17 AM U. I P B Vol. 11:217 AM.U. INTELL.PROP.BREIF Vol. 11:2 r s WHY TARIFFS AGAINST CHINA ARE INEFFECTIVE FOR INTELLECTUAL PROPERTY PROTECTION Nan Lan * ABSTRACT Alleged intellectual

17 AM. U. INTELL. PROP. BREIF Vol. 11:2 r

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WHY TARIFFS AGAINST CHINA ARE INEFFECTIVE FOR

INTELLECTUAL PROPERTY PROTECTION

Nan Lan *

ABSTRACT Alleged intellectual property theft is what started the “trade war,” but are tariffs truly effective for intellectual property protection? This article explores the question by analyzing the roles of tariffs in the current global economy, and categorically comparing Chinese and American intellectual property laws.

* Nan Lan is a J.D. Candidate anticipated to graduate from SMU Dedman School of Law in

2020. I would like to thank Professors David Taylor and Gregory Crespi at Southern Methodist University and Professor David Macpherson at Trinity University for their help throughout the research and writing process. I would also like to extend my gratitude to my husband for being so supportive and understanding throughout the past three years.


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TABLE OF CONTENTS

ABSTRACT ..............................................................................................................17 TABLE OF CONTENTS .............................................................................................18

INTRODUCTION .......................................................................................................19 I. Background ................................................................................................19

A. Brief Introduction to Section 301 ..................................................19 B. Comparison of the Chinese and American Intellectual Property

Jurisdiction .....................................................................................20 1. Notable International IP Treaties: Brief Overview of the

Paris Convention and TRIPS .............................................20 2. Side-By-Side Comparison of Chinese And U.S. IP Law ...22 3. Administrative and Judicial Resolutions of IP Disputes in

China ..................................................................................25

4. Outlook of the Trade War ..................................................28 II. Why Tariffs are Not Going to Enforce IP Protection ................................28 A. Tariffs Are Hardly Effective, Even for Economic Purposes At

Their Face Value ............................................................................29

B. China’s IP System Has Been Moving in The Right Direction ......31 C. Tariffs Fail to Address Even the Issues Addressed By Special 301

Report; The IP Argument Is Not Compelling ................................32 D. A Categorical Analysis on Why Tariffs Do Not Effectively

Address The Issues In Special 301 Report ....................................34 1. Trademark ..........................................................................34

2. Copyright ...........................................................................36 3. Patents ................................................................................38

i. Case Study—Consumer Electronics ......................38 ii. Case Study—Pharmaceuticals ...............................42

CONCLUSION ...........................................................................................................45


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INTRODUCTION The current “trade war” is a term referring to the series of tariffs imposed

by the United States on China, and the subsequent retaliatory tariffs imposed by China on the U.S. starting from as early as 2016.111 Among the many reasons cited by the White House, a major one is the protection of Intellectual Property; as President Trump addressed in the 2018 State of Union:

America has also finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our Nation’s wealth. The era of economic surrender is over. From now on, we expect trading relationships to be fair and to be reciprocal. We will work to fix bad trade deals and negotiate new ones. And we will protect American workers and American intellectual property, through strong enforcement of our trade rules.112

Two months later, relying on Section 301 of the Trade Act of 1974,113 the administration started to employ numerous tariffs against China across hundreds of goods, targeting over $200 billion worth of Chinese imports.114

While the trade war provides dozens of legal, societal and political topics worth exploring, this comment focuses on why tariffs are inefficient approaches to protect American Intellectual Property. Part I will provide background on U.S. trade laws and tariffs, and a brief comparison of United States and Chinese intellectual property laws. Part II will discuss why tariffs are ineffective not only for economic purposes, but also for intellectual property protection.

I. BACKGROUND A. Brief Introduction to Section 301 Section 301 of the Trade Act of 1974 authorizes the President and the

United States Trade Representative (“USTR”) to “take all appropriate action, including retaliation, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce.”115 Specifically, pursuant to Section 301, the USTR is required to go through the

111 Exec. Order No. 13,876, 82 Fed. Reg. 16,721 (2017).

https://www.federalregister.gov/documents/2017/04/05/2017-06968/omnibus-report-on-significant-trade-deficits.

112 Donald Trump, President of the United States, State of the Union Address, (Jan. 30, 2018), https://www.whitehouse.gov/briefings-statements/president-donald-j-trumps-state-union-address/ (emphasis added).

113 19 U.S.C. § 2411 (2018). 114 Tariff Database, United States International Trade Commission,

https://dataweb.usitc.gov/tariff/database (last visited Jan. 31, 2019); see also Bob Bryan, THE BIG ONE: Trump Slams China with Tariffs on $200 Billion Worth of Goods, Taking the Trade War to the Next Level, BUSINESS INSIDER (Sept. 17, 2018, 6:39 pm), https://www.businessinsider.com/trump-china-trade-war-tariff-chinese-goods-2018-9.

115 19 U.S.C. § 2411(d) (1975).


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process of identifying countries that “(A) deny adequate protection for intellectual property rights (IPR) as provided for under any of a series of bilateral and multilateral agreements; or (B) deny fair and equitable market access for U.S. persons who rely on IPR.”116 This USTR report is aptly known as “Special 301 Report” or “Special 301.”117 Countries identified under Special 301 are subjected to investigation and enforcement proceedings under other parts of Section 301.118

In March 2018, the USTR released findings of the Section 301 Investigation against China.119 The Press Release highlighted the following findings against China:

• China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.

• China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.

• China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.

• China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.120

Over 1,300 categories of Chinese imports were listed for tariffs, totaling to over US$50 Billion worth of Chinese imports.121

B. Comparison of the Chinese and American Intellectual Property Jurisdiction 1. Notable International IP Treaties: Brief Overview of

the Paris Convention and TRIPS It is well established that patent rights are territorial; therefore, there is no

consolidated, uniform, worldwide patent system. In most instances, an inventor must file for patent protection in each individual country he wishes to seek

116 Id. 117 Id.; see also 2018 Special 301 Report, OFFICE OF THE U.S. TRADE REP., OFFICE OF THE

PRESIDENT, https://ustr.gov/sites/default/files/files/Press/Reports/2018%20Special%20301.pdf. 118 19 U.S.C. § 2411(d) (1975); see also Memorandum from the Trade Lawyers Advisory

Group LLC, A Review of TRIPS and TRIMS Enforcement Issues in the People’s Republic of China: Background and Analysis of the Intellectual Property Protection and Enforcement Crisis Facing U.S. Industry (Oct. 2007).

119 OFFICE OF THE U.S. TRADE REP., OFFICE OF THE PRESIDENT, Findings of The Investigation Into China’s Acts, Policies, And Practices Related to Technology Transfer, Intellectual Property, And Innovation Under Section 301 of the Trade Act Of 1974 (2018).

120 Press Release, OFFICE OF THE U.S. TRADE REP., OFFICE OF THE PRESIDENT, USTR Finalizes Tariffs on $200 Billion of Chinese Imports in Response to China’s Unfair Trade Practices (Sept. 18, 2018), https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/september/ustr-finalizes-tariffs-200.

121 Id.


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protection. However, there are a handful of treaties that impact and partially consolidate international patent practices.

These treaties can trace back to more than 200 years ago. In 1883, the Paris Convention was held in an attempt to negotiate conflicts between member nations’ patent laws to ensure comparable treatment.122 China and the United States are both current contracting countries.123 The Paris Convention Treaty’s provisions are commonly broken down to three major categories: national treatment, property right and common rules.124 Notably, many of the legal provisions that are commonly taken for granted were made possibly by the Paris Convention.

First, Articles 2 and 3 of the Treaty provide the national treatment, namely “each Contracting State must grant the same protection to nationals of other Contracting States that it grants to its own nationals.”125 In other words, an American company applying for patent protection in China would be treated the same as if it is domiciled in China. Second, the right of priority in Article 4 provides that contracting countries agree to grant “temporary protection to patentable inventions, utility models, industrial designs, and trademarks, in respect of goods exhibited at official or officially recognized international exhibitions held in the territories of them.”126 One of the notable protections granted by the right of priority is that an inventor usually has 6 to 12 months to decide which Paris Convention member countries they wish to seek protection in, without losing the novelty or their earlier priority date when the invention was first showed to the public.127 Third, a list of common rules were laid down in the Paris Convention, the most notable being patents granted in different countries for the same invention are independent of each other—the most direct impact is, a valid U.S. patent may not be valid in China.128

Another influential, modern international treaty on patent rights is The Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”), which is one of the legal agreements between all World Trade Organization (“WTO”) countries.129 TRIPS provides minimum standards for the regulation by national governments for intellectual property protection, and members are free to elect more protections.130

122 SUMMARY OF THE PARIS CONVENTION FOR THE PROTECTION OF INDUSTRIAL PROPERTY

(1883), WORLD INTELLECTUAL PROPERTY ORGANIZATION, https://www.wipo.int/treaties/en/ip/paris/summary_paris.html (last visited Jan. 31, 2020).

123 WIPO-Administered Treaties, WORLD INTELLECTUAL PROPERTY ORGANIZATION, https://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=2 (last visited Jan. 31, 2020).

124 WORLD INTELLECTUAL PROPERTY ORGANIZATION, supra 122. 125 Paris Convention for the Protection of Industrial Property, as last revised at the Stockholm

Revision Conference, Mar. 20, 1883, 21 U.S.T. 1583, Art. 2-3. 126 Id., Art. 4. 127 WORLD INTELLECTUAL PROPERTY ORGANIZATION, supra 122. 128 Id. 129 Agreement on Trade-Related Aspects of Intellectual Property Rights, Marrakesh

Agreement Establishing the World Trade Organization, Annex 1C, 33 I.L.M. 81 [hereinafter TRIPS] (Apr. 15 1994), http://wto.org/english/docs_e/legal_e/27-trips.pdf.

130 J.H. Reichman, Universal Minimum Standards of Intellectual Property Protection Under the TRIPS Component of the WTO Agreement, 29 INT’L LAW 345 (1995).


