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Upcoming Events – Early November

On the calendar:

Philadelphia friends: I will be at U Penn on November 12, speaking from 4:30 – 6:30 with Zhou Hanhua (CASS) and Samm Sacks, (New America) on technology issues in US-China relations.

Other events:

On Wednesday November 6, I will be speaking with Philip Rogers on supply chain disruption and strategies at the sourcing summit  in San Francisco (6:15-7:00 PM) with Greg Fisher of the Berkeley Sourcing Group.  The topic is supply chain disruption and counter-strategies.

On November 13, I will be speaking at the IP Dealmakers Forum in New York City with Jamie Simpson, Chief Counsel, House Judiciary Subcommittee on Courts, IP, and the Internet and  Malathi Nayak, Reporter, Bloomberg Law (moderator).  The topic is “Patent Policy Update: US and Beyond”.

Looking forward to catchup and engaging with my panels and the audience!

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Licensing IP In a Changing Trade Environment

 

This first part of my two-part article, Licensing IP in a Changing Trade Environment first appeared in Intellectual Asset Management  (IAM) issue 97, published by Globe Business Media Group – IP Division. To view the issue in full, please go to IAM Media. 

The second part of the article on how a changing geopolitical climate is affecting IP licensing is expected in IAM issue 98.

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Second Annual Berkeley-Tsinghua Transnational IP Litigation Conference Is Fast Approaching

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Berkeley Law and Tsinghua law will be co-hosting their Second Annual Conference on Transnational IP Litigation, at the campus of UC Berkeley on October 22, 2019.  Details, including registration information, are available here.

The program will look at strategic concerns in many of the hot issues in cross-border US-China IP litigation, including trade secret cases, standards-essential patents, whether foreigners “win” in each other’s jurisdictions, Section 337, criminal cases, on-line enforcement, civil litigation and the role of China’s new IP courts, administrative challenges to validity, forum non conveniens claims, enforcement at trade fairs, and other issues.  Please register soon if you are interested in attending.

We have great speakers and we look forward to having a great audience!

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China’s “Naked Bolar” and the Tapering Momentum to Protect Innovative Pharmaceuticals

There have been several important developments in recent weeks involving pharmaceutical IP protection in both mainland China and Taiwan.  Based on these developments, mainland China appears to be slowing its momentum to afford better IP protection to innovative pharmaceutical products (perhaps as a negotiating position in the Trade War), while Taiwan is pursuing a more protective approach.

On August 26, 2019, China’s National People’s Congress adopted the new Drug Administration Law (“DAL”), which will take effect on December 1, 2019. The DAL was passed after almost two years of review and deliberation.  The legislative history is set forth in the  NPC Observer.    The new law addresses some important issues involving counterfeit and substandard medicines.  However, it does little to improve the IP regime for innovative medicines.

As noted in this blog, there had been expectations that certain IP issues such as patent linkage and regulatory data protection might be reflected in the DAL and especially pending IP legislation.  In the latest draft of the Chinese Patent Laws presented to the State Council in December 2018, no detailed improvement mechanisms of the patent examination/granting system were included with respect to pharmaceutical patents were included.   It was hoped that a linkage system would emerge as part of a package of legal reforms to resolve the US-China trade war or to implement as earlier CFDA policy decision.

China has long adopted one small part of a modern IP/regulatory approval mechanism to encourage its generic sector.  China’s “Bolar Exemption” which was incorporated into the 2008 Patent Law amendments (Article 69), exempts from infringement producing, using, or importing patented drugs or patented medical apparatus and instruments, for the purpose of providing the information required for administrative examination and approval.   This type of Bolar Exemption has often been called a “naked Bolar exemption” as it provides for the erosion of the innovator’s patent rights to exempt from infringement research to introduce competing generic drugs.  It is “naked” as it it does not compensate the innovator for the losses of the patent term caused by this exemption nor for the resultant instability to any marketing exclusivity the innovator may face by reason of accelerated challenges to the patents it holds.   One way of compensating the innovator for such erosion of the term is to extend it on the “back end”  before its expiration.  A 2019 draft of the patent law amendments sought to correct this lack of a patent term extension.  Another way of providing for greater stability would be establishing a patent linkage regime which “links” marketing authorization with patents that read on the relevant pharmaceutical product or successful challenges to its exclusivity.

The current naked Bolar regime has several adverse consequences. The most obvious and significant is that it does not provide legal support for approval and marketing of generic drugs that are proven not to infringe an innovator’s patent rights, as a “patent linkage” regime might.   A Bolar exemption only addresses research intended to support regulatory approval and is not an exemption from infringement.  To the extent that Chinese regulatory authorities may be relying on the Bolar exemption to approve the marketing of infringing generics, such an effort is legally misguided.  A naked Bolar is not a substitute for an IP and regulatory regime that balances the needs of generics and innovators.  As Amcham noted in its comments on the original Bolar exception provision: “Effective IP protection for pharmaceutical products requires notice, transparency, and time to resolve legal issues prior to the approval of a generic product.” Such protections are not afforded under the existing regime and could be with an effective linkage regime.

