A Public Discussion on Strategies for Engaging China

Under Secretary of Commerce for IP and Director of the USPTO David J. Kappos

December 13, 2011

GW University Law School & Fordham University School of Law

"A Public Discussion on Strategies for Engaging China"


Good morning everybody - and thank you for that warm introduction, Chief Judge Rader. I'd like to begin by thanking George Washington University's Law School, as well as the Fordham School of Law, for hosting today's forum on the trends in China's economy that are affecting intellectual property and innovation.

I especially want to extend the gratitude of the United States Patent and Trademark Office to Dean John Whealan of GW and Professor Mark Cohen of Fordham who have worked so hard to convene such a distinguished group of IP experts. As a former Solicitor, and a former IP Attaché to Beijing, respectively, Dean Whealan and Professor Cohen are both alums of the USPTO. So it is indeed a pleasure to participate in today's dialogue alongside public servants who have contributed so much to the American IP system. I also want to take a moment to applaud the stewardship and public service of jurists, and specifically Chief Judge Rader, who are making important decisions in further resolving the array of issues presented by the IP bar today.

And the variety of cases filling dockets around the world underscores the ever-evolving nature of the intellectual property terrain. That terrain is being shaped by technologies-from computers to mobile phones to life-saving drugs-that are not just a part of everyday life, but are also growing more cross-disciplinary. And that terrain is also being shaped by the rising strength of some of our key trading partners around the world, namely China.

Just about a month ago, on November 10, 2011, the world marked the tenth anniversary of China's entry into the World Trade Organization. As the WTO's 143rd member, China has become the world's second largest economy and the biggest global exporter. And the State Intellectual Property Office of China, or SIPO, is also rapidly expanding. The Office received more than 1.2 million patent applications in 2010, and issued more than 800,000 patents that same year. And even though most of these filings are for utility models rather than invention patents, the numbers are quite impressive.

And last fall, SIPO released a National Patent Strategy to help guide China's capacity to create, use and administer the patent system for furthering economic development. The strategy includes ambitious targets such as increasing the capacity of patent filings to reach 2 million applications per year, and doubling the number of overseas patent applications filed by Chinese applicants by 2015. This rapid growth in patent filings is fueled in part by patent subsidies provided by government entities at the central, provincial, and municipal levels, to incentivize both overseas and domestic filings.

But as China's international trade of products, technologies and services rapidly rises, enforcement of intellectual property remains a serious problem for companies--as issues such as trademark counterfeiting, copyright piracy, and blatant patent infringement continue to grow. US IP rights holders are increasingly voicing frustration about the very large scale of their continuing losses in China due to widespread counterfeiting and piracy, including losses in key export sectors such as business software. That's why the United States has urged the Chinese government to demonstrate resolve when fighting IP infringement-including counterfeiting and piracy-by taking firm action against infringers, thereby sending a strong signal throughout the country.

Now the good news is that China has done a tremendous amount of work to ensure that its IP laws are compliant with its obligations to the World Trade Organization's Agreement on Trade Related Aspects of IP Rights (TRIPS). As many of you are aware, Premier Wen Jia Bao announced last fall that the Chinese government was embarking on a "Special IP Campaign" to improve IP enforcement in China. This campaign, which ended in June of this year, had backing from the highest reaches of the central government.

While we have seen successes as a result of the campaign, and are pleased by the recent announcement that they will formulate an office directly under the State Council to continue the work of the campaign, there is an enormous amount of work that still needs to be done. As China's internet user community grows, infringers are increasingly leveraging the World Wide Web to sell counterfeit goods and pirated materials. Several enterprises also continue to complain about bad faith trademark filing-a ruthless practice where a party intentionally files for another party's trademark, simply to take advantage of the first-to-file trademark system in China. Once an application is filed or a registration is obtained in China, it is difficult, costly and time consuming for the proper right holder to oppose or cancel the registration. This practice hurts both legitimate Chinese trademark owners and foreign right holders here at home.