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Notably, TRIPS provides that WTO members must grant patents for any invention in all fields of technology without discrimination; but there are discretionary exclusions from patentable subject matter that has been carved out. For example, a member may refuse to grant patents for certain types of inventions, such as “inventions necessary to protect ordre public or morality, including the protection of human, animal or plant life or health, or to avoid serious prejudice to the environment.”131 In Part IV of this comment, the patent protection in pharmaceuticals will be highlighted to contrast the United States patent system with the rest of the world.132

Additionally, TRIPS mandates that member countries must establish civil judicial forums for the enforcement of patent rights; these adjudicatory processes must have authority to issue appropriate injunctions and to award damages.133 This is by far the biggest improvement China has made to its patent system, and one of the major defenses China has against the IP theft allegations from United States. Meanwhile, plenty of legal scholars agree that utilizing these venues, instead of declaring a trade war, is a far more appropriate way to address IP theft concerns.134

On the other hand, in Trademark Law, TRIPS requires China to recognize unregistered well-known marks, and a minimum of a five year window from the registration date during which a foreign owner may request a cancellation of the infringing mark.135 More information about the Chinese trademark law system is introduced below.

2. Side-By-Side Comparison of Chinese And U.S. IP Law After lengthy negotiations, China became a WTO country in 2001 and

adopted TRIPS. Based on World Intellectual Property Organization’s (“WIPO”) statistics, China had the world’s second largest number of international applications filed through the Patent Cooperation Treaty behind only the U.S.136 In the same year, China ranked third in the number of international trademark applications.137

Patents in China are granted by the China National Intellectual Property Administration (“CNIPA”), formerly the State Intellectual Property Office (“SIPO”). There are three categories of patents: invention patents, utility model patents, and design patents, with only the invention patents being substantively examined.138 Citing to various reasons, including a shortage in patent examiners, utility model patents and design patents are only “formally examined;” such patent

131 TRIPS, supra note 129. 132 See infra Part II.E.3.ii. 133 Id. at art. 28. 134 Paul Goldstein, Intellectual Property and China: Is China Stealing America IP?, STAN. L.

SCH. BLOG (Apr. 10, 2018), https://law.stanford.edu/2018/04/10/intellectual-property-china-china-stealing-american-ip/.

135 Stephanie M. Greene, Protecting Well-Known Marks in China: Challenges for Foreign Mark Holders, 45 AM. BUS. L.J. 371, 375 (2008).

136 Peter K. Yu, A Half-Century of Scholarship on the Chinese Intellectual Property System, 67 AM. U.L. REV. 1045, 1047 (citing Who Filed the Most PCT Patent Applications in 2017?, WORLD INTELLECTUAL PROP. ORG. (2018))

137 Id. at 1048. 138 EUROPEAN PATENT OFFICE, FAQ – China, https://www.epo.org/searching-for-

patents/helpful-resources/asian/china/faq.html (last visited Jan. 31, 2020).


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applications are usually only rejected if an examiner finds something “abnormal,” and the threshold to meet the novelty requirement is low.139 As a result, utility model patents and design patents are easier to obtain, but only enjoys 10 years of patent rights.140 In comparison, the United States has only two categories: utility patents and design patents, but both are subject to careful examination in the USPTO, and both have 20 years of validity from the date of filing, unless invalidated.141

In the U.S., registration of trademarks is not a pre-requisite to claim trademark rights, it is merely prima facie evidence to show ownership. Trademarks in China have no commercial use requirement; in other words, in China, trademarks are pure “first-to-file” rights.142 There are four requirements to a trademark in China: it must not violate certain statutory prohibitions, must be distinctive, must not conflict with a previously-filed/registered trademark, and must not be functional or utilitarian.143 Since trademarks need not be used in commerce prior to filing, “trademark-squatting” has become a real issue for a lot of foreign trademark owners in China.144

There are provisions in the Chinese trademark law that allow a “well-known” or “famous” international mark owner to challenge an aforementioned “trademark squatter’s” registration and/or use of the well-known mark. However, the process is time-consuming and expensive, and the only option is to file a cancellation proceeding with the appeal board of the CTMO.145 In fact, President Trump and Michael Jordan are among the “famous” mark owners trying to litigate their way back to their trademarks.146 On the other hand, a lot of foreign business owners file “preliminary” trademark applications in China for businesses that they are not currently running: for example, Ivanka Trump obtained 16 more Chinese trade marks in 2018 despite announcing that she will shut down her brand.147

139 Thomas T. Moga, USPTO China IP Roadshow – Portland, USPTO (Nov. 13, 2018),

https://www.uspto.gov/sites/default/files/documents/11132017_Portland_RoadShow%28TomMoga%29.pdf.

140 See id. at 2. (noting that the life span of design patents might increase to 20 years once China joins the Hague Agreement).

141 2014 Manual of Patent Examining Procedure 2701 (2018); see also 35 U.S.C.A. § 154 (1952).

142 Shangbiao Fa, (中华人民共和国商标法) [hereinafter Trademark Law of China], at 7, 9 (August 30, 2013) (promulgated by the Standing Comm. Nat’l People’s Cong., Aug. 23, 1982, effective Mar. 1, 1983), https://www.wipo.int/edocs/lexdocs/laws/en/cn/cn195en.pdf.

143 Id. at 3-4. 144 Id. at 9. 145 John DiGiacomo, Trademarks in China: Some Similarities, Many Large Differences,

REVISION LEGAL (Dec. 18, 2017), https://revisionlegal.com/trademarks/trademarks-in-china/. 146 Id. See generally Jeremy Venook, The Story Behind Trump’s Chinese Trademark,

ATLANTIC (Feb. 22, 2017), https://www.theatlantic.com/business/archive/2017/02/trump-chinese-trademark/517458/; Merrit Kennedy, Slam Dunk: Michael Jordan Wins Trademark Dispute in China, NPR (Dec. 8, 2016, 5:08 pm), https://www.npr.org/sections/thetwo-way/2016/12/08/504851153/slam-dunk-michael-jordan-wins-trademark-dispute-in-china; Steven Jiang et al., China Grants 16 Trademarks to Defunct Ivanka Trump Business, CNN (Nov. 6, 2018, 9:07 PM).

147 Steven Jiang et al., China Grants 16 Trademarks to Defunct Ivanka Trump Business, CNN (Nov. 6, 2018), https://www.cnn.com/2018/11/06/politics/ivanka-trump-trademarks/index.html.


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It is also worth noting that U.S. Trademark Law restricts trademarks using “name, portrait, or signature identifying a particular living individual” or head of State, as well as trademarks that are geographically descriptive or geographically deceptively misdescriptive, while the Trademark Law of China has no such restrictions.148

TRIPS mandate that in member countries, creators of contents are granted “automatic” rights.149 Copyright in China lasts for the author’s life plus fifty years.150 Similar to their U.S. equivalents, Copyright Law of the PRC and Implementing Rules for the Copyright Law of the PRC do not require a copyright owner to register their works, but registration will greatly facilitate ownership disputes and infringement disputes.151 The Chinese copyright law states that it aims to protect copyright for the purpose of “building . . . a socialist society that is advanced ethically and materially, and promoting the progress and flourishing of socialist culture and sciences.”152 In her article, Rosen points out that the overall purpose of Chinese copyright law is to advance a particular governmental agenda, unlike U.S. copyright law which stems from the U.S. Constitution’s clause to promote invention and expression.153

China’s copyright laws have been widely criticized; one of the major reasons is that, culturally, many Chinese people do not believe that copying is wrong.154 As a result, China’s Copyright Law was heavily influenced by foreign pressure, and foreign authors actually receive greater protection than Chinese citizens.155 Another widely criticized facet of the China Copyright Law is the lack of strict enforcement of copyright protection; China does not criminalize copyright infringement conducted “without the intent of gaining profit.”156 Instead the Criminal Law provides for penalties in cases where the infringer “reproduce or distribute 500 or more unauthorized copies or derive profits in excess of 50,000 yuan.”157 Meanwhile, in the U.S., the threshold for criminal punishments on infringers are much lower; the No Electronic Theft Act provides that “any person who infringes a copyright willfully either (1) for purposes of commercial advantage or private financial gain, or (2) by the reproduction or distribution, including by electronic means, during any 180-day period, of 1 or more copies or phonorecords

148 Patricia Marquez, Trademark: A Comparative Look at China and the United States, 14

TOURO INT’L L. REV. 334, 339 (2011). 149 TRIPS, supra note 18, art. 9. 150 Trademark Law of China, supra note 142, art. 22(1)-(12), 23,. 151 Id.; China: Copyright Law of the People’s Republic of China, WORLD INTELLECTUAL

PROPERTY ORGANIZATION [hereinafter Copyright Law of China], http://www.wipo.int/wipolex/en/text.jsp?file_id=186569 (last updated Feb. 26, 2010).

152 Amy Rosen, China v. United States: A Cosmopolitan Copyright Comparison, 15 PITT. J. TECH. L. & POL’Y, 1, 7 (2014) (internal citation omitted).

153 Id. at 9. 154 Daniel Dimov, Differences in Copyright Enforcement Between the U.S. and China,

INFOSEC INSTITUTE (Dec. 17, 2012), https://resources.infosecinstitute.com/copyright-enforcement-the-u-s-and-china/#gref.

155 Rosen, supra note 152 (citing Robert S. Rogoyski et al., The Bloody Case that Started from a Parody: American Intellectual Property and the Pursuit of Democratic Ideals in Modern China, 16 UCLA ENT. L. REV. 237, 250 (2009)).

