THE TIER IS REVISED…

After nearly twenty years of advocacy, China has finally revoked certain offensive provisions of the Administration of Technology Import/Export Regulations (“TIER”), effective March 18, 2019.   The decision was made by State Council decision no. 709, paragraph 38 of March 2, 2019,  which provides as follows:

三十八、删去《中华人民共和国技术进出口管理条例》第二十四条第三款、第二十七条、第二十九条。

第四十一条改为第三十九条,修改为:国务院外经贸主管部门应当自收到本条例第三十八条规定的文件之日起3个工作日内,对技术出口合同进行登记,颁发技术出口合同登记证。

A rough translation is:

38. Delete Article 24, Section 3, Article 27 and Article 29 of the Regulations of the People’s Republic of China on the Administration of Import and Export of Technology.

Article 41 shall be changed to Article 39 and revised as follows: “The competent foreign economic and trade department of the State Council shall, within 3 working days from the date of receipt of the documents stipulated by this Article 38  register a technology export contract and issue a technology export contract registration certificate.

The relevant provisions being modified of the TIER, as translated on the WIPO website, are as follows:

24 (3): Where the receiving party to a technology import contract infringes another person’s lawful rights and interests by using the technology supplied by the supplying party, the supplying party shall bear the liability therefore.

27: Within the term of validity of a contract for technology import, an achievement made in improving the technology concerned belongs to the party making the improvement.

Article 29 A technology import contract shall not contain any of the following restrictive clauses:

(1) requiring the receiving party to accept any additional condition unnecessary for the technology import, including buying any unnecessary technology, raw material, product, equipment or service;

(2) requiring the receiving party to pay exploitation fee for a technology when the term of validity of the patent right in which has expired or the patent right of which has been invalidated, or to undertake other relevant obligations;

(3) restricting the receiving party from improving the technology supplied by the supplying party, or restricting the receiving party from using the improved technology;

(4) restricting the receiving party from obtaining technology similar to that supplied by the supplying party from other sources or from obtaining a competing technology;

(5) unduly restricting the receiving party from purchasing raw material, parts and components, products or equipment from other channels or sources;

(6) unduly restricting the quantity, variety, or sales price of the products the receiving party produces; or

(7) unduly restricting the receiving party from utilizing the channel for exporting products manufactured using the imported technology.

This is one of 49 separate legislative provisions being modified by notice 709 of the State Council.

The TIER was itself part of ongoing WTO disputes (DS542, and DS549).  In addition, it was called out by USTR in its 301 Report on China’s forced technology transfer regime .  A panel had recently been composed in the US case against China (DS542).  The State Council has now addressed the most onerous provisions of the TIER by removing those provisions that had most obviously violated China’s National Treatment obligations under TRIPS Article 3, including footnote 3, which addresses discrimination in “the availability, acquisition, scope, maintenance and enforcement of intellectual property rights as well as those matters affecting the use of intellectual property rights.”

The legislation is immediately effective.  However, it does not address contracts that had previously been negotiated under the prior TIER.  Article 84 of China’s Law on Legislation does provide for the possibility of retroactive effect where the new legislation is made in order to better protect the rights of citizens, legal persons and other organizations, and may apply in this circumstance.  It will be up to the courts and/or the State Council to issue necessary interpretative guidance.

Interestingly, China did not take a “phased” or “limited” approach to revoking these terms, such as providing for limiting the application of mandatory provisions to protect smaller businesses or creating a default provision that could be waived in writing.  The Chinese government, to its credit, thus intended to rely solely upon the market and any other general provisions of the Contract Law.  China also did not seek to clarify the relationship between the TIER and China’s Contract Law or Antimonopoly Law, which had overlapping provisions with the TIER, and which should now apply more clearly and equally to foreign and domestic licensors.  However, the TIER provision regarding non-profit oriented technical cooperation, including government to government science and technology cooperation also continues to be in effect.  Specifically, article 2 of the TIER states that the legislation governs “technical cooperation” including “technical services and transfer of technology by other means.” (Art. 2).

