US Files Consultation Request at WTO on Chinese Technology Licensing Practices

Fresh on the heels of the Section 301 announcement, USTR on March 23, 2018 made a  consultation request  of China regarding China’s discriminatory licensing practices.  This is the first step in initiation of  a WTO dispute.  Here is a link to the press announcement.

The consultation request broadly speaking alleges discriminatory treatment in licensing pursuant to China’s joint venture regime as well as the  Administration of Technology Import/Export Regulations (“TIER”), as compared to provisions under China’s contract law that may govern purely domestic technology transfers or Chinese exports of technology.  The complaint is based on the National Treatment provisions of the TRIPS agreement as well as Article 28.2, which provides that “Patent owners shall also have the right to assign, or transfer by succession, the patent and to conclude licensing contracts.”  The Section 301 Report of USTR also discusses these issues.

 

 

 

March 13 – 19, 2018 Updates

1. China’s export of IP royalties increased 311.5% in 2017  According to the statistics of the State Administration of Foreign Exchange, the volume of trade of Chinese IP royalties totaled 33.384 billion USD in 2017, a 32.7 percent increase from 2016. The amount of exports of IP royalties totaled 4.786 billion USD, a 311.5 percent increase from 2016, which ranked No.1 in terms of the speed of growth in service trade. The exports and imports of IP royalties for manufacturing industry ranked No. 1, at 3.793 billion USD, a 544 percent increase from 2016.  The import amount totaled 20.753 billion USD, up 16 percent. In terms of category. The amount of exports of replication/distribution computer software ranked No.1. at 3.405 billion USD, up 652 percent from 2016. In terms of region, Guangdong province was the No.1 in amount of export and import of IP royalties in 2017. Its export amount totaled 4.013 billion USD, up 591.9 percent from 2016 and its import amount totaled 7.525 billion USD, up 9.8 percent from 2016.

Despite the significant increase in the amount of exports of IP royalties in 2017, China still has a trade deficit in IP royalties. The amount of the deficit totaled 23.812 billion USD, which increased by 0.978 billion USD. About 60% of the deficit reportedly originated from the United States, Germany, and Japan.

IP commercialization and utilization has been a focus of China’s IP efforts since the third plenum of the Communist Party in 2014. However, foreigners continue to view China as very challenging licensing environment despite China’s claims of a licensing “deficit”. China’s technology import/export regulations had been one of the challenges that foreigners expressed special concern. In the US Chamber’s recently released IP Index, it was noted that IP commercialization in China was hampered by “[s]ubstantial barriers to market access and commercialization of IP, particularly for foreign companies.” China received zero points for “Regulatory and administrative barriers to the commercialization of IP assets.”  Here is a link to the discussion of Chinese licensing practices. The US Chamber’s conclusion is not unlike that of the Global Innovation Index (2016) which, as we previously reported, scored intellectual property payments according to a formula as a percentage of total trade. China came out at 72nd place, while it ranked number 1 in high tech exports. Similar concerns were also voiced by USTR in the recently released Section 301 report.

2.SIPO takes efforts to develop ability and capacity of IP mediation entities.  SIPO recently issued a “Notice on Developing the Ability and Capacity of Intellectual Property Mediation Entities” (“Notice”), as part of its effort to strengthen the role of mediation in IP dispute and the overall IP protection system. According to the Notice, SIPO will select 20 to 30 existing IP mediation entities every year as the target for ability and capacity development and help with such development for two years. After the two-year period, SIPO will release the basic information as well as specialties of entities that made great progress. Selection and review of existing entities will start this year, which is done by SIPO. Entities can apply either through local IP offices or to SIPO directly.

Within the region, Japan is also considering the use of mediation system to resolve IP disputes. The Japan Patent Office (JPO) intended to introduce an ADR system to determine appropriate license fee of SEPs in 2017. However, the ADR SEP system is likely to be deferred, as reported after a JPO committee meeting in November 2017.