156 Dimov, supra note 154. 157 Rosen, supra note 152.


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of 1 or more copyrighted works, which have a total retail value of more than $1,000.”158

3. Administrative and Judicial Resolutions of IP Disputes in China

In China, Intellectual Property disputes are commonly resolved in two different systems: the administrative system or the judicial system.159

The administrative agencies overseeing patents, copyrights and trademarks are the National Intellectual Property Administration (“CNIPA,” also known as the Chinese Patent Office, or formerly SIPO),160 the National Copyright Administration (“NCA”),161 and the Trademark Office within the State Administration for Industry and Commerce of the People’s Republic of China (“SAIC”),162 respectively. One fundamental difference between Chinese and American jurisprudence should be noted: the Chinese government has wider discretion and more rights than its United States equivalent when it comes to enforcing administrative proceedings; in fact, it can impose fines, confiscate infringing products and illicit income, and destroy the infringing products.163

Section 60 of the Chinese Patent Law provides:

Where a dispute arises as a result of the exploitation of a patent without the authorization of the patentee, it shall be settled through consultation by the parties. Where the parties are not willing to consult with each other or where the consultation fails, the patentee or any interested party may institute legal proceedings in the people’s court, or request the administrative authority for patent affairs to handle the matter. When the authority handling the matter considers that infringement is established, it may order the infringer to stop the infringing act immediately. If the infringer is not satisfied with the order, he may . . . institute legal proceedings in the people’s court in accordance with the Administrative Procedure Law of the People’s Republic of China. If . . . such proceedings are not instituted and the order is not complied with, the administrative authority may approach the people’s court for compulsory execution. The authority handling the matter may, upon the request of the parties, mediate in the amount of compensation for the damage caused by the infringement of the patent right. If the

158 17 U.S.C.S. § 506 (1976). 159 Marquez, supra note 148. 160 NAT’L. INTELL. PROP. ADMIN., PRC (“CNIPA”), About CNIPA, http://english.sipo.gov.cn/

(last visited Jan. 31, 2020). 161 STATE ADMIN. FOR INDUSTRY & COMMERCE OF THE PEOPLE’S REPUBLIC OF CHINA, About

Us, http://home.saic.gov.cn/english/index.html (last visited Jan. 31, 2020). 162 NAT’L COPYRIGHT ADMIN. OF THE PEOPLE’S REPUBLIC OF CHINA, About Us,

http://en.ncac.gov.cn/ (last visited Jan. 31, 2020). 163 Dimov, supra note 154.


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mediation fails, the parties may institute legal proceedings in the people’s court . . . .164

Therefore, when a patent dispute arises in China, arbitration and administrative resolutions are almost inescapable. Meanwhile, the local authorities are known for responding to the filings quickly (usually within a day), and efficiently (sometimes requesting police interference).165 A practitioner concluded that the administrative route of patent enforcement is “cheap, quick, and simple,” especially when a patentee is only looking to injunctions.166 However, very few American patentees take this route—in 2009, 895 infringement dispute cases were received by local authorities, but only 9 of such cases were instigated by U.S. patentees.167 In 2016, the administrative authorities instituted 20,351 cases—a drastic increase from 2009—but only 800 of which were filed by foreign patent owners.168

Additionally, similar to the U.S. patent system, anybody can initiate an invalidation proceeding with the Patent Reexamination Board within SIPO.169 Once a patent is deemed invalid, the result is subject to a two-instance judicial review.170 Civil courts may dismiss an infringement case once the patent involved is declared invalid, even before the judicial review has been completed, yet the patentee is not barred from filing a new infringement suit if the invalidation does not survive the judicial review.171

For administrative trademark protection, the SAIC, which oversees the China Trademark office (“CTMO”), has broad discretion once it decides enforcement is warranted: it may order injunctions of selling and manufacturing the infringing products, impose fines, and confiscate any machines used to manufacture counterfeit goods.172 Within the SAIC there is also a separate department that oversees counterfeit goods, called the Consumer Protection Bureau.173 It claims to “investigate and punish . . . irregularities such as counterfeiting, faking, and inferior goods.”174

164 Zhuanli Fa, (中华人民共和国专利法) (promulgated by the Standing Comm. Nat’l

People’s Cong., Mar. 12, 1984, effective Jul. 1, 1985) section 60 [hereinafter Patent Law of China], https://www.wipo.int/edocs/lexdocs/laws/en/cn/cn028en.pdf. For a high-level summary, see Shengping Yang, Patent Enforcement in China, 4 LANDSLIDE 2 (2011).

165 Shengping Yang, Patent Enforcement in China, 4 Landslide 2 (2011), https://www.americanbar.org/content/dam/aba/publications/landslide/landslide_november_2011/yang_landslide_novedec_2011.authcheckdam.pdf.

166 Id. 167 Id. 168 SIPO, Annual Report (2017), http://english.sipo.gov.cn/laws/annualreports/ (last visited

Jan. 31, 2019). 169 Dr. Roy Schestowitz, China’s Equivalent of PTAB and BoA, the Patent Reexamination

Board (PRB), Can Confirm Some Chinese Patents are of Low Quality, TECHRIGHTS (Mar. 24, 2018), http://techrights.org/2018/03/24/prb-at-sipo/.

170 Id. 171 Id. 172 Marquez, supra note 148. 173 Id. 174 Marquez, supra note 148.


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The majority of copyright cases in China are resolved in an administrative way, and less than 5% each year are transferred to judicial authorities.175

On the judicial side, there are four levels of courts in the Chinese judiciary system: basic courts, intermediate courts, high courts and the People’s Supreme Court.176 In most areas, the basic courts are the first-instance courts of intellectual property disputes, with the exception of areas where there are intellectual property courts (“IP courts”). In 2014, China instated three IP Courts as part of its patent reform, respectively in Beijing, Shanghai, and Guangzhou. These IP Courts are first-instance courts, but the appeals to decisions in IP Courts are heard in the High Court within the province; therefore, the IP Courts have the equivocal status of an intermediate court in China.177 Contrary to popular belief, in Chinese IP courts, foreign plaintiffs in patent infringement cases have higher win rates, higher injunction rates, and higher average damages than Chinese plaintiffs.178 Although a lot of scholars and attorneys criticize the amount of damages awarded are frequently “frustratingly low,”179 after President Xi proclaimed that “China must step up efforts to punish illegal infringement of intellectual property rights and force infringers to pay a heavy price,” a pending amendment to the Patent Law proposes to increase the statutory damages from the current ￥10,000 – ￥1 Million RMB (approximately $1,500 – $150,000 USD) window to ￥100,000 – ￥5 Million RMB (approximately $15,000—$746,000 USD).180 Additionally, studies revealed that plaintiffs win 80.16% of all patent infringement cases, higher than the U.S.181 (approximately 60%).182 Permanent injunctions are automatically granted in most cases—93.76%, to be exact—upon a finding of infringement.183

Starting in January 1, 2019, an appellate IP tribunal, as a part of the Supreme People’s Court of China, will open its doors.184 It is expected to hear only appeals regarding patent and other technology-related cases, while trademark and copyright related appeals will continue to be heard in intermediate courts, specialized IP courts or high courts within different provinces.185

175 Dimov, supra note 154. 176 See generally Nongji Zhang, People’s Republic of China Legal Research, HARV. L. SCH.

LIBR. (last updated Dec. 2, 2019), https://guides.library.harvard.edu/ChineseLegalResearch. 177 REINHOLD COHN LLP, CHINA’S NEW INTELLECTUAL PROPERTY COURTS (Mar. 5, 2015),

https://www.rcip.co.il/en/article/chinas-new-intellectual-property-courts/. 178 Renjian Bian, How Foreign Patentees Fared in Patent Litigation in China, PATENTLYO

(Feb. 6, 2018), https://patentlyo.com/patent/2018/02/things-infringement-litigation.html; see also Renjun Bian, Many Things You Know about Patent Infringement Litigation in China Are Wrong (October 1, 2017), https://ssrn.com/abstract=3063566.

179 Renjian Bian, How Foreign Patentees Fared in Patent Litigation in China, PATENTLYO (Feb. 6, 2018), https://patentlyo.com/patent/2018/02/things-infringement-litigation.html.

180 William Weightman, China’s Progress on Intellectual Property Rights (Yes, Really), DIPLOMAT (Jan. 20, 2018), https://thediplomat.com/2018/01/chinas-progress-on-intellectual-property-rights-yes-really/.

181 Id. 182 Id. 183 Id. 184 Hui Zhang, Junkun Zheng & James Yang, China to Establish a National IP Appellate

Court, KLUWER PATENT BLOG (Dec. 21, 2018), http://patentblog.kluweriplaw.com/2018/12/21/china-is-to-establish-a-national-ip-appellate-court/.

185 Id.


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1. Outlook of the Trade War With a new round of negotiations between U.S. and China on the horizon,

and a new cycle of U.S. presidential election springing into action, there are a lot of uncertainty regarding the outlooks of the trade war.

A number of scholars agreed that China has already improved a lot on its intellectual property laws and policies, but these systematic changes cannot be implemented over night.186 Some also believe that the “trade war” is, in reality, a “tech war,” and the trade war would only “escalate the decoupling of Chinese and United States tech sectors,” leading to China “developing its own Silicon Valley.”187 However, if Beijing is continually being criticized for local protectionism,188 a trade war that compels China to isolate itself further from global collaboration obviously only exaggerates the problem.

II. WHY TARIFFS ARE NOT GOING TO ENFORCE IP PROTECTION

Although the tariffs aim at protecting intellectual property, they are likely ineffective, not only on intellectual property protection grounds, but also just as a macroeconomic tool in itself. Tariffs are first-and-foremostly ineffective as there are multiple ways for Chinese business owners to get around tariffs, such as smuggling, going through a third country, or go through a number of distributors and importers to avoid paying higher amounts of tax.189 Worse yet, the Chinese government can—and did—retaliate with more tariffs.190

Second, China has responded that it is working on improving the intellectual property Law System prior to the trade war; the tariffs not only ignore such improvements, but also failed to account for the value of reverse trade deficits from Intellectual Property Licensing.191

186 Kenneth Rapoza, China Trade War Update: Does Anybody Know What’s Going On?,

FORBES (Mar. 10, 2019, 5:35 PM), https://www.forbes.com/sites/kenrapoza/2019/03/10/china-trade-war-update-does-anybody-know-whats-going-on/.

187 Id. 188 William Mauldin, U.S. Commerce Secretary Slams Beijing for Protectionist Actions Under

Free-Trade Rhetoric, WALL STREET J. (Jan. 24, 2018, 12:14 PM), https://www.wsj.com/articles/u-s-commerce-secretary-slams-beijing-for-protectionist-actions-under-free-trade-rhetoric-1516814099.

