Thesis:  Technology  Transfer  and  IP  Law  in  China    

Abstract    

How  does  IPR  Protection  in  China  affect  foreign  technology  transfers  from  the  United  States  and  likewise,  Chinese  technology  transfers  abroad?  How  will  domestic  innovation  within  China  affect  China’s  domestic  IP  law  protection?  As  China’s  economy  has  grown  and  expanded,  the  US  has  grown  somewhat  fearful  that  China  will  surpass  it  in  international  trade  and  political  power.  To  counterbalance  this  fear,  the  US  has  begun  blocking  Chinese  high  technology  product  imports  into  the  US  domestic  market,  using  Section  337  of  the  USITC  and  Section  557  of  the  Continuing  Appropriations  Act  as  protectionist  measures  in  the  name  of  intellectual  property  right  protection  and  national  security.  Chinese  telecommunications  companies  Huawei  and  ZTE,  for  instance,  were  blocked  from  entering  the  US  for  these  reasons.  This  thesis  will  first  explore  the  Chinese  legal  system  concerning  intellectual  property  and  unfair  competition.    and  how  it  relates  to  Chinese  high  technology  trade  around  the  world.  Through  legal  case  studies  and  interviews  with  international  attorneys,  this  paper  concludes  that  although  China’s  legal  system  is  still  developing,  it  is  becoming  increasingly  more  important  as  China  enters  the  international  trade  arena.  Furthermore,  as  Chinese  domestic  innovation  continues  to  grow  and  develop,  it  will  have  no  choice  but  to  uphold  its  own  domestic  IP  regulations  in  order  to  protect  its  own  innovations.      Introduction  

This  thesis  is  about  intellectual  property  law  protection  in  China  and  how  it  affects  foreign  technology  transfer  to  China  and  Chinese  technology  exports  to  other  countries  such  as  the  United  States.  I  will  focus  mainly  on  protection  of  utility  patents  within  China,  Chinese  exports  that  infringe  US  patents,  and  the  regulation  of  trade  secrets  on  an  international  scale.    

My  paper  will  explore  China’s  struggle  to  establish  a  positive  international  reputation  in  Intellectual  Property  Law  enforcement  and  how  Intellectual  Property  Law  concerns  have  affected  China’s  position  in  international  trade  and  commerce.  Moreover,  I  will  also  explore  how  China  will  protect  its  own  high-­‐technology  products,  patents,  trademarks,  and  trade  secrets  in  the  world  and  how  China’s  own  blossoming  technology  industry  may  or  may  not  change  how  China  sees  and  enforces  Intellectual  Property  Law.      The  paper  will  be  broken  into  4  parts.      Section  1:  China’s  domestic  legislation  regarding  Copyrights,  Trademarks,  Patents,  Trade  Secrets,  and  Unfair  Competition.  This  section  will  also  include  a  comparison  

of  the  official  Chinese  legal  framework  versus  the  actual  process  of  enforcing  IP  law  in  China.      Section  2:  Notable  IPR  cases  in  China  involving  trade  secrets,  patent  infringement,  and  trademarks.  This  section  will  focus  predominantly  on  trade  secrets,  patents,  and  trademark  violations,  especially  in  regards  to  technology  transfer  to  China  from  the  US.  It  will  also  cover  China’s  WTO  dispute  with  the  US.      Section  3:  US  trade  protectionism  due  to  fear  of  Chinese  exports  violating  US  Patents.  This  section  will  include  US  measures  to  prevent  Chinese  takeovers  of  US  companies  and  US  industries  and  likewise,  to  prevent  Chinese  entry  into  the  US  domestic  market.  For  instance,  US  companies  will  sue  Chinese  companies  based  on  IP  Law  infringement  in  order  to  prevent  them  from  entering  the  US  domestic  market  or  significantly  raise  the  entry  barrier  for  Chinese  companies  to  enter  the  US  domestic  market.      Section  4:  An  analysis  on  China’s  domestic  innovation  as  a  way  to  increase  IPR  protection  within  China.  Includes  an  analysis  on  Qingdao’s  Rubber  Valley,  Shanghai’s  Free  trade  zone,  and  other  local  “technology  and  innovation”  centers  around  China.        

Section  1:  Chinese  IP  Laws  and  Enforcement.      

The  international  opinion  of  China’s  lax  enforcement  of  IP  law  has  caused  China  a  number  of  issues  regarding  international  trade  and  technology  transfer.  Negative  perceptions  of  China’s  IP  Law  has  caused  the  US,  for  instance,  to  place  a  number  of  export  limitations  on  Chinese  goods  coming  to  the  US,  for  fear  that  the  Chinese    products  violate  US  patents.  Fear  of  trade  secret  and  patent  violation  has  also  prevented  the  US  from  exporting  certain  sensitive  technologies  to  China  such  as  satellites  and  specialized  military  weapons.  This  section  will  analyze  China’s  IP  Legal  framework  regarding  patents,  trade  secrets,  and  trademark.  According  to  many  foreign  attorneys  in  China,  the  Chinese  civil  code  is  not  the  problem;  rather,  it  is  the  enforcement  of  the  law  that  is  inadequate.  This  section  will  define  the  Chinese  legal  framework—both  on  a  domestic  level  and  on  an  international  level.      Chapter  1.  Chinese  National  Legal  Framework:  Patent,  Trademark,  Copyright,  and  Trade  Secret  Laws    

The  legal  framework  for  protecting  intellectual  property  in  the  PRC  is  built  on  three  national  laws  passed  by  the  National  People's  Congress:  the  Patent  Law,  the  Trademark  Law  and  the  Copyright  Law.  Numerous  regulations,  rules,  measures  and  policies  have  been  made  by  the  NPC  Standing  Committee,  the  State  Council  and  

various  ministries,  bureau  and  commissions.  The  circulars,  opinions  and  notices  of  the  Supreme  People's  Court  also  form  part  of  the  legal  framework.    A.  Chinese  Patent  Law    

China  has  both  a  statutory  law  and  a  formal  regulation  regarding  Patents.  It’s  statutory  law  is  titled  “Patent  Law  of  the  PRC”  or中华人民共和国专利法 .The  Patent  Law  was  adopted  on  March  12,  1984,  and  came  into  effect  on  April  1,  1985.  China’s  Patent  law  has  been  amended  three  times.  The  previous  two  amendments  in  1992  and  2000,  respectively,  focused  on  importing  advanced  technologies  and  intensifying  intellectual  property  protection  for  foreign  investors.  These  amended  protections  include  a  broadening  of  available  patents  in  chemicals,  pharmaceutical  products,  and  food  and  beverages  flavorings.  It  also  extended  the  length  of  patent  protection  to  20  years.  (Hong  Xue  56)  The  third  revision  that  was  approved  by  China’s  top  legislature  on  December  29,  2008,  was  concentrated  on  enhancing  the  capability  of  independent  innovation  and  building  an  innovative  country  (Hong  Xue  56).  

 China  follows  a  “first  to  file”  rule  which  is  consistent  with  the  US  and  certain  European  countries.  Since  China  is  a  signatory  of  the  Patent  Cooperation  Treaty  (PCT),  the  State  Intellectual  Property  Office  (SIPO)  will  conduct  an  international  patent  search  and  preliminary  examination  of  patent  applications.  Any  foreigner,  without  the  assistance  of  a  Chinese  office,  can  prepare  the  paperwork  for  filing  but  the  filing  of  the  patent  paperwork  must  be  done  through  an  authorized  patent  agent.  Patents  are  filed  in  Beijing  at  SIPO.  The  Beijing  office  receives  all  of  the  filings  and  the  local  offices  handle  the  administrative  enforcement  of  the  patents.1  

China’s  Patent  Law  has  8  chapters  including    

             Chapter  1:  General  Provisions  第一章 总则 Chapter  2:  Requirements  for  Grant  of  Patent  Right第二章 授予专利权的条件 Chapter  3:  Application  for  Patent第三章 专利的申请 Chapter  4:  Examination  and  Approval  of  Application  for  Patent第四章 专利申请的审查和批准            Chapter  5:  Duration,  Cessation  and  Invalidation  of  Patent  Right第五章 专利权的期限、终止和无效            Chapter  6:  Compulsory  License  for  Exploitation  of  Patent  Right第六章 专利实施的强制许可            Chapter  7:  Protection  of  Patent  Right第七章 专利权的保护            Chapter  8:  Supplementary  Provisions第八章 附则

 Article  60  of  Chapter  7  “Protection  of  Patent”  states:  

                                                                                                               1  China  IPR  Toolkit,  supra  note  1    

Article  60.      Where  a  dispute  arises  as  a  result  of  the  exploitation  of  a  patent  without  the  authorization  of  the  patentee,  that  is,  the  infringement  of  the  patent  right  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  administrative  authority  for  patent  affairs  handling  the  matter  considers  that  the  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,  within  15  days  from  the  date  of  receipt  of  the  notification  of  the  order,  institutes  legal  proceedings  in  the  people's  court  in  accordance  with  the  Administrative  Procedure  Law  of  the  People's  Republic  of  China.      If,  within  the  said  time  limit,  such  proceedings  are  not  instituted  and  the  order  is  not  complied  with,  the  administrative  authority  for  patent  affairs  may  approach  the  people's  court  for  compulsory  execution.  The  said  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  mediation  fails,  the  parties  may  institute  legal  proceedings  in  the  people's  court  in  accordance  with  the  Civil  Procedure  Law  of  the  People's  Republic  of  China.    

Article  60  of  Chapter  7  of  the  Chinese  Patent  Law  describes  a  long  administrative  process  in  dealing  with  Patent  violations  via  mediation  before  entering  legal  proceedings  in  the  People’s  Court.  The  first  step  is  “consultation  by  the  parties”  which  means  mediation  between  the  two  disagreeing  parties.  The  second  step  is  requesting  “the  administrative  authority”  to  help  with  mediation,  halting  the  infringing  act,  and  even  mediating  an  amount  of  compensation  for  the  damages  caused  by  the  infringement  of  the  patent. If  the  patent  owner  is  unsatisfied  with  the  administrative  order,  the  third  step  is  to  institute  legal  proceedings  in  the  People’s  Court  within  15  days  of  the  date  of  receipt  of  notification  of  the  order.    

All  court  proceedings  must  be  in  accordance  with  the  Administrative  Procedure  Law.  It  is  only  within  the  Chinese  judicial  court  system  that  damages  can  be  officially  awarded;  otherwise,  it  is  up  to  the  administration  authority  (i.e.  the  police)  to  sort  out  the  issue  via  “mediation.”  Unfortunately,  the  court  system  can  be  very  costly  in  time  and  in  money  so  many  people  opt  to  resolve  IP  issues  through  the  administration  route  rather  than  through  the  judicial  court  system.  As  one  attorney,  John  Tang,  explained,  it  is  up  to  each  company  or  individual  to  perform  a  cost-­‐benefit  analysis  of  the  situation.  Often  times,  the  monetary  loss  due  to  infringement  is  much  less  than  pursuing  the  issue  within  a  Chinese  court.      B.  Trademark  law  The  Trademark  Law  of  the  People's  Republic  of  China  (中 人民共和国商 法)  sets  out  general  guidelines  on  administration  of  trademarks,  protection  of  trademark  owners'  exclusive  rights  and  maintenance  of  quality  of  products  or  services  bearing  the  registered  trademarks,  "with  a  view  to  protecting  consumer  interests  and  to  promoting  the  development  of  the  socialist  commodity  economy."  

Adhering  to  Article  4  of  the  Paris  Convention,  the  Chinese  government  passed  the  Provisional  Regulations  Governing  Application  for  Priority  Registration  of  Trademarks  in  China  to  grant  the  right  of  priority  to  trademark  applications  submitted  in  PRC  by  the  nationals  of  the  Paris  Convention  member  countries.  

C.  Copyright  law  Copyright  law  in  China  is  mainly  governed  by  the  Copyright  Law  of  the  PRC  (

中华人民共和国著作权法)  and  the  Implementing  Rules  for  the  Copyright  Law  of  the  PRC  (著作权法实施条例),  the  Copyright  Law  of  the  PRC  adopted  and  promulgated  in  1990  and  the  "Implementing  Rules"  adopted  in  1991  and  revised  in  2002.  In  most  cases  the  copyright  term  is  the  life  of  the  author  plus  50  years,  but  for  cinematographic  and  photographic  works  and  works  created  by  a  company  or  organization  the  term  is  50  years  after  first  publication.  

To  implement  the  Berne  Convention  and  the  Universal  Copyright  Convention,  as  well  as  bilateral  copyright  treaties  signed  between  the  PRC  and  other  foreign  countries,  the  PRC  government  passed  the  Regulations  on  Implementation  of  International  Copyright  Treaties  (1992).  These  have  given  foreign  copyright  holders  protection  for  their  rights  and  interests  in  the  PRC.  

Before  the  PRC  acceded  to  the  Berne  Convention,  computer  software  was  not  treated  as  a  kind  of  literary  work  under  the  Copyright  Law.  In  May  1991,  the  State  Council  passed  the  Computer  Software  Protection  Rules.  Based  upon  these  rules,  the  Measures  for  Computer  Software  Copyright  Registration  were  formulated  by  the  then  Ministry  of  Engineering  Electronics  Industries.  These  regulations  provide  a  set  of  rules  covering  the  definitions  of  various  terms  and  the  registration,  examination  and  approval  of  computer  software  programs  in  the  PRC.  At  the  moment  both  the  Berne  Convention  and  these  two  domestic  computer  regulations  are  co-­‐effective.  However,  in  the  event  of  any  inconsistencies,  the  Berne  Convention  prevails.  

The  Berne  Convention  does  not  require  copyright  registration  copyright  registration,  and  thus  protection  in  the  PRC  technically  doesn't  require  registration.  However,  registering  copyrights  for  literary  works  can  avoid,  or  at  least  simplify,  ownership  disputes.  Copyright  registration  cost  is  300  RMB.  On  the  downside,  the  copyright  registration  process  requires  the  registrant  to  disclose  detailed  information,  including  software  source  code,  which  companies  might  be  reluctant  to  share.  

D.  Trade  Secret  Protection  in  China  Unlike  the  United  States,  which  has  a  unified  trade  secrets  law  (the  Uniform  

Trade  Secrets  Act,  or  UTSA),  China’s  rules  defining  and  regulating  trade  secrets  are  scattered  among  a  series  of  laws  and  regulations.  The  most  important  of  these  is  the  PRC  Anti-­‐Unfair  Competition  Law  (AUCL),  which  was  released  in  1993.  The  AUCL  formally  defines  trade  secrets  in  Article  10  as  “technical  and  business  information  that  is  unknown  to  the  public,  which  can  bring  economic  value  to  the  rights  holder  that  has  applicability,  and  for  which  the  rights  holder  take  measures  to  protect  their  confidentiality.”    

The  law  defines  illegal  behaviors  related  to  trade  secrets,  including  direct  acquisition  of  trade  secrets  via  theft,  inducement,  coercion,  use  of  those  illegally  obtained  trade  secrets,  or  other  illegal  means.  This  definition  also  covers  use  or  sharing  of  trade  secrets  by  third  parties  not  authorized  by  the  owner.  A  third  party  is  liable  for  trade  secret  misappropriation  under  the  AUCL,  when  the  third  party  knows  or  should  have  known  that  a  given  trade  secret  that  it  obtains,  uses,  or  discloses  has  been  misappropriated.  

Trade  secrets  are  defined  as  confidential  technical  or  business  information  that  are  not  known  to  the  public  and  have  economic  benefits  for  the  rights  holder.  The  legal  definition  of  trade  secrets  in  most  jurisdictions  is  written  to  cover  a  wide  variety  of  possible  information  that  may  be  important  building  blocks  of  a  company’s  current  and  future  competitiveness  and  thus  worthy  of  protection.  Examples  include,  but  are  not  limited  to,  formulas,  blueprints,  product  designs,  manufacturing  processes,  customer  lists,  sales  strategies,  and  management  techniques.  

