US Suspends IP Case Against China at the WTO. Quo Vadis Europa?

DS/542, the WTO case that the US filed against China regarding China’s legal regime for foreign technology transfers, has now been suspended by order of the Panel.  The parallel case that was filed later by the European Union has not yet been similarly suspended.

When I was in Beijing earlier this June 2019, I gave several talks regarding US-China trade, and I questioned why the US case was not suspended or dismissed. The US case set forth a very limited “de jure” or “as such” case of violation of certain TRIPS obligations, including national treatment with respect to licensing of patents, as well as TRIPS-inconsistent measures regarding the contribution of patents to joint ventures.  By filing the case immediately after the 301 Report regarding technology transfer and innovation, the US case seemed to be making the point that the WTO was still a viable mechanism for certain of the US complaints regarding China’s technology transfer regime.  It was welcomed by those who believe that the WTO continues to play an important role in trade disputes. Suspending the case now in a sense confirms that Donald Trump accomplished legislative reform more quickly with jaw-boning and tariffs than the WTO could have with dispute settlement proceedings.

However, the White House should also not rush to praise itself on the utility of its approach to using the WTO dispute mechanisms.  As I previously noted, the US complaint was narrow.  It only focused on a few laws and regulations regarding patents.  With the passage earlier this year of numerous legislative reforms, including removal of the most offensive provisions of the Administration of Technology Import/Export Regulations, as well as amendments to the Joint Venture Implementing Regulations what the US sought to challenge as de jure WTO violations have been resolved.  Numerous other issues that were identified in the Section 301 report, whether credible or not, were not raised in the WTO complaint.  In some aspects, this case was long overdue and relatively straight-forward.

Why has the EU case not been dismissed?  One explanation may be that the EU may yet follow the lead of the US in seeking a suspension based on how the current legislative packages are implemented. If the EU does not move to suspend the case,  an alternative explanation is that the EU case was more comprehensive than the US case and therefore harder to suspend or dismiss.  The EU case may yet stand as a raison d’etre for the WTO dispute mechanism.  The EU raised concerns over a wider range of laws, regulations, and policies, including Made in China 2025, antitrust laws and new electric vehicle regulations. It also included catch-all claims that extended to how laws and other normative documents are implemented, including their  “nullify[ing] or impair[ing]” the benefits accruing to the European Union.

In its summary of the EU complaint, the WTO docket sheet narrowed the EU’s complaints down to more closely mirror the US complaints.  If these are indeed the only claims that the EU is now pursuing than a similar suspension would make sense.  However, if the complaint remains unamended, it is the kind of complaint the US might have filed as an outcome of the Section 301 investigation.  This now leaves the EU with the option of continuing to push for additional improvements in tech transfer to China through the WTO system or, instead, pursuing other solutions such as trade diplomacy.

 

The 600 Billion Dollar China IP Echo Chamber

“Most people use statistics the way a drunkard uses a lamp post, more for support than illumination.”  Mark Twain

What are the losses due to “IP Theft” from China? On a recent trip to Washington, DC, I heard the range of $300 billion to $600 billion repeated from various sources without any critical gloss. These numbers have taken on a greater legitimacy than they likely deserve, in terms of capturing the scope of US concerns, the magnitude of the loss and shaping the Trump administration’s unilateral retaliation.

The 2017 and 2013 reports from the Commission on the Theft of American Intellectual Property (the “Commission”) appear to be the origin of much of this data.  The data was also referred to in the Section 301 Report (p. 8) and in a subsequent White House report “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World” (June 2018).

In 2017, the Commission found that “Chinese theft of American IP currently costs between $225 billion and $600 billion annually.” The Commission pulled together different sources of data, including sales of counterfeit and pirated goods ($29 billion), and that “the value of software pirated in 2015 alone exceeded $52 billion worldwide.” The Commission further noted that there was “a paucity of reliable data on the economic costs of patent infringement” and that American companies were most likely the leading victims of this “IP Theft.”  It estimated losses of at least 0.1% of the $18 trillion U.S. GDP.

The largest single loss contributor to the Commission’s estimate was based on data provided by create.org and later repeated by the White House, that trade secret theft cost between 1% and 3% of US GDP, and totaled between $180 billion and $540 billion.  One critic (Stephen S. Roach) of these loss figures recently noted that “the figures rest on flimsy evidence derived from dubious ‘proxy modeling’ that attempts to value stolen trade secrets via nefarious activities such as narcotics trafficking, corruption, occupational fraud, and illicit financial flows. The Chinese piece of this alleged theft comes from US Customs and Border Patrol data, which reported $1.35 billion in seizures of total counterfeit and pirated goods back in 2015.”  One area of overlapping concern I have with Mr. Roach is the use of Customs seizure data to justify allocating as much of 87% of global “IP Theft” to China. Seizures by US Customs of Chinese originating counterfeit and pirated goods are as high as 87% of global totals. However, this does not mean that China is the source of 87% of the world’s production of these goods, nor does it address trade secret infringement or patent infringement origination. See The 2017 Commission Report at p. 3.  Misunderstanding about the utility of Customs data contributes greatly to the weaknesses of many IP infringement loss estimates.

The 2013 Commission Report noted that “it is safe to say that dollar losses from IP theft are hundreds of billions per year, which is at least in the range of total exports to Asia in 2012 (valued at $320 billion).” This report pulled together several sources, including OECD data that estimated global trade in counterfeit and pirated goods as $200 billion in 2005 (p. 25).  All the studies to date, including this 2013 Report, have recognized the difficulties inherent in doing accurate loss estimations, although many have also not distanced themselves from sources, such as the OECD 2005 data which had not stood the test of time.

Remarkably, the loss data itself has been relatively consistent over approximately two decades despite different methodologies and varying definitions of what constitutes “IP Theft”. During my tenure at the US Embassy (2004-2008), the typical guestimate was $200 billion to $250 billion per year.  These guestimates enjoyed wide currency in Washington.  For example, Congressional Reports, such as H.R. 110-617 “Prioritizing Resources and Organization for Intellectual Property Act of 2008” stated: “[I]ncreasing intellectual property theft in the United States and globally threatens the future economic prosperity of our nation. Conservative estimates indicate that the United States economy loses between $200 and $250 billion per year, and has lost 750,000 jobs, due to intellectual property theft.”  This data was typically based on counterfeit and pirated goods “compris[ing] six to nine percent of all world trade, the bulk of which violates the intellectual property rights of United States businesses and entrepreneurs.”  (Id.). Six to nine percent, however, easily gets rounded up to 10 percent, as Congressman Donnelly from Indiana noted at about the same time:

“It is estimated that these [counterfeit] products comprise almost 10 percent of world trade, that they are costing American companies nearly $250 billion in revenue and an estimated 750,000 jobs.”

