Study: U.S. Intellectual Property Protection Is Strong, but China Poses Big Problem

Published March 20, 2019

The United States ranks No. 1 among the world’s 50 largest economies in the strength of its protection of intellectual property (IP), the U.S. Chamber of Commerce’s International IP Index states.

The report ranks economies based on 40 indicators that benchmark activity in patent, trademark, copyright, and trade secrets protection critical to innovation. The 50 economies represent a geographical cross-section of the world and the vast majority of global economic output, contributing more than 90 percent of global Gross Domestic Product.

IP-intensive industries supported at least 45 million U.S. jobs and contributed more than $6 trillion to U.S. gross domestic product, 38.2 percent of the nation’s total economic output, in 2016, says the U.S. Department of Commerce.

Benchmark IP Protection

The report highlights the improvements in IP protection in the U.S.-Mexico-Canada Agreement (USMCA) signed by President Trump in 2018 and pending approval by Congress, which the study states could set a new global IP standard.

The USMCA’s IP-related provisions are a significant improvement over the North American Free Trade Agreement (NAFTA) and other international agreements specifically related to IP, says the report, released on February 8.

Specifically, USMCA includes stronger pharmaceutical-related IP protection, including regulatory data protection for five years for new chemical entities and 10 years for biologics. It also includes more effective trade secret protection, including criminal sanctions, and border enforcement against all suspected counterfeit goods, including in-transit goods.

USMCA also includes some strengthened copyright provisions, such as a longer term of protection and digital rights management (DRM) and other technological protection measures.

‘We’re Waiting for Congress’

The USMCA must be approved by both houses of Congress, and some want to kill the deal, says economist Stephen Moore, a senior fellow with the Heritage Foundation and an economic advisor to the Trump presidential campaign.

“All these Democrats who were sounding like free-trade zealots when Trump was talking about tariffs, now that they have a chance to actually vote on a free-trade agreement, they don’t want to do it,” said Moore.

“I really want to get this thing signed, sealed, and delivered, and we’re waiting for Congress to act,” Moore said.

China Challenge

IP challenges at the heart of the current trade dispute between China and the United States highlight the importance of IP to the two largest economies in the world, the report states. The trade dispute brought much-needed attention to longstanding issues that create significant challenges for IP-intensive industries globally.

Since the mid-2000s, China has introduced and implemented a range of policies making access to the Chinese market conditional on the sharing of technology and IP with domestic entities.

These policies include the transfer of proprietary technologies in procurement, joint ventures, and standardization processes; local manufacturing requirements; and limitations on investment by foreign entities. Businesses have no guarantee their IP will be protected from unauthorized disclosure, duplication, distribution, and use.

Although some of these policies have been revoked, many are still in place, and China continues to introduce more of them.

China has made meaningful changes to its legal code, and enforcement efforts have improved, although they still face a daunting challenge, the report states. In key areas relating to technology transfer, licensing, and localization requirements, Chinese policy remains more or less wedded to its desire to exploit IP developed elsewhere.

‘Half-Trillion Dollar’ Theft

Losses due to the theft of U.S. IP by Chinese companies amount to hundreds of billions of dollars, says Edward Hudgins, research director for The Heartland Institute, which publishes Budget & Tax News.

“Theft of American intellectual property is one of most serious problems in our economic relationship with China,” said Hudgins. “The loss to American companies is at least $200 billion and could be over a half-trillion dollars.”

A significant amount of the technological innovation China claims to have developed has been stolen from the United States, says Hudgins

“The Federal Reserve Bank of Minneapolis suggests over half of China’s technology was acquired from foreign firms, which would include much stolen from American companies,” said Hudgins. “Those companies often are required to partner with Chinese firms and share technology, contrary to World Trade Organization rules, as the price of access China’s market.”

Legal Remedies Sparse

China’s legal system provides little recourse for U.S. firms, says Hudgins.

“Placing American labels on counterfeiting products is a regular practice, but legal remedies for American companies in China are among the worst in the world,” said Hudgins.

“Just as low-priced labor is one of China’s economic advantages, the intellectual property created by American firms is one of this country’s great strengths,” said Hudgins. “The United States needs to negotiate a trade deal that protects Americans’ intellectual property rights.”

‘China Is a Big Problem’

The challenges of IP protection in China highlighted in the report are a major subject in the ongoing U.S. trade negotiations with China, says Moore.

“I think China is a big problem,” said Moore. “I think we’re in an abusive relationship with China. It’s got to stop. They have to start playing by the rules. They have to stop cheating and stealing.

“Trump is trying to level the playing field, and I think this is critically important to our economic future that we prevail here,” Moore said. “I want them to start behaving themselves and make some concessions that are all very fair-minded. If that happens, I think the economy is really going to boom.”

Joe Barnett ([email protected]) is a research fellow with The Heartland Institute.

Internet Info:

Meir Pugatch and David Torstensson, “Inspiring Tomorrow: U.S. Chamber International IP Index, 7th edition,” Global Innovation Policy Center, U.S. Chamber of Commerce, February 2019: