US and China sign “phase one” of trade deal

The latest development in the US-China trade dispute.

Our new Global Head of Dispute Resolution, Doug Clark has cast his eyes over the latest development in the US-China trade dispute. Does it go far enough to resolve the Intellectual Property arguments at the heart of the dispute?

Most commentary on the recent agreement between the US and China have focused on the provisions for enhanced protection of trade secrets.  While this is very important, many of the points had already been addressed by the recent amendments to the PRC Anti-Unfair Competition Law. 

The nitty-gritty of the agreement reflects real change to many areas that have been of real concern to foreign (and indeed many Chinese) companies.  If I could have written a wish-list list of topics to be covered the agreement pretty much covers a large number of them.  Some key points are:

  • There is a provision to make the admission of evidence in civil proceedings much easier. At present almost all evidence from overseas must go through a cumbersome process of notarization by a local notary and legalisation by a local government before receiving a confirmatory stamp from a Chinese embassy or consulate.  The Agreement promises that the courts will accept witness testimony and/or that China will make the notarization and legalization processes easier. 
  • Pharmaceutical companies are the big winners from the Agreement. China has agreed to extend the term of patents where the grant has been delayed to allow patentees as well as to take immediate action to prevent infringement while an application for a generic drug is pending.  New provisions will be enacted to make it easier to obtain and maintain as valid pharmaceutical patents by allowing patentees to submit post-application test data to show an patent is inventive.  While an arcane area of law, this is actually very important.  Many foreign pharmaceutical companies have had their patents invalidated in whole or in part because of very strict rules prohibiting post-application test data.  
  • China has again promised to increase criminal enforcement against counterfeiting by lowering the threshold for transfer of administrative cases to the police for investigation.  This must be taken with a grain of salt.  China has been promising this reform for years (including in the 1990s introducing a "three strikes" rule that was quietly shelved) but never really making real changes.
  • China has promised to increase enforcement on e-commerce platforms where counterfeit and look-alike products are prevalent. The measures include the threat that the platforms may have their licenses revoked if they do not take effective measures.  Whether this will really happen remains very much to be seen.

Probably the only major points missing from the agreement are rules to make the service of foreign process easier on Chinese companies to allow the enforcement of foreign judgments. 

Suing a Chinese company in a foreign court for the export of infringing products can often be fruitless because service through the Hague Convention can take one or more years.  Any judgment is not enforceable in China even though Chinese monetary judgments are enforceable in the US and many other countries.  Chinese exporters without assets outside China can effectively hide behind the "Great Wall of China" and infringe with almost complete impunity.  If these changes are agreed in Phase two, they would be real game changers for IP enforcement in China. 

China, however, has a strong reluctance to allow foreign courts any jurisdiction over Chinese companies, in part, because for a hundred years during the Century of Humiliation, foreign countries, had their own court systems in China which exempted their nationals from Chinese law and forced Chinese businesses to sue foreigners in their own country in foreign languages. This includes the US which established a United States Court for China in Shanghai to try cases against US nationals.

Phase 2 of the agreement would likely see tariffs being eased between the two nations, which were originally planned to be part of Phase 1. While we don’t have a date so far, President Trump did indicate in one of his many tweets that a trip to Beijing could soon follow the signing of the Phase 1 agreement, a key pillar of his 2020 re-election campaign.

We will continue to monitor the negotiations and share relevant developments with reference to intellectual property.

Tim Jackson has also written two pieces about the contents of the phase one deal regarding:

Technology Transfer; and

Pharmaceutical related IP issues