The number was also widely adopted by IP advocates. The U.S. Chamber of Commerce in its report What Are Counterfeiting and Piracy Costing the U.S. Economy, (2004) circulated the 200- 250 billion dollar number, as did a National Geographic film. In fact, I used the $250 billion dollar figure when I was IP Attache in Beijing (2004-2008) to urge additional support for my elevation in diplomatic rank, as it seemed rather odd that I had been tasked with a problem costing nearly 750,000 jobs and I had no staff of my own. An article in Ars Technica (2008) noted that this earlier $250 billion/750,000 job number may have its origins in a Forbes magazine article from 1993. There are also references to loss calculations of 200 billion dollars per year appear from as early as 2002 in Congressional reports.   To the extent that these calculations rely upon a base estimate of “approximately” 10 percentage points of world trade being in counterfeit or pirated goods, this data point harkens back to an OECD estimate of world trade in counterfeit goods at 5% in 1998. That number was however revised downward to 1.95% in 2007, at an estimated value of $250 billion. The OECD data seems to be the origin of the $250 billion IP Theft loss figures current at that time.

Other USG studies have shown a more cautious approach. A 2010 Government Accountability Office (“GAO”) study analyzed the economic effects of counterfeit and pirated goods and found that “it was not feasible to develop our own estimates [of the total value of counterfeit or pirated goods] or attempt to quantify the economic impact of counterfeiting and piracy on the U.S. economy.” Noting the lack of data as a primary challenge to quantifying the economic impacts of counterfeiting intellectual property and goods, the GAO concluded that “neither governments nor industry were able to provide solid assessments of their respective situations.”

The U.S. International Trade Commission in a well-researched report,  China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy, (2010) calculated that the theft of U.S. IP from China alone was equivalent in value to $48.2 billion in lost sales, royalties, and license fees. This estimate falls within a broad $14.2-billion to $90.5 billion range.  The breadth of this range is explained by the fact that many firms were unable to calculate their losses. Of the $48.2 billion in total reported losses, approximately $36.6 billion (75.9%) was attributable to lost sales, while the remaining $11.6 billion was attributable to a combination of lost royalty and license payments as well as other unspecified loss.

The current concerns around “IP Theft” as identified in the Section 301 Report include licensing of technology, an issue that is not covered by US Customs seizure data. Any calculation of losses due to IP Theft from non-payment of royalties should include estimates of lost royalties or license fees. Most of the current calculations do not include such data. Nonetheless, as I have noted elsewhere, accurately calculating lost royalties can be especially difficult as many licensors use tax haven jurisdictions to manage patent portfolios. There may be implied licenses in product purchases form OEM suppliers, and there can be valuation challenges. However, China’s relatively small role as a purchaser of US technology and its dominant role as an exporter of high tech or information technology products does suggest that it is a significantly under-licensed (infringing) economy. For example, China has leaped from exporting only 2% of the world’s information technology products in 1996, to 33% in 2015. Yet China has purchased very little technology directly from the US over the years, and its technology payments are a very small share of total trade. There is likely a huge shortfall in unpaid royalties from Chinese manufacturers.

Many discussions around IP theft have also declined to take into account cybercrime and other security threats. According to an often cited 2013 report by the International Data Corporation (IDC), direct costs to enterprises from dealing with malware from counterfeit software were estimated to hit $114 billion in 2013 and “potential losses from data breaches” might have reached nearly $350 billion.” However, data breaches are not necessarily a form of IP infringement, as they can be undertaken for other purposes, including simply injuring the computer system of a competitor through a denial of service attack.

Apart from differences in methodology, there are different definitions of “IP Theft” that should be affecting total loss calculations. The FBI currently  defines “Intellectual property theft” as “robbing people or companies of their ideas, inventions, and creative expressions—known as ‘intellectual property’—which can include everything from trade secrets and proprietary products and parts to movies, music, and software.” This definition notably would exclude any non-willful infringement, i.e., where there is no “robbing” as well as trademarks – which are not specifically enumerated.

In its 2013 Report, the Commission offered some examples of “IP Theft”, which also excluded trademark protection, and failed to discuss patent protection: “IP theft varies widely in both type and method. It ranges from more commonly known forms, such as software and music piracy, to more elaborate types, such as the use of economic espionage tactics to steal complex industrial trade secrets. Each type of IPR violation harms an economy in unique ways and brings with it a discrete set of challenges that make both deterrence and enforcement difficult.”

These approaches to “IP Theft” are different from the meanings advanced for the same term in the last decade. Victoria Espinel, who has had a long and distinguished career in IP and international IP issues, testified in Congress in 2005 when she was with USTR and spoke of “IP Theft”  in terms of the fight against ‘fakes’, declining to mention patents for inventions or trade secrets.   This was consistent with the focus at that time on criminal copyright and trademark focus of US government advocacy in China, including the bringing of a WTO case (DS362):

“Our companies report billions of dollars in lost revenue, irreparable harm to their brands and future sales, all of which ultimately affects U.S. workers who design and produce legitimate products forced to compete against Chinese fakes. We want and look forward to working closely with you and your staff in combating the theft of American IP in China.”

“IP Theft” of the prior decade certainly appears under-inclusive in not focusing on patent or trade secret infringement.  It also fails to reflect that most IP infringement is addressed by civil remedies, where questions of willfulness are secondary to the harm being caused. Criminal remedies, while important, are relatively rare in most legal systems. This approach is consistent with the TRIPS obligation to treat IP as a “private right.” Moreover, the TRIPS Agreement itself does not require member states to criminalize patent infringement or trade secret infringement.  Finally, there may be grey areas including market access barriers, investment restrictions, government procurement restrictions, informal government supported forced technology transfer, or aggressive use of antitrust laws that many would argue need to be included in the definition of “IP Theft”.  Many of these would also be very difficult to quantify.

“IP Theft” is also slightly over-inclusive, as there are also certain forms of bad-faith behavior that may be sanctioned by the state and permissible under international IP rules. For example, rights holders in China face a significant burden of bad faith patent and trademark applications that entail costs of challenging and invalidating these rights, while US-based rights holders often complain about non-practicing entities and patent trolls.

