iOn April 25, 2024, the Office of the United States Trade Representative (USTR) today released its 2024 Special 301 Report on the adequacy and effectiveness of U.S. trading partners’ protection and enforcement of intellectual property (IP) rights. China remains on the priority watch list with the USTR stating:
there remain many serious concerns regarding IP protection and enforcement in the People’s Republic of China (PRC). In 2023, the pace of reforms in the PRC remained slow. Stakeholders continue to raise concerns about implementation of the amended Patent Law, Copyright Law, and Criminal Law, as well as about long-standing issues like technology transfer, trade secrets, bad faith trademarks, counterfeiting, online piracy, and geographical indications. Also, statements by Chinese officials that tie IP rights to Chinese market dominance still raise strong concerns. The United States continues to monitor closely the PRC’s progress in implementing its commitments under the United States-China Economic and Trade Agreement (Phase One Agreement).
For ease of reference, the China section is reproduced below. The full report is available here.
China remains on the Priority Watch List in 2024 and is subject to continuing monitoring pursuant to Section 306 of the Trade Act of 1974, as amended (19 U.S.C. § 2416).
Ongoing Challenges and Concerns
In 2023, the pace of reforms in China aimed at addressing intellectual property (IP) protection and enforcement remained slow. Stakeholders acknowledge some positive developments but continue to raise concerns about implementation of the amended Criminal Law, Copyright Law, and Patent Law. Stakeholder concerns remain about long-standing issues including technology transfer, trade secrets, counterfeiting, online piracy, copyright law, and patent and related policies. China needs to complete the full range of fundamental changes that are required to improve the IP landscape in China.
Statements by Chinese officials that tie IP rights to Chinese market dominance continue to raise strong concerns. For example, the president of the Supreme People’s Court (SPC) wrote in a 2021 essay that the courts should serve the Chinese Communist Party and industrial policy goals. Following a June 2022 statement in which President Xi stressed the need for China to allow no delays in breaking through the “chokehold” of critical core technologies, Chinese officials and judges have continued to publish statements highlighting their efforts in that regard. Such statements recall long-standing concerns about requiring or pressuring technology transfer from foreign individuals or companies to Chinese companies, as well as about whether IP protection and enforcement will apply fairly to foreign right holders in China. China should provide a level playing field for IP protection and enforcement, refrain from requiring or pressuring technology transfer to Chinese companies at all levels of government, open China’s market to foreign investment, and embrace open, market-oriented policies.
Under Section 301 of the Trade Act of 1974, as amended (19 U.S.C. § 2411) (Section 301), the Office of the United States Trade Representative (USTR) has been taking action to address a range of unfair and harmful Chinese acts, policies, and practices related to technology transfer, IP, and innovation. USTR has also successfully pursued dispute settlement proceedings at the World Trade Organization (WTO) to address discriminatory licensing practices. The United States and China signed the United States-China Economic and Trade Agreement (Phase One Agreement) in January 2020, which included commitments to address numerous long-standing concerns in the areas of trade secrets, patents, pharmaceutical-related IP, trademarks, copyrights, geographical indications (GIs), and technology transfer. The United States has been closely monitoring China’s progress in implementing its commitments.
China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation
In 2018, USTR reported that its investigation under Section 301 found that China pursues a range of unfair and harmful acts, policies, and practices related to technology transfer, IP, and innovation. These include investment and other regulatory requirements that require or pressure technology transfer, substantial restrictions on technology licensing terms, direction or facilitation of the acquisition of foreign companies and assets by domestic firms to obtain cutting-edge technologies, and conducting and supporting unauthorized intrusions into and theft from computer networks of U.S. companies to obtain unauthorized access to IP.
In March 2018, the United States initiated a WTO case challenging Chinese measures that deny foreign patent holders the ability to enforce their patent rights against a Chinese joint-venture partner after a technology transfer contract ends and that impose mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology as compared to Chinese technology. Consultations took place in July 2018, and a panel was established to hear the case at the United States’ request in November 2018. In March 2019, China announced the withdrawal of certain measures that the United States had challenged in its panel request, including the Regulations on the Administration of Import and Export of Technologies. The United States considered that China’s actions had sufficiently addressed U.S. concerns, and the authority of the panel expired on June 9, 2021.