189 Milton Eztrati, Trade War from the Chinese Side, WALL STREET J. (Oct. 3, 2018, 3:54 PM), https://www.forbes.com/sites/miltonezrati/2018/10/03/trade-war-from-the-chinese-side/; see also U.S. Int’l Trade Comm’n, Use of the ‘First Sale Rule’ for Customs Valuations of U.S. Imports, USITC PUBL’N 4121, https://www.usitc.gov/publications/332/pub4121.pdf.

190 Karishma Vaswami, How China is Fighting Back in the Trade War, BBC (Sept. 24, 2018), https://www.bbc.com/news/business-45622815; see also Bloomberg, China’s Retaliatory Tariffs: A Roundup of Effects on U.S. Commodities, FORTUNE (Aug. 4, 2018), http://fortune.com/2018/08/04/list-of-china-tariffs-on-us/.

191 Brad W. Setser, The Right And The Wrong Ways to Adjust the US-China Trade Balance, COUNCIL ON FOREIGN RELATIONS BLOG POST (Jun. 25, 2018), https://www.cfr.org/blog/right-and-wrong-ways-adjust-us-china-trade-balance; see also Yu Yongding, Why US Accusations of IP Theft by China Don’t Add Up, SOUTH CHINA MORNING POST (Jun. 29, 2018, 2:03 AM), https://www.scmp.com/comment/insight-opinion/united-states/article/2152860/why-us-accusations-ip-theft-china-dont-add.


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Lastly, there are more effective venues that protect American Intellectual Property overseas, but they were often ignored by the current government. Intellectual Property appropriation nowadays is far more discrete and often achieved through contract negotiations; therefore, enforcing American intellectual property Rights in Chinese courts, or undergoing the WTO’s Trade-Related Aspects of Intellectual Property Rights Process, are better resolutions than tariffs. As Goldstein—a leading patent law scholar—concludes, “addressing these [intellectual property] appropriations with trade sanctions is like performing microsurgery with a sledge hammer.”192

A. Tariffs Are Hardly Effective, Even for Economic Purposes At Their Face Value

Outside of intellectual property protection, one of the biggest reasons President Trump cited for tariffs is to offset the trade deficit. Trade deficit is the difference between the value of goods and services exported and the value imported; numerous economists have pointed out that the mere existence of a trade deficit is not an indicator of an economy’s health. For example, as one scholar explains, “a trade surplus caused by a country’s inability to pay for imports is a bad thing. A trade deficit caused by the high demand for globally diverse products and services can be a healthy thing.”193 Plenty of data support the neutrality of trade deficit, and notably: (1) the current trade deficit as a percentage of the economy has not changed significantly in almost a decade; (2) the last time the U.S. had a trade surplus was to fund the Marshall Plan in Europe after World War II.194

Globalization of supply chain enables a large amount of U.S. companies to move their production processes overseas to take advantage of cheaper labor.195 The driving force behind the current trade deficit, as some economist argued, are two-fold: manufacturing of goods is overseas due to cheap labor, and buying goods is a staple of American consumerism and a major driving force of American economics. Neither of these factors, especially the first, would be impacted by the tariffs. Indeed, as the tariffs pile on, plenty of manufacturers are seeking to transfer their production outside of China to other Southeast Asian countries. Forcing manufacturers out of China does not compel them to move back to the U.S., because labor is still far cheaper in a wide array of third-world countries, such as Thailand, Vietnam, and Philippines.196

192 Goldstein, supra note 134 193 DavId.Bahnsen, Taking the Understanding Deficit Out of Trade Deficits, FORBES (Apr. 18,

2018, 05:51 PM), https://www.forbes.com/sites/davidbahnsen1/2018/04/18/taking-the-understanding-deficit-out-of-trade-deficits/#4d1727e68d6b.

194 Id. 195 See generally Roger L. Martin, Why the U.S. Trade Deficit Can Be a Sign of a Healthy

Economy, HARV. BUS. REV. (July 27, 2018), https://hbr.org/2018/07/why-the-u-s-trade-deficit-can-be-a-sign-of-a-healthy-economy. Ironically, one common way to outsource is licensing intellectual property rights to an Original Equipment Manufacturer (“OEM”) to produce products that embody the IP owner’s patents or bear the IP owner’s trademarks.

196 Michelle Toh, The Trade War Is Pushing Business Out of China, But Not into America, CNN (Nov. 16, 2018, 3:31 AM), https://www.cnn.com/2018/11/16/business/trade-war-us-tariffs/index.html.


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This economic fiasco would not be called a “trade war” if it was just one party posing tariffs on the other. China, eager for its voice to be heard on the global stage, immediately retaliated with tariffs.197 Obviously, retaliating tariffs will only decrease the amount of U.S. exports into China, thus expanding the trade deficit. The trade war—which is essentially “the trade dispute between the world’s largest economy and the world’s second-largest economy”—has started to impact not only U.S. and Chinese economy, but also global economy negatively.198 Going forward, the trade war would neither help close the gap in trade deficit nor boost American economy.

Additionally, increasing tariffs drastically to retaliate or press a fellow WTO member country is against the purpose of WTO. The fundamental agreement to WTO, the General Agreement on Trade in Services (“GATS”), is a result of the Uruguay Round negotiations during 1986 – 1994.199 All members of the WTO are signatories to the GATS and have to assume the resulting obligations, regardless of their countries’ policy stances.200 The WTO cites the basic purpose of the GATS is “to contribute to trade expansion under conditions of transparency and progressive liberalization and as a means of promoting the economic growth of all trading partners and the development of developing countries.”201 As demonstrated above, a trade war consists of tariffs between the world’s largest economies is quite the opposite of the goal of GATS. Similarly, the General Agreement on Tariffs and Trade (“GATT”), which was signed in 1947, still remains effective as part of the WTO framework.202 While GATS mainly focuses on the service sector, it runs parallel with the General Agreement on Tariffs and Trade (“GATT”) for merchandise. 203

A majority of GATS—totaling at 22,500 pages—are member countries’ commitments on their tariff rates.204 Developed countries are typically bound to more tariff cuts than developing countries.205 Meanwhile, Article 21 of GATT provides that member nations may break their tariffs restrictions if done so in the defense of national security.206 Additionally, President Trump cited Section 232 of

197 INT’L TRADE ADMIN., CURRENT FOREIGN RETALIATORY ACTIONS (2018),

https://www.trade.gov/mas/ian/tradedisputes-enforcement/retaliations/tg_ian_002094.asp (last visited Jan. 31, 2019).

198 Ben White, Trump Can’t Have His Tariffs and Stock Market Too, POLITICO (Dec. 19, 2018), https://www.politico.com/story/2018/12/19/trump-stock-market-tariffs-1038383.

199 WORLD TRADE ORGANIZATION, Introduction – GATS Training, https://www.wto.org/english/tratop_e/serv_e/cbt_course_e/intro1_e.htm (last visited Jan. 31, 2019).

200 Id. 201 General Agreement on Trade in Services [hereinafter GATS], Apr. 15, 1994, Marrakesh

Agreement Establishing the World Trade Organization, Annex 1B, 1869 U.N.T.S. 183, 33 I.L.M. 1167, article 1.2 (1994). https://www.wto.org/english/tratop_e/serv_e/cbt_course_e/c1s2p1_e.htm.

202 WORLD TRADE ORGANIZATION, General Agreements on Tariffs and Trades 1994, https://www.wto.org/english/docs_e/legal_e/06-gatt_e.htm (last visited Mar. 1, 2020). [hereinafter GATT].

203 See generally Id. 204 WORLD TRADE ORGANIZATION, Understanding the WTO: The Agreements,

https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm2_e.htm (last visited Jan.31, 2019). 205 Id. 206 GATS, supra note 201, art 21.


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the Trade Expansion Act as a basis for the new tariffs.207 To be more specific, the Act provides legal basis for “protectionist” trade measures if the goods or trade practices in question threaten United States security.208 However, both Article 21 of GATT and Section 232 are seldom invoked.209 Legal scholars have been criticizing two facets of this statutory basis: first, whether there is actually a threat to national security; second, when the United States trade partners impose retaliating tariffs citing Article 21, it might lead to the United States quitting WTO, or create a “crisis in the WTO.”210 The tariffs are not only economically unfruitful, but also may trigger a series of catastrophic chain reactions in both international politics and international trade.

C. China’s IP System Has Been Moving in The Right Direction On the other hand, China has responded that it is working on improving its

intellectual property Law System.211 The implementation of patent trial courts around the country, for one, arguably puts China ahead of a lot of jurisdictions. For example, in the U.S., the only dedicated intellectual property tribunal is the Federal Circuit. The Outline of the Judicial Protection of Intellectual Property in China (2016-2020) published by the Supreme People’s Court points out that China has taken significant steps to eliminate local judicial protectionism and ensure adequate adjudication process in intellectual property cases.212

A lot of intellectual property attorneys have warned against the risks of litigation in China due to its difference from the U.S. judicial system; one of the most prominent differences is the lack of a formal discovery process.213 However, in 2015, the Supreme People’s Court produced a new interpretation of the Chinese Civil Procedure Law, which provides that one party may request that the court order the opposing party to produce specific documentary evidence under the other party’s control.214 As mentioned above, an amendment of the Patent Law is also proposing to drastically increase the amount of statutory damages awarded to patentees.215 Lastly, the high win rates and even higher injunction rates for foreign

207 19 U.S.C. § 1862 (1962). 208 Id.; see also Rachel Ansley, Are Trumps Tariffs Aimed at the WTO?, ATLANTIC COUNCIL

(Mar. 6, 2018), https://www.atlanticcouncil.org/blogs/new-atlanticist/are-trump-s-tariffs-aimed-at-the-wto.

209 Rachel Ansley, Are Trumps Tariffs Aimed at the WTO?, ATLANTIC COUNCIL (Mar. 6, 2018), https://www.atlanticcouncil.org/blogs/new-atlanticist/are-trump-s-tariffs-aimed-at-the-wto.

