USTR Filing Alleges Chinese Breaches of WTO Rules That 'Hurt' US ‘Innovators’

The request alleges various Chinese breaches of WTO rules that harm “the intellectual property rights of U.S. companies and innovators,” the USTR’s office said. If the consultations process fails to resolve U.S. grievances against China, the U.S. can then seek “the establishment of a WTO dispute settlement panel to review the matter,” it said. The country's embassy in Washington didn't immediately comment.

China, in violation of WTO rules, denies foreign patent holders, including U.S. companies, “basic patent rights” to stop a Chinese entity from using U.S. intellectual property after a joint-venture licensing contract expires, the USTR’s office alleged. “China also appears to be breaking WTO rules by imposing mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology,” it said.

The patent policies in China “hurt innovators in the United States and worldwide by interfering with the ability of foreign technology holders to set market-based terms in licensing and other technology-related contracts,” the USTR’s office said. The consultations request itself accuses China of depriving foreign patent holders “of the ability to protect their intellectual property rights in China as well as freely negotiate market-based terms in licensing and other technology-related contracts.”

Lighthizer’s office investigated Chinese patent practices for seven months and “identified” licensing “restrictions” that it found were particularly onerous to U.S. companies, said the 215-page report the office released March 22 as justification for Trump’s memo proposing tariffs. For example, Chinese regulations on joint-venture contracts with foreign companies “result in securing benefits” for Chinese JV companies that import technology into China from the U.S. without reciprocal benefits to their American partners, the report said.

One provision in the Chinese regulations generally limits the terms of JV contracts to 10 years, the report said. “The provision may result in U.S. companies only having control over their transferred technology” for 10 years, “even though some forms of technology, such as patents and trade secrets, may be protectable for much longer” than that, it said.

Beyond the 10-year expiration terms of any “technology transfer agreement” under the typical JV contract, Chinese law expressly stipulates that the Chinese JV partner has the right to “continue to use transferred technology after the expiration of the related technology contract, even if the transferred technology would otherwise be protected from use by that Chinese party,” the report said. “This means that under the JV Regulations, the Chinese joint venture licensee has the right to use the U.S. licensor’s technology in perpetuity after the technology contract expires, without paying compensation or subject to other terms.”

Pro-China comments submitted to the USTR’s office as part of the investigation “do not account for the continuing existence” of Chinese regulations that put undue “restrictions on contract negotiations for U.S. technology owners,” the report said. “These concerns increase when a company has valuable intellectual property and other proprietary information that may be affected by China’s licensing restriction
regime.”

None of the submitted comments that justified China’s “discriminatory policies addressed how such a licensing regime meets a national treatment standard,” the report said. In international trade law, the standard means that a country like China “accords to the nationals of other countries” like the U.S. “treatment that is no less favorable than that it accords to its own nationals with regard to the policies at issue,” it said. “Instead, the submissions appear to implicitly acknowledge that China has discriminatory acts, polices, and practices concerning technology import contracts by justifying their existence.”