3.  Huawei v Samsung patent decision released by Shenzhen IP Court. The recent decision in Huawei v Samsung was released by the Shenzhen IP Court.  The case involves assertion of two SEP’s by Huawei, and the grant of an injunction against further infringement.

Summary of MoST Presentations at the Two Sessions

Thanks to Mr. Dai Nian, Research Associate, Duke Kunshan University for this summary of some of the presentations of the Ministry of Science and Technology at the two sessions of the National People’s Congress and Chinese People’s Consultative Conference (“lianghui”) meetings.   Much of this summary has direct implications for IP, particularly patents – including regarding China’s continuing innovation in fintech, AI, autonomous vehicles, US-China clean energy cooperation and science cooperation, and commercialization/licensing of technology.

Overall assessment of past achievement and current status

The strategic importance of Science and technology innovation in the overall development of party and state has been significantly increased. China’s S&T innovation capability and efficiency have been largely improved. The country is gradually transforming from passive follower and learner to leader in many fields. The contribution rate of science and technology has risen from 52.2% to 57.5%, with the new economy leading the world such as digital economy, sharing economy. Five years since the 18th National People’s Congress, the major historic achievements of China’s S&T can be summarized as:  S&T capability is significantly improved, the country has entered a stage of “并跑 (at the same speed)” and more and more “领跑 (take the lead)”. China’s strategic high techs is currently at the world forefront; S&T innovation provides strong support to supply-side reforms and improvement of people’s livelihood, fully integrating into socio-economic development.

Artificial intelligence

The critical step for AI to deeply integrate with all aspects of our life is to have strong capability and constant breakthroughs in key technologies, basic research, and make it available to individuals, entrepreneurs dedicated to innovation. But most importantly, China should strengthen the foundation for AI:  enhance the science foundation for AI, speed up integrated systematic R&D of key technologies, and improve R&D discoveries in open platforms. The Chinese government will release AI guidance and detailed rules and regulations in order to achieve breakthroughs in basic frontier theories and key technologies; expedite commercialization and application of AI. At the same time, research on policies, laws and regulations should be enhanced so as to properly address challenges arising from social ethics, employment structure, individual privacy, national security, etc; AI is an international trend. China will strengthen international cooperation, support Chinese AI companies and research institutes to have cooperation with foreign partners.

New energy car and US-China S&T cooperation

Volume of sales of electric cars and new energy cars reached 770,000 last year, and China is now in possession of 1.6 million accounting for half of world total. Primary reasons for developing new energy cars are: improve structure of energy consumption, reducing reliance on oil; reduce air pollution; significantly alleviate traffic congestion when autonomous driving, AI is combined with electric cars in sharing economy model. China and the United States have been cooperating closely in this field. e.g U.S.-China Clean Energy Research Center (CERC) that focuses on energy saving buildings, clean coal,  and electric cars. China-U.S. S&T innovation cooperation will constantly strengthen. The Chinese government is confident that bilateral S&T cooperation will go deeper, given that scientists, entrepreneurs, and government of each country have established well-functioning communication mechanisms.

Scientists and researchers are the main force of S&T management reform

The most important thing to do is focus on people (S&T personnel) if we want to strengthen basic research, promote commercialization, and improve performance of all-chain innovation. Over the past five years, the government has carried out substantial reforms in the overall S&T management system and use of funding. S&T personnel are empowered to have more discretion of fund allocation, to start businesses that commercialize S&T discoveries. Wan Gang points out some obstacles blocking the implementation of reform measures such as fiscal constraints, cap on the rewards to researchers, lack of budgetary flexibility. MOST will produce relevant policies in the near future regarding evaluation system, S&T commercialization, tax preference, and credibility of S&T personnel.