It will be interesting to determine if the changes in the TIER have any impact on the manner in which technology is transferred by foreign companies to China, including use of affiliated/subsidiary companies of foreign companies in China to import foreign technology to avoid application of the TIER to technology imports.  The majority of US licensing transactions to China had been through such intermediated/affiliated entities.  After the affiliated licensee takes over the licensing activity of the licensor, any subsequent sub-license was believed to be governed by China’s Contract Law.

The amendment also comes shortly after China passed a new Foreign Investment Law on March 15, 2019, which also purports to address the forced technology transfer problem identified in the Section 301 report.  These legislative efforts thus appear to be part of a package intended to address US concerns.

Blog post by Mark Cohen.  Thanks to Jill Ge of Clifford Chance, Shanghai for pointing out this legislative development to me.  Thanks as well to the many lawyers, companies, officials, judges, and business people over the years who have advocated for revising the TIER and to the State Council for finally undertaking these revisions.

Catching up With The Literature on Forced Tech Transfer…

FTT
(from the OECD report, discussed below)

While President Trump has extended the truce on the trade war, academic and business debate around the nature of “forced technology transfer” (FTT) practices in China and appropriate business and legal strategies continues.

A  study last year by Dan Prud’homme and his team, discussed earlier in this blog, was one important empirical effort looking at the nature and consequences of FTT.  Their FTT Strategy & Risk Forecasting Matrix was intended to guide foreign firms to anticipate risks associated with FTT policies and serve as a starting point for understanding how to further quantify or mitigate these risks.  In January 2019, the OECD also released a study on International Technology Transfer policies which cites to the Prud’homme study and further describes FTT, as well as the various international agreements and practices that may constrain it.  Consistent with the approaches of the US and EU in the currently pending WTO case, the study highlights the importance of joint ventures for transfer of technology in China (para. 90), pointing to equity restrictions as one reason for such licensing arrangements.   Because of the high volume of multinational and governments in tech transfer, the OECD reports also underscores the importance of transparency in the tech transfer process to “distinguish[] voluntary  technology transfer from its more constraining variants.” [para. 92].  Predictably, the report also cites to the same provisions cited by the United States and Europe in the pending WTO case against China regarding its FTT polices [para 65].

A timely and business-oriented to FTT was presented by the IP consulting firm Rouse in a highly useful webinar of February 27, 2019, available here.  The speakers, Tim Smith and Chris Bailey, noted that due to the current trade dispute with the US, Chinese prospective JV and business partners are currently “falling over themselves” not to require tech transfer as a condition to a deal.   The speakers also noted that there had been a resurgence of joint ventures in tech-driven deals with China.  In addition, smaller companies have found that it has become more expensive to develop market share in China making a JV more attractive.  Even if a JV is not mandatory, the access to local capital and expertise can be a rationale for forming a JV.  The additional capital may also lead to higher valuations if an IPO exit is contemplated for the joint enterprise.

The speakers noted that Chinese companies are also increasingly more concerned about less traditional factors of a tech transfer such as whether they can scale up quickly using the technology, how they will handle IP infringements in China, and whether the technology can offer an immediate competitive advantage.

Amongst the newly emerging business structures, the speakers also noted that there have also been  an increasing number of offshore joint ventures formed outside of China that then reinvest China.  The Chinese party may also try to take a stake in a foreign party, and then license the technology into China. The Chinese party thereby may become a financial or strategic investor in the foreign partner.  Contrary to the common understanding, the Rouse speakers also underscored that state-owned enterprises are not as “untouchable” in IP or licensing disputes with foreign partners as private companies.  In some cases they may be better targets for litigation, as they may be more concerned about reputational risks from IP law suits than privately-owned companies.