Individuals who might suspect an exaggerated “IP Theft” loss estimate might be surprised to know that there are data points that have typically been omitted from these calculations. For example, US Customs data typically does not include the value of goods excluded from the US market under Section 337 exclusion orders. I am unaware of any methodology that attempted to extrapolate from US damage awards in US courts against Chinese infringers. USTR in its 301 report, was also unable to calculate the value of “forced technology transfers” in joint ventures or technology transfers. Certain rights, such as plant varieties and plant patents are typically not included in loss figures, nor are losses due to design infringements. Consequential damages (attorneys fees/court costs/losses to brand value/harm to public health or safety) are also often not included in the above calculations.

There are also factors that could reduce the loss figures that have often not been used.  Assumptions about the US being the overwhelming victim of “IP Theft” are hard to substantiate. I suspect that different countries and industries bear different costs in different markets. European companies, for example, likely suffer most from trademark and design infringements of luxury goods.  In the United States, over 50% of US patent applications originate with foreigners; logically this may mean that a substantial portion of the injury suffered by US companies overseas due to patent infringement may be attributable to innovations that occurred outside of the United States.

Calculating how much “IP Theft” originates from China also ignores whatever the “baseline” is for infringement in the US.  Historically, for example, the greatest value of software piracy losses were in the United States, According to BSA data for 2017, China’s piracy losses were 6.8 billion, while the US was 8.6 billion. In addition to other deficiencies, US Customs data is based largely on the pro-active behavior of US rightsholders and thereby considerable selection bias. As one example, if “IP Theft” priorities were based on Custom data, apparel, watches and footwear would be the major area of US trade concern with China, as there were the three categories of goods most seized by US Customs in 2017.

“IP Theft” losses also do not necessarily reflect losses due to unredeemed WTO commitments, nor are they based solely on violation of WTO disciplines.  The TRIPS Agreement, for example, does not require members to criminalize willful trade secret theft – which is likely a major contributor to the current calculations. Moreover, if the calculations were one that adhered to WTO procedures, then the various methodologies would also need to look to WTO jurisprudence in terms of calculating damages when a WTO member fails to implement a WTO decision involving IP. A good reference point might be the “Irish Music” (DS160), which the US lost, and where the US was required to pay 1.2 million euros per year as an arbitral award in the early 2000’s. Another reference is the Antigua/gambling dispute, where the island of Antigua was permitted to retaliate against US IP interests in the value of 21 million dollars per year, considerably less than a claim by Antigua of 3.44 billion dollars.

Tying tariffs to losses due to IP theft has other challenges.   While it may help address a sense of national outrage, the unilateral imposition of tariffs on Chinese imports is unlikely to benefit any US victim of IP theft, nor do the tariffs themselves appear to be geared to a particular loss threshold. Instead, the tariffs are loosely based on loss estimates but appear primarily oriented to forcing China to change its behaviors.

A cynical reader looking at the data might conclude that large loss numbers are self-serving and make compelling rhetoric in the echo chamber of Washington, DC. Someone looking over the history of the data might, however, view their weaknesses as due to such factors as difficulties in collecting data, the growth of the Chinese economy and changes in infringement practices, and changing technologies including the growth of the Internet as a vehicle for content and goods delivery. The current focus on “technology” in the scope of IP Theft might be viewed as a belated recognition of how the Chinese economy has become more technology-oriented in the past decade.

In my view the statistics do serve as more than a “support” of the type referred to by Mark Twain, above. They also help to “illuminate” a deeply felt and sustained injury that is otherwise hard to calculate.

Note: The author (Mark Cohen) has contributed to many of the reports noted above, typically in a private capacity.

Corrections to the above are welcomed.

RIP VAN WINKLE RETURNS FOR THE TRADE WAR

A Modern Illustrated Political Fable By an Anonymous Folklorist

ripvanwinkle

Rip Van Winkle VIII, Esq, the great US government intellectual property and trade lawyer and descendant of the Hudson Valley Van Winkles,  fell asleep on December 12, 2001, the day after China joined the WTO.  He woke up earlier this year to find a changed country, engaged in a trade war that undercut all his prior hard work.   He was disappointed at how the US had handled the legacy of China engagement that marked the period before WTO accession.  He had a Yogi Berra-like moment of “Deja-vu all over again “, and felt he had to reach out to the American people to tell his story.  These are my interviews with him.

I asked Rip about the 301 report on Chinese forced technology transfer. “You mean, the report that launched the trade war”, he remarked with a wry smile.  He said that he was surprised by the tactics that the President pursued.   The US “pressured China without imposing tariff sanctions in the 1990s and with considerable success.  For example, China agreed to have a trade secret law back in 1995 or so.  No administration in the 1990s had to pull the tariff trigger on China, although we had a clearer legal basis in international law to do so since China was not yet a WTO member.  We also had the statutory authority to revoke MFN on human rights issues but didn’t do that either.  Now our imposing these sanctions risk dismantling the global trading system.  I understand the frustration about China’s WTO compliance, but I don’t understand why we haven’t more aggressively pursued WTO remedies.”

wto

I asked Rip, “Was it because the issue back in your day was one of China’s compliance with the laws, rather than enforcing than the laws as written? After all, it is hard to bring a case on how adequately a country is enforcing its laws.  There are lots of flexibilities built into the TRIPS Agreement.”

Rip pensively pulled on his long Van Winkle beard and noted ”Back then the efforts were not simply legislative.  China’s enforcement of IP was weak too, and some progress was made: for example, there was a special Customs regime on exports, which is TRIPS+, which survives to this day.  Specialized IP tribunals were also something that he had worked on ‘back in the day.’  There were also a number of special campaigns, task forces, and other efforts.   In fact, people had even been complaining that some of the enforcement had gotten too tough when China launched a ‘strike-hard’ campaign against some of this activity.”

“But, “ I added “today we have high tech issues in addition to counterfeiting and piracy issues.  We have AI, and IOT, and 5G, and genetic engineering, online businesses, plus all the counterfeiting and fake goods.  These are new issues!”

“All true,” said Rip, “and you have other new things that are also fake,” Rip smiled, “fake news and–,” he added sarcastically, “this President.”  Rip appeared puzzled that a reality TV show actor could also become President.