In  January  2007,  the  Supreme  People’s  Court  released  the  Interpretation  on  Certain  Issues  Related  to  the  Application  of  Law  in  Trials  of  Civil  Cases  Involving  Unfair  Competition,  which  addressed  additional  questions  related  to  trade  secret  enforcement.  This  judicial  interpretation  clarifies  how  courts  should  define  key  terms  in  the  AUCL’s  definition  of  trade  secrets,  and  states  that  some  controversial  types  of  information,  such  as  customer  lists,  are  eligible  for  protection  as  trade  secrets  in  China.  The  interpretation  also  lays  out  the  rules  governing  civil  trade  secrets  cases  in  China,  placing  the  burden  of  proof  in  these  cases  on  the  plaintiff.  To  be  successful,  the  plaintiff  must  prove  that  the  infringed  information  meets  the  definition  of  a  trade  secret;  that  the  defendant  is  using  information  that  is  substantially  similar  to  the  trade  secret;  and  that  that  information  was  obtained  illegally  by  the  defendant.  The  plaintiff  must  provide  clear  evidence  of  when  and  how  the  information  was  illegally  obtained—a  difficult  evidentiary  challenge.  Other  sections  of  the  interpretation  describe  the  rules  for  determining  damages  and  granting  permanent  injunctions  as  remedies  for  trade  secret  misappropriation.2  

A  third  document,  the  State  Administration  of  Industry  and  Commerce’s  Provisions  Regarding  the  Prohibition  of  Trade  Secret  Infringement,  describes  administrative  procedures  for  handling  trade  secrets  cases.  Additional  aspects  of  trade  secret  protection  and  management  are  covered  in  other  laws  and  regulations,  including  the  Contract  Law  (technology  licenses  and  trade  secret  protection  in  contract  negotiations),  the  Labor  Contract  Law  (confidentiality-­‐related  agreements),  the  Labor  Law  (liability  for  violating  confidentiality-­‐related  agreements),  the  Company  Law  (trade  secrets  obligations  for  senior  management),  and  the  Criminal  Law  (criminal  thresholds  for  trade  secrets  cases).  

                                                                                                               2  http://www.chinabusinessreview.com/trade-­‐secret-­‐enforcement-­‐in-­‐china-­‐options-­‐and-­‐obstacles/  

While  there  has  been  some  discussion  among  legal  professionals  about  the  benefits  of  a  unified  trade  secrets  law—  and  some  work  was  done  to  draft  a  trade  secrets  law  in  the  mid  1990s—there  has  been  no  indication  to  date  that  Chinese  authorities  will  draft  such  a  law.  Nor  is  there  any  indication  that  the  Chinese  government  is  actively  working  to  revise  the  AUCL  or  other  existing  trade  secrets-­‐related  regulations.  

E.  Other  Laws  that  Deal  with  Chinese  IPR:  Unfair  Competition  Laws  Apart  from  major  legislation  on  trademarks,  copyright  and  patents,  a  few  

other  laws  and  regulations  have  been  passed  to  deal  with  intellectual  property  related  issues.  In  1986,  the  General  Principles  of  Civil  Law  was  adopted  to  protect  the  lawful  civil  rights  and  interests  of  citizens  and  legal  persons,  and  to  correctly  regulate  civil  relations.  Articles  94-­‐97  of  the  General  Principles  of  Civil  Law  deal  with  intellectual  property  rights  of  Chinese  citizens  and  legal  persons.  

In  the  1990s  many  more  pieces  of  legislation  were  passed  to  perfect  the  intellectual  property  protection  system.  These  include  the  Regulations  on  Customs  Protection  of  Intellectual  Property  Rights  (1995)  and  the  Law  Against  Unfair  Competition  of  the  PRC  (1993).  The  latter  prohibited  the  passing  off  of  registered  trademarks,  infringing  trade  secrets,  the  illegal  use  of  well-­‐known  goods  or  names  of  other  people,  as  well  as  other  misleading  and  deceptive  conduct.    

According  to  Article  2  of  the  Anti-­‐Unfair  Competition  Law  of  1993  of  the  PRC  ,  unfair  competition  acts,  “in  this  Law,  means  activities  made  by  business  operators  who  damage    the  other’s  legal  rights  and  interests,  disturb  the  order  of  social  economy  and  violate  the  provisions  of  this  Law.”  This  is  the  legal  standard  for  judging  any  act  of  unfair  competition  in  China.  (Kariyawasam  108)      An  act  of  unfair  competition  is  defined  as  followed:    1.  It  occurs  in  the  act  of  business  or  economy  competition.      Article  2  of  the  Anti-­‐Unfair  Competition  Law  of  the  PRC  (AUCL)  defines  the  subjects  of  unfair  competition  as  “business  operators”,  which  include  legal  persons,  other  organizations  or  individuals.  This  provision  aims  to  distinguish  unfair  competition  from  civil  torts.  For  example,  the  act  of  infringing  the  reputation  of  an  enterprise  is  deemed  as  a  tort  if  there  is  no  competitive  relationship  between  the  infringer  and  infringed.  A  similar  act  would  be  classed  as  unfair  competition  only  when  it  aims  to  defame  or  crowd  out  other  competitors.  (Kariyawasam  108)    2.  All  business  operators  aim  to  compete.  Stealing  Trademarks,  business  secrets,  and  defaming  competitors  all  aim  to  compete  and  would  fall  foul  of  the  AUCL    3.  All  market  players  need  to  abide  by  the  principles  of  voluntariness,  equality,  impartiality,  honesty,  and  good  faith  and  respect  public  commercial  ethics  in  their  business  transactions.  Acts  against  these  are  considered  unfair  competition  

 4.  An  act  of  unfair  competition  disturbs  the  social  and  economic  order.  Unfair  competition  aims  to  crowd  out  competitors,  and  it  will  damage  the  interest  of  other  competitors  and  customers,  impede  and  destroy  the  normal  market  competitive  order.    The  purpose  of  anti-­‐unfair  competition  law  is  to  encourage  and  protect  fair  competition,  prohibit  unfair  competition,  protect  the  legal  rights  and  interest  of  business  operators  and  customers,  and  safeguard  and  promote  the  healthy  development  of  the  market  economy  (Kariyawasam  109)    Chapter  2:  Laws  on  Paper  vs.  Reality  of  Enforcement.    

A.  Chinese  IP  law  enforcement  system  

  The  formal  state  legislation  regarding  IPR  is  much  different  than  the  actual  enforcement  of  those  laws.  This  section  will  detail  the  practical  methods  business  proprietors  must  undertake  in  order  to  defend  their  intellectual  property  rights.    

Civil  enforcement  of  IPR  in  China  is  a  two-­‐track  system.  The  first  is  the  administrative  track,  whereby  an  IPR  holder  enlists  the  aid  of  a  local  government  agency  office.  The  second  is  the  judicial  track,  whereby  complaints  are  filed  through  the  court  system.  Chinese  nationals  usually  use  the  administrative  track  to  solve  IP  disputes,  while  foreign  corporations  and  foreign  nationals  use  the  court  system  because  the  courts  have  the  authority  to  award  monetary  damages.    

Chinese  citizens  usually  solve  IP  disputes  through  the  administrative  track,  whereby  they  enlist  the  help  of  the  local  government  agencies  to  help  investigate  and  make  a  judgment  on  their  claim.  The  local  government  officials  can  help  stop  the  infringing  practices  but  do  not  have  the  authority  to  award  monetary  damages.  If  the  IPR  holder  is  not  satisfied  with  the  outcome,  he  or  she  can  file  a  formal  complaint  through  the  court  system.  The  court  system,  while  more  formal  than  the  administrative  process,  can  be  very  expensive  and  take  many  years  to  process.  The  time  to  trial  in  a  Chinese  court  is  usually  less  than  a  year  from  the  filing  of  the  complaint.  (The  conventional  time  to  trial  in  the  United  States  is  at  least  two  years.)  However,  in  China,  a  court  case  for  patent  infringement  is  usually  delayed  to  await  the  result  of  an  invalidity  determination,  which  is  decided  by  the  State  Intellectual  Property  Office  (SIPO),  not  the  courts,  and  usually  takes  one  to  two  years.  The  upside  of  using  the  court  system  is  that  monetary  damages  may  be  awarded  to  the  winning  parties  and  there  is  a  chance  to  appeal  the  decision  if  the  outcome  is  unsatisfactory.  This  is  why  most  foreign  companies  choose  to  use  the  court  system  to  prosecute  IP  infringement.    

There  is  no  discovery  procedure,  as  there  is  in  the  United  States,  whereby  revealing  documents  are  produced,  and  development,  sales,  and  profit  information  are  revealed  to  the  lawyers  for  the  opposing  party.  Therefore,  actual  damages  for  infringement  are  difficult  to  determine  given  the  lack  of  information  on  sales  numbers  and  profits.  Statutory  damages  are  adopted  in  most  cases.  Under  the  current  patent  and  trademark  statutes,  the  maximum  amount  is  ¥1  million  ($158,000).  Because  this  amount  is  relatively  insignificant  and  only  reached  in  exceptional  cases,  IPR  owners  do  not  typically  litigate  in  China  for  the  purpose  of  recovering  significant  damages.  Instead,  they  do  so  to  secure  a  court  injunction  against  further  infringement.  

Unlike  the  US,  where  courts  are  independent  of  the  government;  Chinese  courts  are  intertwined  with  the  government.  Local  court  appointments  are  made  by  the  local  government  administration,  which  is  dependent  on  local  companies  for  employment  and  tax  income.  These  relationships  tie  local  businesses  to  the  courts.  In  the  United  States,  it  is  considered  inappropriate  for  a  litigant  or  a  prospective  litigant  to  get  to  know  the  judge  to  improve  their  likelihood  of  success  in  court.  In  China,  however,  conflict  of  interest  is  traditionally  not  a  concern  for  Chinese  officials.  It  seems  that  one  cannot  win  in  a  Chinese  court  unless  that  person  has  ample  connections  with  the  local  government  and/or  the  local  community  of  businesses.    

B.  Cost-­‐benefit  Analysis  in  doing  business  in  China  

In  an  interview  with  American  attorney,  John  Tang,  the  Managing  Partner  of  Law  Firm  Brennan  Manna  &  Diamond  LLC,  further  confirmed  the  importance  of  working  with  local  law  enforcement  to  solve  intellectual  property  law  infringement  cases.  Tang,  who  works  with  mostly  US  small  and  medium  sized  companies  looking  to  develop  and  expand  their  brand  in  the  Chinese  market,  says  that  foreign  companies  must  decide  whether  taking  their  Chinese  infringers  to  court  is  a  wise  financial  decision,  as  the  costs  often  outweigh  the  benefit.      

“Many  times  small  and  medium  sized  foreign  enterprises  will  conduct  a  cost/benefit  analysis  when  deciding  if  to  pursue  legal  actions  against  infringers.  We  often  use  other  methods  of  negotiations  to  sort  out  their  infringement  issues.”  (Tang  Interview  1/12/2015)    

Tang  could  not  officially  comment  whether  his  law  firm  had  established  relationships  with  the  local  police,  but  said  that  the  local  officials  could  assist  in  getting  the  infringing  behavior  to  stop,  but  could  not  award  damages  to  the  victim  as  a  court  could.    

 Tang  said:  “In  the  case  of  a  large  company  with  access  to  capital,  we  advise  

them  to  sue  only  if  the  infringing  behavior  seriously  affects  their  market  share.  Otherwise,  the  time  and  money  it  would  cost  to  go  to  court  and  wait  for  a  ruling  is  

often  not  the  worth  the  effort.  Even  if  the  court  decides  in  their  favor,  another  infringer  will  likely  pop  up  in  another  place  and  time.  It  is  best  that  small  and  medium  sized  enterprises  save  their  money  and  focus  on  their  business  expansion  rather  than  fight  their  infringers  in  court.”    

One  case  in  which  the  client  performed  a  cost-­‐benefit  analysis  of  whether  to  pursue  legal  action  involves  a  foreign  licensor  with  a  Chinese  licensee.  This  case  involved  a  new  music-­‐based  technology  used  for  learning  to  play  the  piano.  This  particular  device  was  created  by  a  famous  pianist  from  the  UK,  who  had  set  up  his  own  company  and  was  licensing  his  product  and  his  trademark  to  a  Chinese  company  to  franchise  and  distribute  for  2  years.  After  the  Chinese  company  used  the  namesake  and  image  of  this  famous  UK  piano  player  to  advertise  their  product  for  2  years,  they  terminated  their  contract  with  him,  saying  that  his  product  was  faulty,  but  then  continued  making  and  selling  his  product  on  their  own  without  giving  him  the  property  royalties.  The  Chinese  company  infringed  his  patented  technology,  copyrighted  work,  namesake,  and  then  canceled  their  license  with  him  so  that  they  did  not  have  to  pay  him.  However,  rather  the  UK  Pianist  entrepreneur  did  not  have  enough  money  to  proceed  with  legal  fees  so  he  gave  up  pursuing  legal  action.      

Yanping  Wang,  Shanghai  Partner  of  Detroit-­‐based  law  firm,  Miller  Canfield  LLC,  reinforced  the  importance  of  trying  to  settle  IP  cases  out  of  court  before  attempting  to  file  an  official  suit.      Unlike  Tang,  who  aids  small  and  medium  sized  enterprises  and  insists  that  close  relationships  with  local  authorities  are  “extremely  important,”  Ms.  Wang,  who  aids  large  foreign  enterprises,  believes  that  it  is  not  as  important  for  high-­‐level  foreign  companies  to  have  connections  with  the  police.  “Chinese  authorities  will  help  them  [foreign  entities]  in  order  to  save  face  and  set  a  positive  relationship  reputation  for  China  in  the  international  community.”  (Yanping  Wang  Interview  2/9/2015)  

   

C.  Trademark  Pirate  Case  Studies        Before  the  Chinese  Trademark  Law  revision  of  2014,  several  “Trademark  Pirates”  took  advantage  of  the  Chinese  first-­‐to-­‐file  trademark  system,  which  left  a  loophole  for  pirates  to  file  an  application  of  well-­‐known  trademarks  that  were  already  in  use  abroad  but  not  registered  in  China.    After  successfully  registering  the  foreign  trademark  in  China,  the  trademark  pirates  would  then  attempt  to  sell  that  same  company  its  own  trademark  back  in  case  that  company  ever  wanted  to  enter  the  Chinese  domestic  market.      Ms.  Yanping  Wang  of  Miller  Canfield  was  careful  not  to  mention  any  specific  names  of  their  clients,  but  did  talk  about  several  trademark  pirate  cases  that  they  were  involved  with.      

One  case  involved  a  famous  US  cookware  brand  named  after  a  celebrity,  which  was  targeted  by  a  trademark  pirate.  This  particular  US  cooking  brand  company  never  registered  their  name  in  China  but  was  already  manufacturing  products  in  China  bearing  that  mark.  The  trademark  pirate,  who  was  the  rightful  “owner”  of  that  mark  in  China,  called  the  Customs  Bureau  and  asked  them  to  detain  the  company’s  goods  from  being  shipped  overseas,  basically  holding  that  company’s  goods  hostage  so  that  they  could  extort  them.  The  pirate  then  allegedly  told  Miller  Canfield’s  client  that  if  they  wanted  their  products  released  from  customs,  they  would  have  to  pay  1.5  million  USD.      Yanping  Wang  said  “Unfortunately,  the  trademark  pirates  are  the  legal  owner  of  the  mark  under  Chinese  law  because  they  were  the  first  to  file.  It  is  this  loophole  that  allows  trademark  pirates  to  take  advantage  of  the  Chinese  legal  system  against  the  interest  of  the  actual  business  proprietor.”      

There  was  some  speculation  that  the  trademark  pirate  and  the  customs  official  were  working  together  or  had  some  kind  of  agreement.  Once  an  individual  buys  or  files  a  trademark,  it  goes  on  record  at  the  Customs  Office.  The  owner  of  the  trademark  can  pay  the  customs  officer  to  notify  them  when  an  infringing  product  goes  through,  and,  for  a  fee,  the  Customs  officer  will  hold  the  so-­‐called  “infringing”  products  there.  The  bounds  or  legal  fee  is  around  25,000  RMB.  This  makes  it  somewhat  easy  for  trademark  pirates  to  have  the  customs  officer  working  in  their  favor.    Ms.  Wang  gave  a  thorough  account  of  the  step-­‐by-­‐step  process  in  how  Miller  Canfield  handled  this  situation:    Process  in  dealing  with  the  trademark  theft  case:    1.  First,  they  tried  to  negotiate  with  the  Pirate  as  much  as  possible  to  settle  the  matter  out  of  court.  However,  the  Trademark  Pirate,  who  was  the  technical  owner  of  the  trademark,  was  bent  on  extorting  the  client  for  a  large  sum  of  money.    2.  Miller  Canfield  then  went  to  customs  to  plea  their  case,  however  the  customs  officer  urged  them  to  settle  with  the  pirate.  There  is  speculation  that  the  customs  officer  was  working  with  the  pirate  since  it  was  beyond  his  scope  of  authority  to  tell  MC’s  client  to  settle  with  the  pirate.    3.    Meanwhile,  Miller  Canfield  appealed  the  case  to  General  Customs  and  asked  them  to  issue  a  special  ruling  allowing  the  items  to  pass  through  since  it  belongs  to  the  US  company  not  the  pirate.  The  General  Customs  office  agreed  initially  but  then  retracted  their  consent.  4.  MC  tries  to  talk  to  US  Senators  to  apply  political  pressure  but  to  no  avail.      5.  Fortunately  for  the  client,  there  was  an  error  at  the  customs  office  and  the  shipments  were  accidentally  released  and  allowed  to  ship  across  the  open  seas.    

