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U.S., EU File IP Complaints Against China With the WTO

On March 23, the United States – through the World Trade Organization (WTO) – filed a “Request for Consultations” with the government of China concerning its technology and trade practices that are harming the IP rights of U.S. companies and innovators who enter into joint ventures with Chinese companies. The U.S. claimed that the Chinese measures are inconsistent with multiple articles of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). The TRIPS Agreement, of which China is a member, sets out the minimum standards of intellectual property protection to be provided by each member.

In its Request for Consultations, the U.S. alleged that China violates the TRIPS Agreement insofar as it “denies foreign patent holders the ability to enforce their patent rights against a Chinese joint-venture party after a technology transfer contract ends. China also imposes mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology.”

For example, the Regulations of the People’s Republic of China on the Administration of the Import and Export of Technologies prohibits a U.S. patent-related technology license contract from restricting a Chinese party from improving the technology or from using the improved technology. Those same regulations go on to say that any improvements in imported technology belong to the party making the improvement. Therefore, a U.S. patent holder cannot stop a Chinese entity with which it is working from modifying or “improving” a patent, even ever so slightly. Then, that improved patent automatically belongs to the Chinese entity, which now has unfettered rights to license and distribute.

In April 2018, the Ukraine, Japan, Saudi Arabia, Chinese Taipei (Taiwan), and the European Union (EU), all formally requested to join the Consultations requested by the United States, generally citing substantial interests in the interpretation of the relevant provisions of the TRIPS Agreement.

In addition to requesting to join the U.S., the EU filed its own Request for Consultations on June 1, echoing and expanding upon the concerns of the United States. The E.U. Request goes on to say that “China’s measures appear to adversely affect exports to China of technology, including intellectual property rights, by European Union undertakings and also appear to nullify or impair the benefits accruing to the European Union and its Member States.” (emphasis added)

China’s Ministry of Commerce responded to the EU’s Request stating, in part, “The Chinese government has always attached great importance to the protection of intellectual property rights and adopted many strong measures to protect the legitimate rights and interests of domestic and foreign intellectual property rights holders.”

So, what happens next? According to the WTO Dispute Settlement System, the request for consultations formally initiates a dispute in the WTO. If the consultations fail to settle a dispute within 60 days after the date of receipt of the request for consultations, the complaining party may request adjudication by a panel. The findings of the panel will be adopted by the Dispute Settlement Body (DSB) of the WTO, unless a party appeals the finding or the DSB decides by consensus to not adopt the panel’s report.

As of June 7, a panel has not been requested as a result of the U.S.’s Request, even though the 60-day benchmark has come and gone, and the status remains “in consultations.” Stay tuned to this space for updates.

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