“But I am not surprised by all the fake goods originating from China that are sold throughout the world,”  he continued.  “After all, that was the problem with regional trade in the 1990s.  It was to be anticipated – that was the reason we asked China to control infringing exports in the ’90s. “

“As for technology, we had those challenges as well.  There was the ‘great subsidy’ compilation CD exported from China that infringed on multiple business software copyright owners,”  Rip mused. “That was a high-tech problem.  We found solutions working in Taiwan and China.  And what about the submarine they discovered in Hong Kong to haul counterfeit DVD’s? That was also a high-tech problem.”

Rip pulled out a beaten photo of a diagram of the submarine that was captured by Customs authorities in Macau:

macaucustoms

Photo by Mark Cohen from an original diagram at Macau Customs.

“I don’t get it though” Rip snorted. “Why did the US file a WTO case in 2007 against China’s export of counterfeit goods, DS362?  We all knew that this was not a WTO issue, but one that depended on external pressure on China.  China was only obligated to have Customs remedies on imports. Yet we haven’t yet filed a case against how ineffective China’s IP remedies are, which is a specific WTO requirement?  I expected more, from China’s carefully crafted WTO accession package and from the US and the WTO itself.  We worked so hard on that package.”

“As best we could, we foresaw many of these problems in the 1990s and created the roadmap for legal strategies.  Sure, it wasn’t perfect.  It was a crystal ball exercise.  But look at China’s WTO commitments.  China’s obligations had no grace period.  There was a special safeguard measure.  China was subject to a range of extra commitments as a non-market economy under our dumping law.  China was also subject to extensive new transparency obligations.  Moreover, China’s trade regime was subject to a 15-year annual review.  Its IP regime should now be the subject of WTO cases.”

Rip shook his head: “Only a few weeks after WTO accession in 2001, China implemented a discriminatory technology licensing regime called the Technology Import/Export Regulations, which discriminated against foreigners.   Why did we wait until March 23, 2018 for the US to file a  case against this regulation?  Who else was asleep when I went to sleep? Did someone put sleeping pills in the water?”

It is true, as the press reported, that when Donald Trump met Rip Van Winkle, they both agreed that nothing had changed on China IP.  However, the media once again generated some fake news around that meeting.   Rip disagreed that Trump’s strategy made sense, or that the US should indeed feel like it had exhausted its patience.  After the meeting, Trump tweeted that “Rip Van Winkle is a BAD man”.

djt

That was indeed their only meeting.  Trump referred Rip’s personnel dossier to OPM for further investigation to see if he had been collecting salary during the past 18 years when he should have been on leave without pay or whether he was simply AWOL.

After the incident with Trump, Rip went to Beijing.  He noticed that things had changed.  The street vendors of DVD’s, counterfeit Beanie Babies, and all another manner of fake goods were largely gone.  When he talked to average Beijingers, they seemed to know a great deal about patents, trademarks, and copyrights – perhaps more than the average American.  He was shocked to see that the patent and trademark offices had grown to the largest in the world.  He was pleased to see that China had a system of multiple intellectual property courts, with specialized judges.  He met many American-trained lawyers working in Chinese law firms, in companies, and in government.  This looked very much like the kind of system that the US might have imagined for China back when he was negotiating.

However, there were other ominous changes for the US.  The Chinese patent office was now several times the size of the US patent office, as was the Chinese trademark office.  Moreover, domestic filers dominated in both those offices, as they did in bringing suits to the courts.  In areas such as information technologies, where the US was once the dominant manufacturer and developer, the leading role had been ceded to China.  China now produced 25 to 30% of the world high tech products, supplanting both the US and the EU.   During a southern excursion on this trip, he saw that Shenzhen had grown to a high-tech mecca, well beyond even his dreams.

shenzhen

Rip was amazed to see that the Chinese IP system by some measures at out-paced the US.  The Chinese courts now handled about 280,000 IP cases in 2018, up 40% from 2017, while US domestic patent cases were declining.  Chinese courts handled over 100 times more copyright cases than US courts.  It was also an IP system that didn’t merely serve big state-owned companies.  The percentage of individual filers of patents as well as patent litigants in the Chinese courts were higher than in the US.  Moreover, in areas like software, business method patents and genetic patents, where the US had a lead “back in the day,” the Supreme Court of the US had made it harder to obtain patent rights.  China, however, was making it easier.  And this eBay case decided by the US Supreme Court in 2006 – why did the US decide to make it harder to get an injunction for an IP dispute, thereby weakening the system even further?”

Rip wondered, was there some kind of reverse alchemy at work – were we turning our IP system of “gold” into one of “lead”, and China was now getting the magic touch?alchemy

“It isn’t quite that simple” tweeted Mr. Trump when he heard of Rip’s reporting on the matter.  “We are pursuing structural barriers!!!”

“Well, we had the Structural Impediments Initiative with Japan back when I was in the government– sounds pretty similar to me.” Rip reported, closing an op-ed he wrote by asking the President: “Have you been asleep too?”

Rip thought that it was not surprising that China would benefit from being a low-cost manufacturer and joining the WTO.  The expectation was that China would also continue to make necessary economic reforms, and the US would monitor these reforms.  After the Tiananmen incident, the Western world was also greatly concerned about China’s commitment to liberal political and economic values.  The current regime in China may be pushing back on the legacy of Deng Xiaoping, but that should have made a WTO case that much easier today, by showing that China had reneged on some of its fundamental WTO commitments to bring about economic reform and institute certain minimum rule of law and transparency obligations.  These kinds of cases would also elicit support from many in China and from our trading partners.”

“Why didn’t you learn your lessons?  Is that the reason you brought back Lighthizer to USTR?  I hadn’t seen Bob for decades.  Did he fall asleep for even longer than me, maybe thirty years?” Rip joked, half-heartedly.

”The Japanese tried to persuade us that the reason there was a trade deficit with Japan was because of our lack of knowledge of their system.  Japanese snow, they said, was different from US snow so we couldn’t sell our skis there.  We all know however that this was a sorry excuse for market barriers set up to protect their industries.“

Mtfuji

Japanese snow by Mount Fuji.  Does it look different?

“With China, we knew there were a host of other, more problematic non-market barriers including possible security issues with Taiwan.   When we worked on the TRIPS Agreement,” Rip recalled, “we made it pretty clear that this was an agreement for market economies.  There was a transition period in the TRIPS Agreement for-state controlled economies, and we had extensive provisions around civil remedies, which reflects the private law orientation of TRIPS.  When we went ahead in our own domestic laws to define what constitutes a non-market economy we didn’t even tackle the role of intellectual property, perhaps because we hadn’t thought through the problem of how a non-market economy could exploit IP in its own interests.  The problem we face today is due to an unanticipated turn by China, that it would ease up on economic reforms and not reject IP but instead incorporate IP its state planning mechanisms.”