Trademark  pirating  had  become  so  common  in  China  that  even  local  law  firms  had  begun  assisting  trademark  pirates  in  searching  for  available  trademarks  and  helping  them  file  applications  in  hopes  of  getting  a  commission  from  the  extorted  profit.  Chinese  law  firms  even  got  to  the  point  where  they  would  call  and  

provoke  foreign  companies  by  notifying  them  that  their  trademark  had  been  bought  in  China  to  try  to  negotiate  a  “trademark  ransom”  with  them.  

 D.  Trademark  Law  Revision  

 Fortunately,  however,  the  most  recent  Chinese  Trademark  Law  revision  that  

came  into  effect  on  May  1,  2014,  now  specifically  states  under  Article  15:  “trademarks  that  are  registered  by  an  agent  who  registers  a  trademark  of  a  person  he  represents  without  authorization  from  them  shall  be  rejected.”  This  prevents  agents,  including  corrupt  Chinese  attorneys,  from  registering  another  person’s  trademark  in  the  hopes  of  extorting  that  person  or  company.  Also,  the  new  revision  clearly  states  that  people  with  “business  relationships  and  contracts  with  people  who  have  an  unregistered  trademark  in  use  will  have  their  trademark  registration  rejected.”  This  prevents  business  partners  from  cheating  on  one  another  by  registering  a  mark  without  the  other  partner  knowing.  One  example  of  a  previous  incident  of  this  is  Miller  Canfield’s  client  in  2008,  which  involved  a  US  product  supplier  who  was  involved  with  purchasing  products  from  a  Chinese  company.  The  owner  of  this  particular  Chinese  company  was  a  female  politician  in  China  with  high  ranking.  In  bad  faith,  she  registered  the  US  company’s  trademark  within  China  and  then  refused  to  return  it.  The  situation  remains  unresolved  and  the  US  company  can  no  longer  legally  use  their  own  mark  within  China.    

 Article 15 Where any agent or representative registers, in its or his own name, the trademark of a person for whom it or he acts as the agent or representative without authorization therefrom, and the latter raises opposition, the trademark shall be rejected for registration and prohibited from use. Where Trademark applied for identical goods or similar goods, identical with or similar to the other people’s practical used but unregistered trademark, and the applicant has contract, business contact or any other relationship out of preceding clause with the other people and know the exits of the other people’s trademark, the opposition is raised by the other people, the trademark shall be rejected for registration

 The  new  revision  now  also  protects  well-­‐known  trademarks  that  are  in  use  abroad  but  not  registered  in  China.  Under  Article  13,  an  owner  of  a  trademark  can  “apply  for  the  protection  of  well-­‐known  trademark”  and  “trademarks  that  are  an  imitation  or  a  translation  of  another  person’s  trademark  not  registered  in  China,  will  be  rejected  for  registration  and  prohibited  from  use.”  3      

Article 13 Those trademarks well known by the relevant public, when the owner thinks his right is infringed, in accordance with this Law, he can apply for the protection of a well-known trademark. Where a trademark in respect of which the application for registration is filed for use for identical or similar goods is a reproduction, imitation or translation of another person's trademark not registered in China and likely to cause confusion; it shall be

                                                                                                               3  http://english.cnipr.com/iplaws/201311/t20131104_179171.html  

rejected for registration and prohibited from use. Where a trademark in respect of which the application for registration is filed for use for non-identical or dissimilar goods is a reproduction, imitation or translation of the well-known mark of another person that has been registered in China, misleads the public and is likely to create prejudice to the interests of the well-known mark registrant, it shall be rejected for registration and prohibited from use.

 There  is  a  clause  in  the  trademark  law  that  says  that  the  trademark  must  be  in  use,  however,  this  also  applies  to  online  businesses  as  well,  meaning  that  pirates  can  offer  their  products  on  an  online  “shop”  on  Taobao  or  JD.com  or  any  other  online  retailer  in  order  to  get  around  this  requirement.      

 

Section  2:    Notable  IPR  cases  in  Mainland  China  Chapter  1:  Chinese  Patent,  Trademark,  Copyright,  and  Trade  Secret  Cases  Overview    

A.  Patent  Cases  

In  2006,  the  Chinese  subsidiary  of  the  French  company  Schneider  Electric  SA  was  sued  by  the  Chinese  company,  Chint  Group  Corp.,  for  patent  infringement  in  the  Intermediate  Court  located  in  Chint’s  home  city.  Chint  claimed  that  Schneider  Electric  had  infringed  on  Chint’s  utility  model  patent  relating  to  circuit  breakers.  In  its  defense,  Schneider  filed  a  patent  invalidation  petition  with  SIPO.  In  April  2007,  SIPO  affirmed  the  validity  of  the  Chint  utility  model  patent.  The  Intermediate  Court  then  moved  forward  with  the  infringement  case  and  insisted  that  Schneider  produce  certain  tax  information  to  determine  the  company’s  sales  and  profits  on  the  alleged  infringing  products.  The  infringement  trial  was  held,  and  in  September  2007  the  court  found  Schneider  was  infringing  China’s  patent.  The  court  issued  an  injunction  against  Schneider  and  awarded  $49.2  million  in  damages  to  Chint.  While  on  appeal,  Schneider  and  Chint  settled.  

B.  Trademark  Cases  

Two  similar  trademark  cases  are  notable  for  their  different  outcomes.  The  first  concerns  Yi  Jianlian,  a  famous  basketball  star  in  China.  A  Chinese  sports  products  company  registered  the  trademark  “Yi  Jianlian”  even  though  there  was  no  business  relationship  between  Yi  and  the  company.  The  PRC  Trademark  Law  says  that  no  trademark  shall  prejudice  another  person’s  existing  prior  rights  in  a  trade  name  or  the  right  to  exploit  their  own  famous  name.  Yi  filed  a  cancellation  action  with  State  Administration  for  Industry  and  Commerce  (SAIC)  and  provided  

substantial  evidence  to  establish  his  popularity  in  China  before  the  filing  date  of  the  trademark.  On  that  basis,  SAIC  ruled  that  Yi  owned  name  rights,  and  canceled  the  company’s  trademark.  

However,  when  former  National  Basketball  Association  superstar  Michael  Jordan  took  a  similar  matter  to  court  in  China,  he  lost.  In  1998  and  1999,  Qiaodan  Sports,  a  Chinese  maker  of  sports  products,  filed  trademark  applications  for  “qiaodan,”  which  is  widely  recognized  in  China  as  the  translation  for  “Jordan.”  Qiaodan  Sports  used  “qiaodan”  as  its  products  trademark.  A  market  survey  conducted  in  Shanghai  showed  that  90  percent  of  the  400  Chinese  citizens  polled  believed  “qiaodan”  was  Jordan’s  brand.  Jordan  sued  Qiaodan  Sports  for  name  right  infringement  in  the  People’s  Court  of  Beijing.  Despite  the  undeniable  fact  that  Jordan  is  world-­‐renowned,  the  court  held  that  “Jordan”  is  a  common  surname  in  the  United  States  and  therefore  not  sufficiently  unique  to  create  exclusive  recognition  for  Jordan  to  own  the  name  right  to  “qiaodan.”Jordan’s  lawyers  have  re-­‐filed  their  name  right  infringement  case,  now  in  a  different  court,  in  Shanghai.    

C.  Copyrights  

Copyright  infringement  is  the  most  notorious  of  China’s  IPR  issues.  Private  party  enforcement  of  copyright  protections  has  not  been  effective,  either  because  favorable  judgments  have  not  been  forthcoming,  or  because  infringers  keep  eluding  punishment.  The  United  States  and  other  countries  even  brought  a  World  Trade  Organization  dispute  over  this  matter  in  2007.  It  seems  that  foreign  business  copyright  holders  have  only  achieved  significant  enforcement  results  when  working  in  conjunction  with  Chinese  law  enforcement  agencies  as  part  of  Chinese  trade  relations  programs.  

D.  Trade  Secret    

Domestic  Trade  Secret  Cases:  Ceramics  Institute  of  Guangdong  Fotao  Group,  Inc.  v.  Jinchang  Ceramics  Gong  Bang  Factory  

This  trade  secret  case  involves  a  dispute  over  a  production  technique  called  ‘Cold  Isostatic  Press  (CIP)  Technique  for  the  Production  of  Nanocomposite  Ceramic  Rods’,  which  the  courts  referred  to  as  ‘CIP  Technique’.  The  technique  was  pioneered  and  perfected  by  the  Fotao  Institute,  and,  after  an  evaluation  by  the  Guangdong  Science  and  Technology  Commission,  was  deemed  a  “national  technology  secret”  from  29  December  1987  with  a  term  protection  of  15  years.  4  In  1992,  it  came  to  the  knowledge  of  Fotao  Institiute  that  Jinchang  Factory  made  use  of  basically  the  same  

                                                                                                               

4  http://www.pkulaw.cn/fulltext_form.aspx?Gid=117507295&EncodingName=  

 

technology,  machinery,  and  equipment,  as  the  plaintiff’s  factory,  to  produce  rods.  The  reason  was  that  the  defendant  had  hired  2  workers  who  had  been  formerly  employed  by  Fotao  Institute,  Ou  Yongchao  and  Ou  Guoxiang,  who  had  then  revealed  Fotao’s  technology  secrets  to  the  defendant.  The  plaintiff  therefore  asked  the  court  to  order  that  Jinchang  immediately  stop  the  infringing  act,  compensate  the  plaintiff  for  the  economic  loss  suffered,  and  make  a  public  apology.  (Lin  238)    

The  court  unanimously  concluded  that  the  plaintiff’s  (Fotao)  technique  was  indeed  a  trade  secret  as  well  as  a  national  secret.  It  also  concluded  that  the  defendant  (Jinchang)  had  stolen  the  trade  secret  of  the  plaintiff  in  an  unfair  way  and  had  infringed  on  the  rights  of  the  plaintiff.  According  to  the  judgment:  “Jinchang  Factory’s  infringement  of  Fotao  Institute’s  know-­‐how  constituted  unfair  competition,  according  to  Article  10  of  the  Unfair  Competition  Law  of  the  PRC.  According  to  Article  20  of  the  Unfair  Competition  Law  and  Article  118  of  the  General  Principles  of  the  Civil  Law,  Jinchang  Factory  would  immediately  need  to  stop  the  infringement,  respond  in  damages,  make  apologies,  and  bear  the  legal  cost  of  the  case  (Lin  255).  Jinchang  Factory  was  made  to  compensate  the  Fotao  Institute  with  RMB  264,019  for  its  losses  in  addition  to  bearing  an  additional  cost  of  RMB  30,530  for  the  acceptance  fees  and  attachment  fees,  a  total  of  RMB  294,549.  Jinchang  Factory  also  had  to  cease  using  the  “cold  wait  and  static  pressed  fine  ceramic  roller”  technique  as  well  as  make  a  public  apology  to  Fotao  Institute  in  the  newspaper  (Lin  256).    

US-­‐China  Trade  Secret  cases  

United  States  v.  Liew  Court  Name:  United  States  District  Court  for  the  Northern  District  of  California  Man  sentenced  for  theft  of  Trade  Secrets  from  DuPont  

Walter  Liew  was  sentenced  to  15  years  in  prison,  and  fined  $28  million  following  his  conviction  under  the  Economic  Espionage  Act.  The  conviction  arose  from  the  theft  of  trade  secrets  from  DuPont,  particularly  information  and  documents  pertaining  to  the  production  process  of  a  white  pigment,  titanium  dioxide  (TiO2).  The  pigment  is  what  DuPont  uses  to  achieve  its  whitest  whites  in  everything  from  cars  to  paper.  

Judge  White,  writing  in  the  Northern  District  of  California  on  a  post-­‐conviction  motion  for  acquittal,  explained  that  the  evidence  demonstrating  the  intent  to  injure  Dupont,  and  intent  to  benefit  a  foreign  government  was  sufficient  for  a  rational  juror  to  find  Liew  guilty.  It  was  also  noted  that  the  money  was  tracked  to  various  accounts  in  Singapore  and  China,  but  could  not  be  recovered.  

United  States  v.  Chung  Court  Name:  United  States  Court  of  Appeals  for  the  Ninth  Circuit  9th  Circuit:  No  Competitors  Needed  for  Trade  Secrets  to  Exist  Under  the  EEA  

United  States  v.  Chung,  659  F.3d  815,  826  (9th  Cir.  2011)  Docket  No.  10-­‐50074  Federal  Court  of  Appeals  for  the  9th  Circuit  Decided:  September  26,  2011,  Judge  Susan  P.  Graber  

In  a  2011  opinion,  the  Court  of  Appeals  for  the  Ninth  Circuit  affirmed  the  first  trial  court  conviction  under  the  Economic  Espionage  Act.  Notably,  the  appellate  court  in  United  States  v.  Dongfan  Chung  addressed  the  independent  economic  value  requirement  under  18  U.S.C  §1839(3)(B)  as  either  actual  or  potential.  In  line  with  the  statutory  language,  the  Court  asserted  that  the  owner  of  secret  information  did  not  need  to  have  actual  competitors  in  order  to  rightfully  protect  its  economic  value.  

In  US  v.  Chung,  the  defendant  Dongfan  “Greg”  Chung,  a  former  engineer  for  the  US-­‐contractor  Boeing,  was  found  in  possession  of  over  300,000  Boeing  documents,  including  six  documents  containing  Boeing  trade  secrets.  On  appeal  of  his  conviction,  Chun  argued  insufficient  evidence  as  to  the  existence  of  any  Boeing  trade  secrets  within  the  documents  he  possessed.  The  court  looked  specifically  at  four  Boeing  documents  relating  to  a  NASA  space-­‐shuttle  antenna.  Judge  Graber  found  that  Boeing  maintained  the  secrecy  of  the  particular  Boeing  information  and  enacted  reasonable  protective  measures  to  maintain  secrecy.  Most  notably,  the  Court  endeavored  in  an  extensive  analysis  of  he  economic  value  required  for  such  information  to  be  trade  secrets.  While  the  EEA’s  definition  of  trade  secret  is  grounded  upon  the  standard  outlined  in  the  Uniform  Trade  Secrets  Act  (UTSA),  the  text  of  §1839(3)(B)  further  defines  the  economic  value  of  trade  secret  information  as  either  actual  or  potential,  and  does  not  mention  the  existence  of  competitors.  

The  court  reasons  that  such  information  “could  assist  a  competitor  in  understanding  how  Boeing  approaches  problem-­‐solving  and  in  figuring  out  how  best  to  bid  on  a  similar  project  in  the  future,  for  example,  by  underbidding  Boeing  on  tasks  at  which  Boeing  appears  least  efficient.”  Thus  the  Court  held  Boeing’s  secret  information  independently  valuable  not  for  Boeing’s  potential  use,  but  for  use  of  such  information  by  any  potential  Boeing  competitor.  Thus  the  Ninth  Circuit  held  that  under  the  EEA,  companies  do  not  need  actual  competitors  in  order  to  derive  economic  value  from  maintaining  the  secrecy  of  certain  information.5  

Chapter  2:  Efforts  to  Improve  the  Chinese  Court  System  

Amidst  international  and  domestic  criticism,  China  is  seeking  to  reform  and  improve  its  legal  system  pertaining  to  Intellectual  Property  Rights  Protection.  Such  efforts  include  establishing  three  special  IPR  courts  in  Shanghai,  Guangdong,  and  

                                                                                                               5  http://tsi.brooklaw.edu/category/legal-­‐basis-­‐trade-­‐secret-­‐claims/economic-­‐espionage-­‐act      

Beijing  as  well  as  appointing  a  judge  who  with  a  specialty  in  Intellectual  Property  Law  to  the  Supreme  People’s  Court.    

A.    IPR  Tribunals  and  3  Special  IP  Courts  in  Beijing,  Shanghai,  and  Guangdong  

Since  the  very  first  IP  tribunal  was  established  in  a  Beijing  court  in  1993,  IP  tribunals  have  been  established  at  the  Supreme  People’s  Court,  32  high  people’s  courts,  more  than  400  intermediate  people’s  courts  and  more  than  100  designated  basic  people’s  courts  throughout  China.  There  are  currently  about  3,000  specialized  IP  judges  in  China.  

However,  in  the  Chinese  court  system,  IP  civil  cases,  such  as  infringement  cases,  are  heard  in  IP  tribunals;  IP  administrative  cases,  such  as  appeals  against  the  Patent  Re-­‐examination  Board’s  decisions,  are  heard  in  administrative  tribunals.  IP  criminal  cases  are  heard  in  criminal  tribunals.  Hence  there  lacks  a  consistency  in  the  IP  court  system  due  to  the  different  IP  cases  being  tried  in  3  different  types  of  courts.    

Currently,  seven  high  people’s  courts,  74  intermediate  people’s  courts  and  80  basic  people’s  courts  have  been  running  a  pilot  program  that  brings  together  judges  from  all  three  tribunals  in  their  respective  courts  to  form  a  collegiate  bench  in  the  IP  tribunal  for  an  IP  civil  case  that  involves  civil  or  criminal  action.    

