The WTO IP Cases That Weren’t

Every once in a while, someone asks me: “What WTO claims could the US possibly have made against China?” 

The question is especially relevant in light of the recent decision of the incoming Biden Administration to nominate Katherine Tai a Chinese-speaking, veteran WTO litigator with an understanding of Chinese industrial policy and a solid track record on multilateral engagement.   Many of the more important IP-related issues in China are today wrapped up in industrial policy.

I offer these thoughts in order to better assess past US efforts at the WTO and for such time, if any, that the WTO becomes a preferred venue for resolution of United-States China IP disputes.    As USTR did not bring a single IPR case against China during the Obama Administration, I hope these suggestions are helpful.  I believe that it is time to rethink the US reluctance to bring WTO cases at the WTO.  In fact, the best WTO track record on China IPR ironically belongs to the Trump Administration which brought  a successful IPR case in the first fifteen months of its tenure.  If a Biden Administration wishes to demonstrate that cases can have an impact, it may similarly wish to consider launching IPR dispute cases at the WTO or pursuant to the Phase 1 Trade Agreement early in its term.

I have rated each of these potential claims with stars: *  = “should be rejected or no need to file”; ** = “requires further study or might be worth filing if circumstances change” ; *** = “elements of this claim have merit or might be considered after further research for filing in the mid-term” and **** =  “the claim has a good risk/reward proposition or might be considered for filing in the near term.”  I have generally not factored into these calculations the possibility of defensive risks or alternative options.  A defensive risk reflects the possibility that the US might be charged for violation of the TRIPS Agreement.  An example of a defensive risk may be the extensive invocation of national security exemptions for IP and other issues during the Trump Administration (Art. 72, TRIPS Agreement).  Alternative options might typically include such strategies such as bilateral negotiations, dispute resolution under the Phase 1 Trade Agreement, seeking to accelerate existing reforms underway in China, or some form of collaborative pressure with other countries.

This list is not exhaustive.  I list the claim in the order of the Section in which it principally appears in the TRIPS Agreement (I-III, V), and under other WTO Agreements. 

A. General Provisions and Basic Principles The Preamble to the TRIPS Agreement provides that IP is a “private right.”  Although many countries incorporate IP into their economic strategies, China often strongly supports IP as a government license or public utility.  The structural issue manifests itself in China in various forms, including: the role of industrial planning in intellectual property; aggressive use of antitrust laws; historical dominance of public enforcement mechanisms; and a relatively weak civil system.  Katherine Tai’s background in Chinese industrial policy involving the rare earth dispute should be well suited to looking at the complex IPR environment in China.  Although this “private right” language in the TRIPS preamble does not create a specific obligation, it does provide “colour, texture and shading”  to other WTO obligations.   This language might be used to inform other, more specific industrial policy related claims. It can also be used at such time as the WTO authorizes “non-violation” cases under TRIPS (discussed below under Section V). The United States might also urge a “private right” and/or “non-violation” case against China as part of a package of conditions towards reviving the WTO and its dispute settlement mechanisms. (**)

B. Art 3:  “National Treatment”:  Although the US government routinely claims that foreigners are being discriminated against by the courts or IP agencies in China, the evidence thus far is weak.  Moreover, foreign governments have been reluctant demand greater transparency from China to support such a claim.  Based on academic research, the strongest cases for discriminatory treatment appear to be in patent prosecution in sector-specific areas  and might be supported by a “private right” claim of the Preamble, i.e., that Chinese industrial policy is guiding action of the patent office.  It might also be supported by TRIPS Art. 27, which provides that patents should be available without discrimination as to the place of invention, field of technology transfer and whether products are imported or locally produced.   A case might be brought after acquiring enough data, including comparisons to other markets.  A highly data-dependent case has the added advantage of mitigating the risks of retaliation against specific companies. Among the technology areas of concern, the following might be of particular focus: the high invalidity rate of foreign pharmaceutical patents at the Patent Reexamination Board; the possibility of discriminatory treatment in the handling of Standards Essential Patents; and discriminatory treatment in technologies identified as core to state industrial policy interests such as those identified in Made in China 2025 or China’s Strategic and Emerging Industries.  These claims must also be benchmarked against the extent of discrimination by most patent offices against foreign technology  (**).

C. Article 3/fn. 3: National treatment in the “enforcement of IP rights:”  There are likely limited  claims of discrimination in enforcement of IP rights under China’s IP regime.  In fact, in many sectors foreigners seem to do better than the average Chinese litigant.  De jure claims may exist in terms of China’s current trade secret regime where administrative enforcement has long been not available as a matter of law for a foreigner victim or, more recently, a foreign trade secret (****).  In addition, there may be de facto discrimination in the availability of certain remedies.  Administrative enforcement of copyrights for foreigners had historically been low, and data has not been made available in recent years (**).  Some types of remedies, such as administrative trademark enforcement, have been disproportionately used on behalf of foreigners while others such as patent enforcement may be underutilized.  A general de facto national treatment administrative enforcement claim, however, likely lacks adequate evidence and may present a poor risk/benefit calculation (*).

D. Article 3/fn.3: National treatment in the “use of IP rights”: The strongest recent de jure claims involving national treatment in the “use of IP rights” were likely the cases that the United States and Europe separately brought against China’s Administration of Technology Import/Export Regulations (DS542 and DS549), which have resulted in statutory changes in China.  The Biden administration will inherit DS542 as an ongoing case.  There are other possible national treatment “use” claims.  China has long argued that “high priced” payment of royalties to foreigners are oppressive and that prices need to be determined according to Chinese standards, including for global rate settings.  For an early version of this narrative see: “Multinationals’ Anti-Competition Behavior in China and Counter-Measures Therefore,” State Administration for Industry and Commerce, Section (1)D, Issued by the Anti- Monopoly Division, Fair Trade Bureau, (March 1, 2004).  Occasionally Chinese judges have also expressed their antipathy to foreign demands for royalty payments, and encouraged Chinese companies to aggressively use antitrust lawsuits.  Policies may be set forth in a range of documents, including court decisions, judicial guidance, regulations and rules, and interviews with senior officials. The setting of prices to limit foreign royalty payments also implicates state intervention in the market of “private rights”(above).  This case might be a de jure (“as such”) or de facto (an “as applied”) case. 

