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A public policy blog from AEI
“Tariffs!” President Trump reportedly thundered at his aides earlier this year in the Oval Office. “I want tariffs. And what do they do? They bring me IP. I can’t put a tariff on IP.”
This line forms a near-perfect distillation of the Trumpist economic philosophy, which for the first time in his administration has collided with intellectual property (IP).
The president made no secret during the campaign of his burning desire to impose tariffs on countries believed to be benefiting from unfair international trade practices. So-called fair trade dominated the headlines, as even Trump’s Democratic rivals Bernie Sanders and Hillary Clinton indulged in tariff envy.
Since taking office, the president hasn’t yet pulled the trigger on any specific retaliatory measures, but that doesn’t mean he isn’t aching to try. As my AEI colleague Claude Barfield pointed out last week, Trump recently lamented how “our foolish past leaders have allowed (China) to make hundreds of billions of a year in trade . . . we can no longer allow this to continue.”
And so the administration earlier this month issued an official memorandum directing the United States Trade Representative (USTR) to consider investigating Chinese “laws, policies, practices, or actions that may be unreasonable or discriminatory and that may be harming American intellectual property rights, innovation, or technology development.”
Less than a week later, USTR Robert Lighthizer decided to investigate to determine whether Chinese trade behavior is “unreasonable or discriminatory.” The first public hearing is scheduled for October 10 in Washington.
While Trump supporters cheered the investigation, the Financial Times reported that the memorandum “drew a decidedly halfhearted cheer from Silicon Valley,” noting that many tech companies have already reached an imperfect but stable modus vivendi with China and “are not eager to risk their position on a political fight with a highly unpredictable outcome.”
Other observers have cast doubt on whether the Chinese government itself actually forces US companies to hand over their IP or license it at below-market rates (although whether state-connected forces are behind aggressive negotiating postures by Chinese companies remains an open question).
Of course, it goes without saying that a plague of piracy of copyrighted American content such as movies and software, as well as counterfeiting of trademarked US products, has infected China for several decades.
At the same time, as Chinese manufacturers have gradually moved up the value-added chain, the importance of protecting IP has grown among the PRC’s policymakers, in particular with respect to patents.
According to one study, more than 11,000 patent cases were filed in Chinese courts in 2015 (twice the number filed in the US). Open to IP suits since 2014, Chinese courts generally provide fast, efficient relief for plaintiffs. According to one Chinese report, an average case takes a ludicrous 125 days from filing to verdict.
Chinese patent courts have even enticed non-Chinese companies to sue other foreign companies in Chinese court, as in the Wi-Lan-Sony case highlighted last year by IPWatchdog.
Whether foreign companies receive a fair shake in disputes in China against domestic companies remains uncertain, although The Wall Street Journal reported last year that 81 percent of foreign plaintiffs won their patent lawsuits against Chinese companies.
On balance, we appear to be witnessing the fruition of what many IP practitioners have long expected: As China’s knowledge economy matures, it has placed an increasingly strong emphasis on IP protection, both for its own companies and for foreigners.
However, a thorough and unbiased investigation into Chinese trade practices involving IP is nevertheless welcome, and how the Trump administration conducts the probe will no doubt be interesting indeed.
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