On January 15, 2020, the United States and China entered into the Economic and Trade Agreement Between The Government Of The United States Of America And The Government Of The People’s Republic Of China.
This landmark agreement is the first phase of a major trade deal and seeks to remedy tensions between China and the United States relating to infringement and disregard of intellectual property, mandated technology transfers and an increase in Chinese purchases of U.S. goods. Chapter 1 of the agreement is dedicated specifically to intellectual property and is intended to provide greater security to foreign investors and businesses with respect to their intellectual property in China and address significant issues that are of concern to rights holders. Online infringement, bad-faith trademark applications, piracy, counterfeit goods, and the protection of valuable trade secrets are all included in this chapter.
A key objective of the agreement is enforcement of intellectual property protections for foreign investors and businesses that operate or seek to expand into the global marketplace in either China or the United States. The agreement includes a number of provisions aimed at addressing this shared objective, namely stricter legal protections for intellectual property in China (including criminal and civil liability for the misappropriation of intellectual property), objectives to combat online infringement and counterfeit goods on e-commerce platforms, and commitments by both countries against mandated technology transfers as a condition of market access.
Articles 1.3 through 1.9 of the agreement require China to expand protections for trade secrets. The agreement requires China to: (i) expand the definition of misappropriation to include additional acts, such as electronic intrusions and the “breach or inducement of a breach of duty not to disclose trade secrets”; (ii) lower evidentiary burdens for plaintiffs seeking redress from trade secret misappropriation; (iii) consider trade secret misappropriation an “urgent situation” that allows for preliminary injunctive relief; and (iv) lower barriers to initiating criminal proceedings. See generally Articles 1.3-1.8. China has, however, implemented additional protections for trade secrets that addresses some of these areas through the enactment of its Anti-Unfair Competition Law in April 2019, and will be required under the agreement to bring its current legislation into compliance with the additional protections and requirements purported in the agreement.
Although not addressed in Chapter 1, Chapter 2 of the agreement addresses the issue of technology transfers. Technology transfers was a previous area of contention for U.S. businesses seeking to do business in China, which required sharing highly confidential information containing a company’s intellectual property to Chinese competitors or government officials as a condition of conducting business in China. Notably, both China and the United States agreed that people from either country will not be required or pressured to transfer their technology, and any transfer of technology or licenses between each country must be voluntary. Furthermore, the provisions in Chapter 2 seek to prevent leaks of confidential business information by imposing stricter penalties for involuntary disclosures of a foreign investor’s confidential business information. Although this provision is not included under the intellectual property chapter, Chapter 1, this chapter will provide greater assurance to foreign investors from both countries in the security of their confidential business information, and in particular, their patents or trade secrets.
The U.S.-China trade agreement also seeks to target bad-faith trademarks and includes a section on this issue, Section H, where both the United States and China “shall ensure adequate and effective protection and enforcement of trademark rights, particularly against bad faith trademark registrations.” Although this section does not expand upon the measures or actions for this section, it is an assurance by both countries to target bad-faith filers.
The United States Patent and Trademark Office has recently introduced changes to its examination procedures for trademarks to target a rise in bad faith filing behavior, and China has also implemented amendments to its trademark law that include a provision allowing for administrative fines against bad faith filers and their agents. This pledge, in conjunction with the parallel efforts to target bad faith filers in both the United States and China, demonstrate that addressing bad-faith trademarks is a priority.
Another key issue addressed by the agreement is to combat online intellectual infringement, and what actions should be taken when they fail to stop the infringing activity in Articles 1.13 and 1.14. Article 1.13 requires China to establish an “expeditious and effective takedown notice system” to fight counterfeit goods being sold online, and “eliminate liability for erroneous takedown notices submitted in good faith.” Additionally, this article also extends the deadline for intellectual property owners by 20 days to file a judicial or administrative online infringement complaint with the Chinese government after receiving a counterfeit notification. Moreover, the agreement also includes provisions that seek to help combat the sale of counterfeit consumer goods on e-commerce platforms. Some online marketplaces, such as Amazon, eBay and Alibaba, have faced increasing criticism over their failure to address and stop the sale of counterfeit products. Although major e-commerce companies may have a “zero tolerance” policy for counterfeit goods and have developed strategies to address anti-counterfeiting measures, the marketplace of third-party sellers continues to advertise and sell those type of goods. Because of these issues with online infringement and counterfeiting, the agreement requires both countries to take effective action against online platforms that have failed to prevent and take necessary measures against the infringement of intellectual property rights to address this issue in a more meaningful way. An example of one of these measures is that China may revoke the operating license of the online marketplace at issue if the provider repeatedly fails to stop the sale of counterfeit and infringing goods.
The agreement will take effect no later than 30 days of signing the agreement (February 14, 2020) or once the United States and China have notified each other that they have implemented the “applicable domestic procedures”—whichever is earlier. The provisions in Chapter 1 and 2 of the agreement align with each country’s objective in achieving greater intellectual property protection for foreign investors and comports with the initiatives each country have or are working towards in providing greater protection. This agreement is a positive development for businesses that operate in or seek to expand into the Chinese market as it eases tensions between the world’s two biggest economies. The intellectual property measures in the agreement provide more protection for intellectual property owners and ultimately will be beneficial to both the economics of the United States and China by increasing investment and international commerce.