President Trump recently announced a 25% tariff on $200 billion worth of Chinese goods. Originally set at 10%, these recent increases will hit a much larger portion of the U.S. economy. According to CNBC, the United States imports nearly $540 billion in Chinese goods, and the trade deficit was $419.2 billion in 2018.
While politicians are looking to strike a deal with China, other trade changes are occurring on the Mexican and Canadian borders. NAFTA’s replacement, the U.S.-Mexico-Canada Agreement (USMCA), is intended to expand agriculture, manufacturing jobs, and enhance protections on U.S.-based intellectual property.
What does this mean for your company’s IP?
IP Protection: A Problem That Crosses Party Lines
No matter your political party, just about everyone can agree that international IP protection is a problem that needs solving. The current administration is putting pressure on China that the country has never faced before.
While most might not agree with the means (or merely the messenger), many, if not all, do agree with the end goal.
That goal is a positive worldwide shift in IP protection across a variety of industries stemming largely from China’s historically poor treatment of intellectual property rights, private property, and various humanitarian issues that continue to linger.
At the Root of the Matter: Chinese IP Laws
China is still a Communist country, but the country’s business policies have shifted over the years to encourage private enterprise, making them a dominant player in the world economy.
While the Chinese government has moved away from complete state control of all business, the state still has control (or at least strong oversight) of most business activities in the background. Those controls often impose threats or other disadvantages on foreign companies doing business there.
However, these same policies have made it easy for China to offer cheap labor and the resulting inexpensive products — something the United States has fallen in love with and grown accustomed to over the decades.
Whether you’re in electronics, clothing, or consumer/consumable goods, you often can’t do business in the U.S. without taking advantage of the low-cost labor in China and other developing countries.
The problem is, in order to do business in China, American businesses must comply with Chinese laws. We have no control or say in this fact. In our practice, this effectively requires a forced transfer of the intellectual property to a Chinese state-controlled organization of some form with little control on its distribution or enforcement.
Unfortunately, there is still an inherent lack of respect for IP and trade secrets in China. A lot of things are stolen; it’s why American consumers deal with counterfeit products all the time!
When a company starts doing business in China, there’s not a lot of control over who might see your product, who has access to your plans, or who knows your manufacturing methods. This is even more pronounced when the U.S. company does not maintain a constant presence in China or provide consistent oversight into the day-to-day manufacturing of their products. And often this lack of oversight and control leads to other Chinese manufacturers making cheap knockoffs of your product.
Americans have put up with this for quite a while, primarily in the name of making our products for a more competitive cost.
Looking Ahead: Are Tariffs Good for IP?
This is one of the underlying problems being addressed by the trade wars you’ve likely seen in the news. If China wants to continue selling to the United States, they must meet our standards of intellectual property protection. Otherwise, they face a high tax on every product they send to the United States.
Unfortunately, retaliation takes the form of similar tariffs on U.S.-made products that are sold into China. So, everything gets more expensive . . .
A negotiated result that unifies the treatment of individual IP rights would be good for every company’s intellectual property, as brands would be able to establish a set of rules that must be followed regarding assets such as their customer lists, pricing guides, IP, and other technology.
I recently spoke on an Outdoor Industry Association panel discussing this very topic. When costs go up, people look for cheaper ways of doing business. In my world of intellectual property law, that means issues with counterfeiting, trademark and patent infringement, and other surreptitious ways to get cheap products to market.
The end goal is to force China to reconcile their intellectual property laws so that they’re more aligned with the United States, Europe, and other regions that respect personal property rights.
What Does This Mean for IP Protection?
It’s now more important than ever to protect your intellectual property.
If a U.S. company chooses to file their U.S. patent application in other countries around the world, they must comply with strict and unforgiving timelines.
For many, it’s a no-brainer to file that patent in places like Europe, Canada, Australia, or Japan. They have very similar IP protection laws that respect personal property rights and are generally reconciled with U.S. laws.
While China does have straightforward processes for procuring your patents and trademarks, the enforcement of those rights is still a moving target and is largely unpredictable. Despite this, we often recommend our clients file their patent there now as the uncertain environment hopefully continues to decrease over the next few years.
A properly enforced patent in China should give you similar rights as it would in the U.S. — a roughly 20=year exclusive right to make, use, sell, and offer for sale your patent-covered product. If a client waits until the hostile environment lessens to file the patent, they may never have the opportunity to do so. Filing your patent in China is important now so that you’re ready for the future.
New policies will hopefully convince countries like China, that might not have really respected intellectual property to U.S. standards in the past, to do so in the coming years. While global IP has trended toward this change for a while, albeit very slowly, this change is now occurring rapidly.