E. Other “national treatment use” claims might involve forced technology transfer  in China’s foreign investment regime.  To the extent such practices have not been fully addressed, there is a TRIPS National Treatment claim, as well as potential violations of China’s protocols of accession, the Phase 1 Trade Agreement, and the TRIPS preamble “private right” provision. The Phase 1 Trade Agreement may offer an alternative mechanism for resolution of these claims.  Finally, there are extensive subsidies, preferences and  support given to domestic innovative companies that may be actionable including subsidization for participation in standards setting bodies, subsidies for domestic and overseas patent filings, domestic technical standards that require purchasing of domestically innovated products, and other forms of assistance to purchase domestically innovated products that may constitute violation of “national treatment use” obligations (***).

II. Standards Concerning the Availability, Scope and Use of IP Rights

F. I believe that China is generally in compliance with most of the provisions regarding substantive IP rights in the TRIPS Agreement.   At the time of the first WTO case filed against China (DS362), the United States filed only one claim involving China’s standard for protection of IP, which involved copyright protection for un-approved/not yet censored works.  As time passes and all countries better understand their obligations in light of emerging trends, it can be expected that other technical corrections can appear. For example, the recently amended Copyright Law, removes numerous references to “citizens” as subjects of copyright protection and replaces it with the more TRIPS-compliant “natural persons.”

Among the remaining areas of concern is TRIPS Art. 30: “Exception to Rights Conferred” for patents.  China’s experimental use exception and its Bolar exemption for infringement of pharmaceuticals raise concerns over whether these practices “unreasonably conflict with a normal exploitation of the patent, taking account of the legitimate interests of third parties.”  Given the developing world hostility to pharmaceutical patents and IP rights and China’s increasing interest in innovation in this sector, I believe that pharmaceutical issues are probably better addressed bilaterally, as they were in the Phase 1 Trade Agreement (**).

G. Art. 39: “Members shall protect undisclosed information.”  This unique phraseology requires WTO members to actively “protect” trade secrets.  It occurs three times in Article 39.  It is not found with respect to any other IP rights in the TRIPS Agreement.  By contrast,  TRIPS requires civil remedies for all IP rights and has relatively limited requirements for ex officio action.  Even Article 61 regarding criminal enforcement of IP rights does not explicitly require public prosecution of IP crimes.  This affirmative obligation of members in Art. 39 to “protect” trade secrets also applies to undisclosed pharmaceutical test data, which is often called “regulatory data protection” (RDP).  

A case around “Members shall protect” assumes added importance as the Phase 1 Trade Agreement addresses civil and criminal trade secret misappropriation.  It does little to address claims of Chinese state involvement in trade secret misappropriation.  If the United States could prove Chinese government involvement in economic espionage and there were limited defensive risks, a case might be filed claiming the failure of China, as a member of the WTO, to “protect undisclosed information.”  (***).  A case might also be brought regarding lack of effective RDP, which was not actively addressed in the Phase 1 Trade Agreement, but which has been under active consideration for reform and was noted by USTR in its Fact Sheet on the Phase 1 Trade Agreement as a topic for Phase 2 negotiations (**).

H. Art. 40:  “Control of Anti-Competitive Practices in Contractual Licenses.” No WTO case has been heard under Art. 40, which is the principal provision addressing the intersection of antitrust and IP.   Due to the lack of cases, the failure of WTO members to agree to take up antitrust more broadly, and the increasing importance of licensing of technology for technologies such as 5G, AI, pharmaceuticals, and clean energy, a better understanding of the use and limits of Art. 40 would be helpful to licensors and licensees alike.  Importantly, Article 40(2) also sets forth the conditions of antitrust claims in licensing, which may also serve as guard rails to China and other countries thinking of invoking aggressive antitrust measures against foreign licensors.  It states that WTO members may: (a) specify in their legislation, (b) licensing practices or conditions, (c) that may in particular conditions, (d) constitute an abuse of intellectual property, (e) having an adverse effect on competition, (f) in the relevant market. As applied, the legislation may be implemented by (g) appropriate measures to (h) prevent or control such practices.  The legislation would appear to prohibit member states legislating in general terms.  Rather, the IP regime must be “particular’ and implemented “appropriate[ly]”.  For example, a failure to indicate what constitutes IP “abuse” may constitute a lack of adequate particularity.  The provision also prohibits per se violations of “abuse” of IP rights, without demonstrating an anticompetitive “effect” in the “relevant market.”  Article 40 evinces an intent of the drafters of the TRIPS Agreement to limit antitrust claims that might otherwise undercut the basic protections of IP rights.

Article 40 opens the possibility for additional WTO oversight of antitrust-related activity in the field of intellectual property at least three different ways.  First de jure and de facto claims might be made through the review of “legislation” and “appropriate measures”  to see if they demonstrate an “adverse effect” on “competition”.  I believe that Article 40 ultimately requires some form of economic analysis to support an antitrust action.  Second, Article 40 binds WTO members through footnote 3 to not discriminate against foreigners, and through the preamble it could limit the role of antitrust in domestic technology policy.  Third, Article 40 may be used to balance the  conflicts that exist between intellectual property and antitrust.  Such balancing might include: the pro-competitive effect of intellectual property to “promot[e] innovation” with the need to promote the “dissemination of technology” (TRIPS, Art. 7);  the balance between the extent to which harsh antitrust penalties may be imposed in a relatively weak Chinese IP regime; and the balance between territorial concepts of intellectual property in the TRIPS Agreement and its incorporated treaties, such as the Paris Convention, with the power of antitrust regulators and courts to look at actions that affect domestic markets which may arise from ownership of rights overseas and to issue remedies that could affect the value of rights held overseas (***).

I. Art. 40 / Due Process: Another outstanding issue under Article 40 is the extent to which due process considerations that attach to the general enforcement of IP rights in Art 41 et seq of the TRIPS Agreement also govern antitrust investigations.   If they do attach, China’s antitrust authorities would be subject to a host of TRIPS procedural requirements in IP-related antitrust matters, including “fair and equitable” procedures; timely “written notice,” (an issue that has appeared in Chinese antitrust and licensing cases as well in service of process in civil cases generally): the right to representation by “independent legal counsel,”  the right to “substantiate…claims and to present all relevant evidence,”  the protection of “confidential information,” decisions made “preferably in writing,” “based on evidence”  and “made available to the parties,” an opportunity for meaningful “judicial review” of administrative decisions,  etc.  China has made  antitrust “due process” type commitments in the past to the United States, which the US obtained outside of the WTO context.  These commitments should be monitored and if violated could form part of a WTO dispute (**).