210 Id. 211 CNIPA, WHITE PAPER RESPONDS TO U.S. ALLEGATION OF WEAK IP PROTECTION IN

CHINA, http://english.sipo.gov.cn/news/officialinformation/1132635.htm. 212 Weightman, supra note 180. 213 Id.; see also Yang, supra note 165; Jason Ma, Patent Litigation in China from a

Comparative Perspective, 10 U. PA. E. ASIA. L. REV. 66 (2014), https://scholarship.law.upenn.edu/ealr/vol10/iss2/6; Tom Rozylowicz et al., Patent Law Developments in the United States and China, Fish & Richardson P.C., https://www.fr.com/wp-content/uploads/2016/09/IP-Perspectives-Patent-Law-Developments-CLE-REMOVED-9.20-2016.pdf.

214 Paul Keller et al., New Options for getting Evidence into Chinese Courts, LAW 360 (Feb. 2016), http://www.nortonrosefulbright.com/knowledge/publications/137423/new-options-for-getting-evidence-into-chinese-courts.

215 Weightman, supra note 180.


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patent owners litigating in China rebuts the notation that there is an inherent bias against foreign patent owners in China.216 The under-utilization of the administrative and judicial resolutions by foreign patent owners is likely the major reason behind the frequently-complained lack of enforcement in China.

D. Tariffs Fail to Address Even the Issues Addressed By Special 301 Report; The IP Argument Is Not Compelling

As introduced above, USTR’s Special 301 report called out the following appropriations in China:

• China uses joint venture requirements, foreign investment

restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.

• China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.

• China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.

• China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.217

A majority of these accusations are very difficult to quantize or set a bright-line rule for. Every transaction has “consideration” as a major component: what one party is willing to pay in exchange for some benefits. While China uses means such as “joint venture requirements, foreign investment restrictions, administrative review and licensing processes to require or pressure technology transfer from U.S. companies,” the Chinese parties are merely bargaining to get more out of the same transaction. U.S. Companies are not without options: they can choose to accept the additional conditions and enter the Chinese market, or simply walk away. Some may argue the latter option of walking away from the world’s second biggest economy is not viable for an international company, but that is because a lot of companies cannot afford to lose a market of the size of China, not because the Chinese government is compelling a U.S. company to enter the deal. In other words, the U.S. companies willingly transfer some of their intellectual property in exchange for the entrance ticket to the Chinese market, such as distribution and marketing channels provided by the Chinese side of the transaction. While some criticize this is a form of protectionism, economic protectionism is very different from judicial protectionism—the former is legal and common practice, just like the Capital Hill gift shop that “only carries products made in the U.S.A.;” not to mention that President Trump’s government centered their entire economic policy around protectionism.218 A similar argument could be applied on the “compelled licensing” accusations in the report.

216 Bian, supra note 178. 217 Office of the U.S. Trade Rep., supra note 120. 218 Robert Z. Lawrence et al., Why Protectionism Doesn’t Pay, HARV. BUS. REV. (May 1987),

https://hbr.org/1987/05/why-protectionism-doesnt-pay.


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Indeed, if a U.S. company finds the price of intellectual property transfer too high, they can simply back out of the transaction – and some do. In a survey conducted by the US-China business council, 19% of participants said they have been directly asked to transfer technology to China, among which, only 10% responded that the technology transfer is unacceptable, but “we had to comply to do business,” 50% responded “it was unacceptable and we mitigated the request, but we still had to transfer some tech,” and 30% responded “it was acceptable and we transferred the tech.”219 The last 10%, who found the request truly unreasonable, withdrew from the transaction.220 In other words, less than 2% of members within the US-China business council who participated in the survey chose protecting their intellectual property over a chance to enter the Chinese market. If anything, the survey shows that forced technology transfer is much less common that what is commonly precepted, and most of the time it is simply a part of the bargaining process prior to entering a contract. A leading scholar in economics and policy privacy, Branstetter, suggested that instead of indiscriminate tariffs, carefully targeted sanctions on the Chinese entities are much more direct ways to address the forced technology transfer problem.221 Multilateral policy tools, such as exercising export controls with the Bureau of Industry and Security, filing Section 337 cases (instead of Section 310) under the 1930 Tariff Act in front of the United States International Trade Commission, and strengthening United States technological leadership in key domains, are also suggested as complimentary tools to the proposed sanctions.222

The Special 301 Report also criticized China’s Cybersecurity Law, that it may “require the IP rights be owned in China, that associated research and development be conducted in China, or both,” and the such requirements “may . . . force U.S. right holders to choose between protecting their IP against unwarranted disclosure . . .” There are several fallacies of this criticism. First, as discussed above, intellectual property rights are territorial and not international, and only “intellectual property rights owned in China” are enforceable in China. For example, asking Apple’s Chinese subsidiary to apply for Chinese patents makes Chinese patent protection available to Apple, both administratively and judicially; as demonstrated above, these are effective yet under-utilized avenues for foreign patent owners to defend their intellectual property rights. Second, the quid pro quo nature of intellectual property means most intellectual property is made available to the public by government entities. In other words, there is no “unwarranted disclosure” of patents – a U.S. patent or copyrighted material is made available to the public and easily accessible on the Internet. Some may argue that U.S. companies will be forced to disclose trade secret as well, but it is not a common intellectual property right, especially in the high-tech areas that the U.S. government and U.S. manufacturers are most nervous about. Additionally, there

219 US-China Business Council,2017 USCBC Member Survey,

https://www.uschina.org/sites/default/files/2017_uscbc_member_survey_1.pdf. 220 Id. 221 Lee G. Branstetter, China’s Forced Transfer Problem – And What to Do About It,

PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS POLICY BRIEF (June 2018), https://piie.com/system/files/documents/pb18-13.pdf.

222 Id.


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are other ways to fence around trade secret; for example, Coca-Cola has been operating their factory through a joint venture in China since 1988, and the famous coke recipe, the most famous trade secret in the world, is still protected.223

Branstetter concludes that tariffs “would be a cure worse than the disease they are meant to remedy.”224 Similarly, Goldstein points out that addressing these discrete appropriations with trade sanctions “is like performing microsurgery with a sledgehammer.”225 To more efficiently solve these local protectionism issues, according to Goldstein, is to utilize WTO’s far better dispute resolution channels, as well as other trade alternatives such as bilateral investment treaties. 226

E. A Categorical Analysis on Why Tariffs Do Not Effectively Address The Issues In Special 301 Report

In the following section, the three main categories of intellectual property—Trademarks, Copyrights and Patents—will be analyzed individually to demonstrate that the tariffs will not achieve the goals of protecting each of the intellectual property rights.

1. Trademark As discussed above, China, like a lot of civil law countries, grants

trademarks on a first-to-file basis.227 Even celebrities in the U.S. have spent years fighting to reclaim the trademarks bearing their names in China. 228

Without an intention to downplay the harm to the global economy of counterfeit goods, this section aims to point out that the Special 301’s accusation of counterfeiting from Chinese manufacturers are exaggerated.

The Special 301 Report cited the U.S. Customs Office and claimed that “Together with Hong Kong, through which Chinese merchandise often transships, China accounted for 78 percent of the value (measured by manufacturer’s suggested retail price (“MSRP”)) and 87 percent of the seizures by CBP in 2017 . . . counterfeits may account for over 12 percent of Chinese merchandise reports.”229

There are multiple ways to calculate the value of counterfeit goods, but measuring by the MSRP is one of the most illogical ones. To put it simply, if a counterfeit luxury purse has the same value as a genuine one—i.e. a consumer is willing to pay as much as he or she would for a genuine one—the counterfeit market would cease to exist. In a 2010 report, the government’s General Accountability Office (“GAO”) has called out the Customs and Border Protection Service (“CBP”) and Federal Bureau of Investigation (“FBI”) for providing data that “cannot be

223 Scott Cendrowski, Opening Happiness: An Oral History of Coca-Cola in China, FORTUNE

(Sept. 12, 2014), http://fortune.com/2014/09/11/opening-happiness-an-oral-history-of-coca-cola-in-china/.

224 Branstetter, supra note 221. 225 Brink Editorial Staff, How Much American IP is China “Stealing”?, BRINK NEWS (Apr.

25, 2018), http://www.brinknews.com/how-much-american-ip-is-china-stealing/; see also Goldstein, supra note 134.

226 Id. 227 Trademark Law of China, supra note 142. 228 Venook, supra note 146. 229 OFFICE OF THE U.S. TRADE REP., supra note 119, at 40.


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substantiated.”230 The same report pointed out that two variables are crucial to the estimation of economic losses due to counterfeit goods: substitution rate and value of fake goods.231 Substitution rate is “the assumed rate at which a consumer is willing to switch from purchasing a fake good to the genuine product,” and the value can be determine by balancing the production cost, the domestic value, or the MSRP.232 Economists have called out that a one-to-one substitution rate is not likely when counterfeit goods are significantly cheaper than the legitimate goods.233 Some economists even argue that there may not be any losses associated with counterfeiting: if the consumers who buy fakes are a market segment that purchase counterfeit because of their inability to afford the genuine product, consequentially buyers in that segment do not really represent lost sales.234 The GAO 2010 Report supports this view, at least partially, by noting that the extent of deception among consumers of audiovisual products is likely lower because the sales venues for counterfeit audiovisual goods tend to be separate from the legitimate ones.235 Lastly, the GAO report concluded that unless the substitution rates and valuations of counterfeit goods are “transparently explained,” “it is difficult, if not impossible, to assess the reasonableness of the resulting estimate.”236

Additionally, attorneys who are familiar with international trademark law has recommended trademark owners to protect their intellectual property in as many ways as possible – for example, obtaining copyright registration for the artistic design element in the trademark.237 The rationale is that by registering copyright for a design mark, the owner obtains copyright protection which covers all goods and services, while trademark protection covers only limited goods and services that are applied for in the application.238 This can effectively mitigate the risk of trademark dilution litigation in a Chinese court, and the trademark registration certificate can be implemented in cease and desist letters fairly easily. As noted coherently in this comment, there are ways to protect intellectual property that is unique to China, but very few U.S. intellectual property owners utilize them. However, they are far more effective than relying on the U.S. government’s tariffs.

230 GENERAL ACCOUNTABILITY OFFICE, U.S. GENERAL ACCOUNTABILITY OFFICE,

Intellectual Property: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods, GAO-10-423 INTELLECTUAL PROPERTY: OBSERVATIONS ON EFFORTS TO QUANTIFY THE ECONOMIC EFFECTS OF COUNTERFEIT AND PIRATED GOODS 18, 19 (2010), https://www.gao.gov/new.items/d10423.pdf. [Hereinafter the GAO 2010 Report].

231 Id. at 17. 232 Id. 233 Id.at 18. 234 P.E. CHAUDRY ET AL., PROTECTING YOUR INTELLECTUAL PROPERTY RIGHTS:

UNDERSTANDING THE ROLE OF MGMT., GOV’T. CONSUMERS AND PIRATES 1110 (2013). 235 GAO 2010 Report, supra note 230. 236 Id. 237 Laura Kees, The Chinese “Super Trademarks”: A Creative Strategy for Overseas IP

Protection, IP WATCHDOG (Aug. 16, 2018), https://www.ipwatchdog.com/2018/08/16/chinese-super-trademarks-creative-strategy-overseas-ip-protection/id=100167/.

238 Id.


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2. Copyright The Section 301 Report highlights that some of the biggest intellectual

property infringement issues remain in the realm of copyright, such as in “legitimate film and television programming, music, software, video games, and books and journals, including scientific, technical, and medical publications.”239 It also noted that “although China has the largest population and second largest economy in the world, it remains just the twelfth largest music market.”240 The report advanced to criticize that “China’s Foreign Investment Catalogue continued to prohibit foreign investment in the production of audiovisual products and network publication services” despite an opportunity to reform the rule, and it “continues to discriminate against foreign content, interfere with the simultaneous release of foreign content in China and other markets require SOEs to hold an ownership stake in online platforms for film and television content, and exclude or limit the participation of foreign entities.”241 Ironically, such criticism ignores the fundamentals of China’s copyright regime, and the tariffs may have made copyright enforcement much more difficult in China.

The Section 301 criticism, although not unwarranted, missed a crucial piece of China’s copyright enforcement: that is driven primarily by the communist agenda. In other words, copyright enforcement remains one of the most important tools in the government’s censorship measures. In fact, the government has never tried to hide this agenda; instead, they actively promote and started the copyright law with the following language:

Article 1 – This law is enacted, in accordance with the Constitution, for the purpose of protecting the copyright of authors in their literary, artistic and scientific works and the rights and interests related to copyright, encouraging the creation and dissemination of works conducive to the building of a socialist society that is advanced ethically and materially, and promoting the progress and flourishing of socialist culture and sciences.242

As Rosen pointed out in her research, “the overall purpose of Chinese copyright law differs from the general purpose of intellectual property law in the United States . . . the Chinese government controls which works receive copyright protection based on whether or not the work promotes or advances the [aforementioned] purpose and a particular government agenda . . . [while] U.S. copyright law promotes invention and expression.”243 Therefore, copyright enforcement in China is arguably both drastically stronger and weaker than its equivalent in the United States, depending on what the material promotes, especially whether the material supports the government agenda.

239 OFFICE OF THE U.S. TRADE REP., supra note 119, at 41. 240 Id. 241 Id. at 42. 242 Rosen, supra note 152; Copyright Law of China, supra note 151, Chap. 1, Art. 1. 243 Rosen, supra note 152.


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A report by the International Intellectual Property Alliance found that 90 percent of the DVDs distributed in China are unauthorized copies.244 One of the main reasons behind such a high piracy rate is that China only allows 34 foreign films to be released in Chinese theaters each year.245 Additionally, these movies are imported on a revenue-sharing basis for a cut of the box office, and the local distribution are handled exclusively by two state-owned companies, China Film Co. and Huaxia Distribution.246 Consequently, a lot of international blockbusters do not have an official theater release in China.

To further complicate the matter, all DVDs have to undergo a lengthy censorship process in order for it to be officially released in legal channels.247 Naturally, a lot of Chinese movie fans are left with no choice but to seek out “black market” copies or illegal downloads.248 There are even grassroot online groups that translate and edit such movies and distribute them online.249 Interestingly, the Chinese authorities led by the State Administration of Radio Film and Television of China are after these groups not because of copyright infringement, but because these grassroot distributions slipped through the scrutiny of strict censorship.250

The 34 foreign movie quota is a means the Chinese government uses to promote the local entertainment industry and the communist agenda; the rationale being, if foreign movies are restricted in Chinese theaters, then locally-produced movies would have more screen time in China. As of 2011, China is the third biggest box office, trailing only behind Japan and North America.251 In 2017, box office in china has grossed at about USD $8.6 billion.252 The Chinese market is obviously lucrative, and there had been negotiations starting in 2017 between Hollywood executives and Chinese authorities to expand the quota to 50 and increase the number of local distributors in China.253 However, multiple media outlets have reported that the trade war has been suspected to cause Chinese authorities to delay the negotiations.254

Outside of economic incentives, the Chinese government has little interest to protect the copyright of movies like Captain America, because Hollywood blockbusters are not likely to further the Chinese propaganda agenda. But now that the importation of movies like Captain American could be leveraged against United States as part of the trade war, the Chinese government is even less motivated to encourage and expand the legal distribution of American movies. Being denied

244 Christopher Beam, Bootleg Nation – How Strict Are Chinese Copyright Laws?, SLATE

(Oct. 22, 2009, 6:16 PM), https://slate.com/news-and-politics/2009/10/is-copyright-law-in-china-any-different-from-in-the-united-states.html.

245 Brent Lang & Patrick Frater, China Film Quota Talks Could Be a Casualty in Trump’s Trade War, VARIETY (Mar. 29, 2018, 1:37 PM), https://variety.com/2018/film/news/china-film-quota-hollywood-trump-trade-war-1202739283/.

246 Id. 247 Xiaochun Zhang, The Phenomenon of Fansubbing in China, MULTILINGUAL (Aug. 2013),

http://www.academia.edu/14040280/The_Phenomenon_of_Fansubbing_in_China. 248 Id. 249 Id. 250 Id. 251 Lang, supra note 245. 252 Id. 253 Id. 254 Id.


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entry to the Chinese market hurts not only the box office, but also exaggerates the copyright infringement problem as Chinese movie goers have to resort to illegal copies to see some specific movies. As a result, the tariffs undoubtedly hindered the film industry’s progress to promote copyright protection of American movies and television shows in China.

3. Patents Compared to its other siblings in intellectual property, patent rights receive

a lot more attention due to its relation with technology and big enterprises. One common misconception worth noting is that, although high-tech

industries are often tied with national security concerns, patent rights should not be discussed under a national security framework. The reason is plain and simple—a patent is the disclosure of technology in exchange for a limited monopoly in a geographical region; therefore, every patented invention is public knowledge, and should not be confused with confident information within the realm of national security and military.

To demonstrate that the trade war is not necessarily the best avenue to protect, this section will compare and contrast patent rights in two industries: consumer electronics and pharmaceuticals. These two industries are chosen because they are polar opposites when lobbying for patent reform: Silicon Valley giants, including Google, Apple, Intel and Cisco, “tend to do better when there are fewer patents to deal with,” while “big pharmas” such as GlaxoSmithKline and AbbVie constantly advocate for stronger patent protection.255 For both extremes, tariffs cannot be effective means to protect U.S. patent rights, and it is likely difficult to argue that tariffs would help with any industry that falls in between the two extremes.

i. Case Study—Consumer Electronics Consumer electronics show how pointless the trade war is for multiple

reasons. First of all, mainstream consumer electronic products are constantly examined under the media’s spotlight because one small device is commonly an embodiment of hundreds, if not thousands, of patents. Second, with thousands of components and an integrated global supply chain, they can be used to demonstrate how trade deficit calculations are skewed. Lastly, researches show that patent rights are not necessarily the most important driving force of research and development of consumer electronics; instead, companies innovate for what is commonly known as “first mover advantage.”

To recap, a trade deficit is calculated by subtracting the value of exports from the value of imports.256 Therefore, each unit of Chinese-made product like the

255 Rana Foroohar, Big Tech vs Big Pharma: The Battle Over US Patent Protection, FIN.

TIMES (Oct. 16, 2018), https://www.ft.com/content/6c5b2cca-ae8b-11e7-beba-5521c713abf4. 256 John W. Schoen, The Apple iPhone Shows That Trump is Misreading Trade Deficits and

What They Mean, CNBC (Jun. 19, 2018, 12:47 PM), https://www.cnbc.com/2018/06/19/trump-is-wrong-on-tariffs-and-trade-just-look-at-his-iphone.html; see also Adam Jourdan, Designed in California, Made in China: How the iPhone Skews U.S. Trade Deficit, REUTERS (Mar. 21, 2018, 7:05 AM), https://www.reuters.com/article/us-usa-trade-china-apple/designed-in-california-made-in-china-how-the-iphone-skews-u-s-trade-deficit-idUSKBN1GX1GZ256.


