Intellectual property, technology transfers and the US-China trade deal: key takeaways for Australia

On 15 January 2020, Phase One of the Economic and Trade Agreement Between the United States of America and the People’s Republic of China (Phase One) was concluded and signed, following a lengthy and ongoing trade war between the two countries. 

Sparked to some extent by the Findings of the Investigation into China’s Acts, Policies, and Practices related to Technology Transfer, Intellectual Property, and Innovation, dated 22 March 2018, Phase One specifically addresses some of the US’ longstanding concerns regarding China’s protection of intellectual property and technology. Other fields covered by Phase One include agriculture, financial services, currency expanding trade and dispute resolution, with overarching commitments by China to increase purchases of US goods and services and by the US to ease tariffs on Chinese products. 

Although President Trump has foreshadowed that Phase Two negotiations (which are set to deal with issues including cybersecurity) will commence promptly, analysts suggest an agreement is unlikely before the US Presidential Election, due to take place on 3 November of this year. 

Key commitments

Chapters 1 and 2 of Phase One contain lengthy commitments in respect of intellectual property and technology transfers that essentially operate to strengthen intellectual property protection in China and eliminate the prevalence of forced technology transfers. 

The form and structure of these commitments, however, will only be seen once China submits its Action Plan, which is due within 30 working days of signing. This Action Plan should expand on China’s proposed implementation of the following key commitments addressed in Phase One.

Intellectual property commitments

• Trade secrets – increased protection and enforcement of misappropriation of trade secrets by:
  • broadening the scope of prohibited acts and liability for misappropriation; 
  • shifting the burden of producing evidence or the burden of proof in civil proceedings to the defendant where trade secret owners have reasonable evidence of trade secret theft; 
  • allowing trade secret owners to obtain preliminary injunctions more easily;
  • eliminating requirements for proof of actual loss in initiating criminal investigations;
  • providing criminal procedures and penalties for a range of wilful trade secret misappropriation; and
  • prohibiting unauthorised disclosure of trade secrets by governmental authorities.
    
    
• Patents and pharmaceutical-related intellectual property –providing increased protection by:
  • permitting patent applicants to rely on supplemental data; 
  • instituting early patent dispute resolution mechanisms, including a cause of action allowing a patent holder to seek remedies before an allegedly infringing product is marketed; and
  • extending and adjusting patent terms where there are unreasonable delays in approval.
    
    
• Pirated and counterfeit goods – increased enforcement of online piracy and counterfeiting, in particular of counterfeit pharmaceutical and related products, by:
  • establishing a notice and takedown system; 
  • increasing the number of enforcement actions; 
  • publishing enforcement data online; 
  • increasing cooperation; 
  • creating guidelines surrounding forfeiture and destruction of counterfeit goods; and 
  • strengthening border enforcement measures.

Other noteworthy commitments relating to intellectual property include measures to avoid overprotecting geographical indications and generic terms, the introduction of provisions concerning bad faith trade mark registrations, unlicensed software and deterrent-level penalties for intellectual property theft or infringements.

Technology transfer commitments

• Technology transfers – encouraging free and open operation in the US and China by creating binding obligations:
  • that technology transfers cannot be forced or pressured, and that market access must be voluntary and based on market terms; 
  • to refrain from directing or supporting outbound investments aimed at acquiring foreign technology pursuant to industrial plans that create distortion; 
  • to ensure administrative and licensing requirements and processes do not require technology transfers; and 
  • to ensure enforcement of laws, regulations and administrative proceedings provide due process and transparency.

Key takeaways for Australia

Although these commitments are between the US and China, given their nature, it appears that their implementation will at least to some extent require structural reforms and substantial revisions of China’s intellectual property laws that should presumably extend more broadly. 

If China remains faithful to the spirit of these commitments in its Action Plan and implementation, the result should be a stronger, more robust intellectual property framework that offers greater protections and more sanctions and which is better aligned with western standards. If this is indeed the outcome, then as Chinese vice Premier Liu He said, “[The] conclusion of the Phase One trade agreement between China and the US is good for China, for the US and for the whole world.” 

For Australian businesses with intellectual property that are considering investing in China, reforms of this nature should – contingent on their enforcement – provide more confidence and certainty that they can obtain enforceable intellectual property protection and avoid ceding their technology, thereby making China a more transparent and open market and a safer and easier jurisdiction to do business in, import into and export from. 

However, since China has previously shown an intention to make some commitments of Phase One’s nature without any follow-through, the real impact of this deal is still unknown. The release of China’s Action Plan should further clarify whether this deal will yield transformative results, as well as any other potential takeaways for Australia.