III. Enforcement

J. General – “Independent Legal Counsel,” damages that are  “adequate to compensate,” etc.  The enforcement provisions of the TRIPS Agreement are both vague and weighty. Concepts such as “fair and equitable” procedures (Art. 42) can reasonably admit of several conflicting interpretations and may be limited to the standards of a given legal system.  The TRIPS enforcement provisions uniquely establish a right to be represented by “independent legal counsel” (Art. 42).  It is unclear what constitutes such “independent legal counsel.”  In its most common definition, it likely means counsel that does not have a conflict of interest.  More broadly, it could be interpreted as counsel that is independent of the Communist Party or other political supervisory authority.  This is one of the of the few IP claims in the TRIPS Agreement that significantly overlaps with rule of law concerns.  The various procedural requirements for enforcement taken together may make a strong basis for an IP enforcement complaint (**). 

K. Another concern is that Chinese damages remain too low (Art. 45), notwithstanding the availability of other remedies such as injunctive relief and recent improvements to increase the availability of actual damages rather than statutory damages.  A claim of inadequate damages for patent infringement may also be posited with a claim of abuse of the competition remedy for licensing practice (Art. 40) to demonstrate that China’s claims of abusive foreign licensing practices in China are not generally supported by the ability of foreigners to protect their rights or monetize their assets in China’s legal system.  It is hard to conceive of abuse of IP rights unless there are deterrent remedies, including adequate compensation, for IP infringement. Low civil damages may also suggest a weak civil system, and weak protection for IP as a “private right” (**).

L. Arts. 42/49/ 61 – Civil Procedures, Administrative Procedures and Criminal Procedures.  The TRIPS Agreement has a relatively simple approach to understanding what the procedural requirements are for civil, criminal or administrative remedies which is that civil, criminal and administrative remedies need to follow the civil, criminal and administrative procedures.  Civil remedies also need to follow “fair and equitable” civil procedures (Art. 42).  Administrative procedures involving a civil remedy “shall conform to principles equivalent in substance to” civil procedures (Art. 49).  Criminal penalties need  to made available according to criminal process (Art. 61).  One of the outstanding deficiencies in China’s IP regime is that China’s administrative enforcement is quasi-penal in nature but does not use criminal process.  Moreover, when a civil remedy, such as an administrative injunction is issued, the TRIPS Agreement requires use of civil-type procedures.  Different appellate review and transparency standards also attach to administrative investigations in China compared to civil proceedings.  While this “procedural” argument has technical merit, it is unclear to me what the precise benefit would be to foreign companies.  Many foreign companies routinely rely on China’s administrative system These companies may be opposed to any effort to undermine a system that works well in their favor for particular rights.  Moreover the administrative enforcement system remains non-transparent and a  case might involve difficult efforts to obtain supporting evidence.  Some evidence, however, might be obtained through other mechanisms, such as the Phase 1 Trade Agreement dispute resolution procedures in order to determine the impact of the special campaigns launched by the Phase 1 Trade Agreement (*).

M. “Effective and appropriate” enforcement:  the obligation to provide effective and appropriate enforcement is at the heart of the TRIPS Agreement (Preamble, et seq.).  The language is vague.  Moreover, TRIPS provides member states with considerable flexibility in implementing its terms “taking into account differences in national systems” (Preamble).  Unless there is clear evidence of an area where China’s IP enforcement environment is clearly “inadequate” or not “appropriate,” the language by itself may be too vague and flexible to be enforced (*).

N. Art. 61: Determining the commercial scale for “criminal procedures and penalties” involving “wilful trademark counterfeiting or copyright piracy” remains an ongoing concern with China.  In the WTO case that the US previously filed (DS362) the United States unsuccessfully claimed that China’s high criminal IP thresholds decriminalized certain commercial scale activities in violation of Art. 61.  The WTO did not determine that Members have unfettered discretion in determining what are appropriate criminal thresholds.  The recently signed Regional Comprehensive Economic Partnership free trade agreement (RCEP) attempts to advance China’s position in DS362 in footnote 61 of the RCEP IP chapter, which recognizes “sovereign jurisdiction over police powers” and flexibility in determining what constitutes “commercial scale.”  Left unaddressed, this alternative approach to Trips Art. 61 could undermine over a decade of work by USTR and others to help establish a common consensus over best practices for criminal IP enforcement.   Article 26 of the Vienna Convention on the Law of Treaties might be invoked to claim that RCEP fn. 61 violates the Vienne Convention obligation to implement treaties in “good faith.”  On the negative side, any WTO case brought against member states on the basis that RCEP violates the TRIPS Agreement, could also implicate US allies that signed RCEP.     Moreover, RCEP signatories will claim that the TRIPS Agreement continues to govern IP-related obligations under RCEP.  A claim might also be made that the Paris Convention, which is incorporated by reference in the TRIPS Agreement  requires WTO members to assure “effective protection” against unfair competition.  As a first step, and In lieu of a WTO case, the United States may also seek to block acceptance of RCEP at the WTO due to the “more restrictive” obligations it imposes on member states by reason of TRIPS minus provisions, including its flexible approach to criminal IP infringements.  See GATT Art. XXIV, and the Understanding on the Interpretation of Article XXIV of the GATT 1994 (****).

V.  Dispute Prevention and Settlement

O.  Article 63: “final judicial decisions and administrative rulings of general application… shall be published.”   This Article has a long history in FTA and WTO jurisprudence.  Most WTO members likely view it as only applicable to common law countries due to their tradition of precedent  However, China  – – along with many other civil law jurisdictions — has an evolving system of precedent.  China should publish cases that have “general application” whether or not they are strictly binding because of their “general application” beyond the facts in suit.  These would include cases that are considered “guiding” cases, “model” cases or other cases that are intended to instruct or guide judges, lawyers, rightsholders or the public.  While most of the influential cases are already publicly available, there are some that are not. Often these unpublished cases are known to the public due to securities commission filings based on their material impact on a publicly held company.  Preliminary injunctions or other provisional measures should also not be exempt from Article 63, provided that the decision is final. China seems to take the view that only when a case is final is there an obligation to publish.  An example of such a case is Eli Lilly vs. Huang case, which involved the first preliminary injunction for a trade secret infringement and effectively settled that dispute.  As many of the important cases involving new or unsettled law may involve foreigners and may therefore be unpublished, there may be a disparate impact on foreign rights holders which could also implicate national treatment obligations in publication of cases.  The decline in publication of foreign-related IP cases is another example of how transparency can be a form of political discourse in China.  For more information on the relationship between transparency and politics in IP case publication see my powerpoint from 2019 at p. 9, as well as my blog on Nationalism, Transparency and Rule of Law  (****). 