The presenters also noted that there are deals where China is licensing out have become more common, particularly in new technologies such as AI, VR/AR, electric vehicles and battery technologies.  Western businesses are increasingly looking to Chinese businesses for these innovations.

As is evident from the above, the presenters’ viewed the current WTO dispute around the TIER and other concerns over FTT to be “yesterday’s issue” for practitioners and business people.  They also point to the data from recent surveys showing that a minority of US and European Companies have been asked to transfer technologies by their business partners, often as a condition of obtaining market access. However, they also note that companies have long utilized work arounds to the TIER, which has been on the books since 2002.

The Rouse webinar is particularly instructive in documenting the sophistication of Chinese licensees and future licensors.  Of course, the subsistence of a discriminatory provision as “yesterday’s issue” is also not justification for its continued existence.  If anything, it underscores how much of an unncessary, if not counterproductive,  impediment China’s Administration of Technology Import/Export Regulations (TIER) has become.  From a WTO perspective, even if the TIER is often irrelevant to current transactions, the key issue  in WTO jurisprudence is likely to be whether “expectations of the competitive relationship” offer less favorable treatment to a foreign licensor than a domestic Chinese licensor.   Further, the presence of “additional regulatory hurdles”, such as the necessity of using a domestic subsidiary or an offshore joint venture to sub-license a technology due to discriminatory provisions that exist for a foreign licensor,  does not afford a useful justification for a discriminatory provision.  Indeed such additional regulatory hurdles may constitute de jure discriminatory treatment, as was documented in the case the United States brought against the EU regarding its regime for Geographical Indications (See Para. 7.314, WTO Panel Report)  Due to the increasingly sophisticated experience of Chinese companies, including their willingness to contribute capital or participate in complex multinational licensing structures, the webinar ultimately proved to me that the TIER itself has also largely outlived its usefulness in protecting “vulnerable” Chinese licensees.

An important legislative development that also deals with FTT is China’s revised Foreign Investment Law.  The European Union Chamber of Commerce has released its comments on the draft law here. The comments were due February 24, 2019.  This draft law addresses some foreign concerns about FTT involving foreign investments in China.  The EU’s comments on the FTT provision are as follows:

“Article 22 explicitly prohibits administrative organs and their staff from using administrative means to force the transfer of technology, which echoes the language used in other high-profile policies that have been released in recent years, most notably State Council Document No. 19 (2018). However, this leaves open the possibility for any non-administrative body to use any other means to compel technology transfers. Instead, the Foreign Investment Law should simply prohibit forced technology transfer by any means.”

I personally believe that the language of the draft law, by itself, is insufficient. Other observers, such as Rouse in its webinar, have noted that other incentives to FTT remain, including restrictions arising from national security, foreign investment restrictions, Made in China 2025 incentives, data localization requirements, etc.  Moreover, the draft law does not present a clear pathway to present legal challenges to local authorities, and to minimize any possible retribution when a foreign company complains about extortionary practice.  Prior history shows that foreigners are also highly reluctant to bring law suits against the same local governments that may be involved in regulating their investments. One partial solution is for China’s new national appellate IP court to consider taking jurisdiction over these FTT disputes. The Chinese government might also consider other measures such as creating an ombudsman for foreign investors, fast track administrative reconsideration of investment reviews, improvements to trade secret protection and employee mobility rules, and other measures that constrain the ability of local governments or individuals to directly or indirectly encourage a foreign investor to relinquish its technology, whether through legal or illegal means.  As another example, if the Chinese government seriously wants to address the problem of FTT, the theft of trade secrets that is undertaken in “support” of national or local government technology policies might be subject to enhanced penalties.  Moreover, such cases should be adjudicated by courts other than ones located in the jurisdiction where the misappropriation occurred.

Update from February 28, 2019: A second draft of the Foreign Investment Law has been released and made available in English by the NPC observer.  It is available here.