“Look at the preamble to the TRIPS Agreement,” Rip fumed. “It says intellectual property is a ‘private right.’ As I recall, the Hong Kong delegation put that into the TRIPS Agreement – they anticipated what was going to happen just a few years later in the 90s when they would be reunited with the mainland.”

“We know that IP is a private right and we knew that Chinese state is interfering in markets. We knew China had technology goals, and that the state was not letting individuals maximize their interests in private property rights.  We knew that addressing these issues was core to the success of China’s WTO accession.  We put in a host of other provisions in the TRIPS Agreement – national treatment, most favored nation treatment, due process in IP cases and IP antitrust cases, right to an independent counsel and an independent lawyer, injunctions and preliminary injunctions, the right to a decision based on evidence  — yet, the only WTO case the United States brought against China on IP until 2018 occurred back in 2007 and it involved asking for greater control by China of those markets – for improvements in China’s criminal and Customs IP remedies, as well as its censorship regime.”

“It doesn’t stop there either.  Our antitrust authorities entered into training and other programs that have further enhanced the role of the state by working with China’s former State Planning Commission and others, so that they can further diminish the value of these rights – rights that our companies have a hard time trying to enforce – and that further strengthen the role of the state.  You can’t have IP abuse unless you have IP use….”

“So having lost this 2007 case,” Rip asked “the US government decided it wasn’t worth filing another WTO case for 10 years or so?  What were we asking for – the Chinese government to step in and do more to control property rights?” Rip snorted.   “I don’t like Mr. Trump, but then again I can’t blame him for lousy strategies of 10 years ago.”

“Maybe the US went astray because you bought into the rhetoric of the 1990s which saw intellectual property as a foreign concept to China, one that was inconsistent with Chinese Confucian culture and that was not susceptible to change due to US pressure alone.  These misunderstandings were promoted by academics and Chinese officials, often over the objections of Chinese scholars.  By almost any measure, their assumptions were flawed, and they could not have predicted China’s wholesale and disruptive embrace of intellectual property into its innovation ecosystem. “

“Of all those assumptions, the one that China would not protect IP until it has IP of its own to protect, is the ‘old wives tale’ that…”

I corrected him: “’Old spouse’s tale’–we don’t use this sexist terminology now, and even that is ageist.”

“This old assumption” Rip said looking hopelessly at the sky, “that China needs more IP of its own in order to protect US IP should have been discredited only a few years after I went to sleep – because it was around 2005 that the Chinese trademark office grew to be larger than the US trademark office, and that Chinese TM owners were the dominant applicants.  And that trend has spread to nearly every other sector or indicator – patents, plant varieties, copyright registrations, litigation…. “

“As for this indigenous innovation problem, or Made in China 2025, or Strategic and Emerging Industries, or Medium and Long Range Scientific Plan, or 1000 Talent Program, or High and New Technology Industries, or indigenous innovation, or techno-nationalism, or self-strengthening, or China ‘breaking the IP paradigm’,   or China’s Galapagos-style  for local technical standards – whatever you want to call it  — it is also shocking that you didn’t read the signals from the 1970s and 1980s. “

“It was the science and technology people that were negotiating IP issues with us back then – even through the 90’s – including most notably Vice Premier Wu Yi, a petroleum engineer.  Ma Xiuhong, who I understand later became Vice Minister, was an engineer with the People’s Liberation Army.  My IP negotiating counterpart was Duan Ruichun, from the State Science and Technology Commission.  We sent our lawyers, and they sent their engineers and Ph.D.’s!  Did any of you fellows every study Chinese history and look at how China safeguarded its own technology, like sericulture, from the Romans? Have you read Joseph Needham’s Science and Civilization in China….They knew early on the value of technology!”

“Forced Technology Transfer?!”, Rip added, “How about this language from the Office of Technology Assessment Report (OTA) report on Technology Transfer to China in 1988 that I worked on: ‘Although most U.S. firms approach the China market with the intent to sell products, many find they must include technology transfer if they wish to gain access to the China market.’”

“We were also aware when we wrote that report that China was modernizing with military goals in mind,” Rip noted: “‘Our report went on: ‘If China is to become a major power, it will be through developing its own capabilities throughout the economy. Thus, in the long term, technology transfer will have a great military effect if it spurs innovation, modernized thinking, research and development, and economic growth generally.’”

“This isn’t a state secret!” Rip showed me a picture he was given from the Ministry of Science and Technology website that says “indigenous innovation” next to a Chinese missile.

zizhuchuangxin

“To save the situation of the United States, you might want to look at ourselves.  OTA was closed after that report, as was the Technology Administration of Commerce, and the Office of Science and Technology Policy in the White House was also defunded from engaging in China.”

Rip pulled out his perfectly preserved copy of the OTA report from 1988:

ota

“By the way,” Rip asked “Are there any foreign commercial service officers posted overseas that have technology promotion as an export goal? Has the US census changed its antiquated reporting system where it reports technology transfer as exports of ‘industrial processes’– whatever that means…”   Rip was getting agitated. “I would have thought that the US would at least take steps inside our own government to improve  our knowledge and engagement on these issues.”

Rip scratched his beard, told me that he felt like Diogenes looking for a good man by the light of his lantern in ancient Greece.  Rather than looking for an honest man,  he had no idea where to find anybody who understood technology trade in a US government agency in DC.

diogenes.jpgPainting of Diogenes looking for an honest man

“There are WTO cases that could have been filed.  In addition to investigating whether China has an ‘adequate or effective’ IP regime under the TRIPS Agreement, and all the other general requirements of the TRIPS Agreement I talked about,  there might also be cases about the role of the state as infringer and misappropriator of trade secrets and the state’s role as a cyber-spy,  China’s watering down of IP rights through antitrust and denying due process to US lawyers, and there’s always the possibility of a ‘non-violation’ or ‘situation’ complaint.  I understand there is a moratorium in the TRIPS Council on these generalized ‘non-violation’ complaints, but it still might be worth pursuing them.  We could also look at other remedies, such as using the countervailing duty law that China is using subsidies to undercut what we reasonably expected by China’s accession to the Information Technology Agreement.  Hell, he said, “even our lawyers can’t function well in China because the market is so restricted and they are paying higher taxes on their China revenue than Chinese lawyers, even though they are often providing the same kind of advice on Chinese law or foreign law.  That seems to be a national treatment violation of the GATS to me….”