P. Article 63.3/Article 40.3: These provisions require WTO members to respond to requests regarding specific cases by providing relevant information.  As China does not necessarily publish important cases, these requests should be made frequently.  The United States sought to compel China to make available all of the IP cases it had statistically reported in an Article 63 request before filing the China IP enforcement WTO case against China.  Although that request was overly broad, the United States might consider a more limited request in the context of any other WTO dispute that specifically addresses the need for additional cases to better support a claim as well as the difficulties in otherwise obtaining information about a claim.  This could be especially critical if a claim is made on the basis of overall data rather than on specific cases (****).

Q. Article 64(2) provides for a moratorium on “non-violation” TRIPS cases.  This moratorium has been repeatedly extended over the objections of the United States.  Non-violation cases are generally available if one government can show that it has been deprived of a reasonably expected benefit because of another government’s action, or because of any other “situation” that exists.   One condition for the United States to only consider approving appointments to the Appellate Body and reinstitute full WTO dispute resolution procedures could be the removal of the moratorium of the non-violation procedures for IP-related disputes (**). 

Actions Under Other WTO Agreements

R. The WTO Dispute Settlement Understanding, Art. 10  provides that dispute settlement procedures “should not be considered or intended as contentious acts.” This provision  constrains the ability of member states to retaliate against the filing of WTO cases.  During the DS362 dispute China did engage in range of retaliatory activities, mostly in the form of threats and the ceasing all forms of IP-related cooperation.  The US should be prepared to file  complaints if US interests are the subject of significant retaliation by reason of the filing of a  WTO case. (***).

S. There are claims under other WTO agreements that also have a direct bearing on China’s IP regime.  For example, China’s subsidization of IP-intensive, information technology products, might be the subject of a “Non-Violation” case under the Information Technology Agreement.  The CATO Institute advocated  for such actions in 2018 (****).  The United States may also wish to open up legal services markets or IP-related legal services markets, particularly due to increasing inequities and gaps in China’s original service commitments which failed to account for the presence of foreign lawyers in Chinese law firms, or that US-admitted lawyers from China in Chinese law firms that would enjoy competitive tax treatment in China as well as preferential market access (***).  Alternatively, the US could also seek to impose reciprocal market access provisions on Chinese lawyers and companies.  The USPTO has already curtailed pro- se filing of US trademarks by Chinese companies legal services offered by US-admitted lawyers practicing in Chinese law firms.

Litigation of any kind involves balancing risks and rewards.  Remedies may be inadequate.  There may be higher priorities for a company or government.  There may be alternative means of resolving disputes. Litigation can also greatly harm relations with your adversary.  China also has many pro-IP policies, that are “TRIPS plus” that should not be negatively impacted.  A negative precedent that could harm one in other contexts might also be established. There is also the possibility of retaliatory measures, including retaliatory litigation.  On the positive site, a helpful precedent might be established, specific claims may be better understood by the trade community, a spotlight may be shown on areas where legal reform is necessary, informal dispute resolution is never necessarily precluded, and the dispute may also help convince China that a particular reform would be helpful to its economy.  As an example of a helpful impact, DS62, which the United States lost, nonetheless had enhanced China’s understanding of criminal IP enforcement, helping to increase filings of criminal cases in China from 904 to 15,121 in the five years subsequent to the case.

The Phase 1 Trade Agreement established an important bilateral IPR dispute resolution mechanism (Chapter 7) in addition to WTO mechanisms.  The Deputy USTR is the sole designated agency on the US side to lead these disputes, whereas the Chinese side authorizes the Vice Premier to designate a Vice Minister. This situation perpetuates the possibilities of ill-informed negotiations on complex issues on the US side as the full range of trade-related issues may escape the mastery of any one individual or agency. WTO dispute mechanisms have an advantage of generally being run by subject matter experts, with some degree of transparency and accessibility to other WTO members and civil society.  The Phase 1 Mechanism may also be sub-optimal for disputes which require support from other member countries.

To be clear, I am not suggesting that the United States should actively pursue any of these WTO claims.  Additional research would be required on every single one of them.  I am also refuting the arguments that: the United States somehow exhausted all possible WTO remedies with the two IP cases it brought over a 20-year period; the WTO is irrelevant and out of date;  and that the United States was fully entitled to unilaterally impose sanctions and leave the WTO dispute resolution mechanism.   On IP, the United States has historically been hyper-cautious in using WTO mechanisms against China.  If the United States wants to “build back better” in the trade context and establish collaborative relations with our allies regarding China, President-elect Biden and USTR-designate Tai may wish to consider a different approach to IP-related disputes at the WTO.  Any approach should  be multi-disciplinary and forward looking, which are strengths that Katherine Tai brought to a prior rare earths dispute.  A dispute should also recognize that the China of today is vastly more sophisticated in its approach towards IP than when China acceded to the WTO in 2001.  Any strategy should  be based on solid information and not hyperbole.  It should also not be limited to the TRIPS Agreement alone.  Such an undertaking will need to draw on a range of legal and trade disciplines.  

Consider this blog as a set of suggestions  — a  “whiteboard” in essay form.  I look forward to your comments.  

Translation of Draft Patent Law Available

Thanks to He Jing of the Anjie Law Firm, attached please find an unofficial line-by-line translation of the recently released Patent Law Amendments 2nd reading.   Comments are due August 16, 2020.

Some highlights of this draft:

Partial Design Protection

Article 2 adds language back in to allow partial design protection.  This is a welcome development.  Article 42 also maintains the earlier draft’s extension of the duration of the design patent to 15 years.

Patent Abuse

Article 20 clarifies that the abuse of patent rights to exclude or restrict competition constituting a monopoly shall be dealt with under the anti-monopoly law.  The AML is itself under revision.

Good Faith/Public Interest

Article 20 continues to require “good faith” in patent filings and the exercise of patent rights, an important concept borrowed from the Trademark Law revisions which is having an increasing substantive impact.  The limitation that patents shall not be “allowed to harm public interests” raises similar concerns to me to the recently proposed amendments to the Copyright Law, about the definition of “public interest.”

Pharma Issues – Patent Term Restoration and Linkage

The notices of the NPC regarding the draft law, state that pharma-related IP issues were drafted to implement ‘”trade agreement(s).”   These are reflected in proposed Article 42 which provides for patent term restoration.  This draft removes the requirement of the “synchronous” launching of marketing approval outside of China with approval in China in order for patent term restoration to be granted.