As part of the Phase One Agreement, China agreed to provide effective access to Chinese markets without requiring or pressuring U.S. persons to transfer their technology to Chinese persons. China also agreed that any transfer or licensing of technology by U.S. persons to Chinese persons must be based on market terms that are voluntary and mutually agreed, and that China would not support or direct the outbound foreign direct investment activities of its persons aimed at acquiring foreign technology with respect to sectors and industries targeted by its industrial plans that create distortion. In addition, China committed to ensuring that any enforcement of laws and regulations with respect to U.S. persons is impartial, fair, transparent, and non-discriminatory. USTR continues to work with stakeholders to evaluate whether these commitments have resulted in changes in China’s ongoing conduct at the national, provincial, and local levels.
Trade Secrets
Stakeholders report that judicial enforcement of trade secret protections continues to be weak, and implementation of the amended Criminal Law remains incomplete. In January 2023, the SPC and Supreme People’s Procuratorate (SPP) issued for public comment a draft Interpretation of Several Issues Concerning the Application of Laws for Handling Criminal Cases of Infringement upon Intellectual Property Rights, which would define key terms in the amended Criminal Law. However, further changes are needed to implement a new threshold for triggering criminal investigations and prosecutions in the draft Interpretation and to update a related standard issued by the SPC and Ministry of Public Security. Moreover, stakeholders continue to identify significant enforcement challenges, including high evidentiary burdens, limited discovery, difficulties meeting stringent conditions to enforce agreements related to protection of trade secrets and confidential business information against theft, and difficulties in obtaining deterrent-level damages awards.
China needs to address concerns regarding the risk of unauthorized disclosures of trade secrets and confidential business information by government personnel and third-party experts, which continue to be a serious concern for the United States and U.S. stakeholders in industries such as software, manufacturing, and cosmetics. The draft Guiding Opinions on Strengthening the Protection of Trade Secrets and Confidential Business Information in Administrative Licensing was published for public comment in August 2020 by the Ministry of Justice but has not been finalized. U.S. stakeholders continued to express concerns about the potential for discriminatory treatment and unauthorized disclosure of their information by local authorities under the proposed expansion of administrative trade secret enforcement, for which the State Administration of Market Regulation (SAMR) issued draft rules in 2020 that have not been finalized.
Manufacturing, Domestic Sale, and Export of Counterfeit Goods
China continues to be the world’s leading source of counterfeit and pirated goods. For example, a 2022 report identified China and Hong Kong as the largest exporters of counterfeit foodstuffs and cosmetics, accounting for approximately 60% of counterfeit foodstuffs customs seizures and 83% of counterfeit cosmetics customs seizures.35 China and Hong Kong accounted for over 83% of the value measured by manufacturers’ suggested retail price of counterfeit and pirated goods seized by U.S. Customs and Border Protection in Fiscal Year 2023.36 The failure to curb the widespread manufacture, domestic sale, and export of counterfeit goods affects not only right holders but also the health and safety of consumers. The production, distribution, and sale of counterfeit medicines, fertilizers, pesticides, and under-regulated pharmaceutical ingredients remain widespread in China.
Stakeholders continue to express concerns about the production, distribution, and sale of counterfeit medicines and unregulated active pharmaceutical ingredients (APIs), as well as about the Drug Administration Law and Criminal Law, which give local officials substantial discretion in allowing companies that import unapproved drugs to escape liability or face lighter penalties. Furthermore, as the top manufacturer and a leading exporter of pharmaceutical ingredients, China still lacks effective regulatory oversight. In particular, China does not regulate manufacturers that do not declare an intent to manufacture APIs for medicinal use. It also does not subject exports to regulatory review, enabling many bulk chemical manufacturers to produce and export APIs outside of regulatory controls. Furthermore, China lacks central coordination of enforcement against counterfeit pharmaceutical products and ingredients, resulting in ineffective enforcement at the provincial level and with respect to online sales.