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Apple iPhone will be calculated by the cost of making each iPhone, which is estimated to be about $370 (while the retail price is usually $1,000).257 CNBC provided an anatomy of the $370 manufacturing cost: the most expensive part is the display, which comes from Samsung Electronics, and represents about $110 of the final price of the phone; another $44.45 is paid to Japan’s Toshiba and South Korea’s SK Hynix for the memory chips.258 Usually, the suppliers of the rest of the components from Japan, South Korea, Switzerland and Singapore, who are among the U.S.’s biggest trade partners.259 The value Chinese workers add by assembling the parts that come from suppliers all over the world represents only between 3 to 6 percent of the retail price of the phone, even though the full $370 was calculated towards the U.S. trade deficit with China.260 Therefore, analysts estimate that a vast majority – could be as much as 90% – of the $70 Billion U.S.-China cellphone trade deficit come from other U.S. trade partners, such as South Korea, Japan, and Singapore.261 An economist, Louis Kuijis, evaluated that if the complex nature of global supply chains like these are included in current trade deficit calculations, the U.S.–China trade deficit would be about 36% lower.262 Kuijis further explains that the trade war will cause “collateral damage” to other Asian economies, a lot of which are U.S. trade partners.263

Modern global supply chains pool together resources from different countries, each “[lends its] comparative advantage to make goods as efficiently as possible.”264 In other words, modern trade is not about “relying on cheap labor in one country” anymore; instead, it takes “many countries’ diverse skills and resources to make technology like the iPhone [economically] accessible.” 265 Targeting only one country for being the final link of a global supply chain is pointless, and the trade war’s interruption on an optimized, integrated supply chain will inevitably drive up the manufacturing costs of consumer electronics like the iPhone.

The manufacturing cost of the iPhone does not include the intellectual property value Apple adds to the device, most of which are embodied in utility and design patents. With a manufacturing cost of about $400, a wholesale cost of about $800, and a MSRP of over $1,000,266 the iPhone X is easily one of the most expensive cellphones in the market, and it is doubtful that Apple would be able to raise the MSRP by a substantial amount. As explained above, the interruption of the supply chain will likely drive up the manufacturing costs of the iPhone, therefore eating into the amount Apple earns from its intellectual property in the devices, as well as the revenue of downstream distributors, wholesalers and retailers

257 Jourdan, supra note 256. 258 Schoen, supra note 256. 259 Id. 260 Id. 261 Id. 262 Jourdan, supra note 256. 263 Id. 264 Allison Schrager, The iPhone Alone Accounts for $15.7 Billion of the US Trade Deficit

with China, QUARTZ (Mar. 21, 2018), https://qz.com/1234437/the-iphone-alone-accounts-for-16-billion-of-the-us-trade-deficit-with-china.

265 Id. 266 Jourdan, supra note 262.


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– all of which are contributions to American economy from American businesses. Summarily, the tariffs, which are based on skewed calculation of trade deficit, do far more harm than good to U.S. businesses.

Second, some scholars have argued that the real advantage in consumer electronics accomplished by R&D is not the limited monopoly granted by patents, but the “first mover advantage” by claiming high grounds in the market.

The “development lead time,” which measures the time from the formation of an idea to the idea is fully incorporated in manufacturing, is frequently used to evaluate product development performance.267 Obviously, lead times differ widely based on the scale of the invention and the industry. A study shows that in consumer electronics, the average development lead time in North America is approximately 70.6 weeks.268 Additionally, it takes approximately 5-6 weeks for productivity to settle to normal levels in mass manufacturing in U.S. companies.269 A different study estimates about 9 – 12 years for a company to develop a “complex or novel new product” from scratch, and about 6 months for a company to develop a “straightforward new product” in an area where the company has existing experience.270

Meanwhile, the traditional total pendency time—the average number of months from the patent application filing date to the date the application has reached final decision in front of the USPTO—is 23.8 months (about 103 weeks) as of February 2019. 271

While 71 weeks does not sound drastically shorter than 103 weeks, it is worth noting that a new idea cannot be filed for patent protection right away; the inventor has to be able to develop the idea substantially to the point that the patent filing can meet the enablement requirement, i.e. a person of ordinary skill in the art must be able to reproduce the patented technology without undue experimentation.272 Therefore, it is a conservative estimation that a new invention would not be ready for patent filing until the development team is halfway through the development process. As a result, even in the best-case scenario, a patent will be issued about a year after the product has entered mass production.

One year of first mover advantage is drastic in consumer electronics, where a lot of consumers are constantly looking for the newest and most cutting-edge product, and a lot of features lose their novelty in a matter of months. Specifically, Scherer pointed out in a 2015 research paper that there are several ways forms of non-patent first mover advantages enjoyed by the innovator, the ones applicable to consumer electronics are provided below:

267 Nick Oliver, Emma Dewberry & Isabelle Dostaler, Developing Consumer Electronics

Products: Practice and Performance in Japan, North America and the UK, U. CAMBRIDGE WORKING PAPERS (Oct. 2000), https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/workingpapers/wp0028.pdf.

268 Id. at 12. 269 Id. at 13. Please note that U.S. companies do not necessarily manufacture their products in

U.S. facilities. 270 How Long Does Product Development Take?, NMG-GROUP (Feb. 11, 2015), https://nmg-

group.com/2015/02/long-product-development-take/. 271 USPTO, Data Visualization Center – Patents Dashboard,

https://www.uspto.gov/corda/dashboards/patents/main.dashxml?CTNAVID=1004 (last visited Mar. 9, 2019).

272 35 U.S.C. § 112 (2012).


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For one, it takes time for would-be imitators to recognize the advantages of an innovation and quite possibly even more time to carry out their own developmental work needed to imitate successfully. In some cases, when the imitator can benefit from knowledge spillovers, that expense may be much less than the first mover’s expense, but in other cases . . . the imitator may have to speed as much and take as much time as the first mover did.

. . . Third, and very importantly, the first to market a new product often engrains in the minds of consumers in an “image’ of superiority—that is, a product differentiation advantage—allowing it to retain a substantial market share while charging prices substantially higher than those realizable by latecomers.

Fourth, in industries such as aircraft, semiconductors, and solar converters, unit production costs fall with additional production and hence “learning by doing.” The first mover begins progressing down its learning curve sooner than others and may therefore enjoy a substantial cost advantage over latecomers .273

A different research by Boldrin and Levine argued that first-mover advantage is preferable to patent protection as a competition strategy. They explained that:

In most industries, the first-mover advantage and the competitive rents it induces are substantial without patents. The smartphone industry—laden as it is with patent litigation—is a case in point. Apple derived enormous profits in this market before it faced any substantial competition….While it is hard to prove this delayed imitation also would have occurred in the absence of patents, intuition suggests—and our formal model in Boldrin and Levine predicts—that there is little reason to assert patent rights while the first-mover advantage is still active. Apple did not initially try to use patents to prevent the Android phones from coming into its market and the subsequent 'patents fight' has been taking pace largely after 2010; these facts are consistent with a substantial first-mover advantage.

Additionally, a 2000 study showed that over 50 percent of R&D managers indicate that first-mover advantage is more important to earning a return on innovation; outside of the pharmaceutical and medical instruments industry, less than 35% of managers indicate that patents are more important.274

As Scherer summarized in his study, patent protection is a “relatively unimportant requisite for business firms’ investments in research, development,

273 F.M. Scherer, First Mover Advantages and Optimal Patent Protection, HARV. KENNEDY

SCH. FACULTY RES. WORKING PAPER SERIES, (Nov. 2014). 274 Wesley M. Cohen, Richard R. Nelson & John P. Walsh, Protecting Their Intellectual

Assets: Appropriability Conditions and Why U.S. Manufacturing Firms (or Not), NBER WORKING PAPER 7552 (February 2000), http://www.nber.org/papers/w/7552.


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and innovation. Much more important in the average case are diverse non-patent advantages from being the first to commercialize a new product or process.”275 Needless to say, tariffs have very little to do with encourage American firms to innovate and maintain their first-mover advantage.

ii. Case Study—Pharmaceuticals In stark contrast to high-tech companies, the pharmaceutical industry has

always been advocating for more stringent patent rights. U.S. pharmaceutical giants are known for expanding their patent rights and padding their “patent thickets,” and patented drugs in the U.S. are shown to be the most expensive in the world.276

The U.S. patent system enables pharmaceutical companies to extend their monopolies, which is a proximate cause of the high drug prices in the U.S.277 For example, Humira, one of AbbVie’s most successful drugs, accounts for approximately 60% of AbbVie’s annual revenue in 2018.278 As a result, AbbVie has obtained over 100 patents in on treatments related to Humira, therefore successfully extending its patent protection until the 2030s.279 On the other hand, the generic bioequivalents of Humira has already hit the Europe market in 2018, largely thanks to a lawsuit filed by competitors Fujifilm Kyowa Kirin Biologics Co. and Samsung Bioepis, which successfully challenged AbbVie’s patent portfolio in England’s High Court.280 As a result of the lawsuit, Humira’s patents expired and generic versions were able to hit the market in October 2018, therefore lowering the cost of Humira by more than 50%.281

There are two types of patents associated with pharmaceutical innovation: “primary” patents that protect the drug active ingredient, and “secondary” patents that seeks to improve upon existing pharmaceuticals and their use in treating patents.282 Proponents of secondary patent protections argue that follow-on innovation are sometimes as important as the primary patents, because such innovations may present “significant improvements in the safety-efficacy profile,” create extended-release formulations which improves patient compliance, or provide orally administrable formulations of drugs that could previously only be administered by more invasive injections.283 There are obvious pitfalls to these aggressive approaches to patent protection. The most common criticism is that the

275 Scherer, supra note 273. 276 Joe Nocera, Drug-Price Transparency Won’t End the Patent Games, BLOOMBERG (Oct.

16, 2018, 1:00 PM), https://www.bloomberg.com/opinion/articles/2018-10-16/humira-patents-show-why-fda-s-drug-price-shaming-won-t-work.

277 Id. 278 ABBVIE INC., ABBVIE REPORTS FULL-YEAR AND FOURTH-QUARTER 2018 FINANCIAL

RESULTS (Jan. 25, 2019), https://news.abbvie.com/news/abbvie-reports-full-year-and-fourth-quarter-2018-financial-results.htm.

279 Nocera, supra note 276. 280 Peter Loftus, Denise Roland, The Strategies AbbVie Employed to Protect Humira from

Copycats, WSJ (Oct. 16, 2018, 7:00 AM), https://www.wsj.com/articles/the-strategies-abbvie-employed-to-protect-humira-from-copycats-1539687601.

281 Id. 282 Christopher M. Holman, Inside Views: Why Follow-On Pharmaceutical Innovations

Should Be Eligible for Patent Protection, INTELL. PROP. WATCH (Sept. 21, 2018), http://www.ip-watch.org/2018/09/21/follow-pharmaceutical-innovations-eligible-patent-protection/.

