US Trade Representative Report on Global IP Threats Focuses on China

On April 27, 2022, the Office of the United States Trade Representative (USTR) released the 2022 edition of its annual Special 301 Report (Report). The Report identifies 27 trading-partner nations where the threat to American Intellectual Property (IP) rights is particularly high.

Emphasizing that "[c]ombating … unfair trade policies will encourage domestic investment in the United States, foster American innovation and creativity, and increase economic security for American workers and families," the Report places seven countries – Argentina, Chile, China, India, Indonesia, Russia, and Venezuela – on a "Priority Watch List" and twenty others on a "Watch List."

Among other concerns, the Report focuses on counterfeits, both physical and digital; online and broadcast piracy; trade secret protections; and "indigenous innovation" policies.

China, given statements by government officials suggesting that its approach to IP "should serve the needs of domestic innovation-driven development" at the expense of foreign IP rights holders, receives the lion's share of the Report's attention. Forced technology transfers, onerous licensing terms, IP-centered hacking, counterfeiting, and bad-faith trademarks are just some of the issues specific to China that the Report discusses.

Ukraine, which appeared on the "Priority Watch List" in the 2021 Special 301 Report, is excluded from the 2022 Report in light of its "premeditated and unprovoked further invasion" by Russia earlier this year. Saudi Arabia, meanwhile, was removed from the list after implementing measures to improve its enforcement of IP rights.

The Report also targets the European Union's geographical indications (GI) policies, which can cause problems for certain U.S. trademark holders.

In a March 2022 post to the Free State Foundation's blog, I noted the release of a related USTR annual report, the Notorious Markets List, which "identifies illustrative examples of online and physical markets that reportedly engage in, facilitate, turn a blind eye to, or benefit from substantial copyright piracy and trademark counterfeiting."

IP Commission Recommends Policies to Protect Americans from Theft

On March 15, the Commission on the Theft of American Intellectual Property released its 2021 review report containing policy recommendations for strengthening protections for American intellectual property from theft by China and pirates in other foreign nations. As the IP Commission's report points out, "IP-intensive industries support more than 45 million U.S. jobs," but IP theft inflicts on the U.S. economy hundreds of billions in annual losses as well as reduced investment and innovation. The report's policy recommendations include statutory authorization for the Secretary of Commerce to be the principal officer on all aspects of IP protection as well as authorization for the U.S. Trade Representative to develop and implement a national IP protection strategy and coordinate interagency efforts. It also recommends that U.S. policy make it a goal to delegitimize communist Chinese business efforts that are dependent on IP theft. Without staking definitive positions here on the report's recommendations, suffice to say they deserve careful consideration. Additionally, the IP Commission released a backgrounder that describes recent and ongoing legislative efforts to strengthen American IP protections. 

As mentioned in previous blog posts, the IP Commission has issued important reports that highlight the massive economic losses and harms suffered by U.S. innovators and our economy due to theft of copyrighted works, patented inventions, and other forms of IP. The 117th Congress and federal agencies must make protection of American IP for foreign bad actors in communist China and other nations. 

Attorney General Barr Presses for U.S. Action Now on 5G

On February 6, Attorney General William Barr delivered the keynote address at the Justice Department's "China Initiative Conference" in Washington D.C. Attorney General Barr primarily addressed the technological and economic challenges posed to the U.S. by China in the areas of intellectual property theft and 5G dominance. His address is worth reading or viewing in full. (For C-SPAN, AG Barr's address begins about 1 hour and 26 minutes into the stream and his remarks on 5G begin at about 1 hour and 38 minutes in.)

In his address, AG Barr stressed the importance of making spectrum resources available for 5G services in the U.S. He specifically identified C-Band and L-Band spectrum as critically important for rapid deployment of 5G. From AG Barr's prepared remarks: 

The FCC has been working hard to get the C-band spectrum out into the market through an auction.  It is critical to get this done within the next few months.  Even then, the U.S. will need 400,000 base stations to cover the nation.  This could take a decade or more to build out. Recently, there have been interesting proposals to jump-start U.S.  5G by also making available L-band spectrum for use in tandem with the C-band.  By using the L-band for uplink, we could dramatically reduce the number of base stations required to complete national coverage.  It has been suggested that this could cut the time for U.S. 5G deployment from a decade to 18 months, and save approximately $80 million.  While some technical issues about using the L-band are being debated, it is imperative that the FCC resolves this question. The bottom line is that we have to move decisively to auction the C-band spectrum, and bring to resolution the issues over L-band.  Our economic future is at stake.  We have to bear in mind that, given the narrow window we face, the risk of losing the 5G struggle with China should vastly outweigh all other considerations.

