AMERICAN UNIVERSITY INTELLECTUAL PROPERTY BRIEF
VOL. 11 ISS. 2
ARTICLES
WHY TARIFFS AGAINST CHINA ARE INEFFECTIVE FOR INTELLECTUAL PROPERTY PROTECTION Nan Lan
HIDING ACTUALITIES: WHETHER ART SHOULD EXIST INDEPENDENT OF THE ARTIST Derek M. Diemer
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AMERICAN UNIVERSITY INTELLECTUAL PROPERTY BRIEF
4300 Nebraska Ave NW • Washington, D.C. 20016 E-mail: [email protected] www.ipbrief.net
VOLUME 11 April 2020 ISSUE 2
CAMERON ROCHA Editor-in-Chief
PETER NELSON Senior Articles Editor
KYLA BUTLER J. FRANCESCA GROSS Senior Patent Editor Senior Trademark & Copyright Editor
JACK NEWELL IRENE LY ELLE BAILES ANDREW SCHNEIDER MARGARITA GOROSPÉ Federal Circuit Blog Editor CARLOS MICAMES Blog Editors
YAMILEY CHARLES Marketing & Symposium Chair
Blog Team Publication Team JENNA HERR AYA BADR KIARA ORTIZ VALERIE CAMBRONNE CHRISTINA JANNE ELINA ROJAS ELI DOWNS NICHOLAS SULLIVAN HARRISON NEIDISH ISABELLE MARQUEZ KEYANA PUSEY COURTNEY KRAWICE LEANNA SAMSON DEANNA PELKEY MATTHEW BECK SHABBIR HAMID ERYKA JONES LOURDES VAZQUEZ SARAH JACOBS MATT DIGAN SONIA ROMAN STEPHANIE BROWN CHRISTOPHER KUHMAN EVE CHAN HECTOR CONTRERAS ASTON HENRY KASSIDY SCHMITZ SOPHIE EDBROOKE VINCENT JOHNSON II JISUN CHOI ALEXANDER CULLEN TOYE ADENEKAN ERIN HADI LEVI LALL DAY HARMENING DANIEL BARTLETT ADEN HIZKIAS ADAM WASINGER DANIELLE ADAMS s
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CREATIVE COMMONS LICENSE
The Intellectual Property Brief is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0). You are free to copy, distribute, transmit, adapt, or to make commercial use of the work without seeking permission. However, you must include the author’s name and “Originally Published in the American University Intellectual Property Brief” where applicable. http://creativecommons.org/licenses/by/4.0/.
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s AMERICAN UNIVERSITY INTELLECTUAL PROPERTY BRIEF
4300 Nebraska Ave NW • Washington, D.C. 20016 E-mail: [email protected] www.ipbrief.net
VOLUME 11 April 2020 ISSUE 2
ARTICLES HIDING ACTUALITIES: WHETHER ART SHOULD EXIST INDEPENDENT OF THE ARTIST ...... 1
WHY TARIFFS AGAINST CHINA ARE INEFFECTIVE FOR INTELLECTUAL PROPERTY PROTECTION ...... 17
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HIDING ACTUALITIES: WHETHER ART SHOULD EXIST
INDEPENDENT OF THE ARTIST Derek M. Diemer*
ABSTRACT Since recent advancements in technology, nearly every aspect of celebrities' lives are available to the public, causing many of their secrets to rise to the surface. This Note explores recent allegations against various artists, how the public reacted to those allegations, and the implications that arose from those reactions. Further, this Note argues that, under the American copyright system, it is acceptable to disconnect art from the artist in certain situations. Precedents in tax law, criminal law, and property law support this separation. However, if the music perpetuates or is influenced by the artist's bad behavior, then it should be protested. Whereas if the music itself is not problematic, the music should exist independently.
* Derek Diemer is a 2L J.D. candidate at the California Western School of Law. s
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TABLE OF CONTENTS ABSTRACT ...... 1 TABLE OF CONTENTS ...... 2 INTRODUCTION ...... 3 I. Surviving R. Kelly ...... 4 A. Allegations, Charges, and Protests ...... 4 B. Aftermath—Companies Speaking Up ...... 6 C. Protesting Art and Censorship ...... 7 II. The Economic Issue ...... 8 A. An American Copyright Analysis ...... 8 B. Joint Works—Problem or Solution? ...... 10 C. Disconnecting Art from the Artist ...... 10 1. Precedent for Stripping Rights or Property—Levies, Disenfranchisement, and Constructive Trusts ...... 12 2. Precedent Within the Entertainment Industry ...... 13 D. The Solution ...... 14 III. Issues and Objections—The Metaphysical Issue ...... 14 CONCLUSION ...... 14
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INTRODUCTION Charles Bukowski once said:
“Censorship is the tool of those who have the need to hide actualities from themselves and from others. Their fear is only their inability to face what is real, . . . [s]somewhere, in their upbringing, they were shielded against the total facts of our existence. They were only taught to look one way when many ways exist.”1
How well do we know the artists we love? For years our favorite artists have engaged in problematic conduct labeled as “immoral” or “illegal.”2 It was either ignored because of the greatness of the artist,3 or it added to the artist’s mystique.4 With access to infinite information from the internet, every aspect of a celebrity’s
