Due Process and ASI’s: Wuhan and Texas

Attached is the December 25 decision of the Wuhan Intermediate Court (Chinese language only) (the “Decision”) in the matter of Samsung v. Ericsson, about which I previously blogged.   The Fosspatents blog has also posted some of the other recent filings in the E.D. of Texas, including former Chief Judge Rader’s expert opinion, and the patent infringement case recently filed by Ericsson against Samsung.

I will focus here on the procedural elements of the Wuhan case (Samsung v. Ericsson). 

Anti-Suit Injunctions (“ASI”) are often discussed as if they were a “first to file” priority right where timing is critical.  In the Huawei v. Samsung ASI case in the Northern District of California and Shenzhen, the separation in filing times between the two case was likely a matter of hours, owing to time zone differences between the West Coast and California.   However, timing is not the only determinant of whether an ASI should grant.  It is certainly less critical if there are forum selection clauses in contracts between the parties.  In Microsoft v. Motorola, an earlier SEP ASI case, other factors such as whether one case would be dispositive of another, and the jurisdiction’s interest in limiting forum shopping, were determined to be supportive of the lower court’s decision to grant an ASI.  

In terms of the first court to grant an ASI, the Wuhan court comes out ahead, but only nominally.  The Decision granting Samsung’s Anti-Suit Injunction (ASI) was signed by five judges of the Wuhan Intermediate Court on Friday December 25, 2020, a US holiday.  Counting for the difference in time zones, this is only one business day ahead of Judge Gilstrap’s Anti-Anti Suit Injunction decision/ TRO of the morning of Monday December 28, 2020.    

To the extent that the Samsung ASI was intended to thwart the original exercise of jurisdiction of Judge Gilstrap, it also came a few days too late. Samsung requested the ASI on Monday December 14, 2020 (Decision pp. 1, 2).  Ericsson had brought suit in the Eastern District of Texas on Friday December 11, 2020. 

As the preceding indicates, the difference in time between different filings is often quite nominal.  The gaps in time were considerably shorter than the “several months into… the domestic litigation” behavior of Motorola in Microsoft v Motorola.  Comparisons might also be made to the slower docket in Xiaomi v Inter Digital case in Wuhan, which involved three of the five judges to the Samsung v. Ericsson dispute, and which was initiated on August 4, 2020 with an ASI decided on September 23, 2020. 

Samsung comes up especially unfavorably when taking into consideration the adequacy of notice to the adverse party.  Samsung sued on December 7, 2020 in Wuhan (qisu/起诉) (Decision, p. 5).  Ericsson had filed its case in Texas on December 11, 2020. Samsung filed it request for an ASI on December 14, 2020. There is no record in the Decision of service or notice having been delivered to Ericsson for the initiation of the case, or on the motion for an ASI, although 18 days had elapsed since the case was accepted on December 7, and 11 days had passed Samsung requested its ASI.  Samsung left Ericsson operating in legal darkness.

In Chinese civil procedure and practice, there are several periods of case opacity where the court de facto condones secrecy.  These periods can include: before a case is accepted; when service of process is being made; when a final decision is being reached and an adjudication committee of outside judges may be involved; and when a decision is made to publish a judgment and a case may be written or denied publication on political grounds.  The first period is the most germane here.

The basic process is that a party initiates a case by “suing” (qisu).  When a party “sues” it should file a complaint that meets the minimal criteria set forth in Article 119 of the  Civil Procedure Law (CPL).  These criteria include indicating: a party in interest, an actual defendant, an actual complaint with facts and reasons, and appropriate jurisdiction.   The court has seven “opaque days” to “accept and review” (shouli/受理) the complaint.  After acceptance and review,  the case will be “established” (li’an/立案).  Docketing, assignment of judges and service of process follows thereafter.   The relevant terms are drawn from the CPL, particularly Art. 123.  The Wuhan court generally adheres to this statutory nomenclature in its Decision. 

