USTR SealThe U.S. Trade Representative (USTR) issued its annual 2017 Special 301
Report FINAL
 that “reviews the state of IP protection and enforcement in U.S. trading partners around the world.”  (Report at 1).  The report aims to “call out foreign countries and expose the laws, policies, and practices that failed to provide adequate and effective IP protection and enforcement for U.S. inventors, creators, brands, manufacturers, and service providers.”  (Report at 1).  Among the issues raised in this report are concerns that a foreign government may force U.S. standard essential patent (SEP) holders to enter license terms that devalue the patent and subject them to improper competition law enforcement.

The Report does not go into much detail about the concerns.  This may be due in part to general summary nature of the Report as well as the rather recent developments that we are seeing with SEPs.  For example, we are recently seeing competition authorities in different countries revise enforcement guidelines and take enforcement actions concerning SEPs with little precedence for guidance here.  This has raised concerns on many levels, including whether a foreign country may provide discriminatory treatment against U.S. innovators in a way that favors that countries’ businesses and whether such improper advantage is limited to within that country or may attempt to reach extraterritorially to U.S. patents and markets. (See, e.g., our January 19, 2017 post).

The USTR’s Report raises general concern that some foreign government actions “have the effect of distorting trade by forcing U.S. companies to transfer their technology or other valuable commercial information to national entities.” (Report at 19).  Such concerns including “[m]anipulating the standards development process to create unfair advantages for national firms, including with respect to the terms on which IP is licensed.” (Report at 19).

The USTR’s concern in this Report were specifically directed to China, which is placed “on the Priority Watch List because longstanding and new IP concerns strongly merit attention.” (Report at 1).  The USTR may place a country on either a Priority Watch List or Watch List if  “particular problems exist in that country with respect to IP protection, enforcement, or market access for persons relying on IP rights,” (Report at 70 (Annex 1)).   China’s placement on the Priority Watch List indicates that it will be “the focus of increased bilateral attention concern the specific problem areas.” (Report at 70 (Annex 1)).  The USTR stated “[s]erious challenges in China” confront U.S. intellectual property rights (IPR) owners concerning adequate enforcement and fair market access:

Serious challenges in China continue to confront U.S. intellectual property (IP) right holders with respect to adequate and effective protection of IP, as well as fair and equitable market access for U.S. persons that rely upon IP protection.  China must enact new measures and policies that provide stronger and more effective protection for IP; allow market access for IP-intensive products, services, and technologies; and enhance the effectiveness of civil enforcement in Chinese courts. [Report at 28]

The USTR Report expresses particular concern about unfair discriminatory policies in the Information and Communications Technology (ICT) area, “including standards and competition law,” stating:

China’s promotion of self-sufficient, indigenous innovation through policies on patents and in related areas, including standards and competition law, implicates a cross-cutting set of concerns.  China must ensure that present and future Information and Communications Technology (ICT) policies (and other policies) do not disadvantage foreign IP-intensive industries by, inter alia, conditioning market access on the disclosure of IP and proprietary information, the localization of research and development, or by invoking “secure and controllable” standards, risk criteria, product reviews, or similar requirements that are disadvantageous to foreign firms.  Also critical is that China eliminate discriminatory requirements and incentives to transfer technology to, or develop technology in,  China.  These policies affect U.S. IP holders across a range of sectors including ICT, medical devices, biotechnology, semiconductors, new energy vehicles, aviation and high-tech equipment. [Report at 28-29].

The USTR Report expressed concerns that proposed amendments to China’s Patent Law presents “troubling provisions, including the insertion of competition law concepts that should be addressed elsewhere; an undue emphasis on administrative enforcement; a one-size-fits-all imposition of disclosure obligations in standards setting process; …” (Report at 32).

The USTR Report expressed concern that draft amendments to its Standardization Law should not pressure U.S. patent owners to contribute their IPR and license them “against their will”:

In early 2016, China published for comment draft amendments to its Standardization Law.  China should ensure that standards setting processes are open to domestic and foreign participants on a non-discriminatory basis and eliminate pressures on patentees to contribute proprietary technologies to standards and to license them to implementers against their will.  [Report at 32-33]

The USTR Report also expressed concern that Chinese competition authorities may “target” and “pressure U.S. patent holders to license to Chinese parties at lower rates,” stating:

Chinese authorities have also published for comment draft guidelines for Anti-Monopoly Law (AML) enforcement as it relates to IP rights, most recently in March 2017.  There is ongoing concern that China’s competition authorities may target foreign patent holders for AML enforcement and use the threat of enforcement to pressure U.S. patent holders to license to Chinese parties at lower rates.  The United States has stressed to China that it is critical that China’s AML enforcement be fair and non-discriminatory, afford due process to parties, focus only on the legitimate goals of competition law and not be used to achieve industrial policy goals. [Report at 33]