Protecting the ideas behind international trade

Americans following U.S.-China trade relations during the past three years might be familiar with the reference to intellectual property rights (“IPR”) as the basis of the current Administration’s actions to level the trade playing field with China. In 2017, the Administration initiated an investigation into China’s policies, practices and actions that are detrimental to U.S. commercial interests. One of the major complaints is China’s requirement that U.S. companies provide its technologies to Chinese entities in order to do business. This was viewed as forcing U.S. companies to share trade secrets, a form of intellectual property rights.

While the U.S.-China trade issues have dominated recent headlines, the U.S. Government and U.S. industry have been assessing the commercial environment for IPR (patents, trademarks, copyrights, industrial designs, geographical indications, trade secrets) in our trading partners for decades.

A “special” trade provision

The Omnibus Trade and Competitiveness Act of 1988 was signed and went into effect the same year. The Act included a legal provision commonly known as “Special 301” (19 U.S.C. §2242).

The Special 301 provision focuses specifically on IPR and foreign countries whose acts, practices and policies have a detrimental effect on U.S. entities. The law directs the U.S. Government to identify acts, practices and policies that may, for example, prevent IPR owners from obtaining adequate and effective protection for their IPR assets or may be denied fair and equitable market access for their IPR assets in a foreign country.

More specifically, the Special 301 provision instructs the Office of the U.S. Trade Representative (“USTR”) to issue a report every year (19 U.S.C. §2242(h)) that identifies the foreign countries whose IPR acts, practices or policies are the most onerous or egregious.

In so doing, USTR is instructed to consult with other agencies of the government such as the Copyright Office, U.S. Patent and Trademark Office and other appropriate federal government officials and accept inputs from any interested persons (19 U.S.C. §2242(b)(2)). USTR obtains private sector input for its annual report by publishing a notice in the Federal Register that solicits public comment. For example, as part of the 2020 report, USTR published a notice in the December 23, 2019 Federal Register, “Request for Comments and Notice of a Public Hearing Regarding the 2020 Special 301 Review”.

Priorities and watch lists

The annual Special 301 report has evolved over the past 30 years. If USTR designates a country as a “priority foreign country,” USTR is required to enter into negotiations to obtain commitments from that foreign government toward specific actions to eliminate the detrimental act, practice or policy or subject the government to trade sanctions.

The first report in 1989 identified 25 countries, but did not designate any of these 25 countries as a “priority foreign country”. To provide more flexibility, the 1989 report created two additional categories: “priority watch list” and “watch list”. In 2016, the Special 301 law was amended to require USTR to create an action plan for countries placed on the priority watch list (19 U.S.C. §2242(g)).

Last year, USTR declined to designate any priority foreign countries but included China, India, Chile and Indonesia on its priority watch list. USTR is also monitoring the European Union’s practices regarding whether companies like Facebook, Amazon and Google will be liable for copyright violations by third parties on their platforms. Some U.S. industries will testify that Canada should be placed on the priority foreign country list this year for geographical indications that undermine U.S. trademarks, plain packaging regulations, and lack of adequate drug patent protections.

What’s the government looking for?

IPR owners conducting business in foreign markets and confronting challenges regarding the treatment of their IPR assets can learn about the kinds of IPR issues USTR will address by reviewing past Special 301 reports. In the 2019 report, USTR cited a broad spectrum of IPR issues identified as problematic in foreign markets. The issues cited included:

-enforcement and market access issues regarding pharmaceutical and medical devices,

-online and broadcast piracy,

-lack of ex officio authority for customs officials to seize and destroy infringing goods,

-lack of legal authority for customs officials to stop in-transit movement of infringing goods,

-lack of effective policies and procedures to prevent government agencies from using unlicensed software,

-restrictive patentability criteria,

-inadequate legal protection for trade secrets, and

-negative effects on market access due to the adoption of the European Union approach to the protection of geographical indications.

As the list above demonstrates, the IPR-related issues that are addressed as problematic in foreign countries reflects issues identified by private sector enterprises. Those doing business abroad are in the best position to identify what IPR-related deficiencies hamper the ability to do business in a particular foreign market.

“Notorious Markets”

USTR’s reporting has adapted over the years. In recent years, the annual report has been supplemented by a separate “Notorious Markets” report which is prepared and issued separately. The Notorious Markets report “highlights prominent and illustrative examples of online and physical marketplaces that reportedly engage in and facilitate substantial piracy and counterfeiting.” The 2018 Out-of-Cycle Review of Notorious Markets identifies the proliferation of counterfeit goods availability on online marketplaces as a threat to IPR owners. The report also identified an online “cyberlocker” in Poland, demonstrating how the report reflects the changing IPR environment due to technology.

The latest USTR Notorious Markets report provides an example of how USTR works to keep up with emerging and troublesome developments. The report includes a special section that focuses on free trade zones (FTZs) as especially problematic in facilitating trade in IPR-infringing products. The report notes that FTZs are “major facilitators of illegal and criminal activity, including the illicit trade in pirated and counterfeit goods, smuggling, and money laundering.”

Neighborhood watch

The Special 301 legal process is available to U.S. IPR owners and to any American business that owns IP and conducts commercial activity abroad. Becoming familiar with past reports, the Special 301 legal provision and the U.S. Government agencies involved is a good start to take advantage of this provision. As the Special 301 reports document, no foreign country is excepted from the possibility of being named as having detrimental acts, practices or policies.

To be effective, both the annual Special 301 report and the Notorious Markets report require the active involvement of the private sector community. While U.S. embassies can provide input for these reports, the report depends upon U.S. businesses who are the victims of foreign acts, practices and policies to identify these so that the U.S. Government can assess these issues and raise them with foreign governments.

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