双创 (mass entrepreneurship and innovation)

Under national enthusiasm for 双创 (literally double creation, or mass entrepreneurship and innovation), a lot of group innovation space (GIS) have sprung up that give full play to young people‘s creativity and entrepreneurship and also greatly facilitates economic transformation and development.  Meanwhile, 双创 together with GIS helps promote openness and sharing of S&T resources because R&D achievements made by enterprises, universities, and research institutes are integrated here, with many public services becoming open to all. 双创improves the level of internationalization of China’s innovation, given that there are already many offshore Chinese innovation centers.

Wan Gang highlights three major task to be accomplished in order to upgrade 双创: deep integration of industry, university, and research institute so as to realize high level innovation and entrepreneurship that will serve real economy; promote fintech (finance and technology combination) and provide diverse financial services for tech entrepreneurs and start-ups; absorb and leverage international resources through cooperation, build a favorable ecology for innovation and entrepreneurship that is made up of GIS, incubators, accelerators, S&T parks that cultivate talent, promote commercialization, effectively combine VC with industries.

S&T commercialization

China has accomplished a trilogy in S&T commercialization: over the past five years, the government revised laws on S&T commercialization, promulgated a number of rules and regulations that facilitate and promote S&T commercialization, kicked off a series of moves—the end result is positive considering the significant progress made in technology commercialization and rapid growth of tech transaction market which reached 1.3 trillion yuan in 2017.

MOST at Two Sessions:

http://digitalpaper.stdaily.com/http_www.kjrb.com/kjrb/html/2018-03/10/content_390065.htm?div=-1

http://most.gov.cn/xinwzx/xwzx/twzb/fbh18031001/twbbzbzy/201803/t20180310_138522.htm

http://most.gov.cn/xinwzx/xwzx/twzb/fbh18031001/twbbzbzy/201803/t20180310_138521.htm

http://most.gov.cn/xinwzx/xwzx/twzb/fbh18031001/twbbzbzy/201803/t20180310_138520.htm

http://most.gov.cn/xinwzx/xwzx/twzb/fbh18031001/twbbzbzy/201803/t20180310_138519.htm

http://digitalpaper.stdaily.com/http_www.kjrb.com/kjrb/html/2018-03/12/content_390192.htm?div=-1

 

January 30-February 12, 2018 Updates

Here are some updates on IP developments in China from prior two weeks.