Availability of Counterfeit Goods Online, Online Piracy, and Other Issues
China’s e-commerce markets, the largest in the world, remain a source of widespread counterfeits as infringing sales have migrated from physical to online markets. Right holders also raise concerns about the proliferation of counterfeit sales facilitated by the confluence of e-commerce platforms and social media in China. Right holders continue to report difficulties in receiving information and support from platforms in investigations to uncover the manufacturing and distribution channels of counterfeit goods and sellers, as well as onerous evidentiary requirements and excessive delays in takedowns. Counterfeiters continue to exploit the use of small parcels and minimal warehouse inventories, the separation of counterfeit labels and packaging from products prior to the final sale, and the high volume of packages shipped to the United States to escape enforcement and to minimize the deterrent effect of enforcement activities.
Widespread online piracy also remains a major concern, including in the form of “mini Video on Demand (VOD)” facilities that screen unauthorized audiovisual content, illicit streaming devices (ISDs), and unauthorized copies of or access codes to scientific journal articles and academic texts. As a leading source and exporter of systems that facilitate copyright piracy, China should take sustained action against websites and online platforms containing or facilitating access to unlicensed content, ISDs, and piracy apps that facilitate access to such websites.
There was no progress in 2023 on finalizing amendments to the E-Commerce Law, which were issued by SAMR for public comment in August 2021. The draft amendments to the E-Commerce Law include changes that would extend the deadline for right holders to respond to a counternotification of non-infringement, and impose penalties for fraudulent counter-notifications and penalties that restrict the business activities of platforms for serious circumstances of infringement. Although noting improvements under the draft amendments, right holders have raised concerns about the failure to codify the elimination of liability for erroneous notices submitted in good faith, as well as proposed changes that would allow reinstatement of listings upon posting a guarantee.
China’s most recent version of its Foreign Investment Negative List, which entered into force in January 2022, continues to maintain prohibitions on foreign investment in online publishing and online audiovisual programming (with the exception of services under China’s WTO accession commitments), as well as radio and TV broadcasting, transmission, production, and operation. The List does not restrict foreign investment in online music services.
Also, right holders report significant obstacles to releasing content in China, including limited windows to submit content for review, a non-transparent content review system, and significantly slowed processing and licensing of content for online streaming platforms. Another challenge has been burdensome requirements for documentation of chain of title and ownership information. These barriers have severely limited the availability of foreign content, prevented the simultaneous release of foreign content in China and other markets, and created conditions for greater piracy. Right holders also report that a draft bill published in March 2021 could restrict participation of foreign companies in production, distribution, and broadcasting of radio and television programs, including when provided online. Also, China’s extension of its content review system to cover books intended for distribution in other markets has imposed heavy burdens on foreign publishers.
Additionally, it is critical that China fully implement the terms of the 2012 United States-China Memorandum of Understanding (MOU) regarding the importation and distribution of theatrical films and abide by its commitment to negotiate further meaningful compensation that China owes the United States.
Copyright
Right holders continue to highlight the need for effective implementation and clarification of criminal liability for the manufacture, distribution, and exportation of circumvention devices, as well as new measures to address online piracy. Right holders also report continuing uncertainty about whether amendments to the Copyright Law in 2021 protect sports and other live broadcasts, and recommend clarification in the copyright regulations. While right holders welcomed some effective, but limited, enforcement actions, such as the 2023 Sword-Net Special Campaign that targeted unauthorized live broadcasts of sporting events and other online piracy of copyrighted content, they encourage China to develop these periodic campaigns into sustained, long-term enforcement measures.
Patent and Related Policies
Right holders raised concerns that, although the Patent Law allows the filing of supplemental data to support disclosure and patentability requirements, the rules for accepting post-filing data are opaque and patent examiners have applied an overly stringent standard to reject such data. Right holders continue to express strong concerns about obstacles to patent enforcement, such as lengthy delays in courts, lack of preliminary injunctions, and undue emphasis on administrative enforcement.
Following the implementation of a mechanism for the early resolution of potential pharmaceutical patent disputes in 2021, right holders have expressed concerns about the lack of transparency in decisions issued by the China National Intellectual Property Administration (CNIPA), the cumbersome registration system, and the lack of any penalties for erroneous patent statements. Right holders continue to raise concerns that they had identified prior to implementation, such as regarding potential difficulties in obtaining preliminary injunctions, the length of the stay period, and the possibility of bias in favor of Chinese companies.