In Huawei vs Conversant, the Supreme People’s Court looked at case acceptance as one milestone event in determining the priority of filings (p. 9). However, I believe that the Chinese case acceptance procedure, despite recent reforms, lacks adequate transparency for significant international rights to be affected without further inquiry.  Case acceptance has long been the subject of criticism and concern from both domestic and foreign litigants.  See Liu Nanping and Michelle Liu, “Justice Without Judges: The Case Filing Division in the People’s Republic of China,” 17 U.C. Davis J. Int’l L. & Pol’y 283 (2011), and my blog.  Concerns about discretion and opacity in case acceptance decisions have also caused foreign litigants to make “noisy” filings in China before a holiday which involve an immediate press conference after the filing in order to limit the risk that a case suddenly appears that was filed in advance of another filing. 

At this time, further information is needed in order to substantiate the December 7 filing date.  Case acceptance is not automatic and can be denied or accelerated for a variety of reasons, including the political sensitivity of a case, such as in environmental matters.  The Decision states that Samsung sued on December 7 (p. 5), and that case was accepted and established  on the same day (pp. 2, 5).  It is possible that Samsung filed its case and the court reviewed and accepted and reviewed the same day.  However, by law, the Wuhan court had a week to review the case.  Moreover, accelerating review during December might have been difficult because this case acceptance was accomplished during a pandemic and the end of the year is also typically a busy time for China’s IP courts when they try to resolve all pending cases for that year.  Hubei Province, where Wuhan is located,  has also had an unusually high increase in IP-related litigation.  In 2019 alone the province’s IP docket of cases “accepted and reviewed”  increased by 100%  to a total of 20,825 cases.  While a December 7 filing, review and acceptance is not impossible, it is also likely that there were other reasons that all three of these tasks were accomplished on one day.   For example, Samsung may have sued during the week prior to December 7 and was required to make changes to its filing, or perhaps the court decided that it would permit Samsung to enjoy a filing date of December 7 due to problems that may had arisen later during the review process.   A case acceptance date clearly is more ambiguous in its significance than a US court filing made with the Clerk of the Court.

US courts increasingly have to concern themselves with problems posed by lack of transparency of this type.  The US Supreme Court has had to grapple recently with these issues.  In Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co., 138 S. Ct. 1865, 1873-74 (2018), the Court noted that “the transparency of the foreign legal system” is one factor in China in determining the level of deference that should be given to the Chinese legal system. In a recent University of Pennsylvania Law Review  article, “Illiberal Law in American Courts” (May 2020), Mark Jia has noted that China’s legal regime has increasingly imposed difficult questions for US judges.  Ultimately, he advises “American judges … [s]ometimes …must decide whether the foreign legal system is fair.”

There are now numerous IP cases where foreign judges have decided that that Chinese courts failed to provide adequate notice or procedural transparency.  The Delhi High Court in Inter Digital v Xiaomi,  noted in its AASI decision that the parallel Wuhan case “appear[s] to have been less than fair, not only to the plaintiff, but also to this Court.” Judge Kaplan in Vringo v. ZTE, another SEP dispute, noted that:  “Vringo long remained entirely unaware of the Shenzhen litigation.  It was not until June 26, 2014 – more than four months after the lawsuit was initiated – that it received a copy.”  In a non-SEP case involving semiconductor manufacturing equipment, and a US company,  Veeco, a preliminary  injunction was issued “without providing notice …  and without hearing”  in order to undermine a long pre-existing foreign proceeding in the Eastern District of New York.   Knowles, another US corporation, which was sued in China in retaliation for filing a Section 337 patent action, was also barred from attending legal proceedings and stated that “a fair trial is impossible.”  In antitrust actions, including IP-related antitrust actions, the situation had become so severe that the US government had to obtain a promise from China that it would “allow Chinese practicing lawyers to attend and participate in meetings with any of the three [anti-trust agencies].”   Still worse, foreign lawyers have complained that company officials have been threatened with arrest if they did participate in meetings in China, and there have been rising concerns of detentions of foreigners as commercial hostages including during the pendency of civil litigations

Should concerns over a failure to comply with general notions of due process, including notice or access to counsel mandate that a court limit the impact of a foreign court’s ASI? As Mark Jia notes, this is within the discretion of the presiding judge.  While judicial procedures vary from nation to nation, delays in notification to adverse parties can raise concerns about violation of generally accepted standards of IP litigation, as reflected in the TRIPS Agreement.  That agreement requires “timely” written notice of “civil judicial procedures” to the parties as well as the right to an “independent counsel” (Art. 42 “Fair and Equitable Procedures”). 