“Many of these cases would be fact-intensive and difficult,” I said.  “They might also invite retaliation…”

“Difficult? You think you have it bad?” Rip asked indignantly. “China has finally gotten around to publishing its cases, and its patent and trademark databases are pretty transparent.  Back in the day, you had to hire a Chinese lawyer to look at the few databases or books that were only available to them.  The trademark classification system was a secret.  Moreover, most judges didn’t have legal training so judgments might not be well-worded.   In fact, back then lawyers would sit around a table exchanging information about the little pieces of information they had about the “nei-bu” (internal)  laws that were governing their clients’ investments.  We had to bring a 301 case just to get China to publish its laws and regulations.  Now you not only have more information, but you also have Chinese lawyers trained in the US system and US lawyers that have graduated from Chinese law schools.  This is a lot better than the random shots we were taking without much information to improve China’s legal environment.”

“Moreover, now the government actually publishes draft laws and regulations for comment, as well as the laws and lots of the enforcement data.  In fact, the Chinese government has been promoting open government platforms, including publishing of cases.  Today you have more data and much more transparency.  Has anybody looked at the licensing data?  Has anybody looked at how the patent office and courts treat foreigners and whether full national treatment is available?  If you want to avoid retaliation against companies, just use the data….” Rip fumed, “we would have died for this kind of information back in the 1990s.  Youse guys don’t know from difficult. ”  Rip’s New York accent was manifesting itself.

“I also don’t understand why US companies don’t bring many cases to the Chinese courts! I understand about 1% of the IP litigation in China today involves foreigners. That is really pathetic. Companies have kept on running to the US government on the same issues but often didn’t pursue the legal remedies that we negotiated.  Not only do Chinese companies file far more cases, but they also bring cases against their own government if the facts support it.  One group of Chinese citizens actually sued the Supreme People’s Court on a land use matter some years ago.  I think those people had more to fear from retaliation than some American companies.    Some of us seem to be scared of our own shadow.”

“We have to acknowledge some of the recent positive changes too.   I like it that China has a new foreign investment law that says the government can’t compel tech transfer as a condition of investment approval, and they finally discarded their tech transfer regime.  I wish you good luck on supervising those, however, particularly if you don’t do the data-driven analytics.  I also like the new appellate IP court.  It is like our own CAFC, and they are increasing damages in the courts, and have increased transparency and are experimenting with case law. I don’t think the US should be pursuing punitive damages in China however, as much as compensatory actual damages.  We have to let the civil system fulfill its role as the primary arbiter of disputes around private property rights.  You guys in the government should be all over this.  In fact, you should be sharing your views with industry, including your comments on draft laws,  rather than treating your comments and engagements as some kind of secret negotiations.  These are important reforms that could have wider consequences.  And you don’t have to be in a trade war to talk about them with China or with our own industry.”

“But there have also been negative developments, and it seems like you have been ignoring both the good and the bad. Today, it is harder to get a pharmaceutical patent in China than back in 1995, when we finally got China to grant patents for new pharmaceutical compounds.”

“Moreover, back around 20 years ago, I saw that the likelihood that a US company would get a patent granted for a semiconductor patent in some classes was nearly 100%.  By 2014, the grant rate drops dramatically to between forty and sixty percent.” Rip looked around sheepishly on that one: “Are you certain I wasn’t the only one asleep?

“The reasons for these changes are pretty obvious.  China needed foreign investment or international recognition back then.  Motorola’s semiconductor plant was the big foreign investment project in the 1990s when I was getting ready to fall asleep.  We left you with a pretty good, improving track record then on pharma and semiconductor issues.  Now China believes it doesn’t need to offer the same protection.  We wrote the TRIPS agreement to promote private property rights and transparency.  We brought China into the WTO with multiple additional commitments, possibilities for review of China’s IP regime, and to ensure there was no discrimination against industrial sectors in patent grants, litigation, and other areas.  How are those projects going?”

I told Rip that I was unaware of any such projects.

“If you started looking at the data, you might have a different view of what is really going on and how to use the WTO.  For instance, I know many in the US were upset when China didn’t need to change its criminal IP laws in 2007 as a result of a split decision on a WTO case.  But in the next several years the number of criminal IP cases in China went up dramatically.  It seems the US ultimately identified a real problem to China.  You could also say the same thing about US efforts to get China to publish its IP cases in 2007.  Today China has public databases with most cases available online.  You don’t need to win the dispute in a written decision in order to make a difference. ”

”I know the data is incomplete.” He added.  “ I noticed, for example, that not all the cases were being published.  There is lots missing.  But the missing data is also instructive.  Back then, we had real China watchers.”

For a moment, Rip looked like the Wizard from the Wizard of Oz giving a heart to the Tin Man, knowing that he already had one: “These China watchers looked for what was missing in China in the reports, not what China told us about its system.  They learned their lessons from the old Soviet Union, that is, they learned to look at what is missing in a photograph of Red Square or an economic report.”

Tinman

“As for this Confucius Institute problem, I see that the Modern Language Association reports that Chinese language studies are dropping in this country (13% between 2013 and 2016).  Are we supposed to rely on China to teach us about China? I guess that doesn’t matter, since even that pathetic effort is under attack.”

confuciusinstitute

“By the way, I heard that these problems of Chinese misappropriation of US technology might even affect private and public US science and technology collaboration, where China was entitled to own all improvements to technology licensed to China.  I would hope that the US government and industry would share any information that they have on this so that we can learn from it, and we could have a data-driven discussion around it…!”

Rip was feeling exhausted.  “When I first woke up, I thought this had to be a Sputnik moment.  The US would need to get back on its feet, revitalize its competitiveness and invest in science and science diplomacy.  I was wrong.  This is more of a Pogo moment than a Sputnik one.  We are forgetting technology, misunderstanding China, eroding our IP system, and not utilizing the tools we put into place.”

POGO

“You see, the problem isn’t that China has become the new Japan, nor is the problem that China doesn’t protect IP,” Rip concluded. “The problem is that the US forgot the significance of two elements of IP in China: (a) the Chinese economy is state-controlled and includes economic plans involving IP, and  (b) IP is a private right.”