Another adverse consequence is that it erodes the term of the patentee without the kind of bargaining that went into the US Bolar exemption, creating a kind of sui generis exemption from infringement for additional acts of research to facilitate product introduction which is not otherwise permitted under the patent law.  To the extent that the naked Bolar expands research exemptions to production and warehousing of an infringing generic pharmaceutical, and does not adequately limited or compensate the rights holder,  it may violate the terms set forth the in the WTO decision EU v Canada (DS/114) where the WTO noted that the Canadian Bolar exception could only apply to regulatory review where  “no commercial use is made of resulting final products.” (line 7.45).   The Bolar exemption should not be used to bootstrap a broader researcher or pre-marketing exemption.  As former Chief Judge Rader noted of the US patent law in discussing research exemptions: “the Patent Act leaves no room for any de minimis or experimental use excuses for infringement. Because the Patent Act confers the right to preclude ‘use,’ not ‘substantial use,’ no room remains in the law for a de minimis excuse.”  (Embrex v. Service Engineering, 216 F.3d 1343 (Fed. Cir. 2000).

Finally,  the “naked Bolar” sends a wrong signal by suggesting that China is not fully committed to developing an innovative pharmaceutical sector, despite China’s considerable human resources, investments, rhetoric and planning to the contrary.

Judging by recent generic drug approvals in China, there may be decreased momentum on the ground to protect innovative pharmaceuticals through limiting regulatory approval during the pendency of relevant patent protection.  Several generic versions of innovative pharmaceutical products have recently been approved by China for different manufacturers at the time of these recent DAL amendments, including Azilsartan, a product originally developed by Takeda that addresses hypertension, and is now produced by Zhaoke Pharma, a wholly-owned subsidiary of Lees Pharma. Azilsartan and Esketamine (a Janssen product for treatment-resistant depression) are also now being produced by Jiangsu Hengrui Medicine.  Pomalidomide,  a Celgene-developed product for treating multiple myeloma,  is produced by Chiatai Tianqing Pharma.  Bendamustine, a Teva product for  chronic lymphocytic leukemia, is being produced by Nanjing Simcere Pharma.  These products have obtained approval priority from CFDA and are expected to be approved by the time the new DAL comes into effect.  As is evident from this list, some products (Azilsartan) are being produced in generic form by more than one manufacturer.  This phenomenon of multiple competing generic manufacturers who may not have had to pursue patent challenges to the innovator to obtain marketing approval (as in a linkage regime), could also result in competition amongst generic manufacturers without strong incentives for follow-on innovation to the original compound.

By comparisons to this apparent backsliding in Mainland China, the Taiwan Executive Yuan has passed the bill to enact the new Pharmaceutical Affairs Act (“PAA”) on January 31, 2018. Patent linkage was specifically approved in Chapter 4 of the new PAA. Previously, in 2018, the Taiwan Food and Drug Administration had issued two drafts of the Enforcement Rules for Patent Linkage. Further, in May 2019, the Taiwan Ministry of Health and Welfare and the Ministry of Economic Affairs held a public hearing to clarify the intent to extend the patent linkage system in PAA to biosimilars. In July 2019, the Ministry of Health and Welfare officially announced that it is considering adding transitional clauses to exempt biosimilars which have obtained official clinical trial approvals during the implementation phase of patent linkage system in Taiwan.

While there appears to be weakening momentum for patent linkage, the DAL does change the regulatory regime for counterfeit medicines and vaccines.  In an apparent effort to address public health needs, the DAL, as revised, modifies the definition of counterfeit drugs.   Under the prior version of the DAL, unapproved imported drugs are deemed as counterfeit. Although the new DAL still prohibits importing and selling of unapproved drugs in large quantity, the importation of small amounts of drugs which have been legally marketed in other countries for urgent clinical needs is exempted under the new DAL, subject to other relevant laws and regulation.  The DAL also seeks to strengthen regulation over vaccine manufacturing, most likely in response to the vaccine scandal of 2018. Under the DAL, out-sourcing of vaccine manufacture is strictly prohibited. The punishment on manufacture and supply of counterfeit vaccine has increased from 5 times of revenue to 30 times of illegal proceeds.  The vaccine Marketing Authorization Holder (“MAH”) must meet certain standards set out in the new Vaccine Administration Law. The regulators will also establish a national traceable platform for the production, transportation, and storage of vaccines.  Lastly, new mechanisms such as the MAH system, defective drug recall system, filing system of clinical trial institutions will be implemented.  The existing “Good Manufacturing Practice for Pharmaceutical Products” (GMP) certification system for drug manufacturers and the “Good Supply Practice for Pharmaceutical Products (GSP) certification system for drug suppliers will be canceled.