In  August  of  2014,  the  Supreme  People's  Court  (SPC),  China’s  top  legislature,  selected  Beijing,  Shanghai  and  Guangdong  as  the  first  places  to  establish  these  specialized  IPR  courts. Under  a  judicial  interpretation  issued  by  the  SPC,  the  three  new  courts  are  to  handle  civil  and  administrative  disputes  involving  intellectual  property,  especially  technical  disputes.   25  judges  were  appointed  to  the  IPR  court  in  Beijing,  which  is  conveniently  located  in  the  Haidian  district  where  a  number  of  technology  giants  and  colleges  will  stand  to  benefit  from  its  establishment.  

The  court  in  Guangdong  will  be  based  in  Guangzhou,  the  provincial  capital.  Intermediate  people's  courts,  which  heard  technical  intellectual  property  rights  cases  previously,  will  no  longer  handle  related  disputes  after  the  three  new  courts  start  work.    

Although  these  3  specialized  IPR  courts  are  meant  to  streamline  and  better  coordinate  the  IPR  court  prosecution  system,  there  are  still  a  number  of  issues.  For  one,  there  is  a  varied  level  of  expertise  across  different  courts  regarding  patents,  integrated  circuit  layout  designs,  new  plant  varieties,  and  software.    Inconsistent  standards  are  being  adopted  in  different  courts,  there  is  evidence  of  local  protectionism  in  some  courts,  and  there  are  multiple  rounds  of  litigation.  

According  to  the  Standing  Committee  of  the  National  People’s  Congress’s  resolution,  the  specialized  IP  courts  have  jurisdiction  over  the  first  instance  of  IP  civil  cases  and  the  first  instance  of  IP  administrative  cases  regarding  patents,  new  plant  varieties  and  integrated  circuit  layout  designs,  as  well  as  technical  knowhow.  

Specifically,  the  specialized  IP  court  in  Beijing  has  jurisdiction  over  the  first  instance  of  administrative  lawsuits  that  are  appeals  against  decisions  of  administrative  departments  under  the  State  Council,  such  as  the  State  Intellectual  Property  Office  and  the  Patent  Re-­‐examination  Board,  regarding  the  grant  or  validity  of  IP  rights.  The  three  specialized  IP  courts  have  territorial  jurisdiction  across  regions  in  China,  and  in  the  first  three  years  after  their  establishment  this  cross-­‐region  territorial  jurisdiction  may  first  be  achieved  in  the  respective  province  or  municipality  under  the  central  government  where  a  specialized  IP  court  is  located.  

The  specialized  IP  courts  also  hear  appeals  against  decisions  in  trademark  and  copyright  civil  or  administrative  lawsuits  made  by  the  first  instance  basic  people’s  court  in  the  municipality  where  the  respective  IP  court  is  located.  

Appeals  against  decisions  made  by  specialized  IP  courts  are  heard  by  the  high  people’s  court  where  the  respective  specialized  IP  court  is  located.  

The  specialized  IP  courts  will  be  supervised  by  the  Supreme  People’s  Court,  the  high  people’s  court  where  the  respective  specialized  IP  court  is  located  and  also  by  the  Procuratorate,  the  national  agency  responsible  for  prosecution  and  investigation.  

The  president  of  each  specialized  IP  court  is  appointed  by  the  local  People’s  Congress  where  the  respective  specialized  IP  court  is  located.  The  vice  president  of  the  specialized  IP  court,  chiefs  of  tribunals  and  adjudicating  judges,  and  members  of  adjudicating  committees  will  be  named  by  the  president  of  the  respective  specialized  IP  court  and  appointed  by  the  local  People’s  Congress.  The  specialized  IP  court  reports  to  the  Standing  Committee  of  the  local  People’s  Congress  where  the  respective  specialized  IP  court  is  located.  The  Supreme  People’s  Court  reports  on  the  implementation  of  the  IP  courts  to  the  National  People’s  Congress  after  three  years.  

Establishing  three  specialized  IP  courts  is  just  a  small  step  towards  the  reform  of  the  IP  litigation  system.  There  is  still  no  national  patent  appeal  court  like  the  Court  of  Appeals  for  the  Federal  Circuit  in  the  US.  

Chen  Jinchuan,  chief  judge  of  the  intellectual  property  tribunal  under  Beijing  High  People's  Court,  said  most  judges  without  technical  backgrounds  have  difficulty  in  handling  some  professional  IPR  disputes,  such  as  those  related  to  biology,  medicine  and  chemistry.  To  resolve  this  issue,  the  SPC  is  recruiting  technical  assistants  for  the  three  courts  to  help  identify  technological  facts  and  provide  professional  advice.  The  SPC  is  now  preparing  a  judicial  interpretation  that  will  cover  the  selection  of  these  

technical  assistants  and  their  duties,  in  hopes  that  it  will  improve  the  efficiency  of  hearing  such  cases.  

Zhang  Sihan,  a  professor  at  the  National  Judges  College,  said  it  is  practical  to  set  up  IPR  courts  in  Beijing,  Shanghai  and  Guangdong,  "but  it  is  not  necessary  to  establish  more  in  all  provinces".  Guangdong  courts  handle  about  25  percent  of  the  nation's  IPR  civil  cases  every  year  and  the  average  number  of  patent  disputes  in  the  province  annually  has  reached  3,400.  Zhang  said  the  new  courts  are  acting  as  trailblazers  and  a  decision  on  extending  such  courts  to  other  areas  will  depend  on  whether  these  three  "pioneers"  operate  well.6  

Chapter  3:  Chinese  Involvement  with  International  Conventions  

In  1980,  the  PRC  became  a  member  of  the  World  Intellectual  Property  Organization  (WIPO).  It  has  patterned  its  IPR  laws  on  the  Berne  Convention  for  the  Protection  of  Literary  and  Artistic  Works  and  the  Agreement  on  Trade-­‐Related  Aspects  of  Intellectual  Property  Rights  (TRIPS).  

The  PRC  acceded  to  the  Paris  Convention  for  the  Protection  of  Industrial  Property  on  14  November  1984  and  became  an  official  member  on  19  March  1985.  The  PRC  also  acceded  to  the  Madrid  Agreement  for  the  International  Registration  of  Trademarks  in  June  1989.  

In  January  1992,  the  PRC  entered  into  a  Memorandum  of  Understanding  with  the  United  States  government  to  provide  copyright  protection  for  all  American  "works"  and  for  other  foreign  works.  Several  bilateral  negotiations  have  been  conducted  between  the  two  governments.  At  some  point,  trade  sanctions  were  threatened  by  both  governments  over  IPRs  issues.  At  the  conclusion  of  negotiations  in  1995,  the  Sino-­‐US  Agreement  on  Intellectual  Property  Rights  was  signed.  In  June  1996,  the  two  governments  entered  into  another  agreement  protecting  American  intellectual  property  in  the  PRC.  

Generally,  once  the  PRC  has  acceded  to  an  international  treaty,  the  People's  Courts  can  quote  the  provisions  of  the  treaty  directly  in  deciding  an  intellectual  property  infringement  case,  without  reference  to  a  Chinese  domestic  law  by  which  the  treaty  provision  is  incorporated.  

   A.  US  China  WTO  dispute  

The  US  has  historically  held  the  view  that  China  is  especially  lax  with  regards  to  its  enforcement  of  Intellectual  Property  rights.  Even  before  China  joined  the  WTO,  the  US  put  tremendous  pressure  on  China  in  the  form  of  threats  of  trade  sanctions  and  opposition  to  its  entry  to  the  WTO  in  order  to  force  China  to  strengthen  its  intellectual  property  protection  and  enforcement.                                                                                                                    6  http://www.chinadaily.com.cn/china/2014-­‐11/04/content_18862403.htm  

In  2007  the  US  brought  up  a  case  against  China  at  the  WTO  that  said  that  China’s  method  of  enforcement  did  not  meet  the  requirements  of  the  Berne  convention.  In  2009,  the  WTO  upheld  the  US’s  arguments.    

On  10  April  2007,  the  United  States  requested  consultations  with  China  concerning  certain  measures  pertaining  to  the  protection  and  enforcement  of  intellectual  property  rights  in  China.  

The  four  matters  on  which  the  United  States  requests  consultations  were:  

The  thresholds  that  must  be  met  in  order  for  certain  acts  of  trademark  counterfeiting  and  copyright  piracy  to  be  subject  to  criminal  procedures  and  penalties;  

• Goods  that  infringe  intellectual  property  rights  that  are  confiscated  by  Chinese  customs  authorities,  in  particular  the  disposal  of  such  goods  following  removal  of  their  infringing  features;        

• The  scope  of  coverage  of  criminal  procedures  and  penalties  for  unauthorized  reproduction  or  unauthorized  distribution  of  copyrighted  works;  and        

• The  denial  of  copyright  and  related  rights  protection  and  enforcement  to  creative  works  of  authorship,  sound  recordings  and  performances  that  have  not  been  authorized  for  publication  or  distribution  within  China.  

At  it’s  meeting  on  25  September  2007,  the  Dispute  Settlement  Body  (DSB)  established  a  panel.  Argentina,  the  European  Communities,  Japan,  Mexico  and  Chinese  Taipei  reserved  their  third-­‐party  rights.  Subsequently,  Australia,  Brazil,  Canada,  India,  Korea,  Thailand  and  Turkey  reserved  their  third-­‐party  rights.  The  panel  concluded  that,  to  the  extent  that  the  Copyright  Law  and  the  Customs  measures  as  such  are  inconsistent  with  the  TRIPS  Agreement,  they  nullify  or  impair  benefits  accruing  to  the  United  States  under  that  Agreement,  and  recommended  that  China  bring  the  Copyright  Law  and  the  Customs  measures  into  conformity  with  its  obligations  under  the  TRIPS  Agreement.  On  29  June  2009,  China  and  the  United  States  informed  the  DSB  that  they  had  agreed  that  the  reasonable  period  of  time  for  China  to  implement  the  DSB  recommendations  and  rulings  should  be  12  months  from  the  adoption  of  the  report.  

   

Section  3:  Chinese  Domestic  Innovation:  A  Way  To  Boost  IPR  Regime  

 Chapter  1:  Chinese  products  lack  innovation  patents,  rather  they  license  core  tech  from  other  countries  ex.  Samsung.      In  2007,  a  Chinese  newspaper  Beijing  Youth  Daily  reported  that  99  percent  of  Chinese  Companies  did  not  apply  for  patents  because  of  the  lack  of  core  technology.  At  the  time,  Chinese-­‐made  mobile  phones  and  computers  needed  to  pay  20-­‐30  percent  of  their  retail  price  just  for  the  licensing  of  patented  technologies  (Cheung  74).  (Beijing  Youth  Daily,  28  April  2007)    Although  the  situation  has  improved  a  lot  since  then,  Chinese-­‐made  technologies  still  largely  lack  their  own  core  technology  and  continue  to  license  technologies  from  other  foreign  companies.  One  example  is  China  smartphone  maker,  Xiaomi,  who  is  currently  being  sued  and  prevented  from  entering  foreign  markets  due  to  its  lack  of  intellectual  property,  mainly  patents.    

Ericsson  AB  has  recently  sued  Xiaomi  in  India,  Xiaomi’s  biggest  overseas  market,  saying  the  smartphone  maker  hadn’t  licensed  inventions  by  Ericsson  that  enable  wireless  devices  to  connect  to  networks.  Ericsson  holds  essential  patents  for  2G,  3G  and  4G  mobile  wireless  technology,  which  means  any  seller  of  products  compliant  with  those  standards  must  secure  licenses.    

Xiaomi  suspended  all  India  sales  to  comply  with  the  Dec.  8,  2014  Delhi  High  Court  ruling  in  Ericsson’s  lawsuit.  A  Xiaomi  appeal  on  Dec.  16,  2014  led  to  a  partial  lifting  of  the  ban,  for  devices  using  Qualcomm  Inc.  chips.  According  to  Xiaomi’s  India  website,  the  Mi3  and  Redmi  1S  use  Qualcomm  chips,  while  the  Redmi  Note  device  uses  a  MediaTek  Inc.  processor.  Qualcomm  has  also  been  quoted  saying  that  Xiaomi  has  a  license  agreement  for  3G  multimode  units;  however,  the  details  of  the  agreement  cannot  be  disclosed.    

Low  research  costs  in  China  has  helped  Xiaomi  go  from  a  startup  to  the  world’s  No.  3  smartphone  vendor  within  four  years  of  its  founding.  Virtually  all  those  sales  were  in  China,  where  weak  domestic  enforcement  of  intellectual-­‐property  rights  meant  Xiaomi  was  “much  more  protected,”  Shah  said.  This  lawsuit,  however,  threatens  Xiaomi’s  international  expansion  and  puts  Xiaomi’s  strategy  of  selling  devices  for  near-­‐cost  at  risk,  as  it  will  have  to  increase  its  spending  on  research  and  licensing  to  avoid  legal  battles.  

Although  Xiaomi  is  also  working  to  expand  its  patent  technology  portfolio  globally—filing  600  patent  applications  in  2013  and  another  1,000  applications  in  2014,  it  still  is  still  a  very  young  company  and  lags  behind  its  competitors.  Entering  an  overseas  market  with  a  limited  patent  portfolio  can  be  a  “calculated  risk,”  since  competitors  will  target  those  companies  for  IP  law  suits  to  keep  them  out  of  the  market.  Neil  

Shah,  a  Mumbai-­‐based  research  director  for  devices  at  Counterpoint  Research  said:  “Patent  companies  in  other  countries  will  now  go  after  Xiaomi  in  other  markets  and  use  the  India  market  as  the  example.”  

“Expansion  into  countries  with  strict  intellectual  property  laws,  such  as  the  U.S.  or  Japan,  has  long  been  a  challenge  for  most  Chinese  smartphone  brands,  including  Xiaomi,”  said  Neil  Mawston,  executive  director  of  researcher  Strategy  Analytics.“Xiaomi  will  find  its  rapid  smartphone  growth  at  home  in  China  is  much  harder  to  replicate  abroad.”7      For  now,  Xiaomi  will  still  have  to  license  many  of  its  core  technology  patents.  However,  unfortunately  from  them,  many  foreign enterprises that own core technologies charge high patent licensing fees to Chinese domestic ICT (Information and Communications and Technology Market) Industry. (Hong Xue 41).      Chapter  2:  Innovation  areas  that  are  funded  or  supported  by  the  Chinese  Government    

Chinese  domestic  IPR  will  improve  as  its  own  domestic  innovation  grows,  as  it  will  have  reasons  to  protect  its  own  IPR  from  infringement.  The  Chinese  government  is  eager  to  develop  its  own  research  and  further  delve  into  areas  such  as  ‘independent  innovation.’  Chinese  domestic  innovation  faces  the  further  threat  of  intellectual  property  theft.  Competitors  in  China  are  becoming  more  technologically  advanced  and  legally  sophisticated,  so  that  IP  disputes  are  already  moving  away  from  simple  counterfeiting  or  copying  towards  more  sophisticated  methods  of  infringement.  This  makes  obtaining  effective  and  robust  patent  rights  in  China  even  more  important.  (Cheung  74)    In  an  interview  with  Professor  Michael  Pendleton,  the  Associate  Director  of  the  School  of  Law  at  the  Chinese  University  in  Hong  Kong,  he  states:      “The  Chinese  government  has  already  revised  many  IPR  laws:  patents,  copyrights  and  signed  on  to  many  international  agreements  through  bilateral  and  multilateral  means.  However,  it  is  like  putting  on  new  clothes  without  really  understanding  what  are  the  meanings  of  the  legal  system  and  the  rules  of  law.  They  will  take  literally  what  fits  and  revise.  China  is  gradually  developing  its  own  intellectual  property  and  needs  a  system  to  protect  it.  It  is  about  self-­‐interest  in  having  laws  to  protect  its  own  IP.”(Cheung  94)  Pendleton  has  worked  with  Professor  Zheng  Chensi  who  was  the  previous  head  of  the  Intellectual  Property  Rights  Bureau  in  China.    

