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How the U.S.-China Trade War Effects IP Strategy

By Rob Maier
November 01, 2019

The trade war between the United States and China has had far-reaching effects on international trade and the global economy. The dispute is slowly developing into a battle of attrition, without any immediate resolution on the horizon despite ongoing trade talks. As businesses change the way they operate in response to this unpredictable trade environment, counsel should consider the risks and potential impacts on corporate IP strategy.

Background

The trade dispute is the culmination of long-standing tensions between the United States and China. For decades, the United States has maintained a trade deficit with China, and that deficit has increased dramatically in recent years — from less than $100 million in the late 1990s, the excess of U.S. imports from China over exports to China topped $419 billion in 2018. See, "The People's Republic of China: U.S.-China Trade Facts," Office of the United States Trade Representative. This trade imbalance has resulted in the wide availability of inexpensive imported goods for the American public, but at the expense of manufacturing jobs in the United States.

In addition to the widening trade deficit, another driver of the trade war has been China's history of intellectual property misappropriation. While the United States alleges illicit activities including theft by Chinese agents, e.g., by breaking into U.S. corporate offices, and bribing U.S. corporate employees, to obtain high-value trade secrets, the allegations of misappropriation extend to subtler activities. Foreign companies doing business in China have complained of China's use of administrative measures, such as foreign ownership restrictions, licensing requirements, and product approvals, as mechanisms used to coerce foreign companies to transfer technology and IP to Chinese companies. Although foreign ownership requirements have been relaxed in some sectors, in others foreign businesses are still required to form joint ventures with Chinese firms in order to do business in China. These joint ventures often require some level of technology transfer, after which the Chinese partner has sometimes used the transferred technology to thereafter compete with the foreign company.

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