Looking at all of the various legislative and regulatory developments in Mainland China and Taiwan, it is hoped that mainland China will ultimately find the right balance of incentives to encourage the further development of its innovative pharmaceutical sector, much as the US did with its Hatch-Waxman Act, while continuing to develop a secure supply of high quality innovative and generic products.

This article was written by Mark A. Cohen and Angel Liu.

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Some Upcoming Events and Opportunities

Here are some events and opportunities for the 2019-2020 academic year:

  1. 1. Bloomberg’s New Economy Forum is broadcasting a panel discussion on “Technology, Innovation and US-China Collaboration” on August 6 from 3:30-6:00 PM Pacific Standard Time in conjunction with the Asia Society. The discussion will be broadcast live on the Bloomberg Terminal and Bloomberg New Economy Forum YouTube Channel. It will also air on Bloomberg TV on August 9.  I will be joining as part of the invited Town Hall.
  2. On Wednesday August 7 at 12:30 PM EST, AIPLA is hosting a webinar on “US and China Export Control Laws and their effects on IP Protection Strategies.” I am moderating.  Here is the link for further information.
  3. On September 10, 2019, I will be speaking in Brussels, Belgium on “Geopolitical Aspects of SEPs: push pull forces in China and other jurisdictions” Here is the link. Readers of this blog may receive a 20% discount by using the code: CIPR. The code can entered at the very end of the registration process.
  4. Save the date: On October 22, 2019, Berkeley Law will be hosting its second program on transnational IP litigation with Tsinghua Law School. We already have several judges committed to attending.  Watch this link for further information.
  5. On November 12, 2019 from 4:30-6:30 PM, I will be at U Penn for its annual Policy Roundtable. The focus this year will be on technology issues.
  6. On November 13, 2019, I will be speaking at the IP Dealmakers Forum in New York City on the role of IP in the US-China Trade War.  There is a $200 discount with promo code: IPDF19_Speaker.
  7. Save the date: Berkeley Law is looking forward to welcoming back two giants of Chinese legal studies the week of March 15, 2020, Profs. Stanley Lubman and Jerome Cohen for a planned one and a half day program looking at some of the big picture issues in Chinese law today.

And an Job Opportunity: The Berkeley Center for Law & Technology at UC Berkeley School of Law is seeking to hire a Legal Research Fellow for its Asia IP Project, for an approximate one-year term with the possibility of renewal.  This position is open until filled.  Here is the link for more information, including required qualifications and application materials.   If you have questions about the position, please contact academicpositions-law@berkeley.edu.  UC Berkeley is an AA/EEO employer.

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Delay in the Courts… To Prove This One We May Yet Have to Wait…

On July 4, 2019, I posted a blog asking for help regarding rumors of delay and higher-level review of IP cases involving foreigners. Here is the follow-up. 

Spoiler alert: if you are looking for a smoking gun, you won’t find one.

Jacob Schindler from IAM pointed out that he looked into the issue for his magazine and after speaking to a number of lawyers and patent owners with active assertion campaigns in China, “found no evidence that this is true in any general sense.” Jacob noted that “the most likely explanation for delays faced by some US litigants is even more innocuous. Foreign companies, including US firms, seem to be big fans of the Beijing IP Court. And that has led to a very busy docket.” This perspective that clogged dockets are leading to delays has been cited by many, and a few people noted that the issue had been raised in various meetings or conferences.

Erick Robinson relied on his own experience prosecuting Non-Practicing Entity (NPE) cases, and commented in his blog that he had detected no changes. He further stated that claiming “‘cases can be decided but only upon approval from the Supreme People’s Court’ is obviously alarming, but without proof, this seems to be just more US politicizing of the trade war.” I will return to the issue of the trade war and patents in a future blog.  

One well-informed China-resident lawyer informed me that she “heard from a few lawyers that SPC instructed lower courts to suspend adjudicating all US-related cases for at least six months since the end of 2018.” This May, she advised, the SPC lifted the ban and now only supervises “sensitive cases.” For less sensitive matters, lower courts may proceed as they wish. This six month period identified by this lawyer roughly coincides with the period during which I had been hearing this rumor of delay. Others also confirmed that there was high-level supervision.   

