Tag Archives: Intellectual Property

US Names And Shames Chinese Hackers

LI XIAOYU AND Dong Jiazhi, the two hackers in Guangzhou accused by the United States of stealing trade secrets from hundreds of companies, attempting to steal coronavirus research and providing email passwords of known dissidents and religious leaders to the authorities, are unlikely ever to get their day in a US federal court, and be quite happy for that.

Their indictment, handed down by a federal grand jury in Spokane, Washington earlier this month, was made public on July 21, an exercise in naming and shaming as the Trump administration sustains its relentless drumbeat of accusations against Beijing for the theft of US intellectual property.

In this particular case, the finger of opprobrium is also being pointed at the Guangdong State Security Department of the Ministry of State Security, on whose behalf Li and Dong were allegedly working, when they were not, as the indictment lays it out, blackmailing some victims on their own account.

The same day there was an effort in the US Congress to introduce legislation to sanction hackers who try to steal coronavirus-related research. An attempt to tack it on to the National Defense Authorization Act failed, but it is likely to see the light of day again as a stand-alone bill.

The mood among US lawmakers in the run-up to the presidential election in November is hardening against China, with US Secretary of State Mike Pompeo visiting London and Copenhagen, to get more of the same there.

Update: The US government has ordered Beijing to close its consulate in Houston, Texas by Friday. It is unclear if the decision is directly related to the hacking charges, but a US State Department spokesperson cited a need to protect American intellectual property and information.

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China’s New Foreign Investment Law: Many A Slip…

THE NEW FOREIGN Investment Law passed in March 2019 comes into effect on January 1, 2020. It will replace 1979-90-era laws on foreign-owned enterprises and joint ventures. These are no longer fit for purpose given the rebalancing of the economy from low-tech export manufacturing to high-tech sectors and domestic consumption, and the growing need to compete for foreign business investment with other countries in the region.

The new law also carries the high hopes of foreign firms for the protection of their intellectual property rights — copyrights, patents, trademarks, trade names, technical process, business secrets and goodwill — which it cannot bear.

Beijing needed to signal that China was improving its opaque and often closed business climate for foreign investors by putting them on the same footing as domestic investors and that it was listening to the grievances of trade partners, particularly the United States. Such complaints ranged from the forced transfer of intellectual property as the price of access to the Chinese market to exclusion from government procurement and patchwork implementation of existing legislation at the provincial and municipal level.

At the heart of the new Foreign Investment Law is the principle that foreign investors will be treated the same as domestic ones. That may have side benefits for company formation and flexibility in corporate governance; for example, the Byzantine process for foreign investors to form a corporate entity should become as quick and straightforward as it is for Chinese. Equal treatment in government procurement and standards-setting is also promised.

Redressing the issues around intellectual property will likely prove a different matter.

On the face of it, the new law and its implementing regulation published on December 31, appears to take steps in the right direction as it:

  • explicitly bans forced technology transfers, i.e., expropriation;
  • heralds an intellectual property rights regime closer to international practices; and
  • imposes an obligation on local governments to standardise administrative actions on foreign investment and ensure local officials act lawfully — no more passing onto favoured local businesses information reported by foreign investors. At least in theory. This Bystander fears old habits will die hard, regardless of the tightening of central control.

Inconsistent interpretation of national law by local governments points to an eternal truth of Chinese laws. They are an overarching statement of intent but otherwise mostly a blank slate until the detailed rules and regulations are published and then implemented, frequently on an as-needed basis. We have little to guide us until then.

China has improved its intellectual property protections in line with its companies having more intellectual property of their own to protect and has signed onto most relevant multilateral treaties, but the need and desire to advantage domestic companies remain.

The new law provides at least a couple of loopholes to allow this.

First, the ‘negative list’ that sets out the industries in which foreign investment is proscribed or restricted remains. Beyond that is a web of licensing requirements that hamper foreign investment in critical areas.

Second, the exceptions to the explicit ban on expropriation of foreign investments are broad and vaguely defined: ‘special circumstances’ and ‘in the public interest’. Foreign investment will also remain subject to ‘national security’ reviews.

The greatest unknown for foreign investors will be the effectiveness of the process for seeking and enforcing redress. There are many cracks through which to fall. The new Foreign Investment Law becomes one of three co-existent spheres of intellectual property protections in China. The other two are those provided through bilateral investment treaties between China and other countries, and those that are provided by the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights (TRIPS), which mainly apply to patents.

There are indications if not confirmations that in the event of a dispute, whichever of the three spheres that provides the greatest intellectual property protections will take precedence. However, our learned friends advise, the runes offer no reading of whether foreign investors must exhaust the remedies provided by domestic law —and thus take their chances in China’s newish commercial courts — before turning to international law, or whether they can take a short cut to international arbitration.