 

 

 

 

 

 

What the EU and US WTO IP Disputes Reveal About Trade Diplomacy

IMAG0300

Two contrasting approaches to using the WTO for China-related IP issues involving technology licensing and forced technology transfer are now pending at the WTO.

The United States initiated a WTO dispute on China’s licensing practices by filing a  consultation request on March 23, 2018.  Shortly after the filing of that case, Japan, the European Union, Ukraine, Saudi Arabia and Chinese Taipei requested to join the consultations.  The European Union additionally filed its own parallel WTO consultation request on June 1, 2018, with a broader scope. It is too soon to tell which countries will join the EU request.

Both countries timed their requests in conjunction with other trade actions. The WTO case was filed by the United States one day after the Section 301 report  was released. The European Union simultaneously filed its case against China with a WTO case against the United States regarding US tariffs on steel and aluminum imports.

The EU’s approach to this IP case is markedly different from the last time the US filed a WTO dispute involving China’s IP practices (DS/362).   At the time that the US filed a request for IP-related cases from China, the EU declined to make a similar transparency request.  It also did not join the US as a co-complainant in the ensuing WTO case, nor did it file a parallel complaint, but it did participate as a third-party.  By contrast, the EU approach in the current dispute is to both support the US and dig deeper.

The US consultation request was portrayed by USTR as addressing “technology licensing requirements.”  The thrust of the complaint involves China  “denying foreign patent holders, including U.S. companies, basic patent rights to stop a Chinese entity from using the technology after a licensing contract ends.”  The consultation request is therefor somewhat narrow.  The US complaint does not specifically address other technology-oriented rights, such as trade secret protection or undisclosed data, nor does it take on the topics set forth in the Section 301 report involving “IP theft.”   The consultation request is now numbered WT/DS542/1.

The EU complaint (WT/DS549/1), cites several Chinese measures in addition to those identified in the United States’ consultation request, and invokes more expansive WTO principles and procedures. The additionally cited measures include the “Working Measures [sic] for Outbound Transfer of Intellectual Property Rights (For Trial Implementation), (State Council, Guo Ban Fa [2018] No. 19)” (知识产权对外转让有关工作办法(试行)) which was previously discussed here.  The Chinese promulgation of these interim Regulations only five days after the US filed its consultation request, looks to some like another act of synchronized trade diplomacy — in this case as a possible retaliatory act for the 301 report and the WTO case.  My guess is that the EU, by referring to these new largely untested regulations is however seeking to address the legality of controls China has additionally imposed on foreigners’ transferring IP out of China.

The EU has also swept in other measures into its complaint, including China’s trade secret law (the Anti-Unfair Competition Law), the Anti-Monopoly Law, the Regulations [sic] of State Administration for Industry and Commerce Administrations on the Prohibition of Abuse of Dominant Market Position, and the Regulation [sic] on the Prohibition of Conduct Eliminating or Restricting Competition by Abusing Intellectual Property Rights.  The nomenclature the EU uses for these various legal documents appears imprecise.  The March 2018 “measures” may properly be classified as “regulations” 法规 issued by the State Council. The SAIC “regulations” should properly be classified as “rules” 部门规章 issued by an administrative agency. This is the nomenclature China set forth in the Report of the Working Party on the Accession of China (WT/ACC/CHN/49), paragraph 66 ( the “Protocols of Accession“).  The Working Party Report nomenclature establishes clear legislative hierarchies pursuant to China’s Law on Legislation.

The EU also argues that China’s appears to directly or indirectly “nullifying or impairing” the benefits accruing to the European Union and its Member States that were expected by China’s WTO accession, thereby opening the door to broader arguments regarding how China may deprive WTO members of the benefits they legitimately expected while at the same time not violating the literal language of any commitment (See, e.g., Art. 64 of the TRIPS Agreement).  These arguments have been subject to a moratorium and have historically been difficult to assert, but in my estimation have some relevance to the current situation in China.  The EU is also seeking to utilize provisions in the WTO that address the “impartial and reasonable application and administration of its laws, regulations and other measures” (Article X.3(a) of the GATT 1994 and Paragraph 2(A)2 of the Protocol on the Accession of the People’s Republic of China to the WTO).  The “impartial administration” requirement, as found in the Protocols of Accession requires China to “apply and administer in a uniform, impartial and reasonable manner all its laws, regulations and other measures … pertaining to or affecting …  trade-related aspects of intellectual property rights (“TRIPS”)” (p. 74).

