A member of the People’s Armed Police stands guard in front of a portrait of former Chinese leader Mao Zedong at the Tiananmen Gate in Beijing. (Photographer: Qilai Shen/Bloomberg)

What's Intellectual Property and Does China Steal It?: QuickTake

(Bloomberg) -- As penalties for stealing go, it must rate among the steepest. U.S. President Donald Trump has decided to impose tariffs on $50 billion worth of imports from China as punishment for the alleged theft of American intellectual property. Such violations, from counterfeiting famous brands and stealing trade secrets to pressuring companies to share technology with Chinese companies to gain access to China’s vast market, have long angered China’s overseas competitors. As a result, many companies are wary of doing business there. Efforts to improve enforcement have not come fast enough for Trump.

1. What is intellectual property?

It refers to creations of the mind, such as inventions, literary and artistic works, and designs, symbols, names and images used in commerce, according to the World Intellectual Property Organization. IP is protected in law by patents, copyright and trademarks, enabling people to earn recognition or financial benefit from what they invent or create. “The IP system aims to foster an environment in which creativity and innovation can flourish," the WIPO says.

2. What did Trump do?

In his first trade action aimed directly at China, Trump ordered that tariffs be imposed on a broad range of goods, which could include everything from tennis shoes and baseball hats to lingerie and consumer electronics. The U.S. Trade Representative Robert Lighthizer has 15 days to propose a list of goods that will face higher tariffs. The levies would apply to about 10 percent of the value of China’s exports to the U.S., but aren’t restricted to products the U.S. says China made in violation of American IP. Trump is also directing officials to pursue a World Trade Organization complaint against China for discriminatory licensing practices and to propose new restrictions on Chinese investments within 60 days to safeguard strategic U.S. technology.

3. What’s the rationale for all this?

Lighthizer just completed a seven-month investigation into China and intellectual property at Trump’s direction. The $50 billion figure is based on U.S. estimates of the lost corporate earnings caused by China’s alleged IP theft or forced technology transfers. U.S. officials were said to find strong evidence that China uses foreign-ownership restrictions to compel American companies to switch technology to local firms and that China supports and conducts cyberattacks on U.S. companies to access trade secrets.

4. How do non-Chinese companies lose money?

Besides missing out on possible sales to counterfeited goods or to Chinese products using their know-how, non-Chinese companies also need to lower their prices to compete in China. They spend billions of dollars to address possible infringements, according to a 2011 report by the U.S. International Trade Commission. That report said trademark infringement was the most common form of IP violation in China, but copyright infringement was the most damaging.

5. What does China say?

President Xi Jinping highlighted the need to speed up protections in a speech last year, calling for stricter enforcement and for infringers to pay a “heavy price.” Also in 2017, China started a nationwide campaign to protect foreign firms’ international property rights. The Ministry of Commerce says China is a developing country and doesn’t have a perfect system to protect IP, acknowledging that there’s much work to do. Premier Li Keqiang, in a speech in March, promised to protect the rights of foreigners investing in its economy.

6. What do others say?

Of 50 countries in the U.S. Chamber of Commerce’s International IP Index, which measures a country’s commitment to fostering and protecting innovation through legal rights, China ranks 25th. (The U.S. is No. 1 and Venezuela last). China earns praise in that survey for its reforms on patents (the right to make, use or sell an invention) and copyright (the right to express an idea) and its efforts to raise awareness of IP rights. It loses marks for the high levels of infringement and insufficient legal safeguards. William Weightman, a Fulbright Fellow researching IP in China, wrote in The Diplomat that the country has shown a serious resolve to tackle IP-related concerns such as challenges in gathering evidence to document IP infringement, limits on damage awards and bias against foreign firms.

7. Is this a new gripe by the U.S.?

No, it’s a longstanding issue. That 2011 report by the U.S. International Trade Commission estimated that U.S. IP-intensive firms lost $48 billion in 2009 because of Chinese infringements. A 2016 U.S. Trade Representative’s report highlighted serious problems, especially concerning the theft of trade secrets. "Offenders in many cases continue to operate with impunity," the report said.

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