China: A Tariff Tempting Copycat Economy or a Country to Lead in Tech and Innovation?

By Chad L. Antuma

We all know that many well-known American, trademark and otherwise protected, products have been “knocked off,” in some way or another, by unknown companies in China.[1] Some of these companies have been accused of directly infringing on trademark or other IP rights,[2] while others engage in other copycat practices that weaken foreign trademarks.[3] These illicit practices have arguably played a big part in the development of the current Chinese economy,[4] and supposedly have also piqued a Presidential tariff response from the United States.[5] Knowing this, would it surprise you to learn that China now wants to protect many of these foreign trademarks and other intellectual property from localized infringement?[6]

 

In the last half of 2017, Chinese officials touted that they intend to protect the intellectual property (IP) rights of foreign businesses through a four-month campaign that would utilize 12 government bodies and the courts to crack down on IP theft.[7] In March of 2018, China doubled down on their previous promise to protect foreign IP in China by declaring that they would “treat domestic and foreign companies as equals.”[8] Why is it that China would drastically change their policy on Trademark? It would seem that China’s commitment to protecting foreign IP is a response to tariffs coming from the United States.[9] However, I believe, there are other more compelling explanations, besides tariffs, that motivated China to reform its policy on enforcing trademark and other intellectual property rights.

 

In 2014, China adopted a new law on Trademark, and this law was designed to help China reach its goal of becoming an “innovative country” and a “prosperous society” within the world community.[10] Since, the adoption of this new law and strategy China has been a leader, or close to it, in patent and other IP filings in several sectors.[11] China has also done well by their new law and strategy by offering trademark protection to IP from big-name companies like New Balance, an American athletic shoe brand, from smaller Chinese copycats since the adoption of the law.[12] Some commentators believe that China is enforcing foreign trademark rights because China wants to step into the world marketplace and show the world it is ready to lead in innovation and technology, and do so while fairly protecting the rights of national competitors.[13] Commenters further noted that China is already a leader in telecom and online payment technology, and that China wants to innovate and be a leader in other areas which would require new, fairly sourced IP to be recognized in the global marketplace.[14] This provides part of the explanation as to why China is stepping up now to enforce IP rights. Other commenters believe that China has been doing its part to protect foreign trademark and IP all along and China has been getting negative attention when big companies fail to protect their IP.[15] Either way, it is clear that China has adopted a new directive and China appears to be interested in changing their image from copycats to innovators.

 

China also has an economic interest in protecting foreign and local IP investment beyond just avoiding tariffs from the United States. When China announced its decision to offer equal opportunity to foreign and local IP interests in March, China’s Executive Vice-Premier, Han Zheng, explained that globalization is “an irreversible trend,” and resorting to protectionism will not fix the problems that globalization presents.[16] This suggests that China recognizes the need to play fair and protect the rights of global investors and competitors in order to be competitive and attract investment from foreign investors. It seems that China has also come to recognize the interest in investing and protecting trademarks to ensure Chinese natives remain interested in purchasing Chinese products.[17] Trust in a company’s brand or trademark is an essential part of many consumer’s decision making process, and after several scandals violating the public trust Chinese officials appear to recognize that their affirmation that all IP will be treated equally will force Chinese companies to step up their game if they are not meeting the public’s standards.[18] These economic interests also suggest that China made an informed, smart, choice to change its policy on trademark rather than making an involuntary response to threats of tariffs.

 

Regardless of whether China made the decision to enforce IP law more effectively based on tariff imposition or the more thoughtful social and economic approach mentioned here, the question remains, what else will China do to protect its economy from the pending trade war with the United States? I think that China will continue to increase its investment into research and development in computer technology, robotics, and medical fields, this would create the independence China needs to distance itself from other countries including the United States.[19] The resulting independence will increase China’s negotiation power and overall trade policy resilience, giving China an edge against competing economies, including the United States. China’s new competitive IP enforcement policy and forward-thinking IP strategy will help China defend its IP from foreign IP and as a result, protect its consumers from undesirable copycat or bogus products. In a sense, China’s new IP policies are protecting China from itself because the new policy forces Chinese companies to be competitive and innovative.

 

China’s IP policy still leaves much to be desired. In fact, some commentators argue that China’s “first to file” patent system and China’s trademark system that does not consider a consumer’s recognition of a trademark, forces the government to be the sole decision maker as to whether a company has IP rights that could be enforced, and as a result, the IP system is not as effective as it could be because consumers should play a bigger role in the process of determining what is intellectual property.[20] Further, China still has not reigned in many manufacturing industries that copy nearly every aspect of foreign products besides the protected trademark.[21] With these concerns still present, China still has an opportunity to flesh out its IP law to better protect its consumers and to better compete within an increasingly global economy.


