that may not bring the necessary relief.  As with the continuing emphasis on administrative enforcement of IP, China’s legislative efforts to date suggest that a principal remedy would be administrative remedies, as proposed implementing regulations to China’s Foreign Investment Law already suggest.

Conclusion: Is IP Any Different?

One of the better general overviews of the Phase One agreement had been written by Scott Kennedy for the Center for Strategic and International Studies.  Scott’s article “A Fragile and Costly US-China Trade Peace” notes that  “ [I]n the short-term China and Xi Jinping are the clear winners. With only limited concessions, China has been able to preserve its mercantilist economic system and continue its discriminatory industrial policies at the expense of China’s trading partners and the global economy. “

The fact sheet for Phase One suggests that further dramatic improvements since the notable accomplishments of earlier this year may not be in the offing.  Perhaps these will be negotiated as part of any “Phase Two” deal.  For the moment, there is certainly nothing in these outcomes which sets forth a “structural change” such as might include a shift to a private property oriented approach to IP, including support of a civil system, a more limited role for the administrative system and less state intervention into IP protection, enforcement, and commercialization.  There is also no reference to the greater transparency necessary to enable rightsholders and governments to understand how China’s enforcement mechanisms operate to protect private rights in China’s socialist market economy.

Now, let’s see what the scrubbed text brings…

Upcoming blog: on the nomination of Wang Binying to WIPO Director-General.

New CPC and State Council Opinions on Improving IP Protection

wordcloud

On November 24,  2019, the General Office of Communist Party of China and the State Council jointly released the Opinions Concerning Enhancing Intellectual Property Rights Protection (关于强化知识产权保护的意见).

It is often too easy to dismiss documents like these, that have typically delivered an ephemeral higher state of vigilance by the Chinese government.  Nonetheless, there are some useful statements in this document that may be an indicator of future durable improvements, including:

  1. It is jointly published by the CPC and the State Council and thus has high level political and executive branch support.
  2. It does address some long-standing concerns raised by industry, such as development of a patent linkage system, patent term extension and copyright protection for sports broadcasts.
  3. There continues to be a focus on punitive damages in litigation. However, this document does appropriately point out the need to increase actual damages.
  4. Improving criminal enforcement, including revising criminal judicial interpretations – is also addressed.  Along with revising the criminal code, revising criminal JI’s and their high criminal thresholds was a goal of the WTO case that the US filed against China over 10 years ago (DS362).  This task is long overdue.
  5. Improving coordination between administrative and criminal enforcement is once again highlighted. This is also a long-standing issue.  In light of numerous prior efforts and experiments, a more concrete explanation of how this might be accomplished to better enable prosecution of major criminal actors would be helpful in the future.
  6. Case guidance and public trial systems are highlighted. Hopefully, the case guidance system will add further momentum to successful case law experiments in IP at the Beijing IP Court.
  7. The introduction of technical assessors into administrative enforcement could suggest a continued enhanced role for patent administrative enforcement, which has been increasing even as trademark administrative enforcement has been declining. If so, it may not augur well for foreigners who have traditionally been heavy “consumers” of the administrative trademark system, but not the administrative patent system.
  8. Improvements in the “examination” of utility models and designs are noted as a goal. However, these rights are generally not examined for substance except in the case of “abnormal” applications.
  9. Continuing attention is paid to challenging markets, such as e-commerce platforms and trade fairs, as well as establishing faster protection mechanisms.
  10. There is a continuing focus on supporting Chinese rightsholders overseas.

This document arguably goes part-way in establishing an outline for addressing US concerns about IP theft.  However, it offers little to address such concerns as ensuring greater transparency in the courts, publishing foreign-related cases, or addressing certain trade-sensitive topics outlined in USTR’s Section 301 report, such as cyber intrusions or criminal trade secret misappropriation.

The word cloud, above, is drawn from a machine translation of this document.  The original Chinese language and my redlining of a machine translation are found here.

Addendum of November 26, 2019:

Susan Finder in her Supreme People’s Court Monitor blog, reported on Judicial Interpretation drafting by the SPC for next year, some of which are referenced in the recently released Opinions.  According to that blog, on 29 April 2019, the SPC’s General Office issued a document setting out a list of 47 judicial interpretation projects, 36  with an end of 2019 deadline.  Several of these involve IP-related issues, including issues addressed in the joint CPC and State Council Opinions, including:

  1. Interpretation Concerning the Application of Law in Cases of Disputes over the Infringement of Trade Secrets (关于审理侵犯商业秘密纠纷案件应用法律若干问题的解释). Responsibility of the #3 Civil (IP) Division.
  2. Interpretation on Several Issues Concerning Punitive Damages for Intellectual Property Infringement (关于知识产权侵权惩罚性赔偿适用法律若干问题的解释). Responsibility of the #3 Civil (IP) Division.
  3. Provisions on Issues Concerning the Application of the Foreign Investment Law of the People’s Republic of China (I) (关于适用《中华人民共和国外商投资法》若干问题的规定(一)). Responsibility of the #4 Civil Division. The Foreign Investment Law and the recently released draft implementing regulations contain provisions protecting the intellectual property of foreign investors, including prohibiting forced technology transfers and enhancing the availability of punitive damages.

These draft JI’s have a due date of the first half of 2020.  Susan Finder notes in her blog that given the worldwide attention on the issues set forth in these three judicial interpretations, she expects that they will be released for public comment.  I hasten to add that the IP Division of the Court has generally taken a positive attitude towards soliciting public comment on its draft judicial interpretations, and I hope that they maintain this tradition.

It was also noted by Susan Finder that certain JI’s were due by year-end 2019, including:

  1. Intellectual Property Rights Evidence Rules (关于知识产权民事诉讼证据的若干规定).  Responsibility of the #3 Civil (IPR) Division. This draft was discussed at a conference hosted by the SPC in Hangzhou in 2018.  As Chinese courts experiment with more expanded discovery, evidence preservation and burden of proof reversals, clearer rules regarding the obligations of parties to produce evidence are becoming more critical.  A particular notable example of such a reversal is found in the recent amendments to the trade secret law (Article 32), whereby  a rights holder that has preliminarily proven that it  has taken reasonable confidentiality measures on the claimed trade secrets and has preliminary evidence reasonably demonstrating that its trade secrets have been infringed upon, can shift the burden of proof (BOP) to the infringer to prove that the trade secrets claimed by the right holder do not belong to those as prescribed in this law.
  2. Judicial interpretation on administrative cases involving patent authorization and confirmation (关于审理专利授权确权行政案件若干问题的解释). Responsibility of the #3 Civil IPR) Division. Another interpretation that previously had a 2018 year-end deadline.  A draft was issued for public comment in the summer of 2018; see my earlier blog.

Addendum of November 27, 2019:

Another China law blog, the NPC Observer also expects that some of the IP legislation flagged in the Opinions for revision may be considered as early as late December of 2019t.  According to the NPC Observer:

We expect the session to review a … draft amendment to the Patent Law [专利法] …The session may additionally consider the following bills: …

I have previously blogged about proposed revisions to the Patent and Copyright Law.

Addendum of January 9, 2020: Here is a translation of the Opinions from China Law translate.