Free State Foundation scholars have also advocated prompt action by the FCC to put C-Band and L-Band spectrum into commercial use. On February 6, FSF President Randolph May issued a statement regarding the FCC's proposed order to transition incumbent users in the C-band and clear for auction 280 MHz in that band. And my December 19, 2019 blog post, "FCC Should Green Light Wireless Services in L-Band Spectrum," urged prompt FCC decision on Ligado Networks' modified applications to deploy a satellite-terrestrial hybrid mobile network for commercial services in unused L-band spectrum.  

Importantly, AG Barr's keynote address also called attention to the pressing issue of 5G equipment suppliers and the need to have a market-ready alternative to Chinese 5G equipment suppliers. His call that the U.S. and its closest allies need to consider ways to put our large market and financial muscle behind viable competitors – insofar as it is carried out by by private American and allied companies – merits serious consideration. 

Homeland Security to Step Up Efforts Against Counterfeit and Pirated Goods

On January 24, the U.S. Department of Homeland Security released "Combatting Trafficking in Counterfeit Goods," a report to the President of the United States. The report lays out a series of actions that federal law enforcement agencies plan to take in order to combat the growing problem of trafficking in copyright-infringing goods as well as other counterfeit or pirated products.

Over the last several years, international trafficking in counterfeit and pirated goods – including infringing copies of copyrighted works – has increased. The report cites OECD figures indicating an increase in internationally traded counterfeits from $200 billion in 2005 to $509 billion in 2016, a 154% increase. As the report observes: "E-Commerce…facilitates the widespread sale of pirated versions of copyrighted works. Pirated medical books — which can contain errors that endanger patients’ lives — have been found on platforms along with other pirated books (textbooks and trade books) and illicit reproductions of music-CD box sets."

The purpose of DHS's report is "to develop a deeper understanding of how e-commerce platforms, online third-party marketplaces, and other third-party intermediaries facilitate the importation and sale of massive amounts of counterfeit and pirated goods." The report points out: "[R]ights holders are often burdened by e-commerce platforms that operate third-party marketplaces with a disproportionate share of the costs of monitoring, detection, and enforcement falling on rights holders. This burden falls heavily on smaller American enterprises that cannot spread the costs due to trademark infringements and brand enforcement over large sales and inventories." 

The report sets forth several enforcement-related actions that the U.S. Customs and Border Protection and the U.S. Immigration and Customs Enforcement agencies intend to take to curb the trafficking of counterfeited pirated goods into the U.S. Significantly, the report identifies application of civil fines, penalties, and injunctive actions for imports of counterfeit and pirated products. According to the report:

• CBP and ICE will immediately begin to identify cases in which third-party intermediaries have demonstrably directed, assisted financially, or aided and abetted the importation of counterfeit merchandise. In coordination with the Department of Justice, CBP and ICE will seek all available statutory authorities to pursue civil fines and other penalties against these entities, including remedies under 19 U.S.C. § 1526(f), as appropriate. 

• DHS recommends the administration pursue a statutory change to explicitly permit the government to seek injunctive relief against third-party marketplaces and other intermediaries dealing in counterfeit merchandise. 

• In the interim, DHS will provide information and support to registered brand owners looking to utilize statutory authorities to seek injunctive relief against persons dealing in counterfeit merchandise, whether through direct sales or facilitation of sales, following seizures of goods that are imported contrary to law. 

• ICE shall prioritize investigations into intellectual property-based crimes regardless of size and will make referrals for all such investigations where appropriate. 

• ICE will coordinate with the Department of Justice to develop a strategy to investigate and prosecute intellectual property violations at all levels of the supply chain at a sufficiently high level to respond to the concerns raised in this report and according to its budget and broader mission goals. 

The DHS report's action items and recommendations appear sensible and hopefully will help reduce trafficking in copyright-infringing goods as well as other counterfeit and pirated products. Free State Foundation President Randolph May and I have previously recommend that foreign trade agreements and treaties negotiated by the U.S. include language requiring foreign nations to improve their interdiction efforts and prosecutorial resources to stop the international flow of infringing goods and other illicit products. 

Senate Passes the USMCA

On January 16, the U.S. Senate passed H.R. 5430, the United States-Mexico-Canada Agreement Implementation Act. The Senate deserves credit for promptly approving the USMCA following its passage in the House of Representatives in December 2019. The USMCA includes several provisions that will help strengthen Americans' copyrights in those neighboring nations. H.R. 5430 has been transmitted to President Trump for signature. 

