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Administration Pledges Aggressive Efforts to Combat IPR-Related Trade Barriers

The Office of the U.S. Trade Representative’s annual Special 301 report on the adequacy and effectiveness of U.S. trading partners’ intellectual property rights protection and enforcement lists 36 trading partners as meriting particular concern. This year’s report reiterates the Trump administration’s emphasis on using “all possible sources of leverage” to encourage other countries to “provide adequate and effective protection and enforcement of U.S. intellectual property rights.”

Trading partners on the Priority Watch List present the most significant concerns regarding insufficient IPR protection or enforcement or actions that otherwise limit market access for persons relying on IPR protection. Twelve economies – mainland China, Algeria, Argentina, Canada, Chile, Colombia, India, Indonesia, Kuwait, Russia, Ukraine and Venezuela – have been placed on the PWL and will be the subject of intense bi-lateral engagement during the coming year.

Canada was moved up from the Watch List for “failing to make progress on overcoming important IP enforcement challenges,” including poor border enforcement, lack of customs authority to inspect or detain suspected counterfeit or pirated goods shipped through Canada, deficient copyright protection, and inadequate transparency and due process regarding the protection of geographical indications. Colombia was elevated from the Watch List for “its longstanding failure to make meaningful progress in fulfilling obligations under the United States-Colombia Trade Promotion Agreement, such as obligations to amend its copyright law.”

Twenty-four trading partners are on the WL and merit bi-lateral attention to address underlying IPR problems: Barbados, Bolivia, Brazil, Costa Rica, Dominican Republic, Ecuador, Egypt, Greece, Guatemala, Jamaica, Lebanon, Mexico, Pakistan, Peru, Romania, Saudi Arabia, Switzerland, Tajikistan, Thailand, Turkey, Turkmenistan, United Arab Emirates, Uzbekistan and Vietnam.

Saudi Arabia was added to the WL due to “concerns regarding recent deteriorations in IP protection for pharmaceutical products, in addition to outstanding concerns regarding IP enforcement and the continued use of unlicensed software by the government.” The UAE was placed on the WL “in response to longstanding concerns about the sale and transshipment of counterfeit goods and the establishment of collecting management organizations, as well as recent policy changes that may not provide adequate and effective IP protection for pharmaceutical products.” Tajikistan was added after an out-of-cycle review because it “failed to address unlicensed software use by government agencies during the OCR.” Bulgaria was removed from the WL after taking steps to improve IPR enforcement and Thailand was moved down from the PWL in light of various improvements.

As expected, concerns regarding mainland China continue to feature prominently throughout the report. On the positive side, USTR welcomed the continued overhaul of mainland China’s IP-related legal and regulatory framework as well as the conclusion with a favourable assessment of a three-year pilot programme for specialised IP courts in Beijing, Shanghai and Guangzhou. Beijing has continued the IP courts and added specialised IP tribunals, which enjoy cross-regional jurisdiction, in order to promote the quality, efficiency and consistency of IP adjudications.

According to the report, observers indicate that the IP courts generally demonstrate competence, expertise and transparency to a greater degree that seen in other mainland Chinese courts. Continuing this trend of specialisation, in August 2017 mainland China opened the nation’s first Internet Court in Hangzhou with 40 judges and assistant judges. There are also reports that mainland China is researching the creation of a national-level appellate IP court, which could lend consistency to outcomes.

Notwithstanding these positive developments, USTR states that interventions by local government officials, powerful local interests and the Chinese Communist Party remain obstacles to the independence of the courts and rule of law. In addition to insufficient judicial independence in certain cases, stakeholders continue to report that onerous authentication requirements for evidence and documentation, lack of means to require evidence production, and insufficient damage awards all undermine the effectiveness of mainland China’s court system for addressing IP infringement.

USTR notes that other signs of progress came in the form of China Food and Drug Administration notices for public comment setting out a conceptual framework to protect against the unfair commercial use, as well as unauthorised disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products and to promote the efficient resolution of patent disputes between right holders and the producers of generic pharmaceuticals. The notices and mainland China’s engagement with private sector stakeholders appeared to provide cause for cautious optimism, although the important work of reducing concepts to text remains and it is not yet clear to USTR whether other elements of the mainland Chinese government will provide critical collaboration.

Current U.S. concerns extend not only to gaps in legal authorities and weak enforcement channels, but also to investment and other regulatory requirements that promote the acquisition of foreign technology by domestic firms at the expense of providing the reciprocity, a level playing field, and the transparency and predictability upon which the United States and others insist. In USTR’s view, assertions by mainland Chinese government officials that mainland China’s shortcomings should be excused in light of the country’s stage of economic development appear to suggest an underlying lack of commitment to address long-standing problems and undermine any confidence stemming from positive developments and high-level statements in support of IP and innovation.

The report states that the 2017 amendment of the Anti-Unfair Competition Law represents a major missed opportunity to address critical concerns. Despite extensive U.S. engagement regarding the first amendment since 1993 to the AUCL, U.S. officials believe mainland China did not address major flaws in the outdated legislation, including the overly narrow scope of covered actions and actors, the failure to address obstacles to injunctive relief, and the need to allow for evidentiary burden shifting in appropriate circumstances, in addition to other concerns. More fundamentally, despite long-term engagement from the United States and others – including from within the mainland – Beijing chose not to establish a stand-alone trade secrets law and instead continued to seat important trade secrets provisions in the AUCL, an arrangement that ostensibly contributes to definitional, conceptual and practical shortcomings relating to trade secrets protection.

According to USTR, mainland China also failed in 2017 to take decisive action to curb the widespread manufacture, domestic sale and export of counterfeit goods. Additionally, mainland China has not shown significant progress in addressing the registration of trademarks in bad faith despite a number of announcements by China’s State Administration for Industry and Commerce in September 2017, while widespread on-line piracy and counterfeiting in mainland China’s e-commerce markets represent major additional unaddressed concerns. Moreover, the report states, notwithstanding years of bi-lateral negotiation and other engagement mainland China has repeatedly failed to address a range of measures and practices that force or pressure U.S. right holders to relinquish control of their valuable IP as a condition for accessing the large and growing mainland Chinese market.

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