More on Donald Trump on IP and China…

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Our “sister” blogger, Susan Finder, has dug up one of Donald Trump’s trademark litigation under his eponymous mark, and reported it on her Supreme People’s Court Monitor website, suggested that “he is the first person to be elected president of the United States who has sued in the Chinese courts.”  He lost the case.

It is probably true that Mr. Trump will be the first US President to have brought a law suit in his own name in a Chinese court, as Susan Finder points out.  A search for Trump in the court’s database might or in the trademark database might however, overlook that Trump (or any other President) had interests in other marks in the United States other than those with his name (such as Miss Universe, in the case of Trump), and he may also have secured marks in China that were different from those he owned in the United States.  I listed some of the marks he owns and that may be the subject of squattings in an earlier posting, but that list was also partial.

In other blogs, Politico reported Trump’s goals during the first 100 days of his administration include a China-IP related outcome: “TRUMP TRANSITION LAYS OUT INTERNAL TRADE GOALS — By Day 100 of the Trump administration, his team aims to finalize withdrawal from the TPP, renegotiate bilateral trade agreements, and direct the Commerce Department and U.S. Trade Representative to come up with a comprehensive intellectual property theft strategy, with particular regard to China, according to a new policy document described to Pro Transition 2017 by a source downtown.”

Separately, IP Watchdog reported that Vice President elect Pence’s generally more explicit, pro patent views are likely to be influential in a Trump administration.  The blog notes “Pence seems to appreciate the realities and benefits of commercializing patented technology, and the benefit that brings in terms of economic development and better, higher paying jobs.”

The Information Technology and Innovation Foundation has also published a useful summary of Trump’s innovation policies, which focuses on domestic policy and trade policies, but also yet again underscores concerns about Chinese intellectual property theft.

Postscript (Nov. 16, 2016):  The New York Times ran an article November 15, 2016 on the Trump brand of high tech toilets in China.  The Chinalawblog also did an analysis of the trademark squatting case involving Trump, including a recent decision and a discussion of how China has traditionally rejected applications for trademarks that used the names of US presidents.  Photo by alert reader Boris Brawer, thank you!

 

 

 

The TPP’s IP Challenge for China

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The release of the TPP text on November 5, 2015 has caused many friends in Chinese IP colleagues to wonder what implications, if any, there are for China’s development of its IP system.

China’s recent experience of bilateral investment or free trade agreements has not prepared it for a major regional  IP-related agreement such as the TPP.  China’s  FTA  experience has thus far focused on a limited range of issues, most of which are not “core” IP.   As one academic researcher noted “the majority of China’s RTAs [Regional Trade Agreements] focus… on specific categories of IPRs, namely GIs and genetic resources and traditional knowledge or border measures, often omitting any reference to other categories, i.e. copyright, patents, trademarks or IPRs enforcement.”    The last comprehensive IP agreement that China entered into was its accession to the WTO  with  adherence to the TRIPS Agreement (2001).  The TPP is however more comprehensive and forward looking than TRIPS.

The China-Swiss FTA (2013) calls for some important, but limited improvements in China’s IP regime, particularly in areas involving designs, customs protection and plant variety protection.  To take plant varieties as one limited example, the TPP requires all member countries to sign on to UPOV ’91.  This was a step that Switzerland, a member of UPOV ’91 since 2008, did not secure in its bilateral FTA with China despite Switzerland’s having a flourishing agroscience sector.   By any measure the demands that would be placed on China by acceding to the TPP would be greater than most of the developed world, particularly for countries like Singapore, Chile, and Australia that have concluded free trade agreements with significant IP chapters with the United States in the past several years.

Despite these challenges, it would be difficult for China to stay outside of a regional trade agreement that includes such important regional trade partners.  Leaving China outside of the TPP may also not be the most desirable IP strategy.  China is the second largest global economy with the largest IP system in the world, and with rapidly growing innovative sectors and global business models (including in e-commerce).   The TPP and the global trading system could also be greatly strengthened if China were to play a constructive role, conform to and join TPP, and if reformers in China were empowered to bring China in adherence to TPP to spur another effort at market-reform.   As Amb. Holleyman recently noted in discussing the TPP: “the rules that China adopts to promote IPR protection directly impact our economy.  If IPR protection in China were improved to a level comparable to the United States, U.S. net employment might increase by 2.1 million jobs and American companies would benefit from an estimated $107 billion in additional annual sales, according to U.S. International Trade Commission estimates.”

A further systemic challenge is that the TPP appears to be based in part on its members experience on the difficulties in engaging China on IP.  As one former senior diplomat recently noted before a Japanese audience:

Rampant violations of intellectual property continue, state-owned enterprises are advantages over private competitors, and U.S. companies invested in China have become increasingly disillusioned by China’s unique standards and preference for “indigenous innovation”—not to mention evidence of large-scale cybersecurity violations…

TPP allows the U.S., Japan and our partners, to offer a high-standard, rules-based alternative to China’s state capitalism.