Free State Foundation President Randolph May and I described the pro-copyright provisions contained in the USMCA and recommended its passage. My April 2019 Perspectives from FSF Scholarspaper, "Trade Agreements Should Include Stronger Online Copyright Protections" and my similarly-titled October 2019 Perspectivespaper, "Trade Agreements Should Strengthen Copyright Protections Against Piracy" also discussed the USMCA's pro-copyright features.

House of Representatives Passes the USMCA

On December 19, the House of Representatives passed H.R. 5430, the United States-Mexico-Canada Agreement Implementation Act. The House should be commended for its approval of the USMCA, which contains many provisions that will help strengthen Americans' copyrights in those neighboring nations. 

Free State Foundation President Randolph May and I have previously described the pro-copyright merits of the USMCA and called on Congress to pass it. As I explained in my April 2019 Perspectives from FSF Scholars paper, "Trade Agreements Should Include Stronger Online Copyright Protections":

By negotiating for stronger copyright protections and enforcement in international trade agreements, the U.S. can help curb the significant economic losses sustained by American copyright owners. The proposed USMCA, signed by President Trump in October 2018, and likely to be voted on by Congress this year, includes many provisions that would modernize and strengthen protections for Americans' copyrighted works in Canada and Mexico. For instance, under the USMCA, each member nation would be required to secure copyright owners' full enjoyment of exclusive rights in sound recordings and public performances. Each nation would guarantee contractual liberty so that copyright owners can transfer their rights for full value. Also, each nation would make available stronger remedies in civil copyright infringement cases, including injunctive relief as well as statutory damages. And each nation would authorize their border officials to pursue, seize, and destroy pirated goods. 

For more, see my similarly-titled October 2019 Perspectives paper, "Trade Agreements Should Strengthen Copyright Protections Against Piracy," which touches on the importance of the USMCA and other pro-copyright trade agreements in the context of the current problem of online piracy of movies and TV content. 

Hopefully, the Senate will promptly take up and pass the USMCA in early 2020. 

IP Commission Recommends Steps to Protect America From International IP Theft

On February 21, 2019, the Commission on the Theft of American Intellectual Property issued a report highlighting "policy developments in the last 18 months related to strengthening the United States' ability to protect IP." The IP Commission's 2019 Review focused on U.S.-China relations, offering recommendations for more effectively preventing forced technology transfers, economic espionage, and intellectual property (IP) theft. 

According to the IP Commission's 2017 report, "the annual cost of counterfeit goods, pirated software, and theft of trade secrets to the U.S. economyis between $225 billion and $600 billion," and China is "the world's principal IP infringer." In fiscal year 2017, 87% of counterfeit goods seized coming into the U.S. originated from China and Hong Kong.

The IP Commission's 2019 Review applauded American policymakers' responses to Chinese IP wrongful practices:

The Trump Administration has elevated the elimination of China’s theft of American IP, whether through cyber-theft, forced technology transfers, stolen trade secrets, counterfeiting of products, or other means, to one of the leading foreign policy priorities and a top goal of the U.S.-China economic negotiations. 

The IP Commission acknowledged the Section 301 investigative report findings of the United States Trade Representative (USTR) regarding Chinese IP policies and practices. The USTR concluded that China "unfairly target[s] critical U.S. technology with the goal of achieving dominance in strategic sectors" and that its practices are harmful to American innovation and competitiveness. Additionally, the IP Commission's 2019 Review acknowledged the USTR's placement of China on the "Priority Watch List" over concerns that include "trade secret theft, online piracy and counterfeiting, a high volume of manufacturing and exporting counterfeit goods, technology transfer requirements, mandatory application of adverse terms to foreign IP licensors, localization requirements, and weak enforcement." 

Finally, the IP Commission made several recommendations for strengthening American IP protections from foreign theft, including: (1) construction of an"independent international database for scoring of entities from foreign countries that pose IP risk;" (2) a streamlined process for reporting and responding to IP theft; (3) requiring the Securities and Exchange Commission (SEC) to determine whether companies' use of stolen IP ought to be publicly reported; (4) meaningful sanctions by the Federal Trade Commission (FTC) against foreign companies using stolen IP; and (5) use of "multilateral institutions to harmonize national and international legal and regulatory frameworks."

Previously, FSF President Randolph May and I have addressed the pressing need to strengthen protections for Americans' IP internationally – particularly for copyrighted movies and music. In our Perspectives from FSF Scholars paper, "Modernizing International Copyright Agreements to Combat Copyright Infringement," we explain that several foreign countries insufficiently protect Americans' copyrighted works from digital piracy and online infringement taking place through cyberlocker websites and stream-ripping websites. As we urged there: "The Trump Administration should ensure that stronger protections for Americans' creative works are included in new treaties and trade agreements that are attuned to the Digital Age."