The counter-factual that there has been no interference in court cases or administrative proceedings is perhaps easier to disprove. Many individuals have indicated concerns about informal interference in proceedings. Courtney Macintosh of Baker & McKenzie noted that “[w]e have been told by local enforcement authorities not to expect any nice treatment cause of trade war, so it is complex and not so straightforward.” The consulting firm Rouse had also observed what they thought was a trade-related impact in the negotiation of licensing deals requiring local government approval, with local governments “falling over” to ensure that they did not appear to be pressuring companies to transfer technology as a condition of investment approval. AmCham China’s 2019 Business Climate Survey for the first time listed “bilateral tension in US-China trade relations” as a top-five business concern (45% of respondents), and also noted that high tech and research-intensive companies were the most likely to feel less welcome than before (54%).

Some individuals suggested that there is no political interference at all in Chinese judicial proceedings. While an extensive analysis of the manner in which politics interferes in adjudication is beyond the scope of this blog, there is considerable literature around how politics influences Chinese court decisions, and there is no indication that IP cases are exempt from such influence.

First of all, as a de jure matter, an SPC decision to delay foreign cases is not inconsistent with Chinese civil procedure law.  Chinese courts are authorized to delay foreign civil proceedings, including IP litigation. Section 249 of the Civil Procedure Law provides that “The period for the trial by the people’s court of civil cases involving foreign parties shall not be subject to the restrictions of Articles 149 and 176 of the Law.” Articles 149 and 176 require first and second instances cases to be resolved in six to three months respectively, except when otherwise authorized by supervisory authorities.

Second, the courts themselves recognize that they are not exempt from politics. Prof. Susan Finder’s  Supreme People’s Court Monitor recently discussed this in her analysis of a speech by SPC Justice Liu Guixiang. Liu noted that “The People’s Court is first and foremost a political organ. It must put political construction in the first place and clearly talk politics.” The speech noted four principles, including “[t]o uphold the absolute leadership of the party,” and that “judicial independence” of the West must be resolutely resisted. 

Academic literature also has shown documented political influences and the data supporting it.  Prof. Perenboom’s China’s Long March toward Rule of Law (2002) surveys the many ways that “judicial independence” can be compromised in China’s system (pp. 280-342).  Prof. Howson’s article “Judicial Independence in China: Lessons for Global Rule of Law Promotion” notes that Shanghai courts “evidence serious independence limitations” in two areas: acting as the handmaiden of policy implementation in contravention of what the Company Law allows, or directly by blanket rejection of public company/large plaintiff cases.  Profs. Xin He and Su Yang looked at how the “have’s” come out ahead in Shanghai court cases and “cast doubt on the party capability theory.” The authors “speculate[d] that the causes of judicial inequality in China lie not only in resource gaps but also in the roots of the law and the nature of the court.”

Denying case acceptance has long been recognized as a political tool of the courts to push off politically sensitive cases, although it may be less frequent in foreign-related cases. 

Higher-level supervision is also well documented, in addition to being specifically provided for in the civil procedure law. Such higher-level supervision appeared prominently in the WTO IP enforcement case with China (DS362), when the US side presented a letter from China’s Supreme People’s Court on how to best handle a copyright issue that was then sub judice in Hunan (Exhibit US-60, Letter from the Supreme People’s Court to the Hunan Province Higher People’s Court in Zheng Haijin v Xu Zheng Xiong,  知监字 [1998]). As the Panel Report discusses, this letter was contradicted by a letter of the National Copyright Administration of China to the lower court with the opposite position. Panel Report Sec. 7.51.

Political interference may also originate from the court that hears the case, particularly its adjudication committees (shenpan weiyuanhui). Such committees play an important role in ensuring that cases are consistent with political directives. As the Duihua Foundation points out: 

“[Adjudication Committees] are unique to the Chinese judicial system and exist at  each of the four levels of China’s court system, from basic-level county courts up to the Supreme People’s Court. The committees meet regularly to discuss important or difficult cases, ‘sum up judicial experience,’ and review other important matters related to case adjudication. Generally, they are composed of the president and vice-presidents of the court, as well as the heads of the court’s tribunals—many of whom are, in effect, administrators rather than working judges.  

Committee meetings may be attended by the head of the procuratorate, which has a dual function as prosecuting body and overseer of judicial activity, as well as members of the judicial panel hearing the case under discussion. Court rules encourage submission of written case reports summarizing the facts of the case, major issues of contention, and preliminary opinions on how the case should be handled, but some cases are simply presented orally. Detailed minutes of the committee’s discussions are kept, but they are classified as state secrets and do not become part of the formal trial record.