  1. China’s tough cyber rules raise risk of infiltration US business group says In a report released on Monday, the US-China Business Council urged Beijing to loosen limits on data flow and storage that raise the risk of security breaches for foreign companies. The council said China should follow best international practice by opening access to cloud computing services, levelling the playing field in technology procurement and allowing foreign firms to send copies of data abroad for analysis and processing. The Council’s report also recommended that foreign partners in joint ventures be allowed to own and control software and other technology licensed to the joint ventures.
  2. MIIT Chief says China does not force foreign enterprises to transfer technology, says MIIT chief China did not and cannot force foreign enterprises to transfer technology to the country, and any cases of technology transfers are enterprises’ own choices driven by the market, Miao Wei, head of the Ministry of Industry and Information Technology (MIIT), said at a press conference on Tuesday, adding that China has been taking steps to better protect intellectual property rights.
  3. .The Supreme Court of China Issued Seven Typical Cases on Property Rights Protection最高法发布7起保护产权典型案例 on “property rights protection” last Tuesday. Among those seven cases, two focused on intellectual property rights, with one on trademark infringement and unfair competition, and the other on criminal trade secret protection in an employment context. Details of those typical cases are available here.
  4. FTC, Justice Department Officials Meet in China On Antitrust Enforcement The head of the Federal Trade Commission (FTC) and a representative from the Justice Department met with Chinese officials from NDRC, MOFCOM and SAIC in Beijing this week to discuss efforts to ensure effective antitrust enforcement and increased interagency cooperation. This is the U.S. delegation’s fourth meeting in China since the between the countries signed an antitrust memorandum of understanding on July 27, 2011.
  5. Baidu Accused of Not Playing Fair by Popular News Aggregator Beijing ByteDance Technology, which runs the Jinri Toutiao app that had 232 million monthly active users as of December last year, said on Tuesday that it filed the lawsuit against Baidu at the Haidian District People’s Court in the Chinese capital. In a post on its official WeChat account, ByteDance said Baidu used its “monopoly advantage” to mislead users and damage Toutiao’s reputation, the details of which it has filed in court. Ahead of the ByteDance filing on Tuesday, Baidu issued a statement that described ByteDance’s lawsuit, like its public relations efforts, as reflecting “anxiety over its own challenges in development”.
  6. China sees robust growth in technology transactions More than 367,000 technical contracts were signed in China in 2017, up 14.7 percent from the previous year, according to the Ministry of Science and Technology. The transaction value of the contracts totaled 1.34 trillion yuan (213 billion U.S. dollars), with a year-on-year increase of 17.7 percent. Electronic information, urban construction and social development, and transportation are the top three fields that gained the most value.  Among four types of technical contracts, technical service contracts (技术服务合同) and technological development contracts (技术开发合同) had strong growth. However, technology licensing contracts (技术转让合同) and technical consulting contracts (技术咨询合同) in fact had a decline.  Over 40 percent of transactions were contracts involving intellectual property rights. Biotechnology and pharmaceutical contracts had a strong growth of 62.94%, with a total overall transaction value of 1.19 billion yuan. The transaction volume of invention patents grew by 19.2 percent in overall transaction value year on year.    IP utilization has been a focus of China’s IP efforts since the third plenum of the Communist Party in 2014. However, foreigners continue to view China as very challenging licensing environment. In the US Chamber’s recently released IP Index, it was noted that IP commercialization in China was hampered by “[s]ubstantial barriers to market access and commercialization of IP, particularly for foreign companies.” China received zero points for “Regulatory and administrative barriers to the commercialization of IP assets”  Here is a link to the discussion of Chinese licensing practices. The US Chamber’s conclusion is not unlike that of the Global Innovation Index (2016) which, as we previously reported, scored intellectual property payments according to a formula as a percentage of total trade. China came out at 72nd place, while it ranked number 1 in high tech exports.
  7. The rise of Chinese groups applying for US patents The breakdown of patents granted in the U.S. per country changed little in 2017 from previous years, with China the glaring exception, according the analysis by patent service and analytics company IFI CLAIMS.  China’s overall slice of the pie remains relatively small. Just 11,240, or 3.5%, of the 320,003 utility patents granted in the U.S. last year went to Chinese companies, compared with 31% to other Asian businesses. But it is the pace at which certain Chinese tech companies have risen in the rankings that will have rivals from the U.S. and elsewhere taking note. For instance, BOE Technology Group (京东方科技集团股份有限公司), whose core business centers on display sensor technology and the Internet of Things, was granted 1,414 patents during the year, compared with 19 in 2013.  
  8. Guangdong’s accumulated invention patents top China Guangdong Province topped the country in the number of valid invention patents granted over the past eight years, according to local authorities. By the end of 2017, the accumulated number of valid invention patents in the province reached 208,500, said He Jufeng, deputy director of the Guangdong Intellectual Property Office. Note that although Guangdong has the most accumulated patent grants, in recent years Guangdong has met some competition.  Jiangsu Province, for example, was the No.1 for invention patent application in 2015, while Guangdong was No. 2, based on data from SIPO for 2015. Meanwhile, in 2014, Jiangsu was the No.1 for invention patent application and Guangdong was No.3. Guangdong has also been a source of many of China’s PCT filings, from companies like Huawei and ZTE.   
  9. Conference proposes int’l e-commerce cooperation An e-commerce conference held in Beijing called for coordinated regional cooperation on areas including supervision and standard setting to promote sustainable development of the emerging sector. The first global regulatory framework for e-commerce was put forward during the conference. Proposed by Chinese customs, the document listed eight core principles in e-commerce management including clearance procedures and the role of online retailers.
  10. New Intellectual Property initiative extends Berkeley Law’s reach in Asia China’s push to create a dynamic economy with innovative companies is creating opportunities for new academic, commercial, and government partnerships. Eager to maximize those opportunities—and to deepen its foothold overseas—Berkeley Law has launched the Asia IP Project.  Led by Professor Mark Cohen, and powered by the school’s Berkeley Center for Law & Technology (BCLT), the initiative seeks to enhance existing collaborations and develop new ones with academic institutions and other partners in Asia. Center leaders will bring together Chinese and U.S. academics, government officials, and practicing lawyers to better understand Asia’s intellectual property law issues through research, workshops, conferences, and other eventst. The program had its first US meeting on February 9, 2018.