There are other, troubling aspects of the December 25 decision. The court appears to base its jurisdiction on SEP cases being global and affecting Chinese and other national and territorial courts (pp. 2, 11).  It therefore has jurisdiction over “global licensing conditions, including licensing rates” (p. 7).  The court does not explain its departure from prior Chinese practice, such as the Guangdong SEP Guidelines, which would authorize a court to consider a worldwide rate setting if the parties agreed to it, nor does it consider whether it is the optimal form for these disputes.  Long-standing US precedent for ASI’s also establishes that “comity teaches that the sweep of the injunction should be no broader than necessary to avoid the harm on which the injunction is predicated.” (Laker Airways v. Sabena, 731 F.2d 909, 933 n. 81 (D.C. Cir. 1984)).  The court also adopts an anti-trust like approach to granting the ASI, by looking at harm to consumers and competition if an infringer were to be enjoined (p 10, para. 4). A thoughtful analysis of the choice of law and ASI issues could likely have helped de-escalate and de-conflict the issues. To rub salt further into the choice of law wound, the ASI extends to access to all courts, including those of the United States, and thereby includes US patent matters (Decision, p. 12, para. 2).  

To be fair, Chinese courts’ entry into the “global SEP litigation” arena in 2020 has been preceded by global rate setting decisions elsewhere in the world, including the recent Conversant and Unwired Planet cases in the United Kingdom.  Additionally, the Chinese courts have been instructed to take a more aggressive approach to international parallel litigation. The court at this stage should, however, also be committed to the increase of procedural fairness  as well as careful legal analysis in order to minimize friction among the parties and with other jurisdictions.

Updated on January 5 & 11, 2021 to correct minor typographical errors.

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.  

RCEP And Phase 1: Strange Bedfellows in IP

Misery acquaints a man with strange bedfellows.”  William Shakespeare, “The Tempest”.

I have just read through the recently concluded Regional Comprehensive Economic Partnership Agreement (RCEP)  among  Brunei Darussalam, Indonesia, Malaysia, Thailand, Singapore, the Philippines, Cambodia, Myanmar, Laos, Viet Nam, Japan, China, South Korea, Australia, and New Zealand.  RCEP creates the world’s largest trading bloc, with about 30% of global GDP. 

RCEP was originally perceived to be China’s answer to the Trans-Pacific Partnership (TPP), which the US abandoned and would have been the world’s largest Free Trade Agreement (FTA).  In the absence of US leadership, the RCEP sets new standards in intellectual property.  It may also be a foretaste of what a more heavily China-influenced global IP environment would look like, particularly if the United States does not soon re-enter large-scale plurilateral trade agreements in IP.

It would be wrong, however, to argue that all the provisions in RCEP were proposed by China.  Indeed, its numerous negotiators’ participation in the discussion had undoubtedly resulted in compromises over a range of issues.  Still, it is hard to search for the imprints of those economies that signed onto the TPP’s successor agreement, the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP), or have signed bilateral FTA’s with the United States which might have advanced more protective IP regimes in this FTA. Among the countries that have signed either or both such agreements are: Brunei, New Zealand, Singapore, Australia, Japan, Malaysia, Vietnam, and the Republic of Korea.   

It is important to note that numerous IP-related provisions in IP were suspended in the CPTPP.  Scaled-down aspects of some those suspended provisions in the CPTPP are found in the RCEP, such as with respect to technological protection measures  and rights management information in the online environment (11.14 and 11.15).  In addition there were reportedly efforts by some developed countries, such as Korea and Japan, to include various TPP or bilateral pro-IP provisions, including on pharma-related IP rights, permitting IP in investor-state dispute settlement and requiring accession to the 1991 treaty for the International Union for the Protection of Plant Varieties (UPOV).  Although China was making bilateral commitments to the US on pharma-related IP in the Phase 1 Trade Agreement, those efforts are also not reflected in RCEP, owing perhaps to the participation of those economies that have less interest in robust IP protections for more advanced biotechnology. 