In particular, the proposed United States-Mexico-Canada Agreement (USMCA) would strengthen copyright protections and enforcement by securing Americans' full enjoyment of exclusive rights in sound recordings, ensuring longer protection terms, and providing stronger civil remedies and criminal penalties for copyright infringement. However, international agreements such as USMCA should not include outdated online infringement provisions that are similar to Section 512 of the Digital Millennium Copyright Act of 1998. Section 512 is ineffective in protecting copyrighted movies and music from massive online infringement via user-upload websites. We identify problems with Section 512 and call for reforms to strengthen online copyright protections in our Perspectives paper, "Modernizing Civil Copyright Enforcement for the Digital Age Economy: The Need for Notice-and-Takedown Reforms and Small Claims Relief."

In sum, in the interest of securing greater protection for Americans' intellectual property, it's worth paying close attention to the IP Commission's most recent report. 

Signing of USMCA Spotlights International Copyright Protections

On November 30, President Trump and leaders from Canada and Mexico officially signed the proposed United States-Mexico-Canada Agreement (USCMA). Completion of the trade agreement's negotiation was announced in October. If approved by Congress, USMCA will replace the North American Free Trade Agreement (NAFTA). 

USMCA contains several provisions to better secure Americans' copyright protections. FSF President Randolph J. May and I address many of those provisions in our Perspectives from FSF Scholars paper, "Modernizing International Copyright Agreements to Combat Copyright Infringement." Among its pro-copyright provisions, USMCA would help American owners of sound recordings the full scope of public performance rights. Additionally, USMCA provides for stepped up enforcement through increased civil and criminal penalties for infringing activities such as "stream-ripping" and "camcording." 

However, USMCA incorporates language similar to the Section 512 "notice-and-takedown" provision contained in current U.S. copyright law. Section 512 is outdated and ineffective in protecting digital music and video content from mass infringement on popular user-upload websites. Future trade agreements and treaties should avoid that language. Congress and the Trump Administration should work to reform and update the notice-and-takedown system. We discuss these aspects of Section 512 in further detail our Perspectives paper, "Modernizing Civil Copyright Enforcement for the Digital Age Economy: The Need for Notice-and-Takedown Reforms and Small Claims Relief."

USMCA Strengthens IP Rights Protections But Can Be Improved Further

On October 1, 2018, the Trump Administration announced a new multilateral free trade agreement with Mexico and Canada, set to replace the North American Free Trade Agreement (NAFTA). In some respects, the Intellectual Property (IP) Chapter in the United States-Mexico-Canada Agreement (USMCA) would strengthen the protections and enforcement of IP rights relative to NAFTA's IP Chapter, and this is an improvement. Notably, the USMCA would implement provisions and enforcement mechanisms that should diminish the facilitation of pirated and counterfeit goods in the three member countries.

However, the proposed agreement also carries forward an outdated "notice-and-takedown" provision that does not properly protect the interests of creators and consumers.

FSF scholars recently have advocated for the modernization of NAFTA's IP Chapter. (See here and here.) And the USMCA would improve some important measures related to the protection of the rights of trademark and copyright holders. Here are some of the key provisions in the USMCA that would strengthen IP rights protections:

• Requires a minimum copyright term of life of the author plus 70 years, and for those works with a copyright term that is not based on the life of a person, a minimum of 75 years after first authorized publication. Canada currently has terms of life of the author plus 50 years and 70 years, respectively.

• Requires strong standards against the circumvention of technological protection measures that often protect works such as digital music, movies, and books.

• Enhances provisions for protecting trademarks, including well-known marks, to help companies that have invested effort and resources into establishing goodwill for their brands.

• Provides important procedural safeguards for recognition of new geographical indications (GIs), including strong standards for protection against issuances of GIs that would prevent United States producers from using common names, as well as establishes a mechanism for consultation between the member countries on future GIs pursuant to international agreements.

Additionally, the proposed agreement would require some enforcement mechanisms to deter the facilitation of pirated and counterfeit goods. Specifically, IP enforcement procedures must be available for the digital environment for copyright and trademark. The USMCA also includes procedures and penalties for unauthorized "camcording" of movies, which is a significant source of pirated movies online.

From the United States' perspective, about $1.3 trillion in annual economic activity is attributable to trade that crosses the U.S. borders with Canada and Mexico. Efforts to stop online piracy and the sale of counterfeit goods will encourage creators and entrepreneurs to develop new content and invest in new brands because they will have a greater ability to earn a return on their labor and resources.