Among cases that adjudication committees routinely take up are those ‘involving serious threats to national security,’ the death penalty, and ‘important’ matters involving foreigners or persons from Hong Kong, Macau, or Taiwan, as well as cases with multiple parties (quntixing anjian) that have a major social impact or could easily intensify conflicts. Meetings are held several times per month, and multiple cases are normally discussed at each meeting.” [emphasis supplied]

Such supervision need not be adverse to a foreigner’s interests. Politically sensitive litigants, domestic or foreign, use court supervision to advance their claims, as has been documented in an article by Profs. Feng Yuqing and Xin He.

Chinese behavior overseas may reveal an expectation that political interference or supervision in judicial processes is not unusual. For example, China reported an ersatz JCCT outcome to “give review priority” to a Chinese application on the basis that it believed that the USPTO had given unfair treatment to a patent application by the SOE, IWNCOMM. By contrast, the  US outcome sheet does not reflect any such commitment.  

In the absence of a “smoking gun” does the data suggest any changes in Chinese disposition of US or foreign patent cases?  The databases will not reveal this information until, if at all, next year for this year. Even then, as Prof. Benjamin Liebman and others have pointed out in “Mass Digitization of Chinese Court Decisions: How to Use Text as Data in the Field of Chinese Law”, there is a “need for humility and methodological pluralism among scholars seeking to use large-scale data from Chinese courts. The vast amount of incomplete data now available may frustrate attempts to find quick answers to existing questions…”   Finally, even if there were some delays or additional oversight in the handling of foreign-related cases, this may not prove the existence of a new internal directive or prejudice.  It may simply be due to existing civil procedures or courts exercising some greater prudence at this moment in time. 

We will need to wait and see.

Postscript of July 31, 2019:

Since this blog was posted, I have received two additional emails regarding the impact, if any, of the trade war on foreign-related IP litigation, particularly patent litigation involving Americans.

One well-placed source advised me that if there was any delay in adjudicating foreign IP cases, it would be due to the rapid growth in IP dockets in China and the relative flexibility in timing afforded adjudication of foreign-related IP cases.   This explanation is also quite plausible.  Overall IP cases did increase by 40.97% to 283,414 accepted cases.  Patent cases increased by 35.53% to 21,699.  These are huge increases and foreign cases may get delayed as courts adjust to their dockets.  See 中国法院知识产权司法保护状况 2018 年）(Intellectual Property Protection by Chinese Courts in 2018).

Another source told me that their client was told that due to the trade war and attendant “sensitivities”, the court would not be issuing its decision at this time.  No new timeline was offered.

References to “sensitivity” or “inconvenient time” can be a euphemism for political concerns or they can reflect real-world issues like a clogged docket or a complex case.  I can remember once as a government official, I directly asked a Chinese colleague and old friend if the time was “really” inconvenient to meet me, or whether this was simply a  way of avoiding conflict.  He responded with a long list of other commitments and told me “we look forward to seeing you, but it is really quite busy now.”  We both laughed.

Please continue to write in any other observations you may have.

 

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Collaboration or Confrontation: Beyond the False Dichotomy in US-China IP Relations

Recently several writers have criticized the Trump administration’s strategic choice of confrontation over collaboration with China.  Among them was an open letter published in the July 2, 2019, Washington Post, “China is Not an Enemy,” or “Making China A US Enemy is Counterproductive” (based on its hyperlink) that was signed by several former officials and scholars. Prof. Alastair Iain Johnston of Harvard University also wrote an excellent article, “The Failures of the ‘Failure of Engagement’ with China.”  Chinese commentators have also chimed in.  One of the signatories of the July 2, 2019 letter, Jim McGregor spoke on a podcast about the limitations of collaboration.  A counter-letter, “Stay The Course On China: An Open Letter To President Trump” .  The debate is also an extension of the Stanford University report “China’s Influence and American Interests: Promoting Constructive Vigilance” from 2018, which also generated its share of controversy.

The authors of these studies discuss all aspects of the US-China relationship – trade, security, scientific, intellectual property, etc., and fold these issues into the collaboration vs. confrontation dichotomy. I lack the breadth to discuss all aspects of a complex relationship.  My focus is solely on IP and innovation and the role of collaboration or confrontation. 

An assumption of many of these authors is that we should avoid making China an enemy unnecessarily.  I agree. At the same time, many of the commentators seem to suggest that either IP engagement or confrontation may be counterproductive because of systemic failures of the WTO, or past disappointments.  As Prof. Johnston notes: “[T]here is no doubt that there are persistent WTO incompatible non-tariff trade barriers, including weak intellectual property protection, technology theft, and non-transparent regulatory practices, among others.” 