To further complicate the analysis, China has expressed an interested in joining CPTPP.  However,  the CPTPP contains many provisions that would make it difficult for China to join, including disciplines on subsidies and state-owned enterprises.  Although TPP was hardly perfect in addressing statist approaches to IP, the chapter on IP issues did include restrictions that may have been drawn from US experience with China, including limitations on administrative IP enforcement (TPP, Sec. 18.74(16)), enhanced transparency (Sec. 18.4, et seq.), availability of statistical data on a country’s IP regime (Sec. 18.73), and availability of remedies against state-owned enterprises (fn. 102).  The competition law chapter similarly has important procedural due process provisions as well as support for economic analysis in competition law determinations (Secs. 16.2, 16.6, 16.7).  These disciplines are largely missing from RCEP.

On the positive side, RCEP is far more extensive on IP than prior China FTA’s, such as the Swiss FTA (2013).  China’s traditional FTA practice had been to focus on a limited range of issues, many of which have been advocated by other countries in the developing world, such as geographical indications, traditional knowledge, folklore and the provision of mechanisms for technical negotiations and technical assistance.  In many respects, RCEP is a also deeply statist instrument in both dispute resolution and intellectual property.  It shares a statist approach with the vastly different US-China Phase 1 Trade Agreement.  While both agreements expand on certain substantive rights and criminal penalties, they do little to support civil enforcement, reaffirm the centrality of IP as a private right, restrain state intervention in IP, limit the role of SOE’s, or promote transparent civil legal process. 

RCEP may contribute to efforts by many countries to distance global IP trade policy from US FTA IP policy or even TRIPS standards.   Although RCEP provides that the TRIPS Agreement prevails in the event of any inconsistency between RCEP and TRIPS (Art 11.3), there are certain aspects of RCEP that are below TRIPS minima.   This would not be consequential if the WTO had a functioning Appellate Body (AB) to resolve IP disputes, as TRIPS provisions could be resolved through the AB mechanism.  The absence of a functioning AB means that RCEP’s own dispute resolution mechanisms may be more important for resolution of these TRIPS provisions which are incorporated by reference.  RCEPS may facilitate easier enforcement around lower standards,  and thereby enable RCEP to develop its own interpretation of often unclear TRIPS IP provisions.

One of the TRIPS-minus provisions is found in IP-related competition law.   In both the IP and competition law chapters there is no reference is made to TRIPS Art. 40.2 which restricts the exercise of competition law authority in IP issues to where there is “an abuse of intellectual property rights causing an adverse effect on competition.” This language had been a matter of some controversy in TRIPS negotiations as it required that competition authorities demonstrate not only an abuse of rights but a causal impact from that abuse on competition.  The language is also significant as it is distinguishes itself from other, hortatory TRIPS language which states that the TRIPS agreement is intended to address licensing practices that inhibit technological development of WTO members (Preamble, Arts 5, 40.1).   To be fair, the TPP also shares this perspective of focusing on technology dissemination (Sec. 18.3).  The competition chapter of RCEP however does not require a causation analysis  and defines anti-competitive activity only by providing examples: anti-competitive agreements, abuses of a dominant position, and anti-competitive mergers and acquisitions (fn.2).    The IP chapter, by contrast,  speaks to the need to balance IP rights with other public interests, and to promote the “dissemination of technology” (11.1, 11.4).  As there has been no WTO case to date under TRIPS Art. 40.2, there are few guardrails to limit an RCEP-governed dispute in its interpretation of competition law obligations under RCEP and TRIPS.