Article 75 also sets forth an outline for a patent linkage regime, and calls for the drafting of more detailed measures to further implement the provisions.  Under this proposal, the innovator challenges a generic applicant for marketing approval within 30 days of the announcement of the application.  If the patentee does not file a lawsuit, a generic company may also request a determination from the courts or patent office of non-infringement based upon the China Patent Information Registration Platform for Listed Drugs.  A court or administrative procedure on patent infringement should render its decision within 9 months.  This draft lacks an incentive provision for a generic to successfully challenge an innovator through granting of a first generic marketing exclusivity due to a successful challenge to the patents. This skeletal section is also drafted as an addendum to the statutory exemptions to infringement, which appears to be an awkward placement.

Damages and Liability

Joint liability of Internet service providers for patent infringement has been removed.

Minimum statutory damages of RMB 100,000 has also been removed.  Statutory damages are capped at 5 million RMB.  Quintuple punitive damages up to 5 times remain from the prior draft.   The statutory damage maximum increases to RMB 5 million (Art. 71). In addition to the continuing focus on increases in damages, this draft also continues the momentum for a larger role for patent administrative enforcement.

The extension of the statute of limitations to three years has been retained from the prior draft (Art. 74).

Several provisions address the proposed “open licensing” system (Chapter 6).

The draft also encourages a flexible remuneration system including “equity, options, and dividends” to enable inventors or designers to reasonably share the proceeds of innovation (Art. 16).

Update of August 16, 2020:  The American Bar Association Intellectual Property Law Section and Section of International Law have made their comments on the draft Patent Law Amendments available here.

 

 

 

Antitrust Aspects of “Unfairly High Patent Pricing” for Licensing Transactions in China

This guest blog has been written by Prof. HAO Yuan of  Tsinghua University School of Law.

 China is facing a pressing need to build its innovation-driven economy. To facilitate key features of an innovative economy Chinese anti-monopoly authorities, along with their worldwide peers, face a daunting challenge of transition from a static regime to a more dynamic one.  Several recent judicial and administrative disputes, including Huawei v. IDC, Shenzhen Intermediate People’s Court, Shen Zhong Fa Zhi Min Chu Zi No. 857 (2011); Huawei v. IDC, Guangdong High People’s Court, Yue Gao Fa Min San Zhong Zi No. 306 (2013); and the NDRC’s administrative investigation against Qualcomm, Administrative Penalty Decision [2015] No. 1, point out the need to better understand the IP and antitrust intersection, particularly with regard to controversial issues such as  “unfairly high patent pricing (不合理专利高价)”.   This blog summarizes my recent paper (available on SSRN) which addresses this important issue (upcoming 2020 in GRUR International (Journal of European and International IP Law)).

Chinese Anti-Monopoly Law (“AML”), in contrast to US law but not facially dissimilar to EU competition law, pays substantial attention to a dominant market player’s unilateral “exploitative” conduct. Specifically, section 17(1) of the AML (2008) forbids a dominant undertaking from “abusing its market position” by selling at “unfairly high prices”. However, neither the Law nor later enacted Judicial Interpretations clearly define “unfairly high price” in the anti-monopoly sense. Correspondingly, courts and enforcement agencies have significant discretion in characterizing a market price as “unfairly high”, thereby potentially exposing an undertaking to harsh penalties.

Despite perhaps a legitimate institutional intention, this ex post legal risk of being found “unfairly high” could seriously curtail business entities’ ex ante incentive to innovate in China. Meanwhile, lacking adequate legal and economic guidance, this institutional discretion would likely result in significant error costs. Such costs are likely to be even more severe in the context of patent-intensive industries, particularly those in China’s burgeoning high-tech sector.

Section 55 of the AML arguably provides an IP “safety harbor”, providing that a proper exercise of IPR shall be immune from the AML scrutiny, while “an abuse of IPR, excluding or restricting on competition” shall not. As pointed out elsewhere on this website, this provision remains essentially unchanged in a recently proposed revisions to the AML.

Despite this statutory framework, recent cases indicate that the IPR immunity approach has been largely ignored in practice. In the 2011 Huawei v. IDC action, both courts found IDC’s patent pricing to be “unfairly high” primarily on three grounds: one, the licensing royalties IDC offered to Huawei were “apparently higher” than “comparable licenses”, i.e. those royalties IDC charged other companies previously (though whether these licenses were truly comparable with licenses made to Apple, Samsung and others was worthy of serious discussion); two, “IDC’s act of charging unfairly high licensing fee to Huawei, will force Huawei to either quit the competition in the relevant end product market, or accept the unfair pricing conditions, which will render Huawei to increased costs and decreased profits in the relevant end product market, directly restricting its capability to compete”; and three, IDC required Huawei to give global patent grant-backs on a royalty-free basis, an arguable violation of both the Antimonopoly Law and the then-existing Administration of Technology Import/Export Regulations,. Similarly in the Decision against Qualcomm, the NDRC also disregarded Section 55 immunity, finding that Qualcomm’s licensing conditions were “unfairly high” due to these three factors: charging a flat fee for an ever-changing patent portfolio without proving the replenished patents are of equal value to expired ones; coercion for free grant-backs; and using the entire end product as royalty base. So far, Huawei v. IDC and Qualcomm have been the only two completed Chinese cases that entailed an extensive “unfairly high patent pricing” analysis.  Other currently ongoing cases include Iwncomm v. Apple (Beijing IP Court), Huawei v. Panoptics (Shenzhen Intermediate People’s Court), Xiaomi v. Sisvel (Beijing IP Court), and the anti-monopoly investigation by SAMR (China’s AML administrative enforcement authority) against Ericsson’s 3G/4G SEP licensing practices, etc..

It is true that both IDC and Qualcomm involved SEPs and  arguably an extra layer of FRAND commitment needs consideration, which may require additional law and policy analysis. For example, the courts might have looked to how to interpret FRAND in Chinese legal framework – is it a specific commitment to a SSO, or a general “principle (原则)” imposable by loosely grounded policy arguments? Will this FRAND interpretation affect an SEP holder’s anti-monopoly obligations in China?  And if so, how? Nevertheless, to a large extent these cases still reflected a practical departure from the statutory IPR immunity framework approach under Chinese law. Such an aggressive approach has also been reflected in Section 14 of the Anti-Monopoly Guidelines for IP Abuse (Draft for Comment 2017) as published by the Anti-Monopoly Commission of State Council. (Editors note: see the comments of the American Bar Association, as well as earlier drafts by enforcement agencies here). According to this rule-of-reason framework, “Business entities that enjoy dominant market positions may abuse their dominance by licensing intellectual property at unfairly high prices, excluding or restricting competition; while assessing whether such high pricing constitutes abuse of dominant market position, the following factors may be considered: (i) calculation method of license royalty, as well as the IP’s contribution to the value of goods; (ii) the business entity’s undertaking with regard to the IP licensing; (iii) the license history or comparable license standards; (iv) license conditions that may have led to unfairly high pricing, including territorial or product scope restrictions; and (v) whether a portfolio licensing includes expired or invalid IP”.