Overall, the IP-related arguments present a false dichotomy between engagement or confrontation.  Bilateral engagement is only one tool, and it need not be sacrificed to more assertive strategies.  The toolbox includes varied approaches. Softer advocacy might include training programs in China on novel issues, supporting more focused strategies by businesses, joint collaboration on shared challenges and trade agreements that include China (such as a bilateral investment treaty), to name a few.  More assertive postures might involve critical white papers or non-papers, multilateral engagement, WTO or other international law diplomacy or cases, trade agreements that exclude China (TPP), and, in appropriate circumstances, quid pro quo retaliation such as tariffs and sanctions.  Simply put, carrots and sticks are not exclusive of each other.  Moreover, there are a variety of carrots and sticks.  Sticks, however, carry a cost and need to be carefully considered before deploying.

One of the legacies of the Obama administration on IP was that it was over-committed to dialogues.  As Chinese trade diplomacy has been highly transactional, this had permitted China to “buy time” without committing to any trade concession.  For those who lived through Obama’s excesses and opposed them, President Trump has demonstrated himself to be Obama’s Hegelian opposite.

The explosion in IP dialogues during the Obama period is well documented. For example, the 2015 Joint Commission on Commerce and Trade (JCCT), which was co-chaired by the Department of Commerce and USTR and was the highest-ranking trade-specific bilateral dialogue.  It established IP-specific sub-dialogues, exchanges and programs on such topics as: standards, trade secrets, geographical indications, sports broadcasting, media boxes and copyright, on-line enforcement (including referrals to another IP-related working group involving criminal law), case law and databases with the judiciary, bad faith trademarks, copyright legislation, IP legislation and protection of plant varieties.  Additionally IP was discussed outside of the JCCT in dialogues with a range of US agencies, including antitrust (DOJ/FTC), criminal law (DOJ/DHS), innovation (OSTP) and strategic and economic dialogues (State, USTR, Treasury), as well as at the WTO (USTR), WIPO (PTO), and in plurilateral discussions, such as the IP-5 (the five largest patent offices), TM-5 (the five largest trademark offices) and ID-5 (the five largest industrial design offices).  There were also other dialogues, including judicial exchanges (2016) and commercial rule of law (2016), which also focused on IP.

Properly and economically utilized, dialogues can advance understanding where ignorance is a major impediment to resolving differences. They can build trust and long-lasting government to government relationships.  Dialogues may also spread the burden of advocacy among the US government, industry and trade associations and even foreign governments.  Educational training and assistance can also be leveraged for seeking additional concessions.  They also help establish a baseline for a measured approach to escalating issues to increasingly higher political levels.  However, dialogues should never become ends in themselves and need to be periodically evaluated for their effectiveness and efficiency.  

In a typical, hypothetical IP matter, a strategic approach to dialogues and engagement might involve a white-boarded multiple-year plan for the US that reflects the varying interests of the US government, foreign governments, industry, and academia.  The plan might progressively escalate concerns from a discussion around, say, bad faith trademarks, to a seminar on this topic, a meeting between the heads of the US and Chinese trademark offices, a JCCT meeting at a political level, a TM-5 meeting, a program with the International Trademark Association or the EU’s technical “IP Key” assistance effort, comments on proposed legislation, a meeting among cabinet-level officials and/or a WTO case.  These approaches may be consecutive or simultaneous. This type of strategy is also well known in Chinese military history, as “coordinating one’s strategies” 连环计 i.e., never relying on a single strategy but having many to fall back on, which is the 35th of the 36th classical military stratagems 三十六计. 

There have been several successful examples of coordinated engagement in IP that have delivered real changes over the years.  Examples include China’s providing design patent protection for graphical user interfaces, which involved multi-year engagement by industry, academia, the Chinese and US patent offices, and ultimately the offices of the JCCT, to deliver a tangible commitment in Chinese patent office practices.  Another example during the Obama period is the reform of China’s pharmaceutical patent examination process, which involved a similar process.   A longer-term engagement focused on the creation of China’s specialized appellate IP court.  It also involved several judges of the Court of Appeals for the Federal Circuit (CAFC) (including former Chief Judge Rader), the Federal Circuit Bar Association, academia, and others over a nearly 20-year period.  

To be effective, however, dialogues must be strategic.  The 2015 JCCT, by contrast, seemed to have an approach of letting “a 100 dialogues bloom”  (百对话齐放).   

An example of the failure of dialogue and coordinated strategies is found in the US handling of a request of China to revise China’s discriminatory Administration of Technology Import/Export Regulations (TIER).  The 2015 JCCT included a commitment to “support a technology licensing joint seminar to be convened by MOFCOM in the first quarter of 2016.”  This was a strikingly modest ask of the very senior US and Chinese officials that chaired the JCCT: a Chinese Vice Premier and three US Cabinet-level officials.  However, JCCT support was necessary to overcome entrenched Chinese resistance. Moreover, despite the JCCT commitment, China did not follow through on this modest ask.  Despite such high level support, China did not host the seminar.   