                                                                                                               7 http://www.bloomberg.com/news/articles/2014-12-22/xiaomi-finds-patent-problem-in-chase-of-samsung-apple      

  Innovation  Development  projects  such  as  the  Shanghai  Free  Trade  Zone,  Qingdao’s  Rubber  Valley,  and  Shanghai’s  Knowledge  and  Innovation  Center  (KIC)  exemplify  the  growing  trend  of  Chinese  domestic  innovation.      A.  Shanghai  Free  Trade  Zone    Shanghai’s  Free-­‐Trade  Zone  (Shanghai  FTZ  or  SFTZ),  officially  China  (Shanghai)  Pilot  Free-­‐Trade  Zone中国（上海）自由贸易试验区is  an  example  of  China’s  effort  to  increase  international  free  trade  as  well  as  encourage  innovation  and  the  importing  of  new  innovative  products.  Officially  launched  on  September  29,  2013  with  the  backing  of  Chinese  Premier  Li  Keqiang,  it  is  the  first  free-­‐trade  zone  in  Mainland  China,  covering  an  area  of  29  square  kilometres  (11  sq  mi)  and  integrating  four  existing  bonded  zones  in  the  district  of  Pudong  —  Waigaoqiao  Free  Trade  Zone,  Waigaoqiao  Free  Trade  Logistics  Park,  Yangshan  Free  Trade  Port  Area  and  Pudong  Airport  Comprehensive  Free  Trade  Zone.  The  intention  is  for  the  SFTZ  to  expand  gradually  to  cover  the  entire  1,210  square  kilometres  (470  sq  mi)  of  Pudong.8    

The  Zone  is  being  used  as  a  testing  ground  for  a  number  of  economic  and  social  reforms.  For  example,  the  sale  of  video  game  consoles,  banned  in  China  since  2000,  will  be  allowed  within  the  zone.  While  Microsoft  had  aimed  at  having  its  Xbox  on  the  market  by  late  April,  2014,  it  has  now  been  slated  for  a  release  date  of  September  23,  2014.  Consoles  and  individual  games  will  still  be  subject  to  a  case-­‐by-­‐case  approval  by  the  Shanghai  Municipal  Administration  of  Culture,  Radio,  Film  &  TV  for  manufacture  and  sales  in  China.    

Although  it  was  initially  reported  that  the  zone  would  also  have  unrestricted  access  to  the  internet  (with  bans  on  sites  such  as  Facebook  lifted),  the  official  Xinhua  News  Agency  has  stated  that  Internet  restrictions  would  not  be  lifted.9  Because  the  four  bonded  zones  of  the  Free  Trade  Zone  are  not  technically  considered  PRC  territory  for  tax  purposes,  commodities  entering  the  zone  are  not  subject  to  duty  and  customs  clearance  as  would  otherwise  be  the  case.  This  has  been  a  boon  to  the  wine  industry  in  China,  as  it  grants  importers  more  flexibility  in  bringing  wine  into  the  country.10  The  FTZ  features  a  distinctive  mechanism  for  dispute  resolution  than  exists  elsewhere  in  China.  Arbitration  in  the  Zone  is  governed  by  a  separate  set  of  Arbitration  Rules  issued  by  the  Shanghai  International  Arbitration  Center  (SHIAC).  These  introduce  several  reforms  favorable  to  foreign  investment  in  the  FTZ,  including  emergency  arbitration,  hybrid  mediation/arbitration,  and  lower  barriers  to  summary  procedure.  Additionally,  arbitrators  may  be  chosen  from  outside  of  the  official  roster  maintained  by  SHIAC,  provided  they  satisfy  certain  qualifying  criteria.  

                                                                                                               8  "Shanghai  free-­‐trade  zone  launched".  BBC  News.  September  29,  2013.  Retrieved  September  30,  2013.  9  "China  to  lift  ban  on  Facebook  –  but  only  within  Shanghai  free-­‐trade  zone".South  China  Morning  Post.  September  25,  2013.  Retrieved  October  8,  2013.  10  "China launches pilot free trade zone in Shanghai". Shanghai Daily. September 29, 2013. Retrieved September 30, 2013.  

Corporate  Establishment  

The  Zone  cancels  out  a  number  of  financial  requirements  for  setting  up  a  company  in  China,  including  the  minimum  registration  capital  of  RMB  30,000  for  limited  liability  companies,  the  RMB100,000  minimum  for  single  shareholder  companies,  and  the  RMB5  million  minimum  for  joint  stock  companies.  Moreover,  under  the  FTZ's  new  capital  registration  system,  foreign  investors  are  no  longer  required  to  contribute  15-­‐percent  capital  within  three  months  and  full  capital  within  two  years  of  the  establishment  of  a  foreign  invested  enterprise  (FIE).  

Instead,  shareholders  of  companies  established  in  the  Zone  may  agree  upon  the  contribution  amount,  form,  and  period  of  contribution  at  their  own  discretion.  However,  shareholders  are  still  liable  for  the  authenticity  and  legality  of  capital  contributions  and  will  be  held  accountable  to  the  company  within  the  limits  of  their  respective  subscribed  capital  or  shares.  

In  addition  to  these  financial  reforms,  the  FTZ  also  introduces  a  simplified  procedure  for  foreign  investors  to  establish  a  company  in  China.  The  “one-­‐stop  application  processing  platform”  unique  to  the  Zone  requires  that  all  application  materials  be  submitted  to  and  handled  by  the  Industry  and  Commerce  Authority  (AIC)  in  the  Zone.  The  relevant  approval  and  filing  procedures  are  then  conducted  via  inter-­‐departmental  circulation,  after  which  the  various  licenses  and  certificates  (including  the  business  license,  enterprise  code  certificate,  and  tax  registration  certificate)  are  issued  to  the  applicant(s)  by  the  AIC.  

This  means  that  applicants  may  obtain  all  the  necessary  documents  for  company  establishment  in  one  place,  in  contrast  with  outside  the  Zone  where  applicants  must  run  around  between  different  authorities  for  the  issuance  of  various  certificates.[15]  

According  to  the  Shanghai  Statistics  Bureau,  close  to  10,000  businesses  had  registered  within  the  FTZ  as  of  June  2014—661  of  which  were  foreign-­‐invested  enterprises.11  

Foreign  Exchange  As  announced  by  the  State  Administration  of  Foreign  Exchange  (SAFE)  Shanghai  branch  on  February  28,  2014,  the  Free  Trade  Zone  will  permit  yuan  convertibility  and  unrestricted  foreign  currency  exchange,  and  a  tax-­‐free  period  of  10  years  for  the  businesses  in  the  area  as  a  means  to  simplify  the  process  of  foreign  direct  investment  (FDI)  and  facilitate  the  management  of  capital  accounts.  Under  the  new  regulations,  foreign  invested  enterprises  (FIEs)  registered  in  the  FTZ  may  now  make  foreign  exchange  capital  account  settlements  at  their  own  discretion,  as  opposed  to  under  the  previous  rules,  where  settlements  were  restricted  to  those  deemed  to  be  "actual  needs"  by  SAFE.  FIEs  in  the  FTZ  may  also  now  open  RMB  special  deposit  accounts  to  hold  RMB  funds  obtained  from  foreign  exchange  settlements,  which  may  then  be  used  to  make  payments  for  real  transactions.  

                                                                                                               11  "Establishing a Company in the Shanghai FTZ", China Briefing, Shanghai, 12 March 2014.    

However,  restrictions  still  apply  for  using  RMB  funds  for  certain  types  of  transactions.    Foreign  Investment  

The  Zone  introduces  a  number  of  reforms  designed  to  create  a  preferential  environment  for  foreign  investment.  On  September  18,  2013,  the  State  Council  of  China  published  a  list  of  18  service  industries  to  receive  more  relaxed  policies  in  the  zone,  including  medical  services,  value-­‐added  telecommunications,  ocean  freight  &  international  ship  management  and  banking.  Another  important  feature  of  the  zone  is  found  in  its  "negative  list"  approach  to  foreign  investment,  which  is  permitted  in  all  sectors  unless  explicitly  prohibited  by  the  inclusion  of  a  given  sector  on  the  Negative  List  published  by  the  Shanghai  Municipal  Government.  The  16  sectors  thus  named  as  restricted  or  prohibited  for  foreign  investment  are  organized  as  follows:  

• Agriculture,  Forestry  Animal  Husbandry  and  Fishery  • Mining  • Manufacturing  • Production  and  Supply  of  Power,  Gas  and  Water  • Construction  • Wholesale  and  Retail  • Transportation,  Warehousing  and  Postal  Services  • Information  Transmission,  Computer  Services  and  Software  • Finance  • Real  Estate  • Leasing  and  Commercial  Services  • Scientific  Research  and  Technical  Services  • Water  Conservancy,  Environmental,  and  Public  Facilities  Management  • Education  • Health  and  Social  Industries  • Cultural,  Sports  and  Entertainment  Industries  

The  Negative  List  was  updated  in  July,  2014,  further  relaxing  restrictions  on  foreign  investment  in  the  financial  industry,  manufacturing,  and  transportation  services.  

E-­‐Commerce  In  one  of  the  first  measures  introduced  as  part  of  the  Shanghai  FTZ,  the  General  Administration  of  Customs  (GAC)  launched  a  cross-­‐border  E-­‐commerce  platform,  buyeasi.com  跨境通.  This  was  intended  to  stymie  the  widespread  evasion  of  customs  duty  and  smuggling  that  have  emerged  amidst  China's  booming  e-­‐commerce  market  through  online  vendors  such  as  Taobao.  Products  on  the  new  site,  which  will  be  monitored  by  the  GAC,  are  sold  by  vendors  who  have  conducted  

record-­‐filing  with  the  customs  authorities,  thereby  avoiding  the  risk  of  fake  products  and  lowering  product  prices  through  the  use  of  bonded  warehouses.  12  Legal  Services  

The  FTZ  introduces  two  main  changes  to  the  Chinese  legal  services  industry:  firstly,  whereas  previously  foreign  lawyers  were  prohibited  from  directly  participating  in  China’s  legal  affairs  and  foreign  law  firms  were  only  permitted  to  set  up  a  branch  or  a  representative  office  (RO)  in  China,  under  the  FTZ  pilot  program,  a  foreign  law  firm  that  has  established  an  RO  in  the  Shanghai  FTZ  will  be  allowed  to  enter  into  an  agreement  with  a  Chinese  law  firm  to  mutually  dispatch  lawyers  to  the  other  firm.  

Secondly,  foreign  law  firms  that  have  already  established  ROs  in  China  can  now  set  up  joint  operations  in  the  Shanghai  FTZ  with  Chinese  law  firms,  whereby  they  may  provide  legal  services  to  Chinese  and  foreign  clients  based  on  Chinese  and  foreign  laws  in  accordance  with  the  rights  and  obligations  stipulated  in  their  agreement.    

Logistics,  Warehousing,  and  Transportation  

The  logistics  industry  in  the  FTZ  benefits  from  the  presence  of  Waigaoqiao  Port,  Yangshan  Deepwater  Port,  and  Pudong  International  Airport,  as  well  as  the  streamlined  customs  approval  process  in  the  Zone,  which  halves  the  time  required  to  bring  goods  into/out  of  China.  As  a  result  of  the  rush  of  companies  looking  to  incorporate  in  the  Zone,  industrial  property  (warehouses)  has  witnessed  soaring  rental  prices  in  comparison  with  elsewhere  in  Shanghai.    Marine  Insurance  

Insurance  companies  in  the  FTZ  are  able  to  apply  to  the  Shanghai  Institute  of  Marine  Insurance  for  approval  to  offer  new  marine  insurance  products.  This  is  the  first  instance  of  an  industry  association  being  granted  such  powers  in  China,  and  is  intended  to  raise  the  competitiveness  of  Shanghai's  marine  insurance  industry.    Medical  

Under  legislation  issued  by  the  Shanghai  Municipal  Government,  foreign  investors  may  establish  wholly  foreign-­‐owned  enterprises  (WFOE)  in  the  medical  industry  in  the  FTZ.  Foreign  ownership  (up  to  70  percent)  is  also  permitted  for  equity  or  cooperative  joint  ventures  in  the  medical  industry.  Both  forms  of  establishment  are  subject  to  certain  conditions,  such  as  a  minimum  total  investment  of  RMB  20  million  and  a  maximum  operating  period  of  20  years.13  

 By  creating  a  special  zone  within  Mainland  Chinese  borders  where  the  flow  of  capital  and  the  establishments  of  enterprises  are  facilitated  much  more  easily,  the  

                                                                                                               12  "Shanghai  FTZ  Launches  Cross-­‐Border  E-­‐Commerce  Platform",  China  Briefing,  Shanghai,  11  October  2013.    13  Wholly Foreign-Owned Medical Institutions Allowed in Shanghai Free Trade Zone, China Briefing, Shanghai, 2 December 2013.  

Shanghai  Free  Trade  Zone  is  increasing  technology  trade  and  innovation  by  allowing  more  foreign  companies  to  do  business  in  China  with  much  less  hassle.    

B.  Shanghai  Knowledge  and  Innovation  Center  (KIC)  or  the  创制天地  of  杨浦区  

The   Shanghai   Knowledge   &   Innovation   Community,   or   KIC,   is   located   in  Wujiaochang  Sub-­‐centre   in   the  Yangpu  District,  which   is  home  to  10  neighbouring  major  universities  and  colleges.  Covering  about  800,000  sq.m.  of  land,  this  city-­‐core  development   aims   to   create   an   environment   that   fosters   technological   innovation  and   entrepreneurship   similar   to   that   of   Silicon   Valley   in   the   United   States   and   to  provide  "Live-­‐Work-­‐Play"  accommodation  inspired  by  the  Left  Bank  in  Paris.  Placing  strong   emphasis   on   education,   technology,   culture,   research   and   business  incubation,  KIC   is  a  multi-­‐function  community  where  people   live,   study,  work  and  relax.  SOM  Co.,  Ltd.  (Skidmore,  Owings  and  Merrill,  LLP)  is  master  plan  consultant  of  the  overall  community  development.14  

This community is a new landmark in Shanghai developed by Hong Kong-based Shui On Group, which also built Xintiandi. The center not only incorporates rich history and cultural resources of Yangpu, but also pulls in new industries like financial technology and cloud computing.

Oracle, IBM, eBao Tech, emcore, EMC, VMware and the Shanghai branch of SVB Financial Group  are  among  the  companies  that  have  located  in  the  KIC.  

The  community  is  broken  down  into  four  areas  —  KIC  Plaza,  KIC  Village,  KIC  Venture  Park  and  Jiangwan  Sports  Center.    The  KIC  Plaza  provides  office  buildings,  learning  center,  exhibition  halls,  conference  facilities,  the  KIC  Village  provides  comfortable  apartments,  offices,  retail  and  recreational  facilities,  the  Jiangwan  sports  center  provides  multi-­‐functional,  all-­‐weather  integrated  sports  complex  

KIC Plaza features office buildings, learning centers, exhibition halls and conference facilities. KIC Village is a residential area with apartments and recreational facilities along with some retail space. Small and medium-sized businesses focusing on innovation make up the core of companies in KIC Venture Park. Jiangwan Sports Center is designed to complement the community’s other features. KIC has been designed to integrate the resources of government, businesses and universities for the benefit of society. The area has also become a magnet of sorts for entrepreneurs, who settle in the area to try new ideas.15

C.  Rubber  Valley  Qingdao    Rubber  Valley  is  an  example  of  an  industry-­‐specific  innovation  park  that  aims  to  

promote  sustainable  development  for  the  chemical  and  rubber  industry  within  

                                                                                                               14  http://www.shuionland.com/sol/tabid/145/default.aspx  15  http://www.shanghaidaily.com/District/yangpu/Building-­‐on-­‐innovation-­‐and-­‐integration/shdaily.shtml  

China  and  become  a  kind  of  one-­‐stop-­‐shop  for  rubber  and  chemical  related  industries  to  develop,  market,  and  distribute  their  products  within  China.  Rubber  Valley  is  located  in  Shibei  District,  Qingdao,  China,  with  a  core  planning  area  of  494  acres.  It  was  founded  by  China  Rubber  Industry  Association,  Qingdao  Shibei  District  Government,  Qingdao  University  of  Science  &  Technology  and  MESNAC  Co.,  Ltd.  and  aims  to  build  a  “highly  integrated  industry  ecosystem  with  a  combination  of  government-­‐production-­‐university-­‐research-­‐capital  and  interaction.”16  In  Rubber  Valley,  various  enterprises  develop  an  upstream-­‐downstream  relationship,  share  resources  with  one  another,  and  often  become  the  supply  or  demand  side  to  one  another.    

 There  are  twelve  major  industrial  platforms  that  cover  all  the  elements  needed  in  the  development  of  the  chemical  rubber  industry  enterprises.  There  are  platforms  for  scientific  research  and  innovation,  Enterprise  Incubation,  Commodity  Trading,  Warehouse  Logistics,  E-­‐Commerce,  and  Communication  to  name  a  few.  Rubber  Valley  hopes  that  the  integration  of  industry  resources:  human  talents,  technologies,  markets,  and  capital  logistics  will  cultivate  core  competitiveness.  Some  might  say  it  is  the  Silicon  Valley  of  Rubber  and  Chemical  industries  in  Mainland  China.17      D.  Chinese  Military  Technology  Developments    

China  has  also  made  significant  strides  in  military  technology,  especially  in  satellite  communications,  surveillance  systems,  and  geolocation  capabilities.  Because  this  topic  is  fairly  sensitive,  most  current  information  on  China’s  military  technology  development  is  top  secret  and  unavailable.  However,  from  the  1997  reports  from  Khalilzad’s  “US  and  a  Rising  China,”  one  can  piece  together  a  general  picture  of  China’s  development  since  that  time.  It  is  fair  to  say  that  since  1997,  China’s  military  technology  development  has  probably  grown  substantially,  however  the  details  of  this  are  still  unknown  to  the  public.      