RCEP predictably embraces Doha on access to medicines and generally strikes a balance between IP rights owners and users/consumers.  As with the discussion of licensing, this is frequently code for diluting rights. In addition, RCEP does not commit its members to provide for any pharma-related IP incentives, such as patent linkage, patent term extension, or regulatory data provision. RCEP does authorize members to determine the extent of an “experimental purposes” exemption from infringement (fn. 34).  This is also arguably a TRIPS-minus provision as it could be used to craft Bolar-type exemptions from research done in advance of marketing approval of a pharmaceutical.  China has long had such a “naked” Bolar exemption, which does not compensate the rightsholder for erosion of its patent protections due to pre-market approval experimental use.  Overly-broad Bolar type exemptions were also the subject of a WTO dispute, and are subject to WTO disciplines.

Importantly, the IP provisions in RCEP provide no new gloss on murky but important WTO/TRIPS concepts such as an a “independent judiciary”, “independent counsel”, or “transparency”.  With regard to transparency, RCEPS maintains the vague, decades-old and largely unexamined obligations requiring that “final judicial decisions and administrative rulings of general application” shall be published, leaving China with the possibility of not publishing court cases because of its “civil law” orientation, and of never publishing preliminary injunctions, court documents involving settled cases, or trial court decisions that had been appealed because they are not “final.” China – along with many civil law countries – has developed a  quasi-precedential judicial system. These economies should not be relieved from the obligation to publish cases on the basis of a theoretical civil law orientation.  The IP chapter also lacks an Article 63 of TRIPS that would compel a country to produce cases of interest to another member country.  This is no surprise since China did not comply with a prior US Art. 63 request at the WTO to produce IP cases.  I am, however surprised that other countries acquiesced to the absence of such a provision.    

There is considerable text around geographical indications (Section D) including grandfathering of previous agreements (11.34), probably to ensure no disruption to commitments made with European or other countries about mutual recognition of GI’s.

RCEP also updates TRIPS with post-TRIPS treaties being incorporated, including the WIPO Internet Treaties, and the Marrakesh Treaty as well as the Madrid Protocol and the Patent Cooperation Treaty (11.9). As mentioned, RCEP does not require accession to UPOV ’91.  RCEP does update the TRIPS agreement with various commitments to on-line IP protection, including domain name disputes (11.55).  RCEP also requires criminal remedies in the digital environment, which is another needed modernization of TRIPS (11.75).

RCEP has relatively extensive provisions on traditional knowledge, genetic resources and folklore, which have also been actively promoted by the developing world (Section 3). The Agreement authorizes but does not require disclosure of the source of genetic resources in patent applications (11.53). 

There is nothing new on RCEP regarding trade secrets. In this sense, RCEP deviates from US FTA practice, the Phase 1 Trade Agreement, the TPP and current thinking about the inadequacy of the general commitment to protect trade secrets in TRIPS Art. 39.

RCEP’s provisions regarding proof of copyright ownership (11.58(5)) appears consistent with the Phase 1 Agreement  (18.27, Art. 1.29).  RCEP also obliges signatories to address government software piracy, as does the Phase 1 Trade Agreement  (11.17, Sec. 1.23 respectively).  Camcording of motion pictures in theatres is also a prohibited act under RCEP; however  RCEP only mandates a criminal remedy for illegal camcording (11.74).  This is also similar to US law (18 U.S.C. § 2319B). 

One of the oddities of RCEP is that criminal remedies were expanded to include the importation of commercial-scale counterfeit or pirated goods (11.74). If RCEP signatories had intended to address trade in counterfeit and pirated goods, the more potent remedy would have been to require Customs remedies for exports and/or to criminalize the export of infringing products.  This would have complemented existing WTO obligations to control the import of infringing products using Customs procedures.  The TPP provisions are far more significant.  The TPP requires criminal remedies for import or export of infringing goods (Sec. 18.77). Controls over the exports of infringing goods could prove highly valuable to RCEP states seeking to further integrate their supply chains within the RCEP region through enhanced deterrence at the source country.