The other question is how much meat the new law provides for the United States. Intellectual property protection and market-opening is the kernel of US firms’ trade beef with China, even though it is the politically sellable trade numbers that US President Donald Trump focuses on. Trump’s announcement that he will sign a ‘Phase One’ deal on January 15, suggests Beijing has provided a big-enough headline victory with its new law for Trump to claim as his own, regardless of the devilishness in the details.

 

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No Endgame In Sight As China-US Trade Tension Escalates

THE SLIDE IN commodity prices over the recent day or so portends investor concern about the prospects for and impacts of a US-China trade war that has yet entirely to materialise in currency and equities markets.

Energy markets, in particular, are skittish. Between them, China and the United States account for one-third of world oil demand, which will fall if the spillover from the trade measures taken so far slows global economic growth. Traders are also starting to speculate about the possibility of a seismic realignment of global energy markets should China price US energy out of its market.

Metals markets were also hit, as China is the biggest consumer of most metals, used as raw materials for its exports. Similarly, agricultural commodities, such as soybeans.

The White House announced on Wednesday an additional $200 billion-worth of tariffs to be introduced in September at 10% on for the most part Chinese consumer-goods exports, but also components and semi-manufactures.

Beijing’s reaction was predictably along the lines that Washington’s trade actions would hurt everyone; seventy of the top 100 exporters from China are foreign companies, Zhu Haibin, chief China economist at JPMorgan, told the Financial Times.

The commerce ministry said that it would have no choice but to respond to the latest US move. It also said that it would take the matter to the World Trade Organization, a jibe at US President Donald Trump’s reported wish to remove the United States from the world trade body but not one that veers too far from the generally measured tone taken so far (to the point of sanctimoniousness).

A question for this Bystander is, what is the Trump administration’s real endgame?

It says the tariffs are to get China to end its ‘unfair’ trade practices and open its markets. But the president in his public comments has fixated on the size of the US merchandise trade deficit with China. That would imply a grand trade deal between the two nations that would reduce the headline number of that deficit.

That would give the US president a trade war win that would be straightforward to promote to his electoral base. However, there is no sign at this point of such a deal being in the making.

But it would not solve the other complaint that the United States has against China, over technology transfer, both as a quid pro quo required by China for foreign firms for market access or through straightforward theft of intellectual property.

Washington has a legitimate case on both fronts. It might be able to use its trade war as leverage to get concessions on the first, under the rubric of a deal over market opening.

However, tariffs do little to remedy the second. With technology development so fundamental to China’s economic future, Beijing will hold out to the last over striking any deal that would be effective in curtailing something that it anyway denies doing.

In 2015, President Xi Jinping reached a ‘common understanding’ with Trump’s predecessor President Barack Obama that their governments would hold back on cybertheft of intellectual property for commercial gain.

The formulation was always vague — Xi’s definition of its scope was much narrower than Obama’s — and there was no formal mechanism of verification or enforcement. Both that and its provenance would prevent its embrace by the current US president.

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Court Tells Mian And Google To Sort Out Copyright Suit

Mian Mian’s suit against Google is an awkwardness for the authorities, the sort of awkwardness they just hope would go away. In October, the 39-year old author filed a copyright infringement suit against the U.S. search and advertising company for scanning one of her books into its online library as part of its Google Books project. She is seeking damages of 61,000 yuan ($9,000) and a public apology (Google has already taken down the work in question, Acid Lovers). The awkwardness for the authorities lies in the fact that many of Mian’s works are banned as they deal with a taboo underworld of sex and drugs.  So they are trying to make it disappear. A Beijing judge has told the two parties to hold settlement talks, though there is apparently no deadline for a resolution.

Meanwhile, talks are continuing between Google and the China Written Works Copyright Society which is seeking compensation for tens of thousands of other books by Chinese authors whose works have been included in the Google Books project. Last year, Google agreed to pay $125 million to resolve a similar copyright infringement suit filed in 2005 on behalf American authors and to provide revenue from sales and advertising to authors and publishers who agree to digitize their books, though even in the U.S. the legal battles are continuing.

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Google Expands Music Search Service That Labels Hope Will Kill Piracy

Google has run a music search engine in China since last August. It is the only country where it has such a service (or at least for now). It does so in direct competition with Baidu, which has 60% of the search market in China and gets a substantial portion of its traffic from searches for MP3s.

Many of the MP3s Baidu links to are illegal, which is where Google sees its opportunity, in legal, higher quality downloads. Initially it had some 350,000 songs but now, Reuters reports, it has signed licensing deals with the four major Western record labels, EMI, Sony Music, Warner Music Group and Universal Music, that will expand the catalogue to 1.1 million songs. The labels will share ad revenue around the free downloads with Google and Top100.cn, a music website co-founded by basketball star Yao Ming.

Because of piracy, Western record labels have made as near to no money in China as makes no difference. Annual sales are a derisory $76 million, according to the International Federation of the Phonographic Industry, the industry’s trade organization. The Google deal is the first serious attempt to change that. “I can’t overestimate how important this is,” Lachie Rutherford, president of Warner Music Asia Pacific, tells Reuters. We’ll see.

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