The Trump Administration and China IP Diplomacy: Old Wine In a New Bottle?

Two major China IP events occurred in late November and December. One of them was the long-awaited first phase of a settlement of the US-China trade war.  The second was the nomination of Wang Binying to replace Francis Gurry as Director-General of the World Intellectual Property Organization, a United Nations body and US reaction.  A common thread of concern over “IP Theft” unites the US perspective on these issues.  This is the first of a two-part blog, focusing first on the Phase One effort.

The First Phase Agreement

Although a final text of the 86 page agreement is reportedly being “scrubbed” by both sides to the negotiations, and will not be available until January, the Office of the US Trade Representative has called Phase One

an historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China’s economic and trade regime in the areas of intellectual property, technology transfer, … The Phase One agreement also…establishes a strong dispute resolution system that ensures prompt and effective implementation and enforcement.

USTR’s fact sheet outlines these accomplishments in IP:

Intellectual Property: The Intellectual Property (IP) chapter addresses numerous longstanding concerns in the areas of trade secrets, pharmaceutical-related intellectual property, geographical indications, trademarks, and enforcement against pirated and counterfeit goods.

Technology Transfer: The Technology Transfer chapter sets out binding and enforceable obligations to address several of the unfair technology transfer practices of China that were identified in USTR’s Section 301 investigation. For the first time in any trade agreement, China has agreed to end its long-standing practice of forcing or pressuring foreign companies to transfer their technology to Chinese companies as a condition for obtaining market access, administrative approvals, or receiving advantages from the government. China also commits to provide transparency, fairness, and due process in administrative proceedings and to have technology transfer and licensing take place on market terms. Separately, China further commits to refrain from directing or supporting outbound investments aimed at acquiring foreign technology pursuant to industrial plans that create distortion.

In light of prior bilateral commitments and accomplishments by the Trump Administration to date, the fact sheet adds little that is new.

Let’s pull the IP paragraph apart:

China has already amended its laws regarding trade secrets and trademarks.  The reference to pharmaceutical-related intellectual property is, however, one welcome encouragement of efforts that were recently proposed in the CCP/State Council Opinionsgulation of November 2019.  These changes were in play before the trade war was launched, but had since been delayed.  This welcome recommitment is well supported by a new national appellate IP court, as well as by a recent decision by the new appellate IP Court combining civil and administrative adjudication in a patent dispute, which may also be a harbinger of a possible combined civil/administrative adjudication with third parties in other areas, such as for patent linkage such as with the China’s food and drug authorities or patent authorities.

USTR refers to the Phase One agreement as addressing “long-standing concerns” about trade secrets and “enforcement against pirated and counterfeit goods.”  One of the “long-standing concerns” in trade secrets involved enhancing administrative enforcement of trade secrets.  This commitment was expressed in the 2012 US-China Strategic and Economic Dialogue and incorporated into plans of the National Leading Group.  Efforts to enhance “enforcement” against pirated and counterfeit goods appear is also redolent of increased administrative enforcement more generally – which downplays the significant changes underway in China’s judicial system, and have been the subject of numerous bilateral commitments under the former Joint Commission on Commerce and Trade.  For unknown reasons, many of the earlier JCCT commitments are no longer easily retrievable online, however, a list of commitments was prepared by GAO for the years 2004-2012, which demonstrates their long history.

Several factors combine to suggest that the US and China may be committing to a renewed focus on administrative enforcement: the role that administrative enforcement has played in the recent CPC-State Council Opinions on IP and other regulations, proposed legislation, and recent campaigns, and the problem of a long trade war without any acknowledged results which is affecting the markets and may drag into a presidential election cycle.  Late-term administrations may also be tempted to condone campaign-style IP enforcement, which can generate impressive enforcement statistics but have limited deterrence or long-term sustainability.    As Prof. Dimitrov has noted, IP campaigns are typically a “rapid resolution of a major problem,” done in response to a crisis or political pressure.  Prof. Mertha, another political scientist, described prior commitments to enforcement campaigns as part of the  “red face test: could the USTR state at a press conference, with a straight face, that the [trade] agreement was a good one.”  After much pain and drama, the Administration may yet be placing old wine in a new bottle, “rounding up the usual” enforcement outcomes —  as it ignores the scholarly literature surrounding campaign-driven outcomes of twenty to thirty years ago.  If these observations on Phase One are correct, then the goal of “structural change” in IP enforcement is illusive.