Obstacles to patent enforcement continue to include lengthy delays in the court system, the reported unwillingness of courts to issue preliminary injunctions, burdensome invalidity proceedings, onerous evidentiary requirements, and ambiguity about whether a patentee’s right to exclude extends to manufacturing for export.
With respect to patent prosecution, right holders continue to express concerns about the lack of transparency and due process, including a lack of notice of third-party submissions or the opportunity to respond, despite the reliance of examiners on arguments from such submissions. Long-standing concerns also include a lack of harmonization between China’s patent grace period and international practices.
China continues to impose unfair and discriminatory conditions on the effective protection against unfair commercial use, as well as unauthorized disclosure, of test or other data generated to obtain marketing approval for pharmaceutical products. The United States and China agreed to address this issue in future negotiations.
Stakeholders continue to express concern regarding the 2019 Human Genetic Resources Administrative Regulation and the 2020 Biosecurity Law, along with the Implementing Rules for the Regulations on the Management of Human Genetic Resources that entered into effect in May 2023. These measures mandate collaboration with a Chinese partner and shared ownership of patent rights arising out of any research generated by using human genetic resource materials in China. According to stakeholders, these measures create uncertainty about the type of research that would trigger the sharing of IP rights, a need for greater clarity on the requirements for approved IP arrangements, and the risk of forced or pressured technology transfer. These measures also impose non-transparent requirements for government approval before any transfer of data outside of China. Right holders continue to raise concerns about the lack of transparency in government pricing and reimbursement processes for pharmaceutical products.
With respect to standards, China should establish standards-setting processes that are open to domestic and foreign participants on a non-discriminatory basis, eliminate unreasonable public disclosure obligations in standards-setting processes, and provide sufficient protections for standards-related copyrights and patent rights.
The issuance of anti-suit injunctions by Chinese courts in standard essential patent (SEP) disputes has not occurred in recent years, but the issue continues to raise due process and transparency concerns for right holders, including regarding how such rulings may favor domestic companies over foreign patent holders. Although some stakeholders have compared anti-suit injunctions in China to their use in other jurisdictions, right holders have raised concerns that Chinese courts appear to use the issuance of anti-suit injunctions in support of their attempts to assert jurisdiction over global SEP disputes. High-level political and judicial authorities in China have called for extending the jurisdiction of China’s courts over global IP litigation and have cited the issuance of an anti-suit injunction as an example of the court “serving” the “overall work” of the Chinese Communist Party and the Chinese State.
In June 2022, the National People’s Congress passed amendments to the Anti-Monopoly Law (AML), which entered into effect in August 2022. Right holders have raised concerns about the implementation of the amended AML, particularly regarding the draft implementing rules that define anti-competitive behavior in the development of standards and the licensing and implementation of SEPs. Right holders stated concerns that AML enforcement can be misused for the purpose of depressing the value of foreign-owned IP in key technologies, including by finding violations of the law with respect to the licensing of patents without actual harm to competition or the competitive process.
It is critical that China’s AML enforcement be fair, transparent, and non-discriminatory; afford due process to parties; focus on whether there is harm to competition or the competitive process, consistent with the legitimate goals of competition law; and implement appropriate competition remedies to address the competitive harms. China should not use competition law to advance noncompetition goals when there is no harm to competition or the competitive process.
China’s “Secure and Controllable” Policies
China continues to build on its policies for “secure and controllable” information and communications technology (ICT) products under the Cybersecurity Law (CSL) and the Cryptography Law. In 2022, the Cyberspace Administration of China issued final implementing measures for conducting cybersecurity reviews under the CSL. Right holders continue to raise concerns about the invocation of cybersecurity as a pretext to require disclosure of trade secrets and other types of IP and to restrict market access. Furthermore, encryption laws, which impose mandatory approval requirements with unclear exemptions, create an uncertain business environment for foreign companies.
