IPR and the China-US phase one economic and trade agreement

By Hellen Zhang, AnJie Law Firm
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Q: What are the characteristics and impacts of the US-China phase one Economic and Trade Agreement?

Zhang Haixiao
Senior partner
AnJie Law Firm

A: The agreement imposes balanced obligations on both China and the US, and stipulates tightening or restrictive provisions on intellectual property rights (IPR), technology transfer, financial services, exchange rates and trade. Compared with relevant domestic laws of the US and China, and international treaties, however, the author believes that the agreement imposes higher thresholds on China, especially in terms of IPR and technology transfer, which is attributable to the current big US-China gap in economic strength, R&D capability of enterprises, quality of IPR, and capability of patented technology commercialisation.

Such IPR provisions are basically drafted based on the legal logic and commercial logic of the Anglo-American legal system, which is more challenging to the existing Chinese regime and judicial administrative systems.

Q: Regarding trade secrets, as part of IPR, what are the differences between the agreement and China’s domestic law?

A: The agreement first provides, in article 1.3, that the “scope of actors liable for trade secret misapplication” shall be expanded to “all natural persons, groups of persons, and legal persons”, with the aim of including China’s state-owned enterprises (SOEs), government agencies and government employees in the scope of actors liable. Article 1.4 sets out the “scope of prohibited acts constituting trade secret misappropriation”, which emphasises electronic intrusions, inducement of a breach of duty and unauthorised disclosure (unauthorised disclosure together with article 1.9 are mainly regulatory requirements targeting SOEs, government agencies and government employees).

This article significantly expands the scope of prohibited acts constituting trade secret misappropriation, which is not yet provided by the domestic law of China, for the time being. Article 1.9 mainly addresses “protecting trade secrets and confidential business information from unauthorised disclosure by government authorities”. This article is mainly to prevent unauthorised sharing of government and business information that may otherwise endanger the technological secrets of the US or US-funded companies. Its main purpose is to prevent any possible information sharing among relevant government agencies, trade associations and domestic enterprises in China, especially to regulate unauthorised disclosure of foreign technological information known to government agencies.

Q: How does the agreement differ from China’s domestic law regarding the fight against counterfeit goods and pirated software in the IPR section?

A: Articles 1.13 and 1.14 of the agreement mainly address e-commerce-related issues, including combating “online infringement” and stating that “e-commerce platforms may have their operating licences revoked for repeated failures to curb the sale of counterfeit or pirated goods”.

The crackdown on online infringement has been greatly strengthened, imposing stricter obligations on e-commerce platforms than the domestic laws of both China and the US. In the implementation process, the author believes that China should pay attention to balancing the reasonable interests of e-commerce platforms to prevent excess obligations from impeding the overall development of e-commerce.

In addition, China should balance the punishment and regulation of erroneous takedown notices and counter-notifications to protect micro, small and medium-sized enterprises from the harm of frequent takedowns.

Articles 1.18 to 1.22 of the agreement focus on cracking down on counterfeit goods, including how to dispose of counterfeit goods and how to create and implement a US-China joint enforcement mechanism.

Article 1.23 of the agreement relates to the downloading of licensed software, which will help US software companies to further expand their profits in China, especially considering that many central government agencies and organisations, and enterprises at all levels owned or controlled by the central government, must use licensed software. Article 1.29 of the agreement greatly reduces the burden of proof of copyright holders, whether it is to prove the identity of the copyright holder or the infringement.

Q: What are your suggestions on the implementation and enforcement of the agreement?

A: How to implement this agreement in a concrete manner will pose a great challenge to China’s administrative enforcement agencies and court trial system, including adjustment of the trial mindset and trial practices, because the agreement mainly builds on the legal logic and trial practices of the US, giving less consideration to China’s national conditions, which are different from the US.

Based on China’s practices, the author suggests that China should find out as soon as possible which parts of the agreement will be unenforceable at all in the future, and what exceptions should be made in China in reality.

The country should reach a consensus with the US enforcement supervision agencies on the future enforcement practices of the US-China joint enforcement mechanism, so as to lay a solid foundation for the smooth negotiation and signing of the US-China phase two trade agreement.

Hellen Zhang is a senior partner at AnJie Law Firm.

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