Since  the  1970,  China  has  successfully  flown  a  variety  of  satellites  including  communications,  meteorological,  and  surveillance  systems.  In  addition,  China  today  offers  commercial  launch  services  to  a  variety  of  customers  and  may  even  conduct-­‐manned  spaceflights  in  the  next  few  years.    (Khalilzad  57)  For  example,  China  is  developing  a  new  generation  of  photoreconnaissance  satellites,  the  FSW-­‐3  series,  which  will  provide  1-­‐meter  resolution,  and  the  Chinese  National  Remote  Sensing  Center  also  receives  imagery  from  U.S.  LANDSET,  French  SPOT,  Israeli  EROS,  and  Russian  remote-­‐sensing  satellites  (Stokes,  1997).  

According  to  Khalilzad,  China  is  well  positioned  to  be  part  of  the  emerging  era  of  widespread  commercial  exploitation  of  space.  With  its  large  economy  and  foreign-­‐exchange  reserves  and  its  relatively  advanced  technological  base,  China  is  participating  in  a  number  of  international  space  ventures,  including  the  Iridium  and  

                                                                                                               16  http://www.rubbervalley.com/english/ArticleMenu.aspx?class1=2&class2=43  17  http://www.rubbervalley.com/english/ArticleMenu.aspx?class1=2  

Globalstar  satellite  communication  systems.  China’s  financial  resources  could  also  make  its  military  a  major  consumer  of  “pay-­‐for-­‐play”  commercial  remote  sensing  systems  such  as  Quick  Bird,  Orbview,  EROS,  and  advanced  SPOT,  which  will  come  into  service  in  the  next  few  years  and  offer  on-­‐demand  high  –resolution  multispectral  imagery.  So,  the  Chinese  may  be  able  to  derive  many  of  the  advantages  of  space  exploitation  without  building  or  launching  a  single  satellite  of  their  own.  (Khalilzad  58)    Pay  to  Play  The  Chinese  may  also  benefit  as  something  of  a  free  rider  on  space  capabilities  developed  by  other  parties.  The  U.S.  GPS  and  Russian  GLONASS  systems,  for  example,  appear  to  be  evolving  into  global  geolocation  utilities,  freely  accessible  to  all  comers.  China  is  reportedly  already  exploiting  GPS/GLONASS  to  improve  the  accuracy  of  its  ballistic  missiles.  (Khalilzad  58).    

Chapter  3:  Chinese  acquire  US  entities  in  order  to  gain  Patents  and  Distribution  Networks    

There  is  some  speculation  that  Chinese  companies  are  targeting  US  and  European  companies  for  foreign  acquisitions.  They  are  specifically  buying  entities  in  the  US  with  well-­‐known  trademarks,  patented  technologies,  and  already  established  distribution  channels.  Attorney  John  Tang  Tire  used  the  example  of  rubber  companies  in  China  that  are  searching  to  acquire  US  technology  start-­‐ups  who  are  involved  in  relevant  tire  technologies.      The  reason  for  this  trend  is  that  Chinese  companies,  especially  ones  that  are  at  the  top  of  their  industry  with  the  majority  of  the  market  share,  will  be  flush  with  capital  but  will  not  have  their  own  Research  and  Development  (R&D)  departments  in  which  to  invest.  Several  Chinese  companies  would  use  their  extra  capital  to  invest  in  real  estate,  however,  as  the  Chinese  real  estate  market  becomes  increasingly  volatile  and  unstable,  Chinese  companies  are  looking  elsewhere  to  invest.      This  is  the  reason  Chinese  companies  are  looking  to  acquire  assets  and  enterprises  overseas.  They  are  mainly  interested  in  buying  patented  technologies  that  would  improve  the  quality  of  their  own  domestic  products  or  gaining  access  to  US  distribution  channels.  These  distribution  channels  can  be  used  to  sell  their  own  products  within  the  US  market  or  to  gain  technologies  to  bring  back  to  China.  Even  if  those  patented  technologies  were  to  be  stolen  or  illegally  copied  and/or  used  illegally  within  China,  Chinese  consumers  still  value  foreign  brands  over  their  own  domestically  made  products.  Hence,  it  is  still  valuable  to  have  proprietary  control  of  a  US  brand  name  or  enterprise.  Moreover,  Chinese  consumers  are  willing  to  pay  more  for  the  perceived  higher  quality  of  foreign  products,  even  if  the  Chinese  counterpart  was  offered  at  a  lower  price.      

Most  of  the  time  Chinese  companies  can  do  this  without  much  legal  restraint,  except  when  concerning  sensitive  military  technologies  or  technologies  that  would  endanger  “national  security”  such  as  certain  sensitive  software,  aerospace  technologies,  and  hazardous  chemicals.      However,  the  majority  of  Chinese  companies  are  not  looking  to  buy  sensitive  military  technology  that  would  pose  a  threat  to  the  US  per  say,  but  rather,  are  looking  to  develop  their  own  Chinese  commercial  technologies  that  are  already  in  common  use  in  US  products.    For  instance,  in  the  rubber  industry,  Chinese  companies  will  buy  US  companies  and  patents  to  make  Chinese  tires  more  durable—a  technology  that  is  already  in  common  use  in  many  US  tire  products.  Basically,  the  Chinese  are  trying  to  improve  their  products’  quality  standards  to  equal  that  of  the  US.    The  Chinese  companies  achieve  this  by  buying  US  machinery  parts  or  acquiring  the  US  company  that  makes  the  parts.      This  also  applies  to  the  mobile  phone  industry.  A  Chinese  company  could  either  buy  individual  mobile  phone  parts  such  as  the  screen  and  hardware  or  simply  purchase  the  US  company  that  develops  them,  making  those  products  their  own.      To  clarify,  Chinese  companies  today  are  only  interested  in  acquiring  US  companies  that  are  specifically  related  to  their  industry  or  distribution  network.  This  is  mainly  to  improve  the  quality  of  their  own  Chinese  domestic  products  and  to  increase  their  market  share  and/or  distribution  network.18    Chinese  Takeovers  of  US  Domestic  Industries    

Despite  the  recent  rise  in  US  protectionist  and  anti-­‐China  sentiment,  a  good  number  of  Chinese  companies  have  successfully  taken  over  US  companies  in  a  number  of  industries.  For  instance,  under  the  U.S.  central  bank’s  decision,  the  Industrial  and  Commercial  Bank  of  China  (ICBC),  the  largest  bank  in  Communist  China  with  assets  estimated  at  some  $2.5  trillion,  was  allowed  to  become  a  holding  company  and  acquire  the  Bank  of  East  Asia  in  New  York.  It  marked  the  first  time  that  a  Communist  Chinese  bank  (ICBC  is  more  than  70  percent  owned  by  the  regime)  was  permitted  to  take  over  an  American  bank.  All  13  branches  of  the  U.S.  institution  were  taken  over.      

Chinese  companies  have  also  begun  to  take  over  US  entertainment  industries.  For  more  than  $2.5  billion,  the  Dalian  Wanda  Group  agreed  to  purchase  U.S.-­‐based  AMC  Entertainment  Holdings  —  one  of  the  world’s  top  movie-­‐theater  chains  —  to  create  what  will  become  the  biggest  cinema  operator  on  earth  after  the  merger.    19  

                                                                                                               18  http://www.economist.com/node/17460954      19  Newman,  Alex.  "China  Buys  Hollywood  Influence  with  Takeover  of  Top  U.S.  Cinema  Chain."  China  Buys  Hollywood  Influence  with  Takeover  of  Top  U.S.  Cinema  Chain.  The  New  American,  Apr.-­‐May  2012.  

Further  success  against  US  protectionism  is  shown  through  China’s  Shuanghui  International  Holdings  Ltd’s    $4.7-­‐billion  (U.S.)  bid  to  buy  Virginia-­‐based  Smithfield  Foods  Inc.  which  aims  to  boost  U.S.  pork  exports  to  China  amongst  domestic  meat  scares.  Shuanghui  is  offering  $34  a  share  in  cash  for  Smithfield,  which  grew  from  a  small  packing  plant  in  1936  to  become  the  world’s  largest  pork  producer  with  46,000  employees  today  in  the  United  States.  The  deal  must  first  obtain  approval  under  applicable  U.S.  and  specified  foreign  antitrust  and  anti-­‐competition  laws,  the  Committee  on  Foreign  Investment  in  the  United  States  (CFIUS)  and  other  customary  closing  conditions,  however,  if  it  succeeds,  the  deal  would  mark  the  largest  takeover  of  any  U.S.  firm  by  a  Chinese  company.  

Yang  Zhijun,  the  managing  director  of  Shuanghui,  stated  the  mutual  benefits  as  China  will  gain  a  new  source  of  meat  and  the  US  will  gain  a  new  international  market.  “China  and  the  U.S.  are  the  most  important  markets.  We  are  No.  1  in  China.  Smithfield  is  No.  1  in  the  U.S.;  Together,  we  can  be  a  global  leader  in  animal  protein.”  20  

Section  4:  US-­‐China  IP  Law  and  Trade  Protectionism  Disputes      Chapter  1:  China  Fear  and  US  Policy  of  Containment      U.S.  Policy  Options    

According  to  the  1997  book  called  “US  and  a  Rising  China,”  the  US  had  and  has  several  policy  options  in  its  dealings  with  China:  Engagement,  Containment,  or  a  mixture  of  the  two—“Congagement.”  In  this  book,  the  author  Khalilzad  explores  the  number  of  ways  the  US  can  perceive  and  respond  to  China’s  growth:  one  mindset  involves  seeing  China  as  a  dangerous  threat  that  must  be  contained  for  fear  that  it  would  surpass  the  US.    The  other  predominant  attitude  is  to  welcome  China  as  a  friendly  competitor  in  the  world  sphere  and  use  their  growth  to  the  US’s  advantage.  Even  in  today’s  world,  nearly  20  years  after  the  publishing  of  “US  and  a  Rising  China,”  one  can  still  see  the  US  struggle  between  checking  China’s  enormous  growth  by  maintaining  the  US’s  existing  power  over  China  and  the  Eastern  Asian  region,  while  at  the  same  time  continuing  to  benefit  from  China’s  growth  and  reaping  the  benefits  of  the  US-­‐China  codependent  economies.  It  is  interesting  to  see  what  the  US’s  policy  towards  China  was  20  years  ago  while  today  The  US  still  to  this  day  benefits  from  

                                                                                                                                                                                                                                                                                                                                         Web.  07  Sept.  2013.  <http://www.thenewamerican.com/economy/markets/item/11537-­‐china-­‐buys-­‐hollywood-­‐influence-­‐with-­‐takeover-­‐of-­‐top-­‐us-­‐cinema-­‐chain>.  

 20  Rush,  Dominic.  "Smithfield  Foods  Sale  to  Chinese  Firm  Gives  US  Pork  Giant  Entry  to  China."  The  Guardian.  Guardian  News  and  Media  Limited,  29  May  2013.  Web.  8  Sept.  2013.  <http://www.theglobeandmail.com/report-­‐on-­‐business/international-­‐business/us-­‐business/chinese-­‐bid-­‐for-­‐pork-­‐giant-­‐smithfield-­‐tests-­‐us-­‐appetite-­‐for-­‐takeovers/article12219425/>.  

China’s  growth,  but  does  not  want  it  to  surpass  it  in  the  realm  of  political,  socio-­‐economical,  and/or  military  power.        According  to  Khalilzad  (1997):    “Engagement:    In  principle,  engagement  seeks  to  maintain  and  enhance  relations  with  China  as  much  as  possible.      Economically,  it  seeks  normal  trade  relations  by  granting  “most  favored  nation”  (MFN)  trade  status,  reducing  the  number  of  sensitive  goods  and  technologies  covered  by  export  controls,  simplifying  the  export  control  procedures,  allowing  Chinese  companies  to  operate  relatively  freely  in  the  United  States,  and  facilitating  Chinese  entry  into  such  international  economic  organizations  as  the  WTO.  (Khalilzad  64)”    [Take  note,  this  book  was  written  before  China  had  officially  entered  the  WTO.  The  US  at  this  point  of  time  was  hesitant  to  allow  China  to  enter  the  WTO.  Disallowing  it  would  have  severely  hindered  China’s  growth  and  be  considered  a  form  of  containment.]    Politically,  engagement  seeks  to  maximize  bilateral  ties  while  keeping  any  disputes  at  as  low  a  level  as  possible.  It  tries  to  bring  China  into  the  various  multilateral  arms  control  regimes  dealing  with  weapons  of  mass  destruction,  proliferation,  arms  trade,  etc.,  and  into  other  international  regimes  dealing  with  such  issues  as  human  rights.  (Khalilzad  64)      Militarily,  it  seeks  to  increase  military-­‐military  relations  of  various  sorts.  This  implies  the  avoidance  of  conflict  with  China.  The  US  would  also  promote  China’s  participation  in  regional  security  organizations  such  as  the  ASEAN  Regional  Forum  (ARF).  (Khalilzad  64)      The  US  has  pursued  certain  actions  to  express  its  displeasure  with  foreign  state  behavior  of  which  it  disapproves.  In  the  1990s,  the  Clinton  administration  was  unwilling  to  allow  China  to  join  the  WTO  under  the  favorable  terms  it  demanded  and  even  threatened  economic  sanctions  over  some  issues,  such  as  the  Chinese  government’s  failure  to  protect  the  intellectual  property  rights  of  U.S.  corporations.    In  1999,  the  Clinton  administration  prohibited  the  sale  of  a  communication  satellite  to  a  Singapore-­‐based  company  because  of  its  ties  to  the  PLA.  (Khalilzad  67)    Problems  with  Engagement  Engagement  rests  on  an  assumption  that  continued  contact  will  eventually  affect  Chinese  behavior  in  positive  directions.  This  is  far  from  certain.  In  the  meantime,  it  helps  China  develop  economically  and  technologically,  thus  creating  the  base  for  

future  military  strength.  Thus,  should  the  assumption  prove  incorrect,  engagement  will  merely  have  helped  China  become  a  more-­‐threatening  adversary  in  the  future.      Even  if  the  Chinese  leadership  is  temporarily  willing  to  abide  by  the  U.S.-­‐supported  norms  of  international  behavior—to  secure  the  advantages  of  engagement—there  is  no  guarantee  that  its  acquiescence  will  continue  once  China’s  comprehensive  national  power  has  been  enhanced.  At  that  point,  China  may  feel  confident  of  its  ability  to  make  its  way  in  the  world  without  economic  or  other  relations  with  the  United  States  or  may  believe  that  its  importance  in  world  affairs  is  now  so  great  that  the  United  States  will  have  no  choice  but  to  seek  good  relations  with  it.  (Khalilzad  69).  Khalilzad  is  expressing  the  American  fear  that  China  will  eventually  surpass  the  US  and  will  not  be  able  to  “contain”  or  “control”  China’s  behavior,  rather  the  US  will  have  to  be  the  one  acquiescing  to  China’s  will.        Containment    The  goal  of  a  policy  of  containment  would  be  to  avoid  an  increase  in  China’s  power  relative  to  that  of  the  United  States.  This  would  include  efforts  to  slow  down  China’s  economic  growth  in  general,  as  this  is  the  fundamental  basis  for  national  power,  and  to  prevent  an  upgrading  of  its  military  capabilities  in  particular.  It  would  also  include  efforts  to  limit  the  expansion  of  China’s  influence  beyond  its  present  borders.      Under  a  containment  policy,  all  elements  of  the  U.S.-­‐China  relationship  would  be  subordinate  to  the  goal  of  preventing  the  growth  of  China’s  power.  Thus,  the  United  States  would  work  to  limit  foreign  trade  and  investment  in  China  and  in  particular  prevent  the  transfer  of  any  technology  that  might  aid  China’s  military.  (Khalilzad  70)    The  realist  international  relations  theory  reads  Chinese  history  to  say  that  China,  given  its  historical  tradition  of  regional  dominance  and  its  view  of  itself  as  having  been  victimized  by  the  “West”  during  a  century  and  a  half  of  “national  humiliation,”  will  seek  to  become  at  least  a  regional  hegemon  in  East  Asia  and  to  challenge  what  it  sees  as  American  “hegemony”  and  the  current  system  of  international  norms,  which  it  sees  as  biased  in  favor  of  those  who  created  it.  (Khalilzad  70)    For  Khalilzad,  the  US  policy  of  “Containment”  would  involve  the  US  trying  to  undermine  and  control  China’s  growth  in  every  possible  way,  a  policy  that  is  neither  practical  nor  feasible  as  this  point.  The  US  recognizes  that  China  has  the  will  and  resources  to  grow  and  prosper,  and,  that  given  its  size,  it  has  potential  to  be  a  regional  “hegemon”  in  the  East  Asian  region.  The  US  will  have  to  come  to  terms  with  the  fact  that  China  will  eventually  (if  not  already)  dominate  affairs  in  the  East  Asian  region.  It  is  up  to  the  US  to  leverage  its  own  power  in  the  region  so  as  to  not  completely  relinquish  control  of  the  region,  but  also,  to  recognize  and  acknowledge  the  growing  importance  of  China  in  the  political  and  socio-­‐economic  playing  field  of  the  region.      Congagement  