U.S. right holders should not be forced to choose between protecting their IP against unwarranted disclosure and competing for sales in China. Going forward, China must not invoke security concerns in order to erect market access barriers, require the disclosure of critical IP, or discriminate against foreign-owned or -developed IP.
Developments, Including Progress and Actions Taken
Bad Faith Trademarks and Other Trademark Examination Issues
In 2023 and early 2024, China addressed some concerns regarding bad faith trademark applications, including by issuing a measure intended to provide more consistent and predictable application examination results, as well as providing a non-use ground for cancellation of a collective or certification mark in another measure. Also, in January 2023, CNIPA issued the 2023-2025 Work Plan for Systemically Governing Bad Faith Trademark Registration and Promoting High-quality Development, which established goals over the next three years for combating bad faith trademark registrations, including for enforcement actions against trademarks with significant adverse effects and obviously deceptive characteristics, bad faith preemptive registrations, trademark hoarding, and abuse of trademark rights, as well as for the regulation of trademark agencies aiding perpetrators of bad faith trademark registrations.
Despite these developments, bad faith trademarks remain one of the most significant challenges for U.S. brand owners in China. The United States continues to urge China to take further steps to address concerns, including adoption of an intent-to-use requirement for trademark applications.
In 2023, stakeholders raised concerns regarding reforms that appear primarily focused on increasing the speed rather than quality of trademark examinations. While CNIPA continues to tout downward trends in the average period for obtaining a trademark from the date of application to registration (currently less than 7 months), and the average time for appeals of trademark oppositions and rejections has been cut to 11 months and 5.5 months, respectively, stakeholders continue to indicate that the quality of trademark examination is inconsistent across the board.
Stakeholders also continue to express other concerns relating to trademark examination, including regarding unnecessary constraints on examiners’ ability to consider applications and marks across classes of goods and services, as well as the refusal to consider co-existence agreements and letters of consent during the trademark registration or process. They also noted that, in 2023, CNIPA’s Trademark Office continued to erroneously refuse trademark applications on absolute grounds (such as lacking distinctiveness, being deceptive as to product quality or source, and being offensive to socialist morality), which are much more difficult to overcome on appeal and often lead to refusals in future applications for the same trademark. In addition to denying right holders the ability to register their legitimate trademarks, erroneous refusals on absolute grounds significantly impact business operations because, in such cases, the right holders must immediately cease use of the mark even if the product already has launched or face significant potential penalties by administrative enforcement officials. Right holders also continued to report in 2023 that CNIPA is rejecting defensive filings allowed under the Guidelines for Trademark Examination and Trial, denying brand owners a useful proactive tool to defend against bad faith filings.
Stakeholders continue to urge the adoption of reforms to address the difficulties faced by legitimate right holders in obtaining well-known trademark status. The United States urges China to address these concerns from right holders concerning the administration of trademarks.
Legislative, Administrative, and Judicial Developments
In 2023, the National People’s Congress (NPC) and its Standing Committee issued no new or amended legislation directly addressing IP. China still has not addressed right holder concerns with respect to preliminary injunctive relief, evidence production, evidentiary requirements, establishment of actual damages, insufficient damage awards, burdensome thresholds for criminal enforcement, and lack of deterrent-level damages and penalties.
Right holders continue to raise concerns about their ability to meet consularization and notarization requirements for documents submitted to the Beijing Intellectual Property Court and in other IPrelated proceedings. As a positive step, the Convention of 5 October 1961 Abolishing the Requirement of Legalisation for Foreign Public Documents (Apostille Convention) entered into force with respect to China in November 2023. For certain documents from Contracting States of the Apostille Convention, China will reportedly replace its current system for consularization procedures with a new authentication procedure based on Apostille certificates, which may reduce the authentication process from 20 working days to a few working days. In December 2023, the Beijing IP Court released Guidelines for Handling Supporting Documents Certifying the Subject Qualification in Foreign-related Cases, which seek to address concerns about documentation for U.S. right holders from only two U.S. states (California and Delaware).
