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US Targets China, India in Latest IP Report

Issued: June 01 2017

The United States Trade Representative continues to target China for apparent shortcomings in its IP regime, as China remains on the latest Priority Watch List of the agency’s Special 301 Report.

The Office of the United States Trade Representative (USTR) continues to target China and India for apparent shortcomings in their intellectual property regimes as they remain on the Priority Watch List of the agency’s latest Special 301 Report.

The report is published annually to identify trade barriers to US companies and products due to the intellectual property laws, such as copyright, patents and trademarks, in other countries.

Keeping China on the Priority Watch List – a list of countries the USTR deems as having “serious intellectual property rights deficiencies” that require increased attention – the trade watchdog said that serious challenges in China continue to confront US intellectual property right holders with respect to adequate and effective protection of IP, as well as fair and equitable market access for US persons that rely upon IP protection.”

“China must enact new measures and policies that provide stronger and more effective protection for IP; allow market access for IP-intensive products, services and technologies; and enhance the effectiveness of civil enforcement in Chinese courts,” the report said.

On India, the report similarly noted that the country “remains one of the world’s most challenging major economies with respect to protection and enforcement of IP” due to “lack of sufficient measurable improvements to its IP framework.”

“Despite positive statements and initiatives upon which the Modi Administration has embarked, the pace of reform has not matched high-level calls to foster innovation and promote creativity. India has yet to take steps to address longstanding patent issues that are affecting innovative industries,” the report said.

The problem of counterfeiting appears to be a common concern for US IP right holders in both countries. In particular, widespread counterfeiting and piracy problems persist in China’s enormous ecommerce markets, which is estimated to account for 40 percent of global e-commerce sales. According to China’s State Administration for Industry and Commerce (SAIC), more than 40 percent of goods purchased online were fake.

According to the report, the manufacturing and distribution of pharmaceutical products bearing counterfeit trademarks is also a growth problem in numerous US trading partners, including China, Guatemala, India, Indonesia, Lebanon, Peru, and Russia.

The report suggested that 90 percent of all counterfeit pharmaceuticals seized at the US borders in 2016 were shipped from or transshipped through China, Hong Kong, India and Singapore; while up to 20 percent of drugs sold in the Indian market are counterfeit.

In addition, the USTR urged China and India refrain from “coercive local and technology transfer policies” that are aimed at incentivizing domestic innovation. The report pointed to Chinese regulations that require US firms to develop their IP in China or transfer their IP to Chinese entities as a condition to accessing the Chinese market. Mandatory adverse terms are also applied to foreign IP licensors. 

Similar in-country testing and localization requirements imposed by the Indian government are also cited by the report as “inhibiting market access and blunting innovation.”

India’s controversial patent policy, which has long been a sore spot between India and US pharmaceutical majors, also made an unsurprising appearance in the 2017 Special 301 Report.

Similar to last year’s report, the USTR criticized the application of narrow patentability criteria under Section 3(d) of the India Patents Act as well as the threat of compulsory licensing and patent revocations.

“Patent applicants also face costly and time-consuming patent opposition hurdles, long timelines for receiving patents and excessive reporting requirements,” said the report.

“India’s vocal encouragement and propagation of initiatives that promote the erosion of IP around the world, especially in the pharmaceutical sector, sends a concerning signal about India’s commitment to strengthening its IP regime.”

Elsewhere in the report, two other Asian countries that remain on USTR’s Priority Watch List are Indonesia and Thailand, as the agency cited rampant piracy and counterfeiting as well as market access barriers for US IP owners as reasons.

However, while lack of effective IP enforcement, a backlog in pending patent applications and widespread use of unlicensed software in both the public and private sectors remain US concerns, it said that it was prepared to review the status of Thailand if it continues taking positive steps and makes substantial progress in addressing the issues.


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