An administrative campaign focus would also ignore the low hanging fruit of China’s recent improvements and experiments in civil enforcement as well as pushing for further reform in administrative enforcement.  The Phase One Fact Sheet omits such pressing matters as continuing improvements in civil enforcement, long-standing problems with administrative enforcement transparency, promising developments in development of judicial precedent, the experiment of a new national appellate IP court similar to the CAFC,  the recent decline in foreign-related civil enforcement transparency, the dramatic decline in criminal IP enforcement including trade secret enforcement in the last several years, the need for rightsholders to have observable means of monitoring a trade agreement outcome in such areas as forced technology transfer or IP enforcement, or the impact of China’s aggressive antitrust regime on IP protection and commercialization, among other issues.   Enhanced punitive enforcement in enforcement, which both the US and China have also been calling for, may similarly be inconsistent with the primary goal of adequate compensation to victims of infringement. Furthermore, absent adequate procedural and substantive safeguards, this could also result in punishments being handed out to foreigners, as they have in the past.

The focus of an IP regime should instead be on transparency, fairness and adequate compensatory civil damages. Due to the many perceived weaknesses of China’s IP enforcement regime, the 2019 US-China Business Council, for example,  has noted in its 2019 survey that IPR enforcement was rated number 6 among the top 10 business challenges faced by the survey respondents.

The technology transfer language also contains much of the same old wine.  China committed to not conditioning foreign investment on technology transfer long before this trade war when it joined the WTO (2001).  It agreed at that time to provide for the “elimination and cessation of … technology transfer requirements” and that “the terms and conditions of technology transfer, production processes or other proprietary knowledge, particularly in the context of an investment, would only require agreement between the parties to the investment.“  Based on the Phase One fact sheet, it is also hard to see how Phase One agreement will add to the important additional legislative changes on this issue that China enacted earlier this year.

Rather than focus on legislative changes, the nature of the continued subsistence of forced technology transfer (FTT) is probably the more important trade issue at this time.  The 2019 Business Climate Survey of the American Chamber of Commerce in China characterized FTT as an “operational”, rather than a “legal” challenge, and placed technology transfer issues fifth in priority among IP-related concerns, well behind IP enforcement, with only 8 percent of respondents reporting it as the most significant IP issue their company faces.  This also appears to be the perspective of Prof. Prud’homme in his December 2019 presentation to the OECD, which outlines how FTT manifests itself.  Depending on the industrial sector, the Business Climate Survey notes that 41-58% of companies reported no difference in the amount of technology they shared with Chinese companies compared to other markets.  The US-China Business Council survey reached similar conclusions: technology transfer concerns ranked 24 out of 27 top concerns in the market. The Business Council further noted that only 5 percent of survey respondents report being asked to transfer technology in the past three years, yet the issue is an acute concern of affected companies in key sectors.

Has FTT declined as an issue of concern?  Earlier surveys by business chambers, before the trade war, suggested a higher incidence of FTT than is currently being reported.   Scholars and practitioners have also estimated that this issue has been exaggerated by the administration.  US data on sales of technology to China show a continued increase in technology licenses, as well as increases in licenses to unrelated parties, which may suggest greater confidence in the market and legal system.  One may argue about the sufficiency of the data, although the legal reforms and recent changes confirm to me that the principle strategic issue is how to ensure that technology is not lost through extra-legal /“operational” measures.

Another concern is that remedies for FTT  may end up again being another opaque process that may not bring the necessary relief.  As with the continuing emphasis on administrative enforcement of IP, China’s legislative efforts to date suggest that a principal remedy would be administrative remedies, as proposed implementing regulations to China’s Foreign Investment Law already suggest.

Conclusion: Is IP Any Different?

One of the better general overviews of the Phase One agreement had been written by Scott Kennedy for the Center for Strategic and International Studies.  Scott’s article “A Fragile and Costly US-China Trade Peace” notes that  “ [I]n the short-term China and Xi Jinping are the clear winners. With only limited concessions, China has been able to preserve its mercantilist economic system and continue its discriminatory industrial policies at the expense of China’s trading partners and the global economy. “

The fact sheet for Phase One suggests that further dramatic improvements since the notable accomplishments of earlier this year may not be in the offing.  Perhaps these will be negotiated as part of any “Phase Two” deal.  For the moment, there is certainly nothing in these outcomes which sets forth a “structural change” such as might include a shift to a private property oriented approach to IP, including support of a civil system, a more limited role for the administrative system and less state intervention into IP protection, enforcement, and commercialization.  There is also no reference to the greater transparency necessary to enable rightsholders and governments to understand how China’s enforcement mechanisms operate to protect private rights in China’s socialist market economy.