 This  “third  way”  policy  would  continue  to  try  to  bring  China  into  the  current  international  system  while  both  preparing  for  a  possible  Chinese  challenge  to  it  and  seeking  to  convince  the  Chinese  leadership  that  such  a  challenge  would  be  difficult  to  prepare  and  extremely  risky  to  pursue.  (Khalilzad  72)  Khalilzad’s  idea  of  “Congagement”  proposes  that  the  US  continue  to  continue  to  allow  and  benefit  from  China’s  growth,  but  to  proceed  with  caution  so  that  China  does  not  overtake  the  US  in  terms  of  international  power.      Chapter  2:  Section  337  and  517;  US  Blocks  China  from  Entering  US  Domestic  Market                        As  China  has  grown  into  an  increasingly  powerful  nation,  the  US  has  become  fearful  of  China’s  rise  and  has  begun  implementing  protectionist  trade  policies  towards  China’s  international  industries,  particularly  China’s  high  technology  and  IT  industry.  This  section  will  explore  the  US’s  fear  of  China’s  rise  as  manifested  through  legal  protectionist  measures  such  as  Section  516  of  the  Consolidated  and  Further  Continuing  Appropriations  Act  and  USITC  Section  337  of  the  Tariff  Act  of  1930  which  effectively  bar  Chinese  companies  from  entering  the  US  domestic  market  in  the  name  of  “National  Security”  and  “Intellectual  Property  Protection.”      The  US  has  also  used  high  tariffs  against  China’s  Solar  panel  industry  in  order  to  prevent  the  Chinese  companies  from  “dumping”  their  products  in  the  US  domestic  market.  Such  measures  can  be  viewed  as  methods  of  US  protectionism  towards  China.  The  US  is  using  any  and  all  legal  and  trade  policy  measures  including  tariffs,  homeland  security,  and  unfair  trade  practice  measures  to  bar  Chinese  companies  from  entering  into  the  US  domestic  market.      As  China  has  become  more  and  more  powerful,  the  US  has  begun  to  show  a  negative  attitude  towards  the  rise  of  China,  most  commonly  described  as  “China  Fear”  or  “Yellow  Peril.”  Much  of  this  fear  is  directed  towards  China’s  high  technology  and  IT  industry.  As  the  US  has  shifted  from  sourcing  every  day  material  to  high  technology  from  China,  the  US  has  become  more  careful  and  increasingly  fearful  of  Chinese  competition,  which  is  manifested  through  the  US’s  protectionist  measures  against  Chinese  companies.  Cybersecurity,  especially,  is  an  excuse  for  the  US  to  block  China’s  high  technology  from  entering  into  the  US  domestic  markets  in  the  name  of  “homeland  security”.21    Section  337  IP  Law  Protections  

                                                                                                               21  Jincui,  Yu.  "Protectionism  Shows  US  Fears  of  Strengthened  Chinese  Competition  -­‐  OP-­‐ED  -­‐  Globaltimes.cn."  Protectionism  Shows  US  Fears  of  Strengthened  Chinese  Competition  -­‐  OP-­‐ED  -­‐  Globaltimes.cn.  Global  Times,  16  May  2013.  Web.  07  Sept.  2013.  <http://www.globaltimes.cn/content/782183.shtml>.    

The  US  has  similarly  used  Section  337  of  the  Tariff  act  of  1930  as  another  way  to  bar  Chinese  high  technology  from  its  domestic  markets.  Section  337  protects  US  Product’s  Intellectual  Property  rights  from  infringing  foreign  imported  products  and  enables  US  companies  to  call  investigations  on  foreign  companies  who  have  products  that  infringe  the  patents,  trademarks,  and  copyrights  of  their  products.  Section  337  investigations  have  been  used  to  probe  Chinese  high  technology  and  IT  companies  such  as  Huawei,  ZTE,  and  most  recently,  Sany.    

The  US  International  Trade  Commission  (USITC)  initiated  a  Section  337  investigation  on  July  2013  into  Chinese  multinational  heavy  machinery  manufacturing  company  Sany  for  patent  infringement.  The  probe  is  grounded  on  a  complaint  filed  by  Manitowoc  Cranes  in  the  state  of  Wisconsin,  which  accused  Sany  and  its  US  entity  of  infringing  its  patents  related  to  mobile  cranes  that  use  variable  position  counterweight  technology  to  improve  operation  and  use  of  the  cranes.  22  

Similarly,  on  August  20th,  2013,  The  US  International  Trade  Commission  instituted  yet  another  Section  337  probe  as  it  initiated  a  patent  investigation  into  a  Chinese  medical  device  company  and  its  two  US  entities.  Yitai  Hu,  a  partner  in  the  Silicon  Valley  office  of  Alston  &  Bird  LLP  who  litigates  intellectual  property  cases,  said  that  the  unusual  thing  about  the  ITC  is  that  even  "non-­‐US  companies,  as  long  as  they  qualify  as  a  complainant,  may  institute  a  337  investigation  against  its  competitors  worldwide".  This  is  one  of  many  probes  the  USITC  has  launched  recently  involving  Chinese  companies.  In  earlier  cases  Huawei,  ZTE  and  many  other  Chinese  companies  were  also  under  USITC's  scrutiny.  Many  see  the  337  investigations  as  a  move  that  sends  out  protectionist  signals  to  Chinese  businesses  in  the  US  market.23  

Besides  Trade  Policy  protectionism,  the  US  has  also  employed  tariffs  as  a  way  to  prevent  Chinese  products  from  entering  the  US  market.  The  U.S.  Commerce  Department  on  May  17  imposed  levies  of  between  31  and  250  percent  on  Chinese  producers  and  exporters  of  Solar  Cell  products  saying  that  it  found  China  was  dumping  their  solar  cells  in  the  US,  or  selling  them  at  artificially  low  prices.  The  US  Commerce  Department  noted  that  Chinese  solar  panel  companies  often  received  large  subsidies  from  the  Chinese  government  and  therefore  could  afford  to  produce  and  sell  solar  panels  and  a  much  lower  cost.  While  this  makes  sense,  many  see  this  move  as  an  example  of  US  trade  protectionism.  Sales  to  the  U.S.  solar  cell  and  solar  panel  market  were  worth  $3.1  billion  to  Chinese  producers  last  year,  according  to  the  Commerce  Department.  Commerce  ministry  spokesman  Shen  Danyang  said:  "Such  practices...  do  not  fit  with  the  fact  that  Chinese  enterprises  are  market  economy  participants,  and  highlight  the  United  States'  tendency  towards  trade  protectionism.  The  U.S.  ruling  is  unfair  and  China  is  extremely  dissatisfied."  Tariffs  

                                                                                                               22  WantChinaTimes.com."  WantChinaTimes.com.  Xinhua,  12  July  2013.  Web.  07  Sept.  2013.  <http://www.wantchinatimes.com/news-­‐subclass-­‐cnt.aspx?id=20130712000113>.  23  U.S.  Opens  Patent  Probe  into  Chinese  Medical  Device  -­‐  People's  Daily  Online."  U.S.  Opens  Patent  Probe  into  Chinese  Medical  Device.  Ed.  Chen  Lidan  and  Gao  Yinan.  People's  Daily  Online,  20  Aug.  2013.  Web.  07  Sept.  2013.  <http://english.people.com.cn/90778/8370518.html>.  

as  well  as  trade  policies  relating  to  Cyber  security  and  Intellectual  property  are  tools  in  by  which  the  US  implements  protectionist  policies  towards  China.  24    Section  516:  “National  Security”  and  blocking  ZTE    In  March  of  2013,  US  President  Barack  Obama  signed  the  Section  516  of  the  Consolidated  and  Further  Continuing  Appropriations  Act  which  requires  US  agencies  like  NASA  and  the  Justice  and  Commerce  Departments  to  seek  approval  from  federal  law  enforcement  officials  before  importing  IT  system  produced  by  entities  associated  with  the  Chinese  government.  The  bill  poses  a  threat  to  the  future  development  of  these  Chinese  enterprises  in  the  US  and  stigmatizes  these  enterprises  by  wrongly  classifying  them  as  "threatening  cyber  security."  Like  the  2012  report  accusing  Huawei  and  ZTE  of  posing  security  threats  and  the  Pentagon's  charges  of  the  Chinese  military's  cyber  espionage,  the  Section  516  bill  is  not  founded  on  any  solid  evidence  and  presumes  China’s  guilt.25      The  Section  516  Bill  not  only  violates  the  WTO’s  fair  trade  and  nondiscrimination  principles,  it  is  also  unreasonable  to  enforce  due  to  the  widespread  globalization  of  the  IT  supply  chain.  Most  US  tech  companies  have  most  of  their  components  manufactured  by  foreign  firms,  and  most  of  these  suppliers  are  in  China.  This  would  make  it  nearly  impossible  for  US  agencies  to  strictly  follow  Section  516.  Furthermore,  if  China  were  to  reciprocate,  and  block  US  technology  companies  in  China,  then  the  future  of  US  companies,  and  US  jobs  would  be  at  serious  risk.    Cyber  security  has  been  politicized,  because  if  it  were  a  technical  issue,  then  the  market  would  have  obliged  the  US  government  to  force  US  agencies  to  buy  Huawei  products  because  they  are  safer,  better  priced  and  have  better  quality.  Cyber  security  is  a  weak  excuse  for  the  US  to  block  Chinese  high  technology  products  from  their  markets,      Tariffs  on  Chinese  Solar  Panel  Industry  Due  to  Unfair  Competition  and  Government  Subsidies    

In  2012,  the  U.S.  Department  of  Commerce  put  tariffs  as  high  as  36%  on  some  of  China’s  biggest  solar  manufacturers,  concluding  in  a  final  ruling  that  the  Chinese  companies  were  illegally  dumping  cheap  photovoltaic  cells  onto  the  American  market.  The  case  was  filed  in  2011  by  U.S.  subsidiary  of  German  manufacturer  SolarWorld,  who  publicly  vowed  to  pursue  other  actions  to  stop  Chinese  manufacturers  from  selling  their  solar  cells  outside  of  China.  The  Commerce  Department  ruling  only  applied  to  photovoltaic  cells  made  in  China  and  companies  like  Suntech,  Trina  Solar  and  Yingli  began  moving  to  secure  supplies  from  third  

                                                                                                               24  France-­‐Presse,  Agence.  "China  Slams  U.S.  over  'protectionist'  Solar  Cell  Duties."  MNN  -­‐  Mother  Nature  Network.  MNN  -­‐  Mother  Nature  Network,  18  May  2012.  Web.  07  Sept.  2013.  <http://www.mnn.com/earth-­‐matters/energy/stories/china-­‐slams-­‐us-­‐over-­‐protectionist-­‐solar-­‐cell-­‐duties>.  25  Weijie,  Cui.  "US  Protectionism  Hard  Obstacle  to  Tackle."  GlobalTimes.cn.  The  Global  times,  12  May  2013.  Web.  7  Sept.  2013.  <http://www.globaltimes.cn/content/780977.shtml#.UisufLxhM1h>.  

countries  that  they  can  sell  in  the  U.S.  tariff-­‐free.  Gordon  Brinser,  president  of  SolarWorld  Industries  America,  said  in  a  statement:  

“The  fight  has  divided  the  U.S.  solar  industry  as  solar  installers  and  other  companies  have  benefited  from  a  75%  plunge  in  photovoltaic  module  prices  over  the  past  three  years  that  resulted  from  Chinese  manufacturers  vastly  expanding  production,  sometimes  with  the  aid  of  government  assistance  and  cheap  bank  loans.”26    In  2014,  the  US  Department  of  Commerce  expanded  the  tariffs  ruling  to  include  Taiwan,  closing a loophole that had allowed Chinese manufacturers to avoid tariffs by using cells made in Taiwan. The Department of Commerce found that the Chinese companies were selling products below the cost of manufacture and that they continued to benefit from unfair subsidies from their government. saying  that  Chinese  companies  were  also  benefitting  from  products  being  sold  from  Taiwan.  The  US  department  announced  anti-­‐dumping  duties  of  26.71  percent  to  78.42  percent  on  imports  of  most  solar  panels  made  in  China,  and  rate  of  11.45  percent  to  27.55  percent  on  imports  of  solar  cells  made  in  Taiwan.  In  addition,  the  department  announced  anti-­‐subsidy  duties  of  27.64  percent  to  49.79  percent  for  Chinese  modules.      

US  Companies  Sue  Chinese  Companies  to  Raise  Entry  Cost  into  the  US  Domestic  Market  

Often  times,  says  attorney  John  Tang,  US  companies  will  sue  Chinese  companies  under  the  guise  of  intellectual  property  infringement  in  hopes  of  blocking  them  from  the  US  domestic  market  by  raising  the  entry  barrier  cost  to  enter  the  market.  One  example  of  this  he  noted  was  when  GM  (General  Motors)  sued  Chinese  car-­‐maker  Chery  in  2003  so  that  Chery  could  not  enter  the  US  domestic  car  market.  General  Motors  accused  Chery  of  copying  the  first  generation  Daewoo  Matiz  (developed  by  GM  Korea)  with  the  design  for  the  Chery  QQ.  General  Motors  then  went  on  to  accuse  Chery  of  using  a  Matiz  in  a  crash  test  for  the  Chery  QQ.  

GM  executives  claimed  design  duplication,  which  may  extend  to  interchangeable  parts,  and  GM  China  Group  stated  the  two  vehicles,  "shared  remarkably  identical  body  structure,  exterior  design,  interior  design  and  key  components."[42]  After  mediation  attempts  failed,  GM  Daewoo  brought  a  case  against  Chery  in  a  Shanghai  court,  but  by  2005  jurisdiction  had  been  moved  to  the  Beijing  No.1  Intermediate  People's  Court.  In  late  2005  the  lawsuit  was  settled.27  

                                                                                                               26  http://www.forbes.com/sites/toddwoody/2012/10/10/u-­‐s-­‐hits-­‐chinese-­‐solar-­‐manufacturers-­‐with-­‐higher-­‐tariffs/  27  "GM  Daewoo  claimed  their  investigation  results  showed  the  Chery  QQ  shared  a  remarkably  identical  body  structure,  exterior  design,  interior  design  and  key  components".  BBC  News.  2005-­‐05-­‐09.  Archived  from  the  original  on  7  September  2010.  Retrieved  2010-­‐10-­‐05.  

Around  that  time,  Chinese  state  officials,  including  a  vice-­‐minister  of  commerce  and  a  vice-­‐director  of  the  State  Intellectual  Property  Office,  publicly  supported  Chery.  It  was  suggested  that  GM  may  have  not  patented  its  technology.  28  

 Chapter  3:  National  Security  Fears  of  Chinese  companies  Stealing  US  technologies  and  Trade  Secrets    

One-­‐way  China  can  circumvent  the  West’s  reluctance  to  transfer  technology  is  by  stealing  the  product,  trade  secret,  or  patented  technology  of  the  product.  While  not  technology  transfer  per  se,  counterfeiting  is  so  common  in  China  that  it  has  the  same  practical  effect.    Schemes  range  from  the  subtle  to  blatant:  benchmarking  against  ISO  standards;  patent  research  where  a  design  is  modified  slightly,  if  at  all,  re-­‐patented  in  China  and  “legally”  produced  with  government  protection;  reverse  engineering;  imitative  innovation  with  or  without  the  innovation  (aka  imitative  remanufacturing);  and  finally  marketing  the  pirated  product  either  without  or  with  its  original  logo.  The  2006  Hanxin  (chip)  scandal  is  the  poster  boy  example.    (Hannas  232)    A.  Cases  and  Allegations  of  Chinese  stealing  important  economic  trade  secrets  from  American  Companies    

U.S. Charges Five Chinese Military Hackers for Cyber Espionage Against U.S. Corporations and a Labor Organization for Commercial

Advantage

A  grand  jury  in  the  Western  District  of  Pennsylvania  (WDPA)  indicted  five  Chinese  military  hackers  for  computer  hacking,  economic  espionage  and  other  offenses  directed  at  six  American  victims  in  the  U.S.  nuclear  power,  metals  and  solar  products  industries.    

The  indictment  alleges  that  the  defendants  conspired  to  hack  into  American  entities,  to  maintain  unauthorized  access  to  their  computers  and  to  steal  information  from  those  entities  that  would  be  useful  to  their  competitors  in  China,  

                                                                                                               28  "Chery  even  used  a  camouflaged  Matiz  car  to  pass  auto  tests  to  acquire  authorization  from  the  government  over  production  and  sales  of  QQ." Chinadaily.com.cn. 2005-05-09. Archived from the original on 7 September 2010. Retrieved 2010-10-05.    

including  state-­‐owned  enterprises  (SOEs).    In  some  cases,  it  alleges,  the  conspirators  stole  trade  secrets  that  would  have  been  particularly  beneficial  to  Chinese  companies  at  the  time  they  were  stolen.    In  other  cases,  it  alleges  that  the  conspirators  also  stole  sensitive,  internal  communications  that  would  provide  a  competitor,  or  an  adversary  in  litigation,  with  insight  into  the  strategy  and  vulnerabilities  of  the  American  entity.  