The decrease in transparency and the potential for political intervention with the judicial system, as well as the emphasis on administrative enforcement, remain as critical concerns. A longstanding concern has been that Chinese courts publish only selected decisions rather than all preliminary injunctions and final decisions. Moreover, the number of verdicts uploaded online has drastically decreased in the past year, further hampering transparency and making it more difficult for right holders to determine how China protects and enforces foreign IP. In January 2024, the SPC admitted to the decrease in case publications and announced the launch of a National Court Judgments Database. Initial details shared in December 2023 indicated the database would not be available to the public, and the SPC has not clarified the extent to which case decisions will be accessible to the general public or foreign firms. Additional concerns include interventions in judicial proceedings by local government officials, party officials, and powerful local interests that undermine the authority of China’s judiciary and rule of law. In January 2024, amendments to the Civil Procedure Law entered into effect that expanded the jurisdiction of Chinese courts in cases involving foreign parties. Chinese courts appear to be interested in exercising jurisdiction in cases involving complex technologies, such as SEPs. A judiciary truly independent from the Communist Party of China is critical to promote rule of law in China and to protect and enforce IP rights. Right holders also expressed concerns about the increased emphasis on administrative enforcement, as authorities often fail to provide right holders with information regarding the process or results of enforcement actions.
In 2023, China took additional steps to develop “social credit” systems for IP, inserting a new social credit provision in the draft Trademark Law. CNIPA issued Provisions on Intellectual Property Rights Credit Management in January 2022 to expand the scope of conduct that will result in social credit penalties, such as addition to a blacklist and potential joint punishment by a wide range of agencies. A March 2022 document issued by the Central Committee of the Communist Party of China and the State Council emphasized the expansion of the social credit system to IP. In July 2022, CNIPA identified the first confirmed use of social credit penalties in IP, as punishment for an instance of willful patent infringement. These measures lack critical procedural safeguards, such as sufficient notice to the entity targeted for punishment, clear factors for determinations, and opportunities for appeal. The United States continues to object to any use of the “social credit system,” including in the field of IP.
Patent and Related Developments
In December 2023, CNIPA issued new Implementing Regulations of the Patent Law, which entered into force on January 20, 2024. CNIPA also issued supporting documents, such as amended Patent Examination Guidelines. Right holders continue to express concern about the implementation of patent term extensions for unreasonable marketing approval delays, including limits on the type of protection provided.
The large quantities of poor-quality patents that are granted continue to be a concern. Although CNIPA announced in January 2021 the elimination of patent subsidies by 2025, local incentivization mechanisms continue to include subsidies for patent licensing, validity disputes, and litigation that can potentially distort the commercial market for patents.
SAMR issued the amended Provisions Prohibiting Intellectual Property Abuse to Preclude or Restrict Competition, which took effect in August 2023 and included new provisions on SEPs. SAMR also issued draft Anti-Monopoly Guidelines in the Field of Standard Essential Patents in June 2023. In December 2023, the SPC overturned the decision of a local intermediate court that had found that certain patents of a foreign company to be an “essential facility” and that the company’s failure to license this IP to Chinese plaintiffs to be an abuse of dominance. Despite this positive development at the SPC, stakeholder concerns remain about the potential misuse of AML enforcement.
Industrial Designs
In 2022, China acceded to the Hague Agreement Concerning the International Registration of Industrial Designs. As a positive development, the Implementing Regulations of the Patent Law, issued in December 2023, clarified the connection between international design application procedures and domestic procedures. Also, in January 2023, CNIPA issued interim measures to provide guidance on procedural issues for design applications to replace the previous April 2022 interim measures.
Geographical Indications
In January 2024, China finalized the Measures for Protection of Geographical Indication Products. The new measures fail to require the identification of individual components of multicomponent terms that are being considered for GI protection when GI applications that contain multi-component terms are published for opposition. Without this information, interested parties may assume that all individual components of multi-component terms in an application for GI protection will also be protected as GIs, which imposes onerous burdens on parties seeking to oppose such applications. In addition, right holders continue to raise concerns about certain trademark examination cases that involve the use of common names (generic terms). It is critical that China ensure full transparency and due process with respect to the protection of GIs, including safeguards for common names, respect for prior trademark rights, clear procedures to allow for opposition and cancellation, and fair market access for U.S. exports to China that rely on trademarks or the use of common names.