Now, let’s see what the scrubbed text brings…

Upcoming blog: on the nomination of Wang Binying to WIPO Director-General.

Several China IP and Trade Opportunities Open in the DC Area

USPTO just announced on May 6 a position opening as a “Program Specialist” handling Intellectual Property Exchanges with China.  There are two position descriptions.

The positions involve developing and implementing multiple year  training plans (MOUs) with Chinese counterpart agencies; organizing programs for Chinese visitors to the USPTO; working on USPTO materials to be published; developing online resources; developing an on-line presence;  developing training materials; providing empirical sources/information resources for companies and other government agencies; and  working with universities and third parties in developing richer information sources.  The position involves working with the China team s at USPTO’s Office of Policy and International Affairs.

USTR’s IP office also has a “Director” level position open.  The position is not China-specific, but does involve “resolv[ing] IPR and innovation trade problems using all available tools of U.S. trade policy, including the Special 301 process” and “serv[ing] as negotiator for the intellectual property provisions of trade agreements”.  In addition, USTR’s China office has a trade position open that does not  appear to be IP-focused.  If your interest is in China trade and IP, my guess is that both jobs would help job-seekers get a foot in the door of doing China-related trade and IP/innovation policy.

Most federal jobs have short closing dates.  Please read the announcements for the full descriptions and details.

Not to be outdone, the private sector is also looking.  Asia Society also has a new policy position opening involving Asia-wide economies and trade.

In addition, Chinese graduate students in the United States have only a few days left (May 11) to apply for scholarships to the US Foreign Policy Colloquium of the National Committee on US-China Relations.

Policy Trade Analyst at the China Affairs Office of the USTR

From the USAJOBS site:

“The incumbent serves as a Policy Analyst (Trade) in the Office of China Affairs, at the Office of the U.S. Trade Representative.  The incumbent formulates and develops U.S. policy positions on international trade and investment issues, as they relate to China.  The incumbent also initiates the development of trade policy regarding China for consideration by higher level policy makers in the interagency trade policy making process.  The incumbent participates in the planning and formulation of negotiating positions and tactics to be taken by the U.S. government on a variety of trade issues during negotiations.  The incumbent prepares Congressional testimony, briefing materials, summary statements and speeches for the U.S. Trade Representative (USTR), both Deputy USTRs, the Assistant USTRs and other senior executives, as appropriate, on major trade issues.  The incumbent promptly analyzes information to explain and defend the Administration’s trade policies to foreign governments, the public, the press, and the Congress.  Extensive experience in leading negotiations on trade or international economic matters with China is required.  Proficiency in speaking/reading the Mandarin language is strongly desired.  The position requires domestic and foreign travel.”

 

For more information and application, please visit USAJOBS.

USPTO and SAIC Engagement on IP Issues

From Director’s Forum: David Kappos’ Public Blog:

On Sept 10, 2012 the USPTO was privileged to host Minister Zhou Bohua and his senior delegation from the State Administrative for Industry and Commerce of China (SAIC) of the People’s Republic of China. Minister Zhou, visited us for about four hours, as part of a stopover en route to a meeting in Brazil. This was likely the first time that a Minister from SAIC has visited USPTO. Continue reading

Au Revoir (Zaijian) – Nam Ngô Thiên and Welcome (Huanying) – Jared Ragland

I sat down with Nam Ngô Thiên (Chinese name: 吴天南, Wu Tiennan) (picture above) on Sept 15 in Beijing, fortunate to catch him on a recent visit back to Beijing since his August 1 relocation to Singapore. Nam represented both the French Patent Office and the European Patent Office in Beijing since 1999. He was with the European Patent Office working on IPR-1, the first-round European IPR technical assistance program in Beijing from 1999-2003, when I first met him. At that time he was ably assisted by Ms. Teri Dunphy and by Yang Guohua, from the Ministry of Commerce, amongst others.   He  came back to China in 2004 with the French Industrial Property Office (INPI), staying until 2012. Nam is a dear colleague and friend and will be difficult to replace.
There is also one recent diplomatic arrival in China: Jared Ragland, from USPTO, who is posted to a new office in Shanghai. Jared came over from USTR to USPTO.  He also has a solid scientific background that will likely be valuable to the R&D community in Shanghai. The contact information for Jared can be found here.
I wish Nam and Jared the best in their new postings!