During this same time period, the US Chamber of Commerce, Global IP Center,  published a report through its “Track II”, IP Cooperation Dialogue calling for reform in the TIER. The Track II Dialogue seeks to encourage expert non-government IP-engagement and not rely solely on over-politicized official bilateral dialogues.  It includes former judges and patent office officials, as well as academics (including this author). The 2016 Report also did little to convince official China to reform the TIER.

USG persisted.  The 2017 JCCT reiterated the commitment to “hold a joint seminar”. This program was ultimately convened on March 18, 2017,  However, the program concluded with no change in China’s position regarding the reform of the TIER.     

With no demonstrable momentum by China, USTR identified the TIER in its 301 investigation of China’s technology transfer practices.  It also filed a WTO case in March 2018. China finally took notice and amended these discriminatory provisions in 2019. Now that the offending provisions of the TIER have been amended, the WTO case has been suspended.  Today, with the suspension legal case, its full implementation should be monitored.  It appears that “collaboration” did not work, but a more confrontational approach resulted in a positive outcome.

However, while it is likely that China would not have amended the TIER absent the WTO case, dialogue on the TIER also played the important roles of coordinating USG positions, elevating an issue politically, involving other foreign governments, testing the waters with senior leadership in China, and making sure that the US proceeded in a measured and thoughtful manner.   Many foreign governments, including the European Union and Japan were involved in these dialogue efforts and many also supported the WTO case.  Even more striking, the WTO “win” on the TIER is ironic as it came from an administration (Trump) has generally shown opposition to multilateral institutions as well as dialogues.   In fact, the President has demonstrated that a thoughtful combination of collaboration and confrontation with a diversity of approaches may be the most effective for advancing IP and innovation issues.

Nor is it wrong to cast the United States as the sole cause of the demise of softer approaches.  China contributed to the demise of dialogues and similar mechanisms in its use of bilateral meetings as instruments of delay and retaliation.  It responded to the first WTO IP case that the US brought in 2007 as an “act of aggression” that it would “fight to the bitter end” in 2007 (DS/362).  China thereafter suspended many forms of IP-related cooperation with the US.   In the build-up to DS/362, the United States also sought to compel China to publish all its IP cases, which the WTO declined to support (a TRIPS “Article 63” request).  China also did not oblige in that request. 

DS/362  was the only WTO case brought against China on IP prior to the Trump administration. That case dealt with infringement of consumer goods – notably, copyright piracy and trademark counterfeiting, particularly criminal and customs remedies. DS/362 did not involve technology. Anybody claiming that the WTO has been a failure with respect to China’s enforcement of patents and trade secrets should look elsewhere.  That case has not yet been brought.

USTR likely viewed DS/362  was a failure. The US did not succeed in compelling China to amend its criminal IP laws in DS/362, nor in requiring China to make its cases publicly available.  As a consequence of losing the case, the US government lost faith in the WTO as a mechanism for resolving IP-related disputes. USTR instead launched a series of bilateral and multilateral negotiations, including a proposed Anticounterfeiting Trade Agreement and revised model IP texts in bilateral and plurilateral trade agreements.  

The ensuing devaluation of WTO mechanisms was, in my view, premature.  While lawsuits in the US often appear binary in their outcomes, pressuring foreign countries to adopt legal regimes that they are otherwise opposed to at the WTO is much more complex.  Additionally, US impatience is not well-justified as the US itself has also been slow in responding to many WTO rulings.  USTR’s assessment regarding DS/362 may also have reflected its own institutional limitations. USTR is thinly staffed and lacks resources to engage in softer programs such as technical training or monitoring.  USTR relies heavily on industry suggestions, which may also be short-term in nature.  Unlike other US government agencies involved in IP, USTR is not the lead USG agency in a number of important IP exchanges, such as at the World Intellectual Property Organization, Interpol or the World Customs Organization. It does not participate in or promote IP office related exchanges,  does not have IP officers or law enforcement officers posted to China, and does not have a China Resource Center like the USPTO, which provides statistical analyses of IP-trends in China.  Despite this lack of depth, it has two important primary functions: negotiates deals with trade officials and bring disputes. This binary choice is limited when compared to the much broader toolbox that can be used to address an IP issue. 