Moreover, US innovators, and the US government, are now grappling with a host of new and emerging concerns as we witness China's so called "indigenous innovation" strategies to develop and produce high tech goods. Companies often tell us that they are concerned about a web of Chinese measures that inhibit market access by requiring the use of Chinese or indigenous core technologies and even require applicable IP to be licensed to Chinese entities. Additionally, the civil judicial enforcement system is difficult to navigate. Companies often tell us that they have to go through burdensome legalization requirements in order to introduce evidence from outside of China into court proceedings. And we have heard of instances where decisions are rooted in local protectionism and favoritism towards local companies.

So given that the enforceability of court orders and judgments remain problematic, and that there is a general lack of transparency, US companies of all sizes are facing difficulties in effectively utilizing China's courts.

USG and USPTO Involvement with China IP Matters

The USPTO for its part is thoroughly promoting the effective protection and enforcement of IP overseas; and particularly in China. For example, we advise the Office of the US Trade Representative on IPR matters related to trade issues, such as the World Trade Organization (WTO) and bilateral trade agreements. The USPTO also has the lead role for IPR issues in the World Intellectual Property Organization (WIPO). Moreover, we have a dedicated group of attorneys in our Office of Policy and External Affairs with expertise in US and Chinese IP law. This allows us to engage China on three levels:

First, we co-chair the IP working group meeting of the Joint Commission on Commerce and Trade, along with USTR. We have had this role since 2004 when the working group was first formulated. The Joint Commission on Commerce and Trade, established in 1983, is the chief bilateral mechanism by which the US and China address trade-related matters and promote commercial opportunities. We meet twice a year at the staff level, and once a year at the Vice Ministry level, alternating between the US and China. And this past November, Secretary of Commerce John Bryson completed a successful meeting at the Minister level in China.

At this year's JCCT the Chinese government agreed to continue working to develop solutions to combat the sale of infringing goods on the Internet, while at the same time moving forward to develop additional protections for legitimate trademarks. China's commitments on intellectual property rights will enhance the protection of US innovative products and promote job creation in the United States.

During JCCT, China also confirmed that it does not and will not require foreign automakers to transfer technology to Chinese enterprises nor to establish Chinese brands in order to invest and sell in China's fast-growing market. China also confirmed that foreign-invested enterprises are eligible on an equal basis for electric vehicle subsidies and other incentive programs for electric vehicles. Moreover, the working group provides an opportunity for IP experts from both sides to hold substantive discussions about IP matters of interest to rights-holders and to the US Government. It's also been a good forum through which we can find practical and effective ways of improving the Chinese IP system for the benefit of US and Chinese rights-holders.

Second, the USPTO has important bilateral relationships with our counterpart IP offices in China. We have an excellent relationship with the State Intellectual Property Office (SIPO) and good relationships with the China Trademark Office (CTMO) and the National Copyright Administration (NCAC). These relationships were formalized with several Memoranda of Understanding since 2008.

Third, not only do we have a dedicated group of attorneys working on China IP matters at the PTO, but we also have two IP attachés on the ground in China, one in Beijing and the other in Guangzhou. And we are in the process of opening up an office in the consulate in Shanghai and hope to have an IP attaché on the ground there within the next year. Our IP attachés are our chief liaisons with our counterpart offices in China, and serve to promote and deepen these important bilateral relationships. They work very closely with the China team based at the USPTO on capacity-building and training workshops and programs, reviewing and providing comments to legislation, and conducting legal research as needed. Such programmatic relationships are very important to us: they allow us to promote our IP policy message and provide us an opportunity to better understand what the Chinese are doing in the area of IP, and how we can best work with them to encourage more effective IP legislation and policy.

A few years ago, we also formed the IP5 cooperation, a framework consisting of the five largest patent offices in the world: the USPTO, the European Patent Office, the Japan Patent Office, the Korea IP Office, and SIPO. Together, these five offices receive more than 70% of the world's patent filings. As patent filings continue to grow around the world, we are looking for ways to alleviate the burdens on our respective offices.

One way to do that is by reducing duplication; that is, by sharing work that has already been done in one patent office with the other patent offices around the world. And just two weeks ago we began a work-sharing initiative with SIPO through the "Patent Prosecution Highway" program. This agreement is a milestone in bilateral cooperation between the USPTO and SIPO, because not only will it reduce the examination workload in each office, but by adding more pairs of eyes to the review of prior art, the scope of the examination is widened, and the quality of patenting worldwide is improved.

