China and United States see eye to IP

On 15 January 2020, China and the United States (US) signed “Phase One” of the Economic and Trade Agreement (‘ETA’), signalling an armistice of the trade war that has significantly impacted two of the world’s largest economies (not to mention the rest of us).

The ETA seeks to ease trade tensions between the two superpowers, with concessions and demands evinced in the focal point of the deal. At the centre of trade negotiations is China’s pledge to purchase at least an additional US$200 billion worth of US products and goods, in return for the US cutting the tariff rate in half on $120 billion of Chinese goods.

What does this mean?

In addition to expanding bilateral trade, the agreement includes several significant provisions on IP protection – an issue that has long been central to the escalating tensions between Washington and Beijing.

As part of the ETA, China: has agreed to overhaul its scheme of IP protection as it relates to trade marks, trade secrets, counterfeiting and privacy; plans to make significant changes to its trial process in order to more closely conform its laws and procedures to the system in the US; and has agreed to establish a mechanism that would allow early resolution of potential biopharmaceutical patent disputes.

Further, in order to promote innovation and cooperation in the pharmaceutical sector, and to better meet the needs of patients, the US and China have agreed to provide for effective protection and enforcement of pharmaceutical-related IP rights, including patents and data protection for tests or other data that has been submitted as a condition of marketing approval.

Shh! Trade Secrets

Under the arrangement, China and the US have agreed to ensure effective protection for trade secrets and confidential business information, and to enable appropriate enforcement action against the misappropriation of such information. Significantly, the agreement lowers the threshold for initiating criminal enforcement, and the parties agree to eliminate any requirement that the holder of a trade secret suffers actual loss. This compares to China’s current laws which require a minimum of RMB 500,000 of damages to establish a criminal offence.

Further, under Article 1.9, China is required to prohibit the unauthorized disclosure of undisclosed information, trade secrets, or confidential business information by government personnel by requiring administrative agencies to limit requests for information, limit access to information, ensure the security and protection of submitted information and provide criminal, civil and administrative penalties for unauthorised disclosure.

Pharmaceutical provisions

Under Article 1.11, China has agreed to provide an effective mechanism for the early resolution of patent disputes in relation to pharmaceutical products. Such a mechanism aims to provide a cause of action to allow the patent holder, licensee, or holder of marketing approval to bring civil proceedings prior to the marketing approval of an allegedly infringing product. The mechanism will aim to deliver expeditious remedies for the resolution of disputes concerning the validity or infringement of an applicable patent.

Pharmaceutical Patents

 In relation to pharmaceutical-related patents, China has agreed to make available an extension of the term of patent rights of up to five years, and may limit the resulting effective patent term to no more than 14 years from the date of marketing approval for a new product in China.

China has also resolved to provide patent term extensions under Article 1.12 (for new products and methods of use) in order to compensate for unreasonable delays that occur in granting patents or obtaining pharmaceutical product marketing approvals.

Under this provision, an unreasonable delay shall at least include a delay in the issuance of the patent of more than four years from the date of filing, or three years after a request for examination of the application, whichever is later.

Implications for the future

It depends. At the moment, the ETA does not establish any new laws or regulations, but rather sets out promises made by both parties. As such, the effectiveness of the agreement is highly dependent on China, and whether what has been agreed to is both implemented and enforced.

While the enforcement mechanisms in the ETA are vague, according to the New York Times, the US has kept US$360 billion worth of tariffs in place, along with the threat of future tariffs, presumably to ensure that China follows through in implementing the ETA promises.

If China does follow through with its obligations, the world can expect a stronger economic and trade relationship between the two superpowers. With the anticipated increased harmonization of China’s patent laws with those in the US, it is likely that there will be greater access to the Chinese market, as well as greater predictability around IP protection for patentees and investors.

In any case, the agreement enters into force on 14 February 2020, at which point China is expected to promulgate an “action plan” that outlines how China will implement its promises and when those promises will come into effect. Until then, the world can enjoy a short reprieve from the trade war and even look forward to its cessation.