Trump takes the wrong road to IP war

China Daily (USA) - - VIEWS -

In mid-Au­gust, US Pres­i­dent Don­ald Trump asked US Trade Rep­re­sen­ta­tive Robert Lighthizer, a Ron­ald Rea­gan ad­min­is­tra­tion trade hawk, to open an in­ves­ti­ga­tion into China’s in­tel­lec­tual prop­erty prac­tices. And the first pub­lic hear­ing on China’s trade con­duct is sched­uled for Oct 10 in Wash­ing­ton.

As Lighthizer ini­ti­ated the in­ves­ti­ga­tion, he seized the no­to­ri­ous Sec­tion 301 of the US Trade Act of 1974, which in the 1980s was used against Ja­pan, and which Ja­pan and the Euro­pean Union re­garded as a vi­o­la­tion of World Trade Or­ga­ni­za­tion rules. In­stead of free trade, it rep­re­sents “ag­gres­sive uni­lat­er­al­ism” and au­tho­rizes re­tal­ia­tory tar­iffs.

Lighthizer draws from the highly par­ti­san US Com­mis­sion on the Theft of Amer­i­can In­tel­lec­tual Prop­erty, which was mo­bi­lized in the early 2010s amid the rise of China’s in­dige­nous in­no­va­tion and for­eign in­vest­ment.

Us­ing con­tested es­ti­mates, the com­mis­sion as­sumes IP theft could be be­tween $225 bil­lion and $600 bil­lion a year in coun­ter­feit goods, pi­rated soft­ware and theft of trade se­crets. As a re­sult, it ad­vo­cates more ag­gres­sive pol­icy en­force­ment “to pro­tect Amer­i­can IP”.

Es­sen­tially, the US’ IP nar­ra­tive claims the Chi­nese gov­ern­ment forces US com­pa­nies to re­lin­quish its IP to China. The nar­ra­tive is con­sis­tent with Trump’s “America First” pol­icy and it has been quoted un­crit­i­cally by the me­dia but it is deeply flawed.

While for­eign com­pa­nies in China are of­ten warned not to part with “too much” in tech­nol­ogy trans­fer and IP deals, they are not forced by the Chi­nese gov­ern­ment or other in­ter­ested par­ties into those deals.

More­over, in con­tested le­gal cases, the Chi­nese gov­ern­ment has of­ten sup­ported for­eign com­pa­nies. As The Wall Street Jour­nal re­ported last year, when for­eign com­pa­nies sue in Chi­nese courts, they typ­i­cally win. From 2006 to 2014, for­eign plain­tiffs won more than 80 per­cent of their patent-in­fringe­ment suits against Chi­nese com­pa­nies, vir­tu­ally the same rate as do­mes­tic plain­tiffs.

For years, for­eign multi­na­tion­als have ef­fec­tively ex­changed their tech­nol­ogy ex­per­tise for mar­ket share in China. The rush of IP com­pa­nies to China in­ten­si­fied a decade ago amid the global cri­sis, when the Sil­i­con Val­ley gi­ant Intel opened a $2.5 bil­lion wafer fab­ri­ca­tion foundry in Dalian, North­east China’s Liaon­ing prov­ince. As ad­vanced economies strug­gled with stag­na­tion, China con­tin­ued to grow vig­or­ously. So the bet proved very lu­cra­tive.

At that time, Craig Bar­rett was Intel’s chair­man. Today, Bar­rett is one of the five com­mis­sion­ers of the US IP Com­mis­sion, which por­trays the US as a vic­tim of mas­sive IP fraud. Not sur­pris­ingly, some US ob­servers see the Trump ad­min­is­tra­tion’s IP in­ves­ti­ga­tion as less a scru­tiny of forced tech­nol­ogy trans­fers than a ne­go­ti­a­tion ploy.

In re­al­ity, much of China’s IP progress can be at­trib­uted to past tech­nol­ogy trans­fers and the gov­ern­ment’s huge in­vest­ment in sci­ence and tech­nol­ogy. And as Chi­nese com­pa­nies have moved up the value-added chain, they stress the need for IP pro­tec­tion, par­tic­u­larly patents. In 2006, I wrote in the pres­ti­gious US for­eign pol­icy jour­nal The Na­tional In­ter­est that emerg­ing Chi­nese multi­na­tion­als were “no longer sat­is­fied with im­i­tat­ing. In­stead, they seek to con­vert cost ad­van­tages to more sus­tain­able com­pet­i­tive ad­van­tages — of­ten through in­no­va­tion.” Few took the con­tention se­ri­ously then.

Typ­i­cally, the Trump IP de­ba­cle is es­ca­lat­ing as Chi­nese com­pa­nies join the global ri­valry for cut­ting-edge in­no­va­tion. In terms of the num­ber of to­tal patent ap­pli­ca­tions, China’s share has ex­ploded. Two decades ago, it was far be­hind the US, Ja­pan, the Repub­lic of Korea and Ger­many, the world’s lead­ing patent play­ers. Now it is ahead of all of them.

But in th­ese ri­val­ries, not all patents are of equal value. The so-called tri­adic patents, which are reg­is­tered in the US, the EU and Ja­pan to pro­tect the same in­ven­tion, tend to be the most valu­able com­mer­cially and glob­ally.

In tri­adic patents, too, China’s patent power has in­creased dra­mat­i­cally and will sur­pass that of the ROK and Ger­many soon. The patents of Ja­pan and the US peaked around 2005-06. De­spite some progress, US patents are still 15 per­cent be­low their peak, whereas those of China have in­creased more than six­fold in the past decade.

Since patent com­pe­ti­tion is ac­cu­mu­la­tive, catch-up re­quires time. But here is the thing: If, for in­stance, US and Chi­nese tri­adic patents in­crease in the fu­ture as they have in the past five years, China could sur­pass the US by the late 2020s. And per­haps that is why Trump is tar­get­ing China’s IP today.

How­ever, nei­ther in­no­va­tion nor in­tel­lec­tual prop­erty is an exclusive priv­i­lege of the West.

Typ­i­cally, the Trump IP de­ba­cle is es­ca­lat­ing as Chi­nese com­pa­nies join the global ri­valry for cut­tingedge in­no­va­tion.

The au­thor is the founder of Dif­fer­ence Group and has served as re­search di­rec­tor at the In­dia, China and America In­sti­tute (USA) and vis­it­ing fel­low at the Shang­hai In­sti­tutes for In­ter­na­tional Stud­ies (China) and the EU Cen­tre (Sin­ga­pore).

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