283 Id.


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prolonged monopoly has forced American consumers to spend more on prescription drugs per capita, both based on value and as a fraction of GDP.284 Additionally, a comparative study of all the drugs on the market between 2005 and 2015, carried out by Robin C. Feldman, shows that drug companies “repeatedly pile new [secondary patent] protections onto each drug,” and it has become common practice in the industry to “seek and obtain repeated extensions of their [patent monopolies].”285 Feldman suggests that such practices “could be a sign of an unhealthy patent system.”286

However, some scholars argue that the high prices in the U.S. are necessary for the future of the industry; in other words, just because the U.S. is an outlier in prescription drug expenses, does not necessarily mean the U.S. patent system is at fault.287 A study from the Council of Economic Advisers (“CEA”) shows that United States pharmaceutical companies have to subsidize the astronomical sunk cost of research and development of a drug, while a lot of foreign government negotiate drug prices based on “marginal production cost” and exercise extensive price control.288 In other words, “pharmaceutical innovators—and foreign governments—across the world rely on America’s patients and taxpayers to finance critical research and development.”289

The imbalance of global patent systems is directly attributable to the patent issues in the pharmaceutical industry, regardless of whether one agrees with the patent strategies taken by the ultra-pro-patent-protection practices. In other words, the entire world could be said to be “stealing” the true value of American pharmaceutical intellectual properties.290 Dana P. Goldman pointed out two key approaches to solve such an imbalance: economically, to scrutinize foreign drug-pricing schemes and make up innovation funding shortfalls; regulatorily, to harmonize the “international patchwork of regulatory agencies and patent systems.”291 The latter opinion is widely supported in the patent law community.292 Similarly, the CEA report points out that the two goals of reducing American drug prices and stimulating innovation are consistent, and can be achieved through a

284 Dana Sarnak et al., Paying for Prescription Drugs Around the World: Why Is the U.S. an

Outlier?, COMMON WEALTH FUND (Oct. 5, 2017), https://www.commonwealthfund.org/publications/issue-briefs/2017/oct/paying-prescription-drugs-around-world-why-us-outlier.

285 Robin Feldman, May Your Drug Price be Evergreen, J. L. & BIOSCIENCES (Dec. 7, 2018). 286 Id. 287 COUNCIL OF ECONOMIC ADVISERS, PERFORMING BIOPHARMACEUTICAL PRICING AT HOME

AND ABROAD (2018). 288 Id. 289 Dana P. Goldman & Darius N. Lakdawalla, Opinion: This is What’s at Stake If U.S. Drug

Prices Fall and Europeans Don’t Pay More, MARKETWATCH (Feb. 1, 2018, 4:23 AM), https://www.marketwatch.com/story/this-is-whats-at-stake-if-us-drug-prices-fall-and-europeans-dont-pay-more-2018-01-31/print.

290 See generally id. 291 Goldman, supra note 289; see also DANA P. GOLDMAN & DARIUS N. LAKDAWALLA,

HANDBOOK OF HEALTH ECON. 825-72 (2nd ed. 2011). 292 See generally Jerome H. Reichman & Rochelle Cooper Dreyfuss, Harmonization Without

Consensus: Critical Reflections on Drafting a Substantive Patent Law Treaty, 57 DUKE L.J. 85 (2007); Cynthia M. Ho, Should All Drugs Be Patentable?: A Comparative Perspective, 17 VAND. J. ENT. & TECH. L. 295 (2014-2015).


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combined strategy of correcting government policies that hinder price-competition at home, while at the same time limiting free-riding abroad.293

The most direct resolutions for restoring a balance in global patent systems are treaties and trade negotiations; by default, trade agreements and treaties can make other countries resonate more with the U.S. patent system by advancing trade partnerships closer to free trade.294 Tariffs might seem like good bargaining chips in trade negotiations, but they dwarf in front of values of intellectual property; a Canadian law scholar, Amir Attaran, made the following comment in regard to intellectual property and trade negotiations: “An eye for an eye won’t work when one side is small and the other is large . . . you hit us on tariffs, we hit you on patents.”295 Attaran suggested that the leverage in a successful trade negotiation is held by the party that owns less intellectual property.296 In fact, Antigua, Barbuda and Brazil have adopted similar strategies to succeed in tariff negotiations with the U.S.297

The Trans-Pacific Partnership (“TPP”) was one of the agreements that “push[ed] [U.S.] trade partners to conform to U.S. standards of [intellectual property] protection.”298 There was an entire chapter of TPP with “groundbreaking” provisions that furthered U.S. intellectual property objectives and priorities.299 The United States’ withdrawal from the TPP, consequently, was seen as a big loss for U.S. patent owners.300 This opinion is further supported by the fact that the successor to TPP, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”), suspended a significant number of intellectual property provisions in the original TPP agreement.301

Ironically, the U.S. government also proposed 25% tariffs on raw drug ingredients as well.302 The FDA estimates that up to 80% of active pharmaceutical ingredients come from India and China.303 Since generic drug makers have significantly lower profit margins, the direct result of the tariffs is increased manufacturing costs and higher prescription drug costs in the U.S.304

In conclusion, tariffs contribute very little to protecting intellectual property, even in the most pro-patent-protection pharmaceutical industry.

293 COUNCIL OF ECONOMIC ADVISORS, supra note 287 (emphasis added). 294 Kelly Crowe, Drug patents could be Canada's special weapon in U.S. trade dispute, CBC

(Jun. 16, 2018 9:00 AM), https://www.cbc.ca/news/health/second-opinion-trade-dispute-canada-us-drug-patents-intellectual-property-1.4708630.

295 Id. 296 Id. 297 Id. 298 Jay Erstling, What U.S. Patent Owners Lost in Trump’s TPP Pullout, CFO (Mar. 24, 2017),

http://www.cfo.com/global-business/2017/03/u-s-patent-owners-lost-trumps-tpp-pullout/. 299 Id. 300 Id. 301 WHAT DOES THE CPTPP MEAN FOR INTELLECTUAL PROPERTY?, GOVERNMENT OF

CANADA, https://international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cptpp-ptpgp/sectors-secteurs/ip-pi.aspx?lang=eng (last visited Mar. 11, 2019).

302 PHARMACEUTICAL TECHNOLOGY, IS THE BIOPHARMA INDUSTRY SAFE FROM THE US-CHINA TRADE WAR?, (Apr. 12, 2018), https://www.pharmaceutical-technology.com/comment/biopharma-industry-safe-us-china-trade-war/.

303 Id. 304 Id.


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CONCLUSION While tariffs may be used to coerce another country into trade negotiations,

they are very insufficient means for intellectual property protection. The trade war was a deviation from WTO’s principles, and ignores the fundamental policy of multiple international treaties. Worse yet, the tariffs did not even accomplish its initial goal of reducing trade deficit; in fact, the trade deficit grew 12.5% from 2017 to 2018 and hit a record high of U.S. $891.3 billion.305 The negative impact of the tariffs goes beyond merely trade deficits. Thanks to the trade war, the U.S. economy experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network, reductions in availability of imported varieties, and complete passthrough of the tariffs into domestic prices of imported goods; the total reduction in U.S. real income was estimated to be $1.4 billion per month by the end of 2018.306

The tariffs are also inefficient for protecting American intellectual property, either in trademarks, copyrights, or patent rights. “Addressing IP appropriation with trade sanctions is like performing microsurgery with a sledge hammer,” 307 as the trade war ignores the truly efficient ways to address intellectual property infringement, such as utilizing the Chinese judicial system, or undergoing the WTO’s resolution processes, encouraging American capital to invest in Chinese innovation (although ironically that would widen the trade deficit),308 or attracting Chinese businesses to license American intellectual property.309

An ideal international trade environment should be one that has similar intellectual property protections while valuing free trade;310 such a goal is reflected in the coherence and progression across intellectual property-related treaties, from the Paris Convention agreement to the most recent USMCA agreements.311 As the latest round of China-US trade negotiation ensues, there may be some positive changes on reconciling the two countries’ patent systems. In the meantime, tariffs do far more harm than good towards that goal.

305 Ana Swanson & Jim Tankersley, In Blow to Trump, America’s Trade Deficit in Goods Hits

Record $891 Billion, N.Y. TIMES (Mar. 6, 2019), https://www.nytimes.com/2019/03/06/us/politics/us-trade-deficit.html.

306 Mary Amiti, Stephen J. Redding, & DavId.E. Weinstein, The Impact of the 2018 Trade War on U.S. Prices and Welfare, INT’L TRADE AND REGIONAL ECON. 1 (2019).

307 Goldstein, supra note 134. 308 Charlie Campbell, Even This Chinese CEO Who’s Benefiting From Trump’s Trade War

Says It’s a Dumb Idea, TIME (Sept. 13, 2018), http://time.com/539781/nio-li-bin-electric-cars-china-trade-war/.

309 Setser, supra note 191. 310 Doyle Slifer, Intellectual Property Rights: The Last Barrier to International Free Trade, 9

ILL. BUS. L.J. 197, 198-200 (2009); see also Uniltalen Attorneys At Law, China: Fast Growth of China IP License Trade in the First Half of 2018, MONDAQ (Oct. 30, 2018), http://www.mondaq.com/china/x/749246/Trademark/Fast+Growth+of+China+IP+License+Trade+in+the+First+Half+of+2018.

311 WORLD INTELLECTUAL PROPERTY ORGANIZATION, supra note 122; see also Jennifer L. Wilkie, The USMCA: What Does It Mean For Patents And The Pharmaceutical Industry?, GOWLING WLG (Oct. 5, 2018), https://gowlingwlg.com/en/insights-resources/articles/2018/usmca-what-it-means-for-patents-and-pharmaceutical/.

Documents

17 AM U. I P B Vol. 11:217 AM.U. INTELL.PROP.BREIF Vol. 11:2 r s WHY TARIFFS AGAINST CHINA ARE INEFFECTIVE FOR INTELLECTUAL PROPERTY PROTECTION Nan Lan * ABSTRACT Alleged intellectual