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Why can’t the U.S. and China agree on IP rights?

Intellectual property rights have long been a source of tension between the U.S. and China - but why?

Earlier this month, U.S. President Donald Trump asked his top trade official to investigate China’s alleged systematic theft of intellectual property from companies wanting to do business within its borders.

His request cast a spotlight, once again, on the differences in how intellectual property is envisioned conceptually, protected legally and observed culturally in the U.S. and China.

What’s the problem?

China allegedly extracts intellectual property from U.S. companies three ways: Hacking, spying and requiring companies to form “joint ventures” with local companies, which then have access to sensitive information.

“It is not that easy for a company to go into China and start working there. You need some kind of relationship, and to get that relationship, you have to give something. You have to make it attractive to work with you,” said Senior Counsel, Intellectual Property Thomas Kretschmer, an international patent attorney. “On China’s side, there is a huge appetite for know-how, and this is one way to get it.”

That technique is the focus of Trump’s new inquiry.

Resolving the matter isn’t as simple as the U.S. telling China to stop. Addressing intellectual property is a delicate endeavor. China is the U.S.’ largest trading partner, so the U.S. doesn’t want the relationship to sour. However, China’s alleged intellectual property theft costs as much as US$600 billion per year, according to Trump’s administration, and infuriates U.S. companies that rely on intellectual property protection as a course of business.

Chinese intellectual property

In terms of black-letter law, China’s intellectual property regime doesn’t look significantly different from that of the U.S.

Broadly speaking, China recognizes three types of “industrial property”: Copyright, trademark and patent. Its patent designation is composed of three categories:

  • Design: “Any new design of the shape, the pattern or their combination, or thecombination of the color with shape or pattern, of a product, which creates an aesthetic feeling and is fit for industrial application.
  • Utility model: “Any new technical solution relating to the shape, the structure, or their combination of a product which is fit for practical use.”
  • Invention: “Any technical solution relating to a product, a process or improvement.”

Design and utility model patents last 10 years and invention patents last 20 years from the application date, respectively.

Just because Chinese intellectual property looks superficially similar to its U.S. counterpart, however, does not mean it is observed and enforced comparably.

The western concept of intellectual property is fairly new to China, which only implemented its patent system in 1984.

“The main difference is the historical situation,” Kretschmer said. “In the U.S., the first patent law was 1790. In the Chinese system, it didn’t come until the 1980s. They established their system much, much later.”

The western way of looking at intellectual property struggles to gain traction because it is based on the concept of individual value, whereas Chinese culture more greatly values the common good. In an intellectual property context, this means China is less interested in the benefit of the individual right-holder and more interested in the community-wide good that comes from dissemination. It’s a difference in philosophy that, at best, irks companies and, at worst, causes significant economic harm and brand injury.

“Now that we have globalization, a lot of companies are really upset about the stealing of international property,” Kretschmer said. “It’s a big problem for companies. I’ve heard about car parts that are imitations and are brought to market, they don’t work well, and that creates trade problems, safety problems and a potential reputation problem for the companies.”

What happens next?

Although Trump called the request “a very big move,” imminent action isn’t likely. The preliminary investigation will take U.S. Trade Representative Robert Lighthizer a year. Only after Lighthizer’s inquest will it be determined whether a formal investigation is necessary, and only after such a hypothetical probe would tariffs be assessed.

Although President Trump spoke strongly about bringing China to heel as he was campaigning for the Oval Office, it is doubtful the situation would progress to the point of significant trade punishments. While U.S. companies dislike China’s liberal attitude toward their intellectual property, they want access to the gigantic Chinese consumer market. The Trump administration is also looking to China to help control North Korea, which it may be able to accomplish as one of the country’s few trading partners.

 

 

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