In what looks like a rebuke to the US, the IP chapter also lets the parties determine the magnitude of commercial-scale infringing piracy and counterfeiting that they need to criminalize and their use of criminal procedures to address them (Art. 11.74).  RCEP provides that the Parties may “determ[ine] the scope of application of criminal procedures and penalties in case of wilful copyright or related rights piracy on a commercial scale, in accordance with its laws and regulations.”  This issue was litigated by the United States at the WTO in the DS362 dispute against China regarding TRIPS Art. 61.  The US did not succeed in that case due to a lack of evidence and an unwillingness of the WTO panel to compel China to produce relevant cases via Article 63 of the TRIPS Agreement.  The WTO panel did not, however, determine, as the RCEP language might suggest, that the scope of “commercial scale” was to be “determined” by WTO members by their “laws and regulations.”  In fact, the panel specifically rejected that argument when it noted that the panel had no power to “add to or diminish the rights and obligations provided in the covered agreements”.  It also rejected China’s concern over “sovereign jurisdiction over police powers” in seeking to achieve flexibility over the definition of “commercial scale.”  

Coincidentally, RCEP’s text which undermines TRIPS Article 61 is found at RCEP’s footnote 61.  One wonders if this was intended as a direct criticism of the United States understanding of TRIPS Art. 61, or to poison the waters for any US consideration of joining RCEP.  The United States, by the way, included its own poison pill in the US-Mexico-Canada Free Trade Agreement, restricting FTA negotiations with non-market economy countries.

There is also nothing in RCEP which specifically incorporates or builds upon TRIPS Art. 49.  Article 49 requires that administrative enforcement procedures should conform to civil procedures.  The removal of this provision from RCEP may be part of the flexibilities articulated in RCEP footnote 61 for member states to determine how to criminally enforce IP.   In the DS362 criminal enforcement WTO case, China had specifically urged the WTO to consider that its extensive administrative mechanisms addressed all types of infringement of “commercial scale”.  China may now be better able satisfy any RCEP member inquiries regarding the availability of criminal remedies by pointing to its administrative enforcement mechanisms, unencumbered by Art. 49.  For those concerned about human rights, administrative enforcement can also result in harsh penalties, such as reeducation through labor.  The TRIPS Agreement required at least a minimum of judicial supervision in the form “criminal process” to support criminal penalties.   RCEPs now condones these administrative penal procedures.

RCEP also lacks a provision similar to the TRIPS Preamble requiring that IP is treated as a  “private right.”  RCEP also does not address the general role of markets in: monetizing IP;  infringement by state-owned enterprises or the State; or other state interventions in a member country’s evolving IP ecosystem. 

Many observers have noted that RCEP is a broad but not deep FTA.  Perhaps the reason for the hodge-podge set of IP commitments in RCEP lies elsewhere than in IP.  RCEP may  be a potent weapon in China’s efforts to address supply chain disruptions brought on by Trump Administration sanctions, Covid19 and other developments. RCEP has extensive provisions regarding a common country of origin certificate and mechanisms to facilitate greater flow of goods within the RCEP community. 

China has already responded to the commercial opportunity afforded by RCEP by turning Hainan Island into the world’s largest free trade port (FTP)  In addition, China’s National People’s Congress has recently decided to establish China’s fourth specialized IP court in the Hainan FTP.  Considering the small size of the IP docket in Hainan courts, and the very low number of foreign related IP cases, the decision to establish an IP court in Hainan likely anticipates the anticipated impact of RCEP on the Hainan economy and the desire of China to further project its IP influence in the region.

Sadly, RCEP looks like the model of an IP agreement in a world where the US has disengaged from plurilateral trade-related IP negotiations. For President-elect Biden it may serve as an incentive to re-engage allies on IP and innovation.

The two agreements are strange historical bedfellows, joined by a common moment in time and common approaches to IP which diminish its role as a private right. Both agreements speak to nationalist and trade needs of the United States and China. The differences between the two agreements are also significant.  The Phase 1 Agreement explicitly contemplated a Phase 2 Trade Agreement. It also only involved only two countries.   RCEP intends to be comprehensive and regional, if not global. It is an alternative to the TPP.  It fills a vacuum in the region and will help China establish global IP norms.

Please send me your comments and corrections.

Minor corrections made to this text on January 13, 2021.