By William Raven
According to United States Trade Representative Reports, large scale theft of American intellectual property in China may amount to $600 billion in losses annually for American companies. In fact, one in five North American corporations in the CNBC Global CFO Council claim Chinese firms have stolen their intellectual property in the past year. In response to the prevalence of the theft and the great cost with which it burdens American corporations, the Executive of the United States, President Donald Trump, imposed tariffs on China. This imposition has included a 25 percent tariff on $50 billion worth of Chinese imports in July 2018, and an additional 10 percent tariff on $200 billion worth of goods in September 2019. These tariffs have included under their scope: footwear, watches, televisions, industrial equipment, and are set to include even more consumer goods with another planned wave of tariffs in December 2019.
Despite tariffs levied on the importation of certain goods into the United States, Trump may believe more drastic measures are needed to protect American companies’ intellectual property rights. Individuals close to preeminent Trump advisor David Navarro, speaking under the cloak of anonymity, claim that the Trump administration has considered more drastic measures meant to curb China’s intellectual property theft. These measures include placing certain Chinese companies who have frequently violated American copyright and patent laws on the Commerce Department’s Entity List. The Entity List mandates that those individuals, corporations, and institutions of which it is comprised obtain special licensing prior to their exportation of articles into the United States. The End-User Review Committee (“ERC”), an interagency group consisting of representatives from the Commerce, State, Energy, and Defense departments adds those individuals, companies, and institutions to the Entity List that pose a threat to the national security of the United States or its foreign policy interests. However, the Trump administration has argued that economic security is national security; rendering an enumeration on the Entity List of certain Chinese companies that interfere with American intellectual property rights far from unlikely. In Fiscal Year 2018 the ERC added 125 parties to the Entity List, including 44 of Chinese origin.
Moreover, the inclusion of certain Chinese companies on the Entity List for intellectual property infringement raises questions concerning the scope of power entrusted to the Executive Branch. It may allow the Federal Government to ban certain companies from exporting goods due to political pressures or motivation. Further, the Executive Branch may also have license to decide the outcome of a given intellectual property case for reasons of inclusion on the list. For example, if a company has violated United Stated intellectual property laws three times, is that enough for inclusion onto the Entities List? It may very well depend on that company’s importance to business in the United States and derivatively that business’s political clout. Further, many patent infringement actions resolve in settlement where there is no judicial judgment as to an entity’s wrongdoing. Thus, any executive branch decision as to culpability of infringement may be inherently biased.
The placing of companies on the Entity List for economic security may have certain adverse effects such as further prodding a major trade partner in an already contentious trade war and harming the sales of certain companies in the United States who do business with the now prohibited companies. However, the addition of certain offenders to the Entity List has garnered bipartisan support. The addition of companies on the Entity List may be viewed as a punitive measure to those companies for the appropriation of United States intellectual property. It may very well force Chinese companies into compliance with United States laws regarding patent and copyright infringement if they wish to continue interacting with U.S. markets. Losing the American market would be costly for many Chinese companies, considering the United States is China’s largest trade partner, the destination for nearly 20% of all Chinese exported goods. Although an imperfect solution, the placement of Chinese firms on the Entity List may be the most prudent form of protection against intellectual property infringement.
Student Bio: William Raven is currently a second year law student at Suffolk University Law School. He is a staffer on the Journal of High Technology Law. Prior to law school, William received a Bachelor of Arts Degree in English from the College of the Holy Cross.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.