Contrasting the actions of the US and the EU, the EU complaint urges a legalistic and multilateral resolution of trade disputes, using doctrine that has proven difficult to assert.  The approach also appears to reflect a waning confidence by some that China today in fact has an effective and independent legal and political system which “impartially administers its laws”.   My former colleague at Fordham, Prof. Carl Minzner describes some of these political reversals in his recent book  End of an Era: How China’s Authoritarian Revival is Undermining Its Rise (2018).

The US approach, by contrast, uses the 301 report to point to perceived technological threats, manifested through industrial plans, vague laws, industrial espionage and unfairly adjudicated cases, to make the point that the WTO might be inappropriate to resolve its concerns. In a sense, the US assumed in the Section 301 report that in the party- and plan-controlled China of today, with a resurgent state sector, there aren’t many “laws, regulations and other measures” to administer impartially.  The United States therefor pays scant attention in the 301 to the numerous legal reforms and civil adjudication in intellectual property that have taken place in recent years.  The United States approach is also more broadly consistent with the perspectives of Prof. Mark Wu at Harvard Law School who prophetically pointed out in his article “The ‘China, Inc.’ Challenge to Global Trade Governance”  that “the WTO faces a challenge: can the institution craft a predictable and fair set of legal rules to address new trade-distortive behavior arising out of China, Inc.? If not, key countries may turn away from the WTO to address these issues.”

While the EU and the US likely have common goals with respect to China’s IP regime, I believe that they likely could also learn something from each other in their strategies and perhaps they will as these cases progress.

 

IMAG0352

Bottom photo by Mark Cohen of Charleston, SC United States Custom House.

 

Draft of Data Exclusivity Rules Released by CFDA

CFDA just released on April 25, 2018 its Public Comment Draft of Pharmaceutical Data Exclusivity Implementing Rules  (provisional)  药品试验数据保护实施办法(暂行)征求意见稿 , available here (the web version is here) .  Comments are due by May 31, 2018 at yhzcszhc@cfda.gov.cn.

Article 5 proposes six-year data protection (which was China’s WTO commitment) for “innovative new drugs”.  “Innovative therapeutic biologics” are eligible for 12-year data protection (the previous May 2017 CFDA circular said 10 years).  The draft clearly encourages MNCs to include China in international multicenter clinical trials and to concurrently apply for market introduction in China (which can include other countries).  Full-term protection (6/12 years) is only available in this scenario.  Reduced Chinese data protection terms of one to five years may occur due to delays in introduction in China.  As a policy matter, this draft appears intended to help encourage conducting clinical trials in China as well as new product introduction into the Chinese market

Thanks to my friend and former student Jill (Yijun) Ge at Clifford Chance for bringing this to my attention and providing an initial review.  I welcome readers to submit English translations of this draft for me to post.

This is one of several exciting new developments in the pharma IP sector in China.  To help better understand the business implications of these changes, the Berkeley Center for Law and Technology is planning on hosting a half day roundtable discussion on pharmaceutical IP developments in China on May 30, one day before the comment period closes.  Seats are limited.  Please contact chinaipr@yahoo.com or mark.cohen@law.berkeley.edu for further information.

The Widening Impact of China’s Publication of IP Cases

I recently had the opportunity at the Fordham IP Conference to discuss the potential impact of the continuing publication of court decisions by China’s courts since 2014, including their wide-ranging impact on legal research, China IP strategies, and trade.  China’s publication of court cases has had a dramatic impact on political science, legal research and IP strategy.  Here is an extended version of my presentation:

A good starting point for understanding these developments is the important paper of Profs. Benjamin Liebman, Margaret Roberts, Rachel Stern, and Alice Wang on the China Judgements Online Database (CJO) entitled Mass Digitization of Chinese Court Decisions: How to Use Text as Data in the Field of Chinese Law (June 13, 2017) (21st Century China Center Research Paper No. 2017-01; Columbia Public Law Research Paper No. 14-55).  This team looked at 20,321 land use administrative court judgments in Henan Province. The authors critical approach to CJO is summarized below:

First, it is critical to take missing cases into account, rather than succumbing to the temptation to treat even a very large sample as an accurate reflection of reality. … Second, viewing millions of court decisions provides an unparalleled wide-angle perspective on courts’ daily activity, and exposes underlying patterns… Scholars must remember that court judgments provide only one, often limited, view of actual practice. Third, a migration toward treating text as data in the field of Chinese law will require a multi-method approach that combines expertise and insights from law, the social sciences, and computer science.

Their article also discusses motivations for transparency (including reducing corruption), and motivations for individual courts to disclose cases. They note as well that an “incentive bias” now exists which includes making judicial decisions available at the end of the calendar quarter before court evaluations (p. 16).

Moving from the use of the CJO to look at legal issues generally to IP, an important recent study on foreign participation in China’s IP system has also recently been-published by Berkeley JSD Candidate Bian Renjun. Her provocatively-entitled articleMany Things You Know About Patent Infringement in China are Wrong  is scheduled to appear in the Berkeley Technology Law Journal. Ms. Bian uses CJO to analyze 1,663 patent infringement judgments decided by local courts in 2014. Her research provides a much-need supplement to the scholarship of Brian Love, Xuan Thao Nguyen, as well as this blog, about foreign “win” rates in the Chinese courts.

Ms. Bian observes that foreigners asserting invention patents are not underrepresented in the courts. The proportion of invention patents granted by SIPO to foreigners was roughly equivalent to the proportion of foreign invention patent cases decided to overall invention patent cases in court (7.16%/6.92%). The gross number of decisions however was only 115 cases. During that year foreign win rates were higher compared to domestic litigants (84.35%/79.84%), as were injunction rates (92.78%/90.05%) and damages (201,620.45 RMB/66,217.93 RMB).  In sum, Ms. Bian provides a more compelling narrative of the probability that foreigners win in patent litigation in China than predecessors such as Brian Love. However, she does not address how to consider issues involving validity in overall success rates, as has been attempted by such databases as Darts IP, nor does she include metrics to assess any differences in the quality of the patents being asserted, for which additional research would be required.

The third article to look at judicial practices in IP, including the IP databases is Max Goldberg’s promising paper Enclave of Ingenuity: The Plan and Promise of the Beijing Intellectual Property Court (May 2017). Mr. Goldberg is a 2017 graduate of Yale College. His paper won an award as the best student paper in East Asian Studies during the year he graduated.

Mr. Goldberg draws from the work of Martin Dimitrov in suggesting that China’s administrative enforcement system is more politically reactive and less independent. He shares the view of this author and others that the Guiding Cases System of the Supreme People’s Court has had limited uptake by the courts, while the precedent system of the Beijing IP court (BJIPC) appears to have been more widely adopted by judges and practitioners of that court in part due to the releative ease of introducing this system into one highly trained court in an affluent city. Mr. Goldberg offers a reply to the concerns of Benjamin Liebman et al. over the large number of “missingness’” in court cases, by noting that while “the phenomenon of sensitive cases’ omission from government databases in China is well documented, lapses of this size are “much more likely the result of a lack of attention and resources than deliberate censorship.” He bases this part on the more comprehensive reporting rate of IP House at 94.25% based on the docketed numbers of cases at the BJIPC, while CJO had only about 50% of the cases from the same period in 2015.