This laundry-list framework is not administrable. How these factors play out in a specific case, whether and how they would interact with each other, how much weight should be attached to each and every one of them, how to incorporate the pro-efficiency features into consideration … all these important practical questions remain unanswered. Facing such vague rules, patentees and other relevant market players would find it very hard to ascertain legal compliance. Vague rules combined with the high stakes often entailed in antitrust cases may lead to rent seeking and bad precedents, further upsetting a prior well-functioning market system, and harming market players’ confidence to  continuously invest in innovation.

One critical reason for this stark departure between the Law and enforcement may be the lack of an administrable test to differentiate “proper exercise” of patent right from “abuse”. Ambiguity lies in at least two aspects. First, due to the very mechanisms of patent regime in fostering innovation, even a proper exercise of right would necessarily restrict certain market competitions. Thus, it seems that an over-general standard of whether “to eliminate or restrict competition” cannot work as the ultimate test to differentiate abuse from legitimate exercise. Second, despite extensive use of “patent abuse” in the past decades worldwide, the exact contour of this concept remains elusive. Resorting solely to the various definitions and constructions in comparative law of sister jurisdictions, helpful as it is, would not solve these ambiguities adequately.

Mark Cohen, the editor of this blog, has also noted that one little-referenced basis for resolving the distinction between “proper exercise” and “abuse” is in fact found in Article 40 of the TRIPS Agreement, which creates a similarly vague dichotomy in permitting WTO members to provide remedies for abusive licensing practices.  Article 40 authorizes member states to address “licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market.”   Article 40 also permits member states to control mandatory grant backs of the type address in Huawei v. IDC.  The ambiguities in China’s AML and TIER may in no small part be due to the ambiguities within Article 40 itself, which may have been an important resource for the drafting of Article 55 of the AML.  Furthermore, as Prof. Cohen has separately noted, the legislative history of  Article 55 suggests that it was intended to provide greater assurance that enforcement of IP rights would not by themselves violate the AML, see Harris et al, Antimonopoly Law and Practice in China (2011), at 55. Prof. Cohen’s latter point was well proved in the little referenced, but authoritative, Statute Interpretation and Legislative Reasoning of the Anti-Monopoly Law (hereinafter “Statute Interpretation”) (published by the Legislative Work Commission of the NPC), which noted that, “To restrict competition by the exercise of IP right, is permitted by law after its balance of distinctive interests; in other words, certain restrictions must be imposed on competition to further technological innovation and improve competitive capability. Thus, monopoly status resulting from IP right as well as the restriction on competition because of the exercise of IP right, are legal acts based upon the legal authorization. Other jurisdictions generally treat the legal exercise of IP right as an exception to the application of antitrust laws” ; but on the other hand,  “[I]f an IP right holder abuses its right by exceeding the scope of exclusive right, in acquiring or strengthening a monopoly position, such act will not be protected, and if it excludes or restricts competition, the AML shall govern here.”

Though not a binding document in itself,  the Statute Interpretation can work as a useful guidance, since it embodied important legislative intents and reasoning at the time, particularly when no other legislative reports are accessible to the public. Therefore, to assess “unfairly high patent pricing”, a crucial question is whether the alleged excessive pricing act falls within the scope authorized by patent law. If the answer is positive, then even if this “excessive” pricing would restrict certain competition in the relevant market, such static efficiency loss is a necessary cost we deliberately pay for sustainable innovation, i.e. section 55 immunity applies. If and only if on the other hand, the alleged pricing has been proved to exceed the legally authorized scope of such patent, section 55 immunity will then be stripped and the high pricing act will be examined under section 17(1) of the AML. In other words, to be stripped of the IP clause immunity and subject to “unfairly high patent pricing” scrutiny under the AML lens, the alleged pricing must be not only excessive enough to exclude competition, but also in a way that departed from what patent law has originally contemplated.

Economic insights into the patent law jurisprudence of various jurisdictions, including China, US and EU, reveal that despite some rather subtle differences, all patent regimes promote innovation essentially through the instigation of dynamic competition. Specifically, the patent regime (1) bridges an innovator’s technological R&D to market demand: the better aligned a new technology is to consumer needs, the more valuable this “shell” of exclusive right would be in the marketplace, resulting in higher profit an innovator can harvest by excluding her imitating competitors (“competition by imitation” or “CBI”).  In addition, the patent regime enables innovators to signal potential “innocent” imitators utilizing mechanisms such as disclosure requirements, thereby reducing the amount of duplicative investment in innovation. See Edmund W. Kitch, The Nature and Function of the Patent System, Journal of Law and Economics, Vol. 20, No. 2 at 278; (2) with some caveats addressed in my full paper, by restricting CBI with reasonably tailored claims of the patent right coupled with disclosure requirements, the patent regime simultaneously induces social resources into “inventing around” activities, i.e. to provide better/cheaper substituting technologies, thereby encouraging competition by substitution (“CBS”).    In certain circumstances, the fruits of such CBS  may also be protectable with a new property (patent) right. For example, if a competitor’s “inventing around” technology is found sufficiently “inventive” or “non-obvious”, it would likely be entitled to a patent in itself.  See Robert P. Merges, Intellectual Property Rights and Bargaining Breakdown: The Case of Blocking Patents, 62 Tenn. L. Rev. 75 (1994); and (3) feeling the pressure of CBS, the earlier patentee/innovator would likely be incentivized to keep on her next run of “inventing around”, striving to stay a winner in the marketplace. In this way, a virtuous circle of dynamic competition could come into force.

