Just eleven days after U.S. President Donald Trump authorized an investigation into China's alleged “theft” of American intellectual property, Chinese authorities announced that they will tighten controls over intellectual property to provide better opportunities for foreign firms. This is a marked change in tune for China's Ministry of Commerce, which – as recently as two days ago – decried the probe, calling it “irresponsible” and vowing to “take all the necessary measures to resolutely defend the interests of China and Chinese firms” in light of the unilateral U.S. actions.
According to the memo, which Trump signed on August 14, U.S. Trade Representative Robert Lighthizer is being tasked with determining whether or not to investigate any potential trade practices by China “that force U.S. companies operating in China to turn over intellectual property." In accordance with federal law in the U.S., the president may unilaterally impose tariffs or other trade restrictions to protect domestic industries, but it is unclear at this time whether the investigation will, in fact, result in trade sanctions against China, a move that would likely result in Beijing escalating matters before the World Trade Organization.
While the Trump administration's Special 301 Report made specific mention of China's treatment of American IP, the probe marks the Trump administration’s first direct measure against Chinese trade practices. It comes after the White House – including administrations prior to Trump – and both U.S. business entities and other nations, including European Union, Japan, Germany and Canada, have slammed China for its failure to act on its rampant intellectual property infringement (at best) and its blatant “theft” of domestic intellectual property (at worst).
The probe announcement also comes on the heels of vague promises from China that it will, in fact, crackdown on intellectual property violations – paired with some tangible law reform (mostly in terms of trademark legislation) that has not necessarily or consistently aided American entities.
China, for instance, enacted modified trademark laws in 2014, which include changes, such as an increase in the level of damages the court may provide for trademark holders' whose marks have been infringed (the limited is now $480,000 per infringement, six times more than the current maximum), procedures to reduce bad faith filing, a quicker turnaround time for trademark applications (the China Trademark Office will complete its examination of an application within nine months), and stricter standards against the unauthorized use of "well known" marks.
Despite such moves, U.S. firms, ranging from Apple to New Balance, have struggled to assert and police their trademark rights against native Chinese entities that were able – thanks to China’s first-to-file trademark regime – register these brands’ names and logos before the brands did so themselves.
This type of trademark squatting is a heavily-utilized tactic by Chinese businesspeople, many of whom file trademark applications, with the singular aim of capitalizing on non-domestic operations seeking entry into China's thriving retail market, and the fashion industry has not been spared.
The practice of bad faith trademark filing has served as a very real problem for fashion brands that are trying to expand East, only to discover that their names and often, numerous variations of their names, have already been registered as trademarks by other entities in China, thereby preventing them from operating businesses in those names.