China has already acceded to all the major treaties enumerated as required for TPP accession with the exception of UPOV ’91 — namely the Madrid Protocol, Budapest Treaty,  Singapore Treaty, WCT. WPPT, as well as the Patent Cooperation Treaty, Paris and Berne Conventions, and of course the TRIPS Agreement.    I believe that most of the challenges to China are likely not in the form of adherence to required treaties, but in the more granular implementation of those treaties and in commitments that are not found in any current treaty that China is a part.  For example, in the pharma sector, the TPP contains extensive provisions on patent linkage, patent term restoration, and data exclusivity which go beyond the TRIPS Agreement.  In addition to these substantive IP issues, there are significant challenges in non-IP area chapters that affect commercialization and utilization of IP, such as in market access for lawyers, restrictions on state owned enterprises, e-commerce, and investor-state dispute resolution.

The focus in the TPP on treaties that support greater IP office to IP office cooperation in the TPP (e.g, PCT, Madrid), also underscores that this is a treaty that not only aims to raise substantive norms, but also aims to facilitate greater utilization of IP in the TPP region among its members to facilitate economic integration.   It would be wrong of critics to characterize this agreement as solely a North-driven effort to impose its IP norms on the South.  In addition to cooperative commitments, there are also provisions on genetic resources, access to medicines (aligning with the Doha Declaration), traditional knowledge and capacity building that reflect the interests of developing countries.

China’s recent past has shown that China can enter into WTO plus commitments on IP.  The most notable are China’s  joining the WIPO Internet Treaties, and thereafter hosting and ratifying the Beijing Treaty on Audiovisual Performances.  However, there are also important areas that have not been specifically addressed in recent trade-related agreements, such as trade secrets, have generally shown little norm setting progress since China first enacted its trade secret law in 1993, which had arguably been undertaken in response to US pressure in 1992.

The history of the past several decades of foreign engagement with China has, however, generally shown that linkage-based diplomacy, where trade concessions may be extended or removed in exchange for / or due to violations of IP-related commitments, has likely been the most effective single factor in driving IP-related changes in China.   Many of the key IP-related commitments  evolved in response to normalization of US-China trade relations, as well as WTO accession.

With modern China’s professed interests in becoming an innovative economy, will the TPP spur additional changes that are in China’s long term interests?  What kind of challenge does the TPP set for China’s own economic plans, including the revisions to the current five year plan, the National IP Strategy and China’s efforts to become a strong IP country?

While TPP members were negotiating the final text of their agreement, China’s state planners were drafting a new five year plan, which will further underscore China’s commitment to developing an innovation-oriented economy (see chart below, prepared by Barclays on frequency of ‘innovation’ in the current five year plan).  China will need to look at what it gains in TPP accession in exchange for IP commitments which China may believe it is not yet prepared for, but that in the long run will clearly benefit in the Chinese economy and enable it to become more innovative.  Hopefully, Chinese reformers will seize on the TPP as a way to drive a new era of economic reform, prosperity and IP harmony.

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Top picture: Amb. Robert Holleyman noted at a November 8, 2015 US Chamber event discussing TPP.

Vringo vs ZTE: What the NDA Dispute in New York Suggests For Licensing Strategies

As many of my readers may know, I was not a fan of the Chinese courts’ decisions in Huawei vs. Interdigital in Shenzhen and Guangdong, which raised a number of process and substantive concerns.  A key question raised in that case was whether “the licensee has been afforded a fair opportunity to take a license.  If the licensee has been afforded an opportunity and declines to take a license, then it is my personal opinion that the licensee should not take the “shield” of a FRAND commitment, and turn it into a sword that weakens the licensors ability to license on fair terms.”    The decisions in those cases plus the Qualcomm investigation has also raised many substantive and procedural concerns, including concerns regarding how to license IP within China in an environment that is increasingly seen as nationalistic, whether foreigners have been singled out, and counter-strategies to deal with Chinese companies inclined to seek protection under China’s antitrust laws.

Prof. Epstein expressed similar concerns in a policy brief  and a Forbes Magazine article earlier this year: “Far from being a device to promote competition, the AML is used to harass foreign firms that provide much needed competition to China’s state-protected agencies….The antitrust laws should not be applied so as to single out patents or any other intellectual property rights for special treatment; all property deployed in the marketplace should be treated equally under the competition laws.”

Two interesting decisions from Judge Kaplan in the Southern District of New York in the matter of Vringo vs ZTE Corp (14-CV-4988) highlight strategic responses to this perception of an aggressive posture of the Chinese courts and administrative enforcement authorities on alleged abusive licensing practices.

By way of background, Vringo has raised money from venture capital firms and is a licensor of telecomm patents, including patents formerly held by Nokia Corporation and Alcatel-Lucent.  From the perspective of a Chinese licensee, of which ZTE may be typical, Vringo is engaged in “abuses of intellectual property” as a “non-practicing entity” that uses “the threat of litigation and injunction to support [its] demands for unfair licensing fees.”  Vringo claims that patents it is asserting are standards essential.  Moreover, it has brought litigation in such places as Australia, Brazil,  France,  Germany,  India,  Malaysia,  the Netherlands, Romania, Spain, and the United Kingdom against ZTE for their alleged infringement.