On the other hand, a brief comb-through of the economic foundations and jurisprudential development of antitrust law suggests that this regime promotes innovation essentially through efforts to maintain an (optimally) heterogeneous competition ecosystem. Based on an understanding of both innovation-facilitating mechanisms, two insights are worthy of note here. First, a mutual ground shared by both patent and antitrust regimes in their disparate routes to innovation is the common facilitation of dynamic competition. And correspondingly, Chinese anti-monopoly law should respect the very patent mechanism, i.e. the instigation of dynamic competition, which pivots on the CBS precisely through efforts including a restriction upon CBI. Therefore, to put it in practical terms, if an alleged act at the intersection with anti-monopoly law, such as an accusation of “excessive” pricing, merely caused a restriction on CBI   as indicated in supra-competitive profits, AML must refrain from intervening. In other words, AML should not lightly disturb a well-functioning circle of dynamic competition, simply because under its lens CBI  or static efficiency seems restricted in a link, and local optimum seems not achieved – as a result, a supra-competitive profit enjoyed by a patentee should be found legal per se if static efficiency loss is the only proven harm. More importantly, the focus should be instead on whether the questioned act would not only restrict competition, but also in a way that departed from what the patent regime has contemplated, i.e. the restriction is to dynamic competition or CBS itself. As an example of the latter scenario, consider a joint agreement between two patentees owning substituting technologies or a patent pool consisting of competing technologies, with the patentees or pool members consenting to suppression of one technology in promotion of another (others).

Coming back to the context of patent pricing, is it possible for a high pricing to restrict dynamic competition, thereby constituting an abuse under the anti-monopoly lens? Maybe yes in theory. Arguably in exceptional circumstances, certain pricing may be so excessively structured to actually constitute a refusal to subsequent or follow-on innovators, or at least a significant “margin squeeze” for them, and such refusal or squeeze in theory may lead to foreclosure of the CBS itself or competition in downstream markets, thus frustrating the circle of dynamic competition.. A little more discussion on the interaction of patent and market competition may help here. In a nutshell, from the perspective of a patent law student, there often exist three tiers of market competition. Tier I is vanilla CBI, referring to those competing technologies with mere replication or insubstantial changes, the only advantage of which are their lower prices (mostly by saving duplicating R&D costs). Of course, CBI can be efficient and legal in those circumstances where patentee grants a license, but in most other cases, CBI is legitimately excludable under patent law and antitrust shall never interfere. Tier II, competition by improvement, is really a higher level of CBI, in that competing technologies here involve substantial improvements on the patented technology, though still falling into the scope of earlier claims. Note a caveat here – patent law is clever enough to give certain leeway to those competitors with own substantial improvement, for example by granting a new patent right if the improvement has been found to be “inventive” or “non-obvious”, so that these competitors would have stronger bargaining power to negotiate with the original patentee and harvest higher profits from the pair of sequential innovation. This power and resulting profit would further incentivize competitors to do follow-on improvements. This is actually the scenario of blocking patents. Generally speaking, the second tier only applies to those industries that are characterized with cumulative innovation. Despite the substantial improvements, Tier II is still legitimately excludable under patent law and antitrust shall not interfere. Tier III is CBS, referring to those technologies that are capable of truly substituting the earlier patented technology to fulfill consumer needs in the market. By their very name, in most circumstances Tier III is comprised of “inventing around” technologies that do not fall into the protected scope of earlier patent, thus there exists no serious risk of being excluded by the earlier patentee unilaterally. The theoretical worry can happen however, at the rare circumstance of tier II and III intersection: occasionally an infringing improvement could be so radical that it would truly substitute the commercialized earlier patent as a break-through technology.   A real-world example here is the long deadlock between the famous Marconi diode patent and the Lee De Forest triode patent during the early development years of radio technology. This kind of radical improvement, even though literally infringing on the pioneer patent, is precisely the type of “creative destruction” Schumpeter emphasized many years ago that fuels innovation in a most powerful way – an innovator’s descendants can actually become the instruments of his destruction, yet the society benefits in the long run.

Following this train of thought, if we temporarily leave the “unfairly high patent pricing” context and turn  to some of the classical NIE (New Institutional Economics) scholarly works in a more general sense, including the conventional hypothesis of patent “anti-commons” (Heller and Eisenberg 1998), worry of over-broad pioneer patents’ suppressing effect on follow-on innovation (Merges and Nelson 1990), and recent conjecture of patent hold-up and royalty stacking in the SEP context (Shapiro and Lemley 2007), arguably they all may be considered as embodying (more or less) such theoretical worries of patent foreclosure on dynamic competition.

Inspiring as these theories were, they, need to be tested in practice.  Curiously, decades of empirical research in various industries have showed little success in proving these theoretical worries happening in the real marketplace, at least on a macroscopic level. A specific concurrent example for this striking disintegration between theory and empirical results is the robust innovation and significant consumer benefits (as indicated in quality-adjusted prices) in the SEP intensive wireless communication industry, in the shadow of persistent “patent hold up and royalty stacking” predictions. See Alexander Galetovic, Stephen Haber & Ross Levine, An Empirical Examination of Patent Holdup, Journal of Competition Law & Economics 11(3) (Aug. 2015); Jonathan Barnett, Antitrust Overreach: Undoing Cooperative Standardization in the Digital Economy, 25 Mich. Telecomm. & Tech. L. Rev. 163 (2019). There might be different explanations to this empirical difference. I give a rough quantitative analysis in my paper why the seemingly plausible theoretical worry of dynamic competition foreclosure is unlikely to happen in practice.  In addition, I argue that perhaps precisely because CBS  has always been a critical link pivoted by patent regime in its instigation of dynamic competition, throughout ages patent law has developed an implicit yet critical awareness to safeguard CBS from being foreclosed per se. This implicit awareness has been built into a wide variety of rules and principles of patent jurisprudence prevalent in many jurisdictions, such as the eligibility doctrine, inventiveness/non-obviousness and disclosure/enablement requirements in the granting phase, all-element rule and reverse doctrine of equivalents in infringement assessment phase, as well as in deeper principles underlying and threading these specific rules together. A good example for the latter is the proportionality principle well illustrated by Prof. Merges in his Justifying Intellectual Property (Chap. 6, 2011).  Surely these built-in mechanisms are not ironclad, but they may have worked in a more successful way than we give faith to, and the AML  should not overlook it.