However, there is one area where the USMCA needs work. The USMCA includes outdated safe harbor provisions very similar to the provisions adopted in the Digital Millennium Copyright Act (DMCA). In particular, the USMCA carries forward without strengthening a "notice-and-takedown" provision that does not adequately protect creators and consumers.

As Free State Foundation President Randolph May and Senior Fellow Seth Cooper stated in a February 2018 Perspectives from FSF Scholars, the notice-and-takedown provision was adopted twenty years ago and does not reflect today's digital marketplace for copyrighted works:  

"[Under the notice-and-takedown provision], copyright holders are entitled to give notice to an online service provider when infringing content is posted on its network or website. A provider receives immunity if it 'responds expeditiously to remove, or disable access to, the material that is claimed to be infringing.'"

"In the late 1990s there were far fewer Internet users and far fewer online platforms for user posting of content. Today, user-upload websites such as YouTube, Vevo, Dailymotion, and SoundCloud make massive amounts of music and video content available. Regrettably, users of those websites and others post far too much infringing content. For example, between 2011 and 2015, the sound recording industry issued over 175 million takedown notices to various online providers."

"As a result of mass online infringement and the burdensome nature of the notice and takedown process, copyright owners lose revenues that they would receive otherwise from legitimate sales of copies to consumers."

Compared to NAFTA, the USMCA takes some important steps to modernize and strengthen the protection and enforcement of IP rights to account for a burgeoning digital marketplace. But it's not perfect. Congress and the Office of the United States Trade Representative still need to find a way, in the context of negotiating trade agreements, to revise the "notice-and-takedown" regime in a way that adequately protects creators and consumers.

Presidential Memorandum Addresses China’s IP Theft and Forced Technology Transfer Practices

On March 22, President Trump signed a “Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation.” The Memorandum explains that the U.S. Trade Representative’s Section 301 investigation into China’s practices involving IP theft and forced technology transfers supports four findings:

First, China uses foreign ownership restrictions, including joint venture requirements, equity limitations, and other investment restrictions, to require or pressure technology transfer from U.S. companies to Chinese entities.  China also uses administrative review and licensing procedures to require or pressure technology transfer, which, inter alia, undermines the value of U.S. investments and technology and weakens the global competitiveness of U.S. firms. 

Second, China imposes substantial restrictions on, and intervenes in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms.  These restrictions deprive U.S. technology owners of the ability to bargain and set market-based terms for technology transfer.  As a result, U.S. companies seeking to license technologies must do so on terms that unfairly favor Chinese recipients. 

Third, China directs and facilitates the systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and to generate large-scale technology transfer in industries deemed important by Chinese government industrial plans. 

Fourth, China conducts and supports unauthorized intrusions into, and theft from, the computer networks of U.S. companies.  These actions provide the Chinese government with unauthorized access to intellectual property, trade secrets, or confidential business information, including technical data, negotiating positions, and sensitive and proprietary internal business communications, and they also support China’s strategic development goals, including its science and technology advancement, military modernization, and economic development.

The Presidential Memorandum directs the Trade Representative to take action to address unreasonable or discriminatory practices by China that burden or restrict U.S. Commerce. Such actions include consideration of “increased tariffs on goods from China” and pursuit of “dispute settlement in the World Trade Organization (WTO) to address China’s discriminatory licensing practices.” President Trump’s Memorandum also calls for possible imposition of investment restrictions, requiring the Secretary of Treasury to propose ways “to address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States.”

A succinct overview of the Presidential Memorandum regarding Chinese-related IP theft and forced technology transfer practices as well as timeframes for implementing responsive restrictions is provided by Sarah Westwood’s March 22 article in the Washington Examiner.

IP Theft Commission Calls for New Policies to Combat IP Theft By Chinese Companies

The IP Theft Commission has issued a slate of policy recommendations in connection with the Office of the U.S. Trade Representative’s current investigation of China’s practices relating to intellectual property (IP) theft and forced technology transfer.

As noted in a prior blog post, at the prompting of an August 2017 memorandum issued by President Trump, U.S. Trade Representative Robert Lighthizer opened the investigation pursuant to Section 301 of the Trade Act of 1974.

Among the IP Theft Commission’s recommendations:

• Use and expand the authority of the executive branch to deny access to the U.S. market and banking system to Chinese and other foreign companies that steal and benefit from stolen American IP.
• Create new national policy centers that coordinate efforts across relevant agencies, including the Department of Commerce and the Department of Treasury, to monitor and protect American IP.
• Establish multilateral policy dialogues with Japan, the European Union, Australia, South Korea, Singapore, and other states that share interests in protecting IP to strengthen policies to harmonize national, legal, and regulatory frameworks and to share information.