China has long sought to develop advanced technologies. But recently, as it looks to expand its economy and create jobs, Beijing is becoming more assertive in using courts as a tool.
China is actively trying to undermine international patents and take technology from other nations, with potentially global consequences. Chinese interests could potentially win court rulings that nullify patents in key industries like technology, pharmaceuticals, and rare-earth minerals.
China’s Struggle for Technological Superiority
Chinese technological innovation has long been a source of national pride and ambition. Leaders from Mao Zedong to Xi Jinping saw scientific progress both as an instrument to achieve economic and military dominance, and an ideological end in itself–an ideology known as “ganchao,” which still persists today.
China’s growth spurred awareness of the potential for global technology competition. Government leaders adopted policies and incentives that made it simpler for Chinese companies to adopt foreign technology into local markets.
The result was the emergence of many private companies, from Lenovo to Huawei. These businesses were able to grow by adopting cutting-edge technologies and then selling them on to other businesses.
These innovations have become an integral part of China’s economy and culture, giving the country a competitive edge over many others. But they also pose challenges to liberal values and good governance practices.
Many Americans and others around the world are concerned that China’s rapid technological development could erode liberal values worldwide. Thus, there is an ongoing debate about how best to respond to China’s technological advancement.
Three camps exist with three distinct proposals: One believes U.S.-China technology ties are zero-sum and should be drastically curtailed; another thinks such a relationship is beneficial to America; while a third, more centrist group, suggests maintaining U.S.-China connections while tightening technology controls in areas where Chinese advancement or influence could endanger American interests.
The wider issue is that China’s rapid technological progress is endangering America’s economic competitiveness, national security interests, and international relationships more generally. Additionally, fragmentation within the technology sector – including divergent standards and norms – may arise as its market decouples from those of both America and Western Europe more generally.
Due to this, the debate about how best to respond has become increasingly political in nature. While bipartisan support exists for tightening technology controls, particularly in strategic areas where Chinese advances or influence could endanger America’s national security or economic interests, such measures may not always be successful and may cause collateral damage to other nations as well.
Court Rulings Favor Chinese Stakeholders
One of the most intriguing aspects of Chinese law and governance is how foreign companies’ rights are often subordinated to a centralized state apparatus and what appears to be an increasingly self-serving bureaucracy. As such, the United States and its partners need to pay much closer attention to what governing officials are doing with a company’s intellectual property.
Over the last decade, China’s IP protection and enforcement capabilities have significantly improved. However, in practice, it still lags behind many other nations when it comes to these measures. Furthermore, China’s patent office is known for being selective when awarding IP licenses; this coupled with lax enforcement of those patents should give American firms ample reason to exercise caution when operating in one of the world’s largest and most populous nations.
Studies have compared China to other countries when it comes to legal innovation and etiquette, finding no truly innovative laws or regulations. While there may be good reasons for foreign investment to avoid China altogether, it remains an important source of foreign investment – particularly in technology and telecommunications. The biggest challenge lies in mitigating the negative impacts caused by a regressive regulatory environment; fortunately, there are ways of combatting them.
Rulings Nullify Patents in Industries It Deems Important
If your company owns patents or other intellectual property, it’s essential to understand how those assets can be safeguarded from Chinese competitors. China is an intensely competitive market and Chinese firms have built up a considerable IP portfolio that they use as leverage to maintain their technological edge.
Due to this trend, courts are increasingly being utilized to invalidate international patents that have been filed in China. These rulings may be based on factors such as common knowledge in the field and failure to secure a foreign filing license from China National Intellectual Property Administration (CNIPA) before filing outside China.
Furthermore, Chinese courts typically verify the authenticity of copies of documents and evidence submitted during oral hearings. If these documents have not been duly notarized and legalized, then courts cannot be certain they are genuine.
When these cases reach court, the outcome is crucial for both parties involved. The judge’s ruling can determine whether a patent remains valid or not and have an immense effect on the future of the invention.
This is a serious issue, and it can have severe financial repercussions for businesses. Furthermore, infringing upon patent rights may bring about severe sanctions.
Another issue with court decisions is their tendency to favor certain sectors or companies over others. This is especially true in cases where state-owned assets are involved, as the Chinese government has a keen interest in safeguarding its citizens’ interests.
In one instance, the Beijing IP Court sided with a state-owned enterprise over an American company even though both were engaged in similar technology. This is because the former could demonstrate more R&D capacity abroad than its rival.
While the Chinese government is striving to support its own companies, it’s a worrying sign that Chinese firms are using courts to invalidate the IP of other companies – especially those outside their home country. Such rulings could severely hamper an industry’s development and innovation potential, having an immense effect on global markets.
China is the dominant producer of many electronic devices – 8 out of 10 of the world’s biggest smartphones are made there, and 33% of 5G telecom equipment too. But much of their technology was invented by companies across North America, Europe, and beyond.
China’s patent invalidation and theft of technology have global repercussions, leaving the United States and other countries vulnerable to theft of their own technologies. Furthermore, this practice has caused numerous trade disputes and caused immense economic harm to our economy.
According to Navarro, China uses up to 50 measures to meet its six strategic objectives: protecting Chinese markets from import competition, expanding market share globally, safeguarding core resources and manufacturing industries, dominating traditional manufacturing, acquiring advanced technologies, and developing emerging high-tech industries (Hudson Institute, 2018). These include consumer boycotts, excessive inspections, directives, administrative holdups at customs, and judicial retaliation (The Economist 2019; Hudson Institute 2018).
When DuPont Co.’s Shanghai office reported suspected IPR violations by its Chinese partner, the state used a variety of levers to seize DuPont’s property and use it for their own commercial gain. Chinese police raided the company’s office, demanded passwords and printed documents, and intimidated employees in an effort to prevent them from asserting their intellectual property rights.
In addition to seizing technology, China is using its courts to manipulate the outcomes of IPR disputes between foreign firms and Chinese corporations. This is an intricate strategy involving intelligence agencies, police, and the military that extends beyond infringement cases.
It is unclear how much of this retaliation is legal, but China has made strides toward modernizing its court system with technology and innovation. For instance, China’s Supreme People’s Court has created an “internet court” that utilizes chatbots, facial recognition technology, and blockchain-based systems for evidence assessment. While these technologies have potential commercial applications, they may not yet have replaced traditional courts completely.