The arguments that the WTO does not work in addressing IP-related disputes also ignore the success achieved by the Trump administration in seeing the TIER revised, as well as the demonstrable impact that DS/362 had in elevating the importance of criminal trademark and copyright enforcement to China, despite the setback of a loss in dispute proceedings.  The victory the US achieved in the criminal enforcement case materialized in the form of an uptake in criminal IP prosecutions. China increased its criminal IP cases from 904 in 2007 (the date DS/362 was filed) to 15,121 cases, involving 17,869 people in 2012.  This is a  16 fold increase.  By 2012, the Chinese criminal IP docket also grew to over 200 times the  US criminal IP docket of 2018. which consisted of 117 defendants in 67 cases.  One Chinese Supreme People’s Court judge confided in me that he attributed that increase to the spotlight that the US gave to the importance of criminal IP in China’s evolving IP ecosystem. For some recent analysis on these trends, please see Dan Prud’homme and Zhang Taolue’s excellent book “China’s Intellectual Property Regime for Innovation” (Springer 2019) which summarizes recent research on this increase, and provides data on criminal IP cases, defendants, prosecutions and convictions.  

A similar argument regarding the ultimate success of the US claims might be made about the request of the US that China should make all its IP cases publicly available in 2005/2006 (the so-called “Article 63 Request”). By 2014, China had decided to publish the  majority of its cases of all types.  This publication of cases has been welcomed by the legal and judicial community alike and has helped to provide greater predictability in adjudication, minimize corruption and provide a basis for strategic IP enforcement.  

By contrast to these successes, there was one claim in DS/362 that had no significant positive impact.  This failure was not due to China’s intransigence. In DS/362 USTR also alleged that China’s disposal of seized infringing goods by auction offended WTO requirements to dispose of such goods outside of the channels of commerce.  However, WTO rules only require Chinese Customs to seize goods upon importation (TRIPS Agreement Art. 51). China was and remains primarily an exporter of counterfeit and pirated goods.  The WTO was unable to identify a single instance where China had auctioned off counterfeit goods imported into China.   “No infringing goods destined for importation”, the panel stated “have ever been auctioned…during the period for which statistics are available.” (Para. 7.351).  The Customs claim, criminal IP claim and the case publication achievement all underscore the continual need for good data to support IP engagement of either the “carrot” or “stick” variety.

Arguing over whether China is becoming our enemy and the need for confrontation is redolent of the post-Korean War China rhetoric in the US.  A better approach might be to remake the US government into an institution that better understands, persuades and strategizes on complex technological and IP issues in China.  During the past 30 – 40 years, the US government has defunded or terminated every technology–oriented agency that cared to engage in a significant way with China, including the Office of Technology Assessment in Congress, the Technology Administration in Commerce, and the Office of Science and Technology Policy in the White House.  USTR’s mandate is  too limited to effectively engage in collaboration. USPTO has the deepest technical resources on IP and innovation issues, but lacks political clout. We need to coordinate more closely, and provide incentives for deeper engagement among all US agencies as well as with industry in order to be effective.   These issues have been apparent since at least the time of China’s WTO accession.  As I noted at a conference at the 24th Annual Fordham University IP Conference in 2016 (Session 4B-b “Asia and the Political Landscape”):

MR COHEN:… One of the lessons from WTO accession was — and I don’t know how to say this gently — how … under-informed US industry was about the legal system.  I say that because if you look at the number of civil cases involving intellectual property, in the year that China joined the WTO — and the negotiations occurred in the years before — there were about thirty.  So one could, theoretically, have contacted every company that had filed a lawsuit involving IP and you still wouldn’t have a very large cohort.

So a lot of trade negotiations, unfortunately but necessarily, are based on hypothetical constructs.  What makes a good legal system, with big words like “impartial,” “fair”?…

METALITZ:  So who was under-informed in that situation?  Was it the US negotiators or was it the US industry?  US industry — you’re right — was not bringing these cases.  But that may not have been out of ignorance. That may have been out of a supposition that they would not be useful.

BAI:  May I chime in?… I have seen US government officials talking about China when they don’t get their briefing right…. 

One way to improve policy is to hire the right people.  We need to promote and reward individuals who have the three “magic” skills: knowledge of Chinese law, knowledge of Chinese IP  or technology, and Chinese language skills. These individuals should also be given roles commensurate with their knowledge and skills.  The 2013 Report of the Commission to Stop American IP Theft, also identified this as an issue in the staffing of our embassies overseas: 

Strengthen American diplomatic priorities in the protection of American IP. American ambassadors ought to be assessed on protecting intellectual property, as they are now assessed on promoting trade and exports. Raising the rank of IP attachés in countries in which theft is the most serious enhances their ability to protect American IP. 

The need to restructure US government on tech and IP issues has long affected the quality of our “engagement.”   

Whether confrontation or engagement are pursued, the choice is complex, should be well-coordinated, and will need to evolve based on circumstances.  It should be based on the right information made by well-informed people.  It is not, ultimately, an ideological issue as many of the recent articles might otherwise suggest.  

Revised: July 21, 2019, October 8, 2019.