“This  is  a  case  alleging  economic  espionage  by  members  of  the  Chinese  military  and  represents  the  first  ever  charges  against  a  state  actor  for  this  type  of  hacking,”  U.S.  Attorney  General  Eric  Holder  said.    “The  range  of  trade  secrets  and  other  sensitive  business  information  stolen  in  this  case  is  significant  and  demands  an  aggressive  response.    Success  in  the  global  market  place  should  be  based  solely  on  a  company’s  ability  to  innovate  and  compete,  not  on  a  sponsor  government’s  ability  to  spy  and  steal  business  secrets.    This  Administration  will  not  tolerate  actions  by  any  nation  that  seeks  to  illegally  sabotage  American  companies  and  undermine  the  integrity  of  fair  competition  in  the  operation  of  the  free  market.”  

“For  too  long,  the  Chinese  government  has  blatantly  sought  to  use  cyber  espionage  to  obtain  economic  advantage  for  its  state-­‐owned  industries,”  said  FBI  Director  James  B.  Comey.    “The  indictment  announced  today  is  an  important  step.    But  there  are  many  more  victims,  and  there  is  much  more  to  be  done.    With  our  unique  criminal  and  national  security  authorities,  we  will  continue  to  use  all  legal  tools  at  our  disposal  to  counter  cyber  espionage  from  all  sources.”  

“State  actors  engaged  in  cyber  espionage  for  economic  advantage  are  not  immune  from  the  law  just  because  they  hack  under  the  shadow  of  their  country’s  flag,”  said  John  Carlin,  Assistant  Attorney  General  for  National  Security.    “Cyber  theft  is  real  theft  and  we  will  hold  state  sponsored  cyber  thieves  accountable  as  we  would  any  other  transnational  criminal  organization  that  steals  our  goods  and  breaks  our  laws.”  

“This  21st  century  burglary  has  to  stop,”  said  David  Hickton,  U.S.  Attorney  for  the  Western  District  of  Pennsylvania.    “This  prosecution  vindicates  hard  working  men  and  women  in  Western  Pennsylvania  and  around  the  world  who  play  by  the  rules  and  deserve  a  fair  shot  and  a  level  playing  field.”29  

Defendants  :    Wang  Dong,  Sun  Kailiang,  Wen  Xinyu,  Huang  Zhenyu,  and  Gu  Chunhui,  who  were  officers  in  Unit  61398  of  the  Third  Department  of  the  Chinese  People’s  Liberation  Army  (PLA).    The  indictment  alleges  that  Wang,  Sun,  and  Wen,  among  others  known  and  unknown  to  the  grand  jury,  hacked  or  attempted  to  hack  into  U.S.  entities  named  in  the  indictment,  while  Huang  and  Gu  supported  their  conspiracy  by,  among  other  things,  managing  infrastructure  (e.g.,  domain  accounts)  used  for  hacking.  

                                                                                                               29  http://www.justice.gov/opa/pr/us-­‐charges-­‐five-­‐chinese-­‐military-­‐hackers-­‐cyber-­‐espionage-­‐against-­‐us-­‐corporations-­‐and-­‐labor  

Victims  :  Westinghouse  Electric  Co.  (Westinghouse),  U.S.  subsidiaries  of  SolarWorld  AG  (SolarWorld),  United  States  Steel  Corp.  (U.S.  Steel),  Allegheny  Technologies  Inc.  (ATI),  the  United  Steel,  Paper  and  Forestry,  Rubber,  Manufacturing,  Energy,  Allied  Industrial  and  Service  Workers  International  Union  (USW)  and  Alcoa  Inc.  

The  FBI  conducted  the  investigation  that  led  to  the  charges  in  the  indictment.    This  case  is  being  prosecuted  by  the  U.S.  Department  of  Justice’s  National  Security  Division  Counterespionage  Section  and  the  U.S.  Attorney’s  Office  for  the  Western  District  of  Pennsylvania.    Chinese engineer accused of stealing trade secrets from GE unit

A  Chinese  engineer  who  worked  in  Waukesha  for  a  subsidiary  of  GE  Healthcare  stole  about  2.4  million  files  of  trade  secrets  and  other  confidential  company  information  and  sent  it  to  China,  according  to  GE  and  the  FBI.  Jun  Xie,  41,  who  joined  the  medical  equipment  giant  in  2008,  was  suspended  and  hit  with  a  civil  suit  by  the  company.  Later,  in  September  of  2014,  Xie  was  charged  in  federal  court  with  criminal  theft  of  trade  secrets.  The  case  is  at  least  the  second  involving  theft  of  sensitive  technical  data  by  a  Chinese  citizen  working  in  the  Milwaukee  area.  In  2013,  a  cancer  researcher  at  the  Medical  College  of  Wisconsin  was  charged  with  economic  espionage  before  later  pleading  guilty  to  a  lesser  charge.  

According  to  the  criminal  complaint,  GE  officials  discovered  in  June  of  2014  that  Xie  had  accessed  and  copied  about  2.4  million  files  —  about  1.4  terabytes  of  data  —  from  the  company's  secure  network,  starting  in  February  2013.  Much  of  the  information  was  of  the  type  Xie  was  not  authorized  to  use  and  was  not  necessary  to  his  work  writing  source  code  for  magnetic  resonance  technology.  The  files  included  engineering  designs,  testing  data,  business  strategy  and  source  code  for  magnetic  resonance  systems.  In  court  documents,  GE  said  it  would  suffer  "irreparable  harm"  if  the  trade  secrets  were  disclosed.30  

Xie  said  he  began  downloading  GE's  materials  after  his  wife  moved  back  to  China  from  Waukesha  early  last  year,  and  he  realized  he  would  return  there,  too,  and  would  need  to  find  work.  He  told  FBI  agents  that  he  downloaded  materials  he  knew  were  important  to  GE  Healthcare,  copied  it  to  separate  storage  devices  and  sent  them  to  his  wife  and  brother  in  China.  Xie  also  said  planned  to  join  a  Chinese  company  that  competes  with  GE  in  the  MRI  field  but  said  he  never  gave  the  other  firm  the  GE  information  and  only  intended  to  use  it  himself.  

General  Electric  sued  Xie  in  federal  court  in  July,  alleging  claims  of  conversion,  breach  of  contract,  state  and  federal  computer  fraud,  and  violations  of  the  trade  secrets  act.GE  asked  for  damages  as  well  as  court  orders  that  Xie  return  all  confidential,  proprietary  information  to  GE,  cease  accessing,  copying  or  disclosing  

                                                                                                               30  http://media.jrn.com/documents/gecomplaint.pdf  

such  information,  and  preserve  all  documents  relative  to  his  actions.  A  federal  magistrate  judge  in  Milwaukee  granted  a  permanent  injunction  to  prevent  Xie  from  obtaining  any  more  GE  information  and  ordering  that  he  try  to  get  back  the  storage  devices  he  sent  to  China.  

Xie  joined  GE  Healthcare  in  2008  as  an  engineer  to  write  source  code  for  GE's  magnetic  resonance  technology.  GE  Healthcare  is  a  major  manufacturer  of  magnetic  resonance  imaging  machines.  The  criminal  complaint  says  he  was  in  the  U.S.  under  an  H1B  non-­‐immigrant  work  visa  and  had  been  in  the  country  since  2002.  

Amanda  Gintoft,  a  spokeswoman  for  GE  Healthcare  Systems,  issued  this  statement  after  an  inquiry  to  the  company's  attorney  in  the  civil  suit:"GE  considers  theft  of  its  intellectual  property  a  very  serious  matter  and  will  take  all  steps  necessary  to  pursue  those  who  engage  in  such  acts.  We  will  cooperate  fully  with  the  government  in  its  criminal  investigation  but,  as  a  company  policy,  GE  does  not  comment  on  ongoing  litigation."31  

This  case  of  corporate  espionage  may  be  part  of  a  larger  trend  of  Chinese  companies  recruiting  overseas  Chinese  to  help  them  obtain  vital  trade  secrets.    According  to  Attorney  John  Tang:  “Chinese  companies  target  Overseas  Chinese  华侨  or  Chinese  nationals  who  have  immigrated  to  the  US  and  work  for  large  US  companies  because  the  Chinese  believe  they  are  “easier  to  bribe”  and  still  feel  loyal  to  China.  They  offer  them  a  large  sum  of  money  for  them  to  transfer  documents  containing  sensitive  technology  information  to  China.  This  is  so  Chinese  companies  will  have  the  knowledge  and  wherewithal  to  compete  with  the  US  companies  once  they  have  their  trade  secrets  in  hand.”  (Tang  Interview  1/12/2015).      B.  China’s  Domestic  Protectionism:  ICT  Standards,  Public  Interest,  and  National  Security    Chinese  Protectionism  in  Technological  Standards  

The  US  is  not  the  only  one  who  can  employ  protectionist  measures  towards  its  domestic  market.  One  example  is  the  Chinese  implementation  of  technology  standards  within  their  ICT  communication  sector.  For  instance,  the  Chinese  government  can  mandate  that  all  parts  of  their  domestic  ICT  Communication  industry  must  implement  certain  specific  patented  technologies  to  meet  government  technological  standards,  thereby  excluding  foreign  businesses  from  entering  the  Chinese  domestic  market  without  having  help  from  a  Chinese  company  that  already  supports  this  particular  standard.                                                                                                                    31 http://www.jsonline.com/news/crime/chinese-engineer-accused-of-stealing-trade-secrets-from-ge-unit-b99344912z1-274122821.html

 

    Among  a  variety  of  standard-­‐settings  in  the  ICT  sector,  WAPI  (Wired  Authentication  and  Privacy  Infrastructure)  is  the  most  notorious  one.  WAPI  was  developed  by  China  and  listed  as  a  national  mandatory  standard  for  wireless  LAN  in  late  2003.  By  June  1,  2004  all  wireless  devices  sold  in  China  had  to  support  WAPI.  Foreign  companies  wanting  access  to  the  Chinese  market  would  have  to  partner  with  one  of  eleven  Chinese  firms  to  which  the  standard  was  disclosed.       This  issue  became  a  key  issue  of  trade  discussions  between  the  United  States  and  China.  Intel,  one  of  the  largest  computer  chip  manufacturers,  threatened  to  impose  an  embargo  on  its  mainstream  chips  to  the  Chinese  market.  After  the  administration  of  then-­‐US  President  George  Bush  wrote  a  letter  to  the  Chinese  Vice  Premier,  China  agreed  to  indefinitely  postpone  implementation  of  WAPI.  (Hong  Xue  42)  

Some  would  say  that  China’s  attempt  to  adopt  WAPI  into  its  technological  standards  was  an  act  of  protectionism  and  would  hence  constitute  unfair  competition.  If  WAPI  had  become  a  standard  in  all  of  the  technological  devices  in  China,  it  would  effectively  bar  foreign  companies  from  entering  the  Chinese  domestic  market  without  having  a  partnership  with  the  existing  eleven  Chinese  firms.  Others  would  say  that  the  WAPI  incident  was  a  clear  example  of  how  Chinese  ambition  of  independent  innovation  was  curbed  by  foreign  pressures,  mainly  the  United  States  and  US-­‐based  company  Intel.      Conclusion:  The  US  should  not  overestimate  China’s  greatness.  They  should  learn  to  work  together  with  China  instead  of  working  against  China    

My  thesis  is  about  Chinese  protection  of  Intellectual  Property  laws  and  how  it  affects  US-­‐China  trade  relations  and  technology  transfer.  Although  China  has  an  extensive  IPR  regime  and  is  continuing  to  improve  and  revise  its  own  IP  Laws,  there  are  still  a  number  of  loopholes  that  allow  corruption  to  take  place.  One  such  loophole  was  the  first  to  file  policy  that  allowed  trademark  pirates  to  file  names  of  famous  marks  abroad  and  then  extort  those  same  companies  to  buy  their  own  names  back  from  them.  Likewise,  China’s  reputation  for  being  lax  in  IP  Law  enforcement  has  caused  it  international  political  and  economic  troubles.  For  instance,  the  US  brought  suit  against  China  at  the  WTO  for  lax  IP  enforcement.    

There  is  much  speculation  that  the  US’s  generalized  “China  Fear”  has  taken  the  form  of  protectionist  trade  policies  towards  China.  For  instance,  the  US  continues  to  use  IP  protection  as  an  excuse  to  enforce  protectionist  measures  against  China  under  Section  337,  allowing  companies  to  sue  Chinese  companies  entering  the  US  domestic  market  for  the  reasons  of  patent  infringement.  Likewise,  the  US  has  slapped  high  tariffs  on  Chinese  imports  of  Solar  Panel  Products  due  to  Anti-­‐Dumping  measures  against  Chinese  companies  who  have  received  government  subsidies.  Yanping  Wang  of  Miller  Canfield  says  this  US  protectionism  towards  China  has  been  a  continuous  trend  for  the  last  century.  “The  US  is  always  finding  a  way  to  criticize  China.  First  it  was  for  the  reasons  of  Communism  and  Human  Rights  

abuses.  Now  it  is  because  of  IP  Law  Infringement,  Pollution,  and  Currency  under-­‐evaluation.  You  name  it.  The  US  always  seems  to  find  a  way  to  vilify  China  in  some  way  and  alter  its  economic  and  political  policies  to  fit  whatever  the  popular  rhetoric  is  of  the  day.  In  my  opinion,  the  US  is  just  bitter  that  they  have  had  to  borrow  a  substantial  amount  from  China  during  the  economic  crisis  and  are  now  trying  to  find  ways  to  shift  the  blame  and  negative  press  towards  China  as  a  way  to  save  face  (Yanping  Wang  1/9/2015).  “  

Looking  at  several  legal  case  studies  involving  US-­‐China  trade  secret  theft  and  patent  infringement,  the  US’s  fears  may  not  be  totally  unfounded.  Several  recent  corporate  and  cyber  espionage  cases  involving  overseas  Chinese  stealing  trade  secrets  from  large  US  Companies  such  as  General  Electric,  SolarWorld,  and  the  United  States  Steel  Corporation  are  somewhat  alarming.  Likewise,  Chinese  buyouts  of  US  companies  AMC  Entertainment  Group  and  Smithfield  has  caused  a  stir  in  US  media  and  has  affected  US  public  opinion  of  China  as  ‘an  economic  threat’  that  may  one  day  overtake  and  dominate  the  United  States.    

In  Attorney  John  Tang’s  opinion,  however,  the  US  should  not  be  too  concerned  just  yet.  “Many  times,  Chinese  companies  are  just  looking  to  catch  up  to  US  standards,  improving  the  quality  of  their  goods  and  technologies  to  match  that  of  the  US.  They  aren’t  necessarily  looking  to  surpass  the  US.”  His  logic  was  applied  to  the  US-­‐China  tire  and  rubber  industry,  which  he  works  extensively  with  on  an  international  basis.  In  the  case  of  tires,  as  in  many  products,  the  Chinese,  Tang  says,  are  just  looking  to  acquire  the  technology  that  is  already  streamlined  in  the  US,  to  improve  the  quality  of  their  own  goods.      

Whether  China  really  is  posing  an  economic  threat  of  overtaking  the  US  or  the  US  is  being  overly  protective,  one  thing  remains  certain:  the  US  and  China  continue  to  have  codependent  economies  and  will  have  to  learn  to  work  together  towards  a  common  goal  if  both  economies  are  to  survive  and  thrive.  In  the  case  of  Chinese  Intellectual  Property  Rights,  China  has  already  made  significant  strives  to  improve  their  domestic  enforcement  situation.  The  Chinese  Trademark  Law  has  undergone  its  third  revision,  eliminating  several  loopholes  where  trademark  piracy  and  corruption  could  thrive.  Three  specialized  IP  Law  courts  have  also  been  established  in  the  top  three  cities  for  IP  infringement:  Shanghai,  Beijing,  and  Guangdong.  Furthermore,  Chinese  domestic  innovation  is  continuing  to  improve  and  expand  as  seen  with  technological  and  innovation  zones  such  as  the  Shanghai  Free  Trade  Zone,  Qingdao’s  Rubber  Valley,  and  Shanghai’s  KIC  (Knowledge  and  Innovation  Center)  in  Yangpu  District.  Many  agree  that  China’s  domestic  IPR  enforcement  will  have  to  improve  as  it  creates  its  own  inventions  and  designs  and  will  want  to  enforce  the  patents,  trademarks,  and  trade  secrets  that  come  with  it.  As  China  becomes  a  bigger  player  in  world  economics  and  trade,  its  domestic  innovation  will  be  the  propelling  force  that  drives  the  improvement  of  domestic  Intellectual  Property  Enforcement  and  therefore,  the  quality  of  its  own  technology  products.