He sighed, “I recognize that there are other trade issues, but having a foreign state adopt socialist-style economic plans on innovation is a recipe for government intervention into the markets to the disadvantage of foreigners, and for frustrated trade negotiations on IP or innovation.  These should have been addressed consistently and head-on.”

As we closed the interview, Rip looked increasingly exhausted.  He took me on a slow stroll past Lafayette Square in Washington, DC and gave me one final suggestion.  “Why don’t you try and bring back some of the old team, like the folks who worked on the OTA project  – some of those folks are still around – gee, even that greenhorn Craig Allen is now the President of the US-China Business Council, isn’t he?  He was just an intern when we worked together at OTA.  My old friends who worked on that OTA report, the China lawyer Stan Lubman and the China innovation expert Pete Suttmeier, are still around.  They didn’t have the benefit of a twenty-year beauty nap like me, but then again, I would hope they hadn’t fallen asleep at the wheel like the rest of you.”

And with that, Rip looked wistfully at the White House, thinking of his little family hamlet in the Hudson Valley, and the historic sacrifices of his family for his country since the founding of the Republic.   He tucked himself into some worn bedding and closed his eyes to the traffic and tourists.  If you travel to Washington, DC you may still hear him snoring gently near the White House gates.

Don’t think of him as just another homeless person.  He is really waiting for the right moment for the country to wake up again.

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SO MANY CHINA IP CONFERENCES, SO LITTLE TIME…

markatjmls

Here’s a rundown of some past events, and some upcoming ones.  I will provide an update on some of the legal developments at a later date (I know I have been a bit remiss).

On October 4, 2018, I spoke about China at the University of Nevada Las Vegas’ program  on “Intellectual Property Enforcement at Trade Fairs.”   My observations: (a) China does not routinely great preliminary injunctions at trade fairs, despite heavy reliance on injunctive relief in final adjudication of IP infringements;  (b) The United States does have robust preliminary injunction/temporary restraining order trade fair remedies; (c) the use of sui generis administrative or quasi-administrative enforcement mechanisms for trade fair enforcement in China may be one reason that judicial remedies are not that common; (d) trade fairs do afford other opportunites – they are excellent evidence gathering opportunities, their use can help satisfy use requirements for a trademark, and they may constitute infringing conduct as an “offer for sale” under the patent law.  Please look through my  power point and tell me if you have any comments.

On November 2, 2018.  John Marshall Law School (JMLS) convened its 62nd annual IP conference I chaired a great breakout session on international developments, with Kira Alvarez, Peter Yu, Cynthia Ho, Tobias Hahn and Prof. Dennis Crouch.   The session discussed the state of global IP and China-specific IP negotiations in the Trump administration.   Kira Alvarez noted the success of the administration in negotiation trade secret commitments in the revised NAFTA.  The panel, along with the audience, also discussed the role of soft diplomacy, rather than trade disputes, to resolve IP-related trade conflicts.  Prof. Dennis Crouch attributed many of the changes in civil litigation globally to the work of former Chief Judge Rader “who was really using his gregarious nature to reach out and become close friends with the leading jurists around the world.”  This point was restated by many during the conference and thereafter.  The photo above is from the JMLS international IP panel with Kira to my right.

I also participated at the JMLS annual IP  conference in a plenary discussion on antitrust and IP developments, moderated by Prof. Hugh Hansen of Fordham with  Carlos Aboim, David Djavaherian, Suzanne Munck (FTC),  Prof. Ioannis Lianos, University College London and  Annsley Merelle Ward.   I looked at the evolution of Chinese judicial practice regarding SEPS, which are a remarkable set of steps in light of there being no substantive change in antitrust or patent law during this period, and likely reflect increased judicial experience as well as the impact of economic changes in China as an emerging licensor.  These developments were previously discussed in this blog.  I also discussed China’s historical reliance on civil law measures to deal with IP misuse, rather than remedies under the patent law or antitrust law, and how these compare with US practice.

On November 5, 2018, Dan Rosen (Rhodium Group) launched another path breaking paper “Missing Link – Corporate Governance in China’s State Sector” at the Asia Society of Northern California.  A copy can be found here.  The video of the launch can be found here.  The focus of my comments was on whether SOE’s can play a more active role in China’s innovation plans, and the awkward fit between SOE’s and global trading rules.  I believed that existing efforts to provide greater market accountability and transparency for SOE’s (and more broadly, China) have not achieved their intended outcomes despite  the extensive commitments negotiated with China at WTO accession.

I gave a talk at the IP Dealmakers Forum in NY on November 8, 2018 with several individuals involved in financing litigation, providing patent analytics, buying Chinese patents  – Roger Tu, Y. P. Jou,  Brian Yates, iPEL, and Bill Yuen.  Brian Yates’ company had just been the subject of a Chinese article regarding whether patent assertion entities will now be/should now be coming to China, that was posted by IPHouse.  I think many in the room shared my skepticism that China was now “ripe” for this type of activity, particularly for litigation by foreigners against Chinese.  There was however a general sense that the IP and litigation environment was improving.

In addition to these programs, here are some upcoming events;

November 12, 2018, I will be talking at NYU.  I have always greatly enjoyed the open discussions with Prof. Jerome Cohen (no relation), Ira Belkin and others, and I believe this upcoming event will be no different in my current role at UC Berkeley.

On November 13, 2018, I will be at Columbia University talking about “IP and the China Trade War: Long Overdue, a Pretext, or Both?”     I may be guided by the discussions around that topic at JMLS earlier in November, where many concurred that these actions on IP in China are both overdue and dwarfed by other concerns.

On December 2, 2018, I will be in Shenzhen. Peking University School of Transnational Law (“STL”) will be partnering with Berkeley to present an exciting program on “Legal and  Funding Issues for Successful Startups.”  Both the topics and speakers promise to make this an especially exciting launch event. Here’s the link to register.

On December 3, 2018, I will be at IPBC  Asia moderating a session on “China’s Mandate to Innovate” and its impact on IP commercialization. IPBC has constituted a great panel, including former SPC Chief IP Judge Kong Xiangjun, now Dean at Jiaotong University Law School, and Prof. Yang Guohua of Tsinghua Law School (former Chinese IP Attaché in the US, and DDG of MOfCOM), as well as Liren Chen, from Qualcomm, Eeva Hakoranta from Nokia and Roger Tu from Marconi.