[1]See These 32 Ridiculous Chinese Knockoffs Are So Bad… You Can’t Help But Laugh, Can You Actually, http://canyouactually.com/these-32-ridiculous-chinese-knockoffs-are-so-bad-you-cant-help-but-laugh/(discussing name brand knockoffs and imitations from china).

[2] See William Weightman, China’s Progress on Intellectual Property Rights (Yes, Really), The Diplomat, (Jan. 20, 2018), https://thediplomat.com/2018/01/chinas-progress-on-intellectual-property-rights-yes-really/ (Discussing patent infringement of major companies’ patents in the U.S.).

[3] Jane Ho, NetEase Challenges Chinese E-Commerce Giants New Battleground, Own Label Retail, Forbes, (Apr. 20, 2018), https://www.forbes.com/sites/janeho/2018/04/20/netease-challenges-chinese-e-commerce-giants-on-new-battleground-own-label-retail/#6421372e4b13

[4] See Marc Bain, “Unbranded” Luxury Items in China are Like Knockoffs With One Vital Difference, Quartz (May 15, 2018), https://qz.com/1278501/unbranded-luxury-items-in-china-are-like-knockoffs-with-one-vital-difference/ (discussing the success of unbranded copycat companies).

[5] See Glen Thrush & Alan Rappeport, Trump Cautious on China Inquiry Over Intellectual Property Theft, The New York Times, (Aug. 12, 2017), https://www.nytimes.com/2017/08/12/us/trump-cautious-on-china-inquiry-over-intellectual-property-theft.html (discussing implementing an investigation into intellectual property policy in China and adoption of tariffs to force China to fold to United States interests).

[6] Goh Sui Noi, China Pledges to Open Economy, Level Playing Field for Foreign Companies, The Straits Times https://www.straitstimes.com/asia/east-asia/china-to-deepen-supply-side-reforms-says-head-of-state-planner

[7] Frank Tang, China Launches Campaign to Protect Foreign Intellectual Property Rights as US Probes Alleged Thefts, South China Morning Post, (Sept. 20, 2017),  https://www.scmp.com/news/china/economy/article/2111929/china-launches-campaign-protect-foreign-intellectual-property.

[8] Noi, supra note 6.

[9] See Thrush, supra note 5(discussing the imposition of tariffs because of trademark infringement only a month prior to the Chinese response).

[10] Xuan-Thao Nguyen, The World’s Trademark Powerhouse: A Critique of China’s New Trademark Law, 40 Seattle L. Rev. 901, 915 (2017); Outline of the National Intellectual Property

Strategy, WIPO, at 1, http://www.wipo.int/edocs/lexdocs/laws/en/cn/cn021en.pdf.

[11] Marius Zaharia, Trade War or Not, China is Closing the Gap on U.S. in Technology IP Race, Reuters, (Apr. 14, 2018), (Discussing China as a leader in telecommunications and online payments) https://www.reuters.com/article/us-usa-trade-china-intellectualproperty/trade-war-or-not-china-is-closing-the-gap-on-u-s-in-technology-ip-race-idUSKBN1HK187

[12] See Sui-Lee Wee, New Balance Wins $1.5 Million in Landmark China Trademark Case, The New York Times, (Aug. 22, 2017), https://www.nytimes.com/2017/08/22/business/china-new-balance-trademark.html (discussing the unprecedented level of trademark protection afforded to the foreign company New Balance).

[13] See Zaharia, supra note 11 (Discussing China’s attempts to project itself as a leader in innovation).

[14] Id.

[15] See Weightman, supra note 2 (Discussing high profile cases leading many to believe that companies cannot get patent and trademark protection in China); See Christine Helmers, Patent Litigation in China: Protecting Rights or the Local Economy, 18 Vanderbilt J. Ent. & Tech. L. 1, 18. (forthcoming 2016) (Discussing the success of foreign parties enforcing IP rights in China).

[16] Noi, supra note 6.

[17] See Nguyen, supra note 10 at 914 (discussing several violations of the pubic trust and the importance trademark has on public trust).

[18] See id. (Same as above).

[19] See Zaharia, supra note 11 (discussing China falling behind in the medical, semiconductor, and robotics fields).

[20] See, Nguyen, supra note 10, at 925 (discussing china’s trademark law failing to consider the consuming publics role in trademark; See Sunny Oh, Why is the U.S. Accusing China of Stealing Intellectual Property?,  MarketWatch, (Apr. 6 2018) (discussing the problems associated with the first to file practice in china’s patent system) https://www.marketwatch.com/story/why-is-the-us-accusing-china-of-stealing-intellectual-property-2018-04-05.

[21] See Ho, supra note 3 (discussing the flourishing of Chinese manufacturers making unmarked copies of international products).