We hope to be providing more updates in the year ahead from the Berkeley Center for Law and Technology. As usual the information contained herein does not necessarily represent the opinion of any government agency, company, individual or the University of California.

 

By Berkeley staff.

October Offerings on Chinese IP

Here are some upcoming programs that involve China in North American in October:

October 11-12, 2017, I will be speaking on a China IP Panel at the ABA IP West conference in Long Beach, California.  The panel will focus on China’s recent (paradoxical) emergence in IP protection and enforcement.  Mike Mangelson, China IP Attaché in Shanghai will also be speaking at a session focused on the China IP Attaché program at this ABA program.

On October 14, 2017, I will be moderating a session on new trends in Chinese IP litigation, courts and enforcement at the Sixth Annual IP  Summit hosted by Loyola University of Los Angeles.

On October 18, 2017, the University of Indiana/USPTO will be hosting a China “Road Show” in Indianapolis.

On October 20, 2017, the John Marshall Law School will be hosting a China “Road Show” with USPTO in Chicago.

On October 26, 2018, I am scheduled to be commenting (as an academic) at the Fordham IP Institute on a presentation by Dr. David Cole of the Hagley Museum and Library on “A Nation of Inventors: The Politics of American Patent Models.  The Hagley Museum is planning an exhibit in China of its patent models in 2018.

Apart from these events, there are also China IP road shows scheduled for Salt Lake City and Denver in October.   Watch the USPTO website for more information on these and other programs.

An addenda to October offerings, per its Federal Register Notice, on October 10, 2017, USTR will be hosting a hearing on the Section 301 investigation involving China’s Technology Transfer, Intellectual Property and Innovation – Related Rractices.

 

Upcoming Licensing Program in Taiwan

The American Institute of Taiwan (AIT) and the Taiwan Ministry of Economic Affairs, amongst others, are sponsoring a licensing program at AIT on March 30, 2017. The program will cover licensing issues faced by U.S. companies in Taiwan and Taiwan companies in the U.S., as well as open source innovation and tax considerations in licensing.

 A draft agenda with registration form is attached. If you are interested in attending, please register with AIT, Ms. Lisa Yang, as indicated on the form.

Two Upcoming Events: Innovation and Technology Licensing

ITIF, the Information Technology & Innovation Foundation,  is holding a seminar in How the Trump Administration Can Stop China’s Innovation Mercantilism on March 16, 2017.   Here’s the link to the program.  Speakers include: Robert D. Atkinson (ITIF) , Stephen Ezell (ITIF), Scott Kennedy (CSIS), Claire Reade (Arnold & Porter), and John Veroneau (Covington) for what I am sure will be a lively 90 minute event in Washington, DC.

In an unrelated event, USPTO and the Ministry of Commerce are  jointly sponsoring a program on cross border technology licensing on March 28 in Beijing at Renmin University’s law school (specific room still TBD).  Here is a draft agenda.

 The USPTO/MofCOM program is intended to provide an opportunity to discuss cross-border IP licensing.  In particular, including China’s Technology Import Export Regulation (“TIER”) 技术进出口管理条例and its impact on US technology collaboration and licensing.  The program builds upon prior programs with SIPO that explored similar topics.  RSVP’s for this program are requested by Wednesday, March 22.   Please email Ms. Liu Jia – jia.liu@trade.gov – to RSVP.