As the US Trade Representative’s Section 301 investigation of China’s intellectual property policies continues, it has attracted a significant amount of feedback from the tech sector. In comments submitted before and after a public hearing held this month at the International Trade Commission, companies and industry groups acknowledged progress in China’s IP laws while also describing significant official and unofficial pressure in the realm of tech transfer.
As we suspected, large, blue-chip technology giants kept their distance from the proceedings. This didn’t escape the attention of 301 Committee Chair William Busis, who at one point during the public hearing asked whether Chinese government pressure extended to pressure not to talk about the pressure itself. Some companies that did speak to their particular experiences did so in heavily redacted comments submitted by their external counsel, while others relied on industry coalitions like the US China Business Council and various chambers of commerce to address the issues more generally.
There was some acknowledgement of the major improvement to judicial IP enforcement in China over recent years, especially since the creation of specialised IP courts. Scott Partridge of the American Bar Association observed that US companies are increasingly confident about bringing IP suits in China, adding that success rates for Chinese and foreign plaintiffs have been roughly equivalent. He specifically mentioned the availability of export injunctions in China as a powerful remedy.
But the predominant view appeared to be that where the principle of IP rights comes into conflict with China’s national industrial policies, the latter tends to win out. And witnesses described a range of formal and informal methods used to bring foreign technologies under Chinese ownership.
Erin Ennis of the US China Business Council (USCBC) testified that about a third of companies surveyed report being asked by a government entity or business partner to transfer technology. While that doesn’t necessarily tell us how many companies actually completed a transfer, or whether they were adequately compensated for it, such ‘requests’ can effectively become requirements for doing business in China, says the USCBC, whose members include most major US corporates active in China, including Apple and Qualcomm.
As this blog previewed, China’s Technology Import and Export Regulations (TIER) were a significant flashpoint – they require foreign licensors to indemnify Chinese licensees for infringement risk and give Chinese partners ownership of any improvements to a technology that is part of a joint venture.
The Semiconductor Industry Association (SIA), whose charter members include IBM, Intel and Qualcomm, also drew attention the IP and Anti-Monopoly Law (AML) guidelines currently being drawn up by China’s top competition regulators. SIA noted that previous drafts of the rules undercut patent owners’ fundamental right to exclude competitors, noting that as written, the regulations “Would allow virtually any unilateral refusal to license to be characterised as an abuse of IPR”.
While there were plenty of calls for the USTR to look into various Chinese policies, comparatively few of those who submitted comments called for concrete and unilateral retaliation measures, reflecting the tech industries hesitance for heightened trade tensions. Lee Branstetter, a former staff member of President Obama’s Council of Economic Advisors, called for a new law that would empower the US government to investigate, amend and suspend technology transfers, even where there is no direct military element to them.
Indeed, ideas along these lines seem to have gained some traction with Republicans in congress. The Wall Street Journal reported this morning that Senator John Cornyn of Texas and Congressman Robert Pittenger of North Carolina, will introduce bills in both houses of Congress which significantly broaden the power of Committee on Foreign Investment in the United States (CFIUS) to block tech deals. Currently, CFIUS only reviews deals that would result in a US business coming under foreign control, and can block them only on national security grounds. This legislation would allow CFIUS to examine deals going in both directions – including joint ventures involving American firms in China – and would expand its remit beyond the defense sector.
The report notes that free trade Republicans have yet to be won over to the idea. Silicon Valley companies - who could be prevented from selling even minority stakes to foreign investors under the bill - are not likely to like it either. Looking at both the US and Chinese policy environments, tech deals between the two countries are not likely to get easier anytime soon.