Mr. Goldberg also focuses on specific judicial policy developments, many of which have been little noticed in the West. For example, he notes that “BJIPC opinions are 40-50% shorter than the decisions of more traditional IP tribunals, despite the fact that the BJIPC jurisdiction specifically includes the most technical cases.” He also notes that the court is also interested in soliciting the opinions of third parties, in a manner akin to an amicus brief. Amicus briefs have been advocated for some time by the US-China IP Cooperation Dialogue, with some important experiments, of which this author is a member. Mr. Goldberg also notes that the Beijing IP Court permits dissenting opinions and that the courts have held open “adjudication committee” meetings, which is an important new innovation. Finally, he notes, that the courts are more actively engaged in use of precedent. The court also had an administrative decision revocation rate of administrative decisions of 17% and a withdrawal rate (where complainant withdraws a case before final decision) of only 7%, which suggests the court is acting to reverse administrative decisions and that litigants have enough confidence in the court that they are willing to pursue cases to their final determination.   Many of these innovations were described in an IP House report previously discussed on this blog, but Mr. Goldberg adds a useful gloss to these developments.

Mr. Goldberg’s article is another important indicator of how China is “crossing the rule of law river by feeling the IP stones.”  Importantly, Mr. Goldberg focuses less on whether foreigners’ win and more on whether procedures compatible with an advanced legal system are being put in place.

Adela Hurtado, one of my former students at Fordham law School has also recently written a useful note in the Fordham Intellectual Property Law Journal that, like Mr. Goldberg’s article, looks at the use of judicial and administrative remedies, including criminal procedures, in addressing rampant infringement. Ms. Hurtado believes that reactive, politically motivated administrative enforcement brings few sustainable results. In her view, foreign companies should consider using the civil system, with its relatively high win rates (as reflected in the new databases) and look to models of successful law enforcement campaigns in the United States which provide for more interagency coordination and sustained efforts to address specific problems. She uses data drawn from Walt Disney’s use of civil and administrative campaigns, comparing Disney’s actions in China with its use of civil remedies in the United States to suggest that Chinese IP enforcement campaigns by Disney should similarly return to greater reliance on civil remedies. Ms. Hurtado may be the first author to look at company specific behavior in different markets by using both Chinese and US databases and thereby highlights another future area of inquiry.

There have been several other efforts that look to China’s legal databases as analytical and research tools. Among other recent scholarship, Susan Finder has also recently written an excellent article on the evolving system of precedent in China in the Tsinghua China Law Review. For those individuals and scholars craving analytics, IP House has also begun publishing important analytic studies on trends in the courts. Topics covered include patent and health, motion picture and television industry and analyses of the decisions of the Beijing IP Court.  Another important application of China’s new databases is in development of course materials on China’s IP system.  In this respect, Profs. Merges and Seagull Song’s forthcoming book on Transnational Intellectual Property Law Text and Cases  (April 2018), comparing US, Chinese and European cases in the full range of IP law with a view towards their importance in developing global strategies, is also a promising step towards incorporating Chinese jurisprudence into the global discussions of IP issues.

China’s decisions to make cases more widely available  also has important consequences for trade-related discussions on IP. Approximately 13 years ago, a TRIPS “Article 63.3” transparency request was made by the United States, Japan and Switzerland at the WTO of China. This request demanded “clarifications regarding specific cases of IPR enforcement that China has identified for years 2001 through 2004, and other relevant cases.” The US delegation, of which I was a part, requested the cases to better analyze developments in China’s IP environment since WTO accession and to prepare for a forthcoming dispute. China refused to produce these cases either in the response to the request or during the dispute.  During the ensuring IP enforcement dispute (DS/362), the WTO itself refused to demand that China produce cases relevant to the outcomes of two claims – one involving copyright, and the other involving criminal thresholds. Indeed, rather than make an adverse inference from China’s unwillingness to produce cases, the WTO panel found that the United States failed to make out a prima facie case with respect to a claim that Chinese criminal thresholds failed to satisfy WTO requirements.