1 Charles Bukowski on Censorship, LETTERS OF NOTE (Oct. 18, 2011), http://www.lettersofnote.com/2011/10/charles-bukowski-on-censorship.html. The quote was part of a letter sent by Charles Bukowski’s letter to “the Public Library in Nijmegen [because the library] decided to remove Charles Bukowski's Tales of Ordinary Madness after a complaint from a reader, declaring it ‘very sadistic, occasionally fascist and discriminatory against certain groups (including homosexuals).’” Maria Popova, Kurt Vonnegut, Harper Lee, and Other Literary Greats on Censorship, THE ATLANTIC (Oct. 1, 2012), https://www.theatlantic.com/entertainment/archive/2012/10/kurt-vonnegut-harper-lee-and-other- literary-greats-on-censorship/263104/. 2 Jayson Greene, How Do We Live With Music Made by Problematic Artists?, PITCHFORK (Jan. 9, 2019), https://pitchfork.com/features/overtones/how-do-we-live-with-music-made-by- problematic-artists/; Fergal Kinney, What It Really Means to Separate the Art from the Artist, VICE (June 6, 2018), https://www.vice.com/en_au/article/3k4wa3/problematic-fave-fans-interviews-r- kelly-morrissey-kanye. 3 John Lennon was an alleged philanderer, woman abuser, absent father, and adulterer. Lauren Oyler, You Don’t Have to ‘Imagine’ John Lennon Beat Women and Children – It’s Just a Fact, VICE (Sep. 10, 2015), https://www.vice.com/en_us/article/ypa9b5/you-dont-have-to-imagine- john-lennon-beat-women-and-childrenits-just-a-fact; Elizabeth Grice, ‘Dad was a hypocrite. He could talk about peace and love to the world but he could never show it to his wife and son’, TELEGRAPH (Apr. 1, 2015), https://www.telegraph.co.uk/culture/4713954/Dad-was-a-hypocrite.- He-could-talk-about-peace-and-love-to-the-world-but-he-could-never-show-it-to-his-wife-and- son.html; Sydney Rodosevich, We can love Lennon’s music, as long as we don’t defend his abuse, DAILY CALIFORNIAN (Nov. 13, 2017), https://www.dailycal.org/2017/11/13/john-lennon-beatles- yoko-ono-cynthia-imagine/. 4 “On a 1975 tour of Italy, Reed splattered an unsatisfactory plate of pasta against a wall during a lunch in the luxurious Ambasciatori Palace Hotel in Rome, according to the book; he later pulled a switchblade on his violin player at a party at an estate belonging the Agnelli family, the founders of Fiat. . . . The guitarist Chuck Hammer recalled a 1979 concert in Germany, in which a woman climbed onstage during a tense standoff between Reed and a heckler. ‘Lou proceeds to drag her off the stage by her hair, and pushes her off the stage,’ Mr. Hammer is quoted as saying. ‘She fell 15 feet — at least, at which stage a full-blown riot breaks out.’” Alex Williams, Who Was the Real Lou Reed?, N.Y. TIMES (Oct. 31, 2015), https://www.nytimes.com/2015/11/01/fashion/who- was-the-real-lou-reed.html. Jim Morrison, the lead singer of the Doors, allegedly exposed himself on stage during a concert and “became the object of six arrest warrants, including one for a felony charge of ‘Lewd and lascivious behavior in public by exposing his private parts and by simulating masturbation and oral copulation.’” John Burks, Jim Morrison’s Indecency Arrest: Rolling Stone’s Original Coverage, ROLLING STONE (Dec. 10, 2010), https://www.rollingstone.com/music/music- news/jim-morrisons-indecency-arrest-rolling-stones-original-coverage-250814/. s
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life is available to the public. Although this increased exposure provided celebrities a greater audience, it has also caused many of their secrets to rise to the surface. This Note explores some of the recent allegations against various artists, the public’s reaction, and the resulting implications. The question remains: to what extent should art be connected to its creator? Part I of this Note examines R. Kelly’s scandalous conduct over the last three decades, how the music industry has reacted to the artist’s conduct, and the greater issues those reactions raised for the entertainment industry as a whole.5 Part II presents a solution to the economic problem that arises when we censor art based on the artist.6 Part III delves into the metaphysical issue of when we can and should disconnect the art from the artist.7 Finally, this Note concludes that if the art embodies and perpetuates the artist’s harmful conduct, it should be protested. However, if the music in itself is not problematic, but was only created by a problematic individual, the music should exist independently. Finally, this Note explains why art should be protested if it embodies and perpetuates the artist’s harmful conduct, but should not be protested if the art is independent from the artist and is, itself, not problematic. I. SURVIVING R. KELLY In the first half of 2019, a series of documentaries aired exploring the alleged horrendous acts of two artists: R. Kelly (“Kelly”) and Michael Jackson.8 This Note will focus on Surviving R. Kelly, a Lifetime docuseries that provided an outlet for survivors of Kelly’s alleged sexual, mental, and physical abuse.9 A. Allegations, Charges, and Protests Kelly’s problematic conduct began in 1994 when he married a then fifteen- year-old Aaliyah.10 Kelly was twenty-seven at the time. In early December 2019, federal prosecutors charged Kelly with bribing a government employee to obtain a fake ID so he could marry the minor.11 Kelly was the producer of Aaliyah’s debut album, Age Ain’t Nothing But a Number, when she was only 14.12 The marriage was annulled the following year.13
5 See infra Part I. 6 See infra Part II. The structure of the entertainment industry and the laws governing it suggest there is reason to separate art from the artist. In specific situations, art should be removed from the artist and put into a trust that funnels the artist’s royalties toward his victims or a relevant charity. 7 See infra Part III. 8 Surviving R. Kelly, LIFETIME, https://www.mylifetime.com/shows/surviving-r- kelly/about (last visited Nov. 19, 2019); Leaving Neverland, HBO (2019), https://www.hbo.com/documentaries/leaving-neverland (last visited Nov. 19, 2019). 9 Surviving R. Kelly, LIFETIME, https://www.mylifetime.