And in the area of utility model and design patents, we have also initiated a series of industry roundtable discussions, overseas and here in Washington, to learn more about US right holders' experiences in dealing with these rights in China. This includes the unfortunate practice whereby portions of US originated invention patents are copied and patented in China as utility models then used to sue US innovators in China based on their own inventions. We've also initiated discussions with SIPO and will be working with our colleagues from the EU and hopefully Japan to further this dialogue.

In addition to the work that we do with SIPO, the USPTO China team is also involved in important work in the area of copyrights, trademarks and enforcement. We've conducted workshops and seminars with our colleagues at the Japan Patent Office and at the Office of Harmonization for the Internal Market (OHIM), the trademark authorities in Europe, and will be continuing these workshops in 2012, where we will focus on best practices to alleviate bad faith trademark filings. We are pleased to hear that through these various collaborations, our right holders have actually seen improvements in the way China's trademark office is handling opposition proceedings. This is an example of how we have successfully used both the JCCT IP working group and our bilateral cooperation mechanisms to achieve results for rights holders.

On copyright matters, the Chinese do not yet have a provision in their copyright law to address the concept of "indirect infringement," and because of the lack of clarity in this area of the law, online infringers are in some cases avoiding liability. We are asking the Chinese to provide more legal clarity and guidance by developing a Judicial Interpretation or other legally binding instrument. We will continue to work with them to ensure that only legal software is being used on their government-run and state-owned enterprise computers. And we will be working closely with their copyright office as they amend their copyright laws.

On enforcement, the USPTO China team and our IP attachés have focused their work on the Special IP campaign, begun in the fall of 2010 and ending in June of this year. This work was invaluable to the US Government as it prepared for the JCCT dialogue. The USPTO China team, in collaboration with the Intellectual Property Enforcement Coordinator's office (IPEC), has also focused on civil judicial enforcement of patents by gathering firsthand information from inventors about their problems in Chinese courts surrounding enforcement of patents. We also issued a Federal Register Notice, which we recently extended, requesting public comments. Once we gather this information, we will work on a multi-pronged approach to address these problems with our Chinese colleagues.

Chief Judge Rader of the Court of Appeals for the Federal Circuit has been instrumental in helping us address these and other issues in China. For the last several years, he has travelled to China more times than I can count to engage with his counterparts in China, with much success. Chief Judge Rader will be leading a group of Federal Circuit judges to China in May 2012 to continue this effort; the USPTO is pleased to be working with him and the Federal Circuit Bar Association on this event.

Future Trends

As members of the IP community, we need to start considering the potential impact of SIPO's growth on the USPTO and other patent offices, not to mention the effect of increasing caseloads on the administrative enforcement system and the courts. We have long known that Chinese academics and the various Chinese academies are influential in developing IP policy. We must find new ways to engage with them, to address these issues and to develop constructive, cooperative solutions. As the USPTO and our colleagues in other agencies continue this effort, we look forward to working with you, the US rights holders' community, members of the US academy and others. Your on-the-ground experience, research and work on these issues are crucial to our overall success.

To be truly effective in working with China to address rights holder concerns, we need you to provide information. For example, are you filing patent infringement cases in China, and if so, what concerns do you have about their administrative or judicial enforcement system? Are you filing utility model and design patents, and what is your experience? What is your experience in filing for invention patents? Are you facing spurious charges of infringement in China?

To the academic community, what are your thoughts on China's patent subsidies; what is their effect on promoting innovation? In this regard, we recently finished a related study here in the US. What other areas of research and empirical data are needed to help buttress our discussions with the Chinese?

To get those answers, we'll be listening closely today during this forum. By exchanging information on what we are all doing in the area of China IP, and by sharing our thoughts and ideas, my hope is that we can continuously refine and pursue shared goals and objectives as we work together to improve China's IP protection and enforcement environment.

Thank you again, and I look forward to a lively discussion today.