With the benefit of hindsight, one could argue that the WTO established a lower standard in DS/362 for analytical research on Chinese case law than China has since established. Additionally, DS/362 may also stand for the proposition that certain cases may be ahead of their time, particularly in light of China’s own commitments to innovation and development of its IP system.  But that is a topic for another blog….

 

US Files Consultation Request at WTO on Chinese Technology Licensing Practices

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

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

Update of June 2, 2018:  On June 1, the EU filed its own complaint against China at the WTO involving China’s technology licensing practices, including the TIER.  A copy of the request for consultations, which appears somewhat more extensive is available here.

 

 

 

Should the NPC also consider Criminal Copyright Reform when it considers Copyright Reform?

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At this month’s National People’s Congress, an NPC spokesman noted that this year the NPC intends to address reform of the copyright law, which has been long delayed. However, reform of the substantive copyright law will not typically address the need to reform the criminal copyright law and to address the relationship between civil and criminal copyright law. This point was raised in the Weixin platform Zhichanli (知产力), which addressed the key issues of criminal copyright law reform in a lively “cartoon” format (see above):

The four issues from the perspectives of the author of that blog are:

1.       Article 217 of the criminal code, mandates having a “profit motivation” in order for criminality to attach.Should the “profit motivation” requirement be removed from the criminal code?

2.       Whether to criminalize the Internet related right of “communication over information networks”?

3.       How to address secondary and principal liability of internet platforms?

4.       Three separate specific issues, including:

a)       How to criminalize destruction of technological protection measures?

b)      How to criminalize commercial scale use of piratical software?

c)       What are the thresholds to deal with online criminal enforcement?

In my view, these are all important issues, which should be considered in the context of copyright reform.    Many of these  issues were raised in DS/362, the WTO enforcement case which the United States brought against China.    Of particular note was that the United States raised the history of  amending US laws to address willful copyright infringement that caused large scale harm without necessarily causing commercial gain (the LaMacchia case, in the cartoon above).  In addition, the United States also recognized that thresholds based on the numbers of copies would not capture the harm caused by technological changes which permitted large digital quantities to be distributed on line or in compressed formats.   One of the current thresholds involves 500 “flat articles”  ( 500 ) (typically used for CD’s or flat pieces of paper), which the WTO panel called “copies, for the sake of simplicity” and is an awkward determinant for infringement in rapidly moving technologies.

Also of note is that criminal IP enforcement has become more important in China. This was brought to my attention by a Chinese judge who mentioned that while China opposed the WTO case, it was now widely recognized that criminal IP is an important part of an IP enforcement system. In a sense, the US may have lost the 2007 battle over criminal IP at the WTO, but clearly won the war. The data bears this out. When the WTO was filed against China, there were only about 904 criminal IP  infringement cases in China (2007).   In 2013, by comparison there were 7,804 infringement cases – an increase of about 8 times, not including increases in other provisions of the criminal code that also can address IP infringement, such as crimes involving illegal business operations or fake and shoddy goods.

While China recognizes that criminal IP is enforcement it an important part of its enforcement system,  an equally important question concerns the role of the relatively small criminal IP enforcement system in light of China’s civil, administrative and customs enforcement (see chart below).  In addition to the increasing number of criminal IP prosecutions,  the increasing numbers of referrals from China’s administrative copyright enforcement to criminal copyright enforcement is an encouraging trend in this regard.  An even more encouraging sign would be consideration by the NPC of criminal copyright law reform at the same time as it considers substantive copyright law reform.  As criminal law reform goes through different procedures at the NPC, working on both issues simultaneously may entail some coordination, but would help ensure that any changes to China’s copyright regime is comprehensive and would set a good precedent for other IP legislative reforms coming up, such as in reform of the trade secret regime in the Antiunfair Competition Law.

 

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