Based on the above, I further propose that a patentee’s unilateral pricing act should be generally found legal per se in China; or at the very least, presumed legal under section 55 of the AML unless an agency/plaintiff can prove otherwise – that the alleged pricing constitutes an “abuse” in that it would disrupt dynamic competition. Specifically, a patentee’s unilateral pricing act should be immune from the “unfairly high pricing” scrutiny under Section 17(a) of the AML, unless an anti-monopoly plaintiff or enforcement agency can overcome all three following hurdles with concrete evidence, in addition to a persuading economic analysis: (i) the patentee enjoys a real dominant market position; (ii) such pricing constitutes a de facto refusal to deal, and (iii) the refusal would likely foreclose the very type of competition patent law has aimed to promote, i.e. dynamic competition. More specifically, the harm to dynamic competition can be proven in either one of the following two dimensions: i. In the same market of patented technology, a monopolist patentee’s constructive refusal to license would render radical all follow-on substitutes impossible to be developed (restriction on competition by substitution); or ii. In the circumstances of a vertically integrated monopolist patentee, the constructive refusal to license would foreclose the competition or subsequent innovation in downstream markets in which the patentee also competes.

True this burden seems high, but it is justified by three cumulative resources, (i) the above economic insights into the intersection of patent and antitrust; (ii) the prevalent non-interventionist attitude toward “excessive patent pricing” in sister jurisdictions; and (iii) the inevitable limitations of antitrust law, manifested in the error costs due to lack of proper information and economic analysis methodologies on dynamic efficiency. See Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1 (1984).

Despite existence of formal empowerments in some countries/regions, almost all jurisdictions with well-developed antitrust jurisprudence have exercised a very cautious attitude in condemning a market price as “unfairly high” in practice. Section 17(1) of the AML does not have a counterpart in conventional US antitrust jurisprudence, and despite the existence of a theoretical counterpart in EU (Art. 102(a) TFEU), it has been rarely invoked. When it comes to patent pricing, the EC has been taking a virtually non-interventionist approach. This non-interventionist approach may have originated from the Commission’s awareness that many general objections against exploitative excessive pricing actions, such as the danger of undermining investment incentives of new entrants as well as dominant firms, difficulty in assessing “excessiveness”, risk of improper price regulation, and undue space for political rent seeking etc., are particularly true in the context of patent-intensive innovative industries.

Antitrust is costly. As Judge Easterbrook pointed out many years ago, in reality judges and enforcement officials are always equipped with imperfect information about actual effects of the accused practice, and such costs of information and their corresponding actions are the limits of antitrust. Part of these costs comes from the judicial ignorance and inhospitality against business practices. Very often, if a poor defendant in an antitrust case cannot convince the judge that his practices promote competition, he is doomed. Unfortunately, “the gale of creative destruction produces victims before it produces economic theories and proof of what is beneficial.” Consequently, this unfortunate judicial inhospitality and ignorance would inevitably generate substantial positive costs in practice.

During the transition from  a planned regime to market economy, China needs to overcome all kinds of obstacles, ranging from formal restraints in laws and institutional infrastructure, to lingering outdated theories and prejudice that die hard and can still be quite powerful impeding the progress. On an institutional level for example, varied degrees of inertia may unavoidably exist on anti-monopoly agencies’ enforcement philosophy, especially when it comes to high pricing acts that seem to harm consumer interest (albeit short-term) on its face, and which had long been the subject of pervasive regulation through local pricing bureaus, even prior to the existence of the antimonopoly law.  In view of this potential institutional inertia, the likelihood of inhospitality a monopolist patentee, domestic or international, encounters in “unfairly high pricing” cases could be substantial.

Antitrust has two major analysis modes: per se rule and the rule of reason. If equipped with thorough information of market practices and perfect analysis methodologies, rule of reason is the route to precision and ultimate truth. Unfortunately, as discussed above, that is not the case in reality. One may contend that during the several decades after Judge Easterbrook’s seminal writing, rapid development of economic theories have provided more substantial guidance in many areas, but I am still reluctant to say that the improvement has been so significant to render his insight obsolete, particularly in context of dynamic efficiency and IP related issues. As such, an ambitious rule-of-reason framework as embodied in Section 14 of the Anti-monopoly Guidelines for IP Abuse, would inevitably generate significant error costs despite its good-willed intention.

Admittedly, our presumed legal per se framework is not cost-free. It may be conceivable that in exceptional circumstances, a monopolist patentee’s excessive pricing would disturb dynamic efficiency yet escape the law because the plaintiff simply cannot meet the high burden. On a systematic level however, I believe this possible negative error would be at least offset by the significant positive error costs avoided. A per se rule has always been used to condemn (or excuse) whole categories of practices, even though some of them are actually beneficial (or evil), and one cannot have the savings of decision by a particular rule without accepting its cost of errors.  When we choose which analysis mode to go, what really matters is the overall probability. In summary, we presume patent pricing to be legal per se, because both economic insights and comparative law already showed us that the happening chance of a real exclusionary excessive patent pricing would be extremely low (roughly estimated to be 1/100,000 – 1/100M in the paper), and partially confirmed by empirical studies so far. The exact reasons can be further explored, but the bottom line is clear – it seems that in a vast majority of circumstances, again the market mechanism coupled with strong patent protection has been functioning adequately well to facilitate innovation. Facing this extremely low probability of real foreclosure on dynamic competition, it would be unwise in every individual case to incur enormous administrative and error costs only to search a mere possibility. In a brief conclusion, if either way we are destined to make mistakes, we naturally choose the side with less cost.

In contrast to private law, anti-monopoly law is a much stronger form of interference with the market by government. Perhaps too many people today have omitted this (not only in China) – a blunt instrument as it is, antitrust law acquires legitimacy only in a minority of cases where market failure really happens, rather than a mere theoretical possibility. “The history of Chinese economic reform has clearly told us, whenever a market-oriented policy became dominant and market mechanisms were more frequently used to allocate resources, the quality and speed of Chinese economic development was better.”  Wu Jinglian, The Economic Development of China (The Great Encyclopedia Press 2018), at p. 3 (translation is my own). On the contrary, every time Chinese economic policy was influenced by the theories of planned economy, “both macroeconomic risks and microeconomic interests were affected deleteriously… … Therefore, to resolve the many problems we are confronted with during the economic reform process of China, the only answer is to insist and deepen our reform centering upon the confidence on market economy and rule of law, and further use the market mechanism to allocate resources; it should never be the pursuit of more state interferences.” Id. When stepping into the deep water of reform today, China should learn its historical lesson and be especially cautious with those legal instruments that potentially interfere with price mechanisms, the core feature of a market economy.

The author wishes to thank Hon. David Kappos, Prof. Robert Merges, Chief Judge Randall R. Rader (retired), and Prof. Mark Cohen for their editorial suggestions.  The opinions expressed herein are the author’s own.