On December 4, I will be at Tsinghua University speaking at the first annual Tsinghua/Berkeley conference on “Transnational IP Litigation: Opportunities and Challenges”.  A copy of the agenda (Chinese) is found here.   We will also have some great speakers for this launch event which focuses, non-exclusively, on US developments.  The speakers include several Tsinghua and Berkeley professors, and leading attorneys from practice in the US and China.  The program will cover a full range of issues including empirical data on litigation trends, venue, jury trials, Section 337 litigation, antitrust, the role of expert witnesses, and licensing strategies to mitigate risk.

I have some other events upcoming in Taiwan in December – but that will be another posting, along with some overdue updates on Chinese IP developments.

TWO NEW SENIOR CHINA POSITIONS OPEN IN THE US GOVERNMENT

Two senior China-related positions involving, to different degrees, intellectual property have recently opened in the US Government.

A position similar to the one I helped create at the US Patent and Trademark Office is now open.     The incumbent will serve as “Senior Counsel for China Intellectual Property Policy.”  The position closes on August 6, 2018.  Applicants must be US Citizens, graduated from an accredited law school, and be a member of the bar.  PTO is seeking someone who has “Knowledge of a wide variety of international matters, particularly issues related to China IP and civil law matters.”  The introduction of knowledge of “civil law” seems new to me.   The position is also subject to a chain of command of “assist[ing] the Under Secretary of Commerce and Director, Deputy Under Secretary and Deputy Director, Chief Policy Officer and Director for International Affairs of OPIA, the Deputy Chief Policy Officer of OPIA, and others by rendering advisory legal and technical opinions on a wide range of complex China IP issues and sensitive negotiations.”

Another position that has opened is  that of Director,  Center for Interagency Trade, Implementation, Monitoring, and Enforcement (ICTIME) and is responsible for supervising, directing, and implementing initiatives required by Section 604 of the Trade Facilitation and Trade Enforcement Act of 2015.  The position includes overseeing investigations of information for potential disputes brought by USTR to the World Trade Organization (WTO) and developing positions and strategies for implementation and enforcement of U.S. trade rights under international trade agreements for enforcement of domestic trade laws.  This appears to be the Trade Enforcement unit first proposed by President Obama in a State of the Union Address in January 2012:  “It’s not right when another country lets our movies, music, and software be pirated,” Obama said:  “Tonight, I’m announcing the creation of a Trade Enforcement Unit that will be charged with investigating unfair trade practices in countries like China.”  As a side note, it is interesting to observe how much the focus of USG trade policy has since shifted to technology issues, as indicated by this focus of then-President Obama.  The position closes on July 23, 2018.  This announcement also seeks someone who is capable of the various management competencies of the Senior Executive Service.

Neither position explicitly requires a knowledge of Chinese language, although China is clearly a focus of them both.   Both positions also entail management responsibilities.  The USTR position includes “supervising 20 Trade Enforcement Analysts, detailees, interns, and other employees” while the PTO position involves “serv[ing] as the China team leader”.

October Offerings on Chinese IP

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

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

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

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

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

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

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

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

 

Notorious Markets, Alibaba and the JSP

alibabastock

At the end of 2016, a trio of reports are being released by the US government all of which reflect upon the IP environment in China

The first one to be released was the Joint Strategic Plan of the IP Enforcement Coordinator at the White House for the years 2017-2019 (released Dec. 12, 2016) (152 pp).  The second is the Notorious Markets Report of the US Trade Representative, was released yesterday, December 21, 2016 (22 pp).  A third report on China’s WTO compliance, hearings for which were held earlier in 2016.  This annual report is due shortly.  The last report focuses on WTO issues (including IP), while the first two focus on IP issues (including China).

The Joint Strategic Plan singles out China’s “weak protection of intellectual property” (p. 4), relying upon a variety of sources of data, including USTR reports, US Customs seizures, “massive online and physical markets” , business survey data, antitrust concerns, and other sources.    The report also notes China’s legislative efforts to reform its IP laws, the positive role of the National Leading Group, and the “welcome” development of the specialized IP court pilot project.   

The report also singles out US engagement with China on cyber theft as well as US efforts more generally to “mitigate the theft of US trade secrets.” As I have pointed out elsewhere, trade secret misappropriation is a complicated area, where civil, criminal and administrative remedies can be improved and there can be close links to industrial policy.

The Notorious Markets report has gotten the most attention because Alibaba’s Taobao has now been placed back on this list. Taobao is not the only market with a Chinese link.  Other sites included Gongchangcom, which reportedly sells counterfeits, including counterfeit security acts to attach to counterfeit merchandise; Nanjing Imperiosus Technology Co., Ltd (also operating as Domainerschoice.com), which provides services to illegal online pharmacies;  and several physical markets.  These markets include the Baiyun Leather Goods Market (Guangzhou), Jing Long Pan Foreign Trade Garment Market (Guangzhou), Chenghai District Market (Shantou), Wu Ai Market (Shenyang), Cheng Huang Cheng Intenraitonal Auto Parts Market (Beijing), and the Silk Market (in Beijing).

The reports notes that Alibaba’s leadership has underscored the efforts it is taking to address counterfeits but that Taobao “is an important concern due to the large volume of allegedly counterfeit and pirated goods available and the challenges right holders experience in removing and preventing illicit sales and offers of such goods.” Alibaba was previously on the notorious markets list four years ago. Taobao is among the 15 top sites globally, and among the top 5 in China and was the subject of numerous notorious market submissions by industry.  Some US companies had been questioning why Taobao had been dropped from the list (see my blog from a program at Cardozo law school).  Alibaba’s President, Michael Evans, in response to the relisting of Taobao, noted that the decision “leads us to question whether the USTR acted based on the actual facts or was influenced by the current political climate.”  A press release of the American Apparel and Footwear Association supporting USTR’s decision to list Taobao is found here.

The Notorious Markets Report was released in the afternoon of December 21, 2016; it remains to be seen how much affect (if any) the report has on shares being traded in the United States (see chart above).  Alibaba did overcome other counterfeiting-related legal hurdles this year.  Alibaba had been the subject of several US law suits involving its alleged involvement in counterfeiting activities. A racketeering claim was dismissed in August of this year.  In June of 2016, Alibaba reported that seven securities class actions law suits against Alibaba were dismissed that involved allegations that Alibaba failed to disclose a “white paper” issued by the State Administration for Industry and Commerce before its US public offering.  The white paper was reportedly critical of Alibaba’s IP protection policies.   Attached are two of the recent US court decisions involving the shareholder law suits.

These are personal, non-official opinions.