In a June 3, 2015 decision by Judge Kaplan of the Southern District of New York regarding a July 2014 action filed by Vringo for breach of a Non-Disclosure Agreement (NDA) related to possible settlement of these litigations and any other disputes between them, Judge Kaplan issued a preliminary injunction to enjoin ZTE from further disclosing information subject to the NDA in antitrust matters in the EC and China brought by ZTE. The NDA specifically required that confidential information disclosed could not be used in “any existing or future judicial or arbitration proceedings” or “for [their] commercial advantage, dispute advantage, or any other purpose.”

Judge Kaplan’s decisions are suggestive of possible strategies for companies concerned about entering into settlement discussions without increasing Chinese AML litigation risks through well drafted NDA’s. Here is what I derive:

  1. Insist on Appropriate Governing Law, Know Chinese Legal Arguments and Make Sure Your NDA Has A Close Nexus to the Jurisdiction. Judge Kaplan applied New York law, and rejected ZTE’s arguments that Chinese law should govern the NDA and that that ZTE was required to provide the information to Chinese authorities.   Based on an affidavit submitted by my friend Doug Clark, a Hong Kong barrister with considerable Chinese patent experience, Judge Kaplan characterized ZTE’s assertions that it needed to disclose confidential information, as “nothing more than gamesmanship.”  Also of dispositive importance was that Vringo maintains its principal place of business in New York and sought protection under its laws when entering into the NDA.  ZTE voluntarily consented to New York law knowing this background.
  2.  Enter Into Settlement Discussions To Support Resolving Resolve Litigation. Judge Kaplan also rejected ZTE’s argument that the NDA is unenforceable under New York law as “an agreement to suppress evidence.”  The NDA was a permissible agreement between private parties about use of information in private litigation.  New York has a strong public policy encouraging settlement and “[t]here can be no doubt that the NDA was entered into for the explicit purpose of facilitating candid settlement discussions.”  Moreover, “it was entirely lawful for Vringo and ZTE to agree that they would not use information exchanged in settlement discussions in any judicial proceedings.”
  3. Make Out a Case for Irreparable Harm and Appeal to the Courts Sense of Equity. Judge Kaplan found that the irreparable harm requirement was met because “Vringo … probably would suffer injury in the future that could not be undone even if it prevails in this action.”  As with any well-crafted NDA, this NDA also contemplated the availability of equitable remedies for breach including by providing for procedures for the parties to seek a protective order from a court and by reciting, “that money damages may not be a sufficient remedy for any breach of this Agreement and that, in addition to all other remedies to which it may be entitled, the Parties will be entitled to seek equitable relief, including injunction and specific performance, for any actual or threatened breach of the provisions of this Agreement.” Judge Kaplan also noted that Vringo had not been made informed of the initiation of civil litigation or the unauthorized disclosure of its confidential information in an administrative action filed by ZTE in China, which had further compromised its position in those matters. Although he didn’t discuss the fast pace of litigation in China, which I have raised elsewhere in this blog, I am glad to see judges and rightsholders recognize how critical timing is to IP and antitrust matters involving China.

Note that Judge Kaplan did not enjoin ZTE from filing an AML action in China, but only from using the information obtained in violation of the protective order. Although the facts and circumstances are different, from the perspective of the Huawei vs InterDigital case, Judge Kaplan showed deference to the parties’ choice of law and did not take steps to interfere with decisions to file legal proceedings in other jurisdictions.  Of course, from ZTE’s perspective, it was likely being deprived of  information that it thought would be highly valuable to Chinese authorities.

In a more recent, July 24, 2015 decision, Judge Kaplan threatened sanctions against ZTE’s counsel for interposing objections that appear to be intended to delay or harass the deposition of ZTE’s counsel in what appears to have been subsequent discovery related to the above mentioned brief of the ZTE/Vringo NDA. This order appears to have been issued to support Vringo’s allegations that ZTE’s counsel “had an active role in coordinating pressure tactics by Chinese authorities in response to Vringo’s licensing demands.”   ZTE’s counsel have been ordered by Judge Kaplan to show cause why they should not be sanctioned under F.R.C.P, Rule 11.

The spate of IP-related Chinese licensing and antitrust decisions has also come at a time when the US and Chinese judicial and administrative systems are increasingly interacting, sometimes with a deepening sense of each other’s legal system or the comity that may be afforded to another court, or the different time frames that US and Chinese courts operate under.

The opinions expressed here are the author’s own academic perspectives and should not be taken as a reflection of any opinion of any client or employer, past or present, or a reflection on any market valuation of any stock or equity of any kind. Please email me with any corrections to this or any other posting, or feel free to post your own commentary on this blog.