A counterfeit Apple Inc. mobile phone is arranged for a photograph at the mobile phone market where it was sold, in Shanghai, China. (Photographer: Qilai Shen/Bloomberg News)

What Is Intellectual Property, and Does China Steal It?

(Bloomberg) -- U.S. President Donald Trump’s justification for imposing tariffs on imports from China includes the alleged theft of American intellectual property. Such violations -- from counterfeiting famous brands and stealing trade secrets to pressuring companies to share technology with local 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, including a raft of new measures in December, 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?

U.S. Trade Representative Robert Lighthizer completed a seven-month investigation into China and intellectual property at Trump’s direction in early 2017. 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. In March, Trump instructed Lighthizer to levy tariffs on at least $50 billion in Chinese imports -- a figure based on U.S. estimates of the lost corporate earnings caused by China’s alleged IP theft or forced technology transfers. In an update in November, the USTR office said China was continuing its unfair IP policies.

3. 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 a country that supports domestic industry. They also 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.

4. What does China say?

President Xi Jinping admits the U.S. has “reasonable concerns.” He highlighted the need to speed up protections in a speech in 2017, calling for stricter enforcement and for infringers to pay a “heavy price.” In December, China announced its most serious measures since the trade war erupted, including an array of punishments that could restrict local companies’ access to borrowing and state-funding support over IP theft. China set out a total of 38 different punishments to be applied to IP violations, an attempt to extend the government’s so-called “social credit system” to the IP sector and punish untrustworthy business and individuals.

5. Will this solve the issue?

If the measures are implemented and result in a reduction in IP theft, it’s “potentially significant,” says Scott Kennedy, a China expert at the Center for Strategic and International Studies in Washington. He notes that despite the increased attention paid to the issue, IP violations have increased. Chinese law enforcers have been hampered by insufficient means of punishment, according to Xu Xinming, a researcher at the Center for Intellectual Property Studies at China University of Political Science and Law. Xu says the new regulations could render IP violators “unable to move even a single step.”

6. How does China compare?

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. A 2017 survey by the European Union Chamber of Commerce in China found that “visible progress” had been made around IP, but 51 percent of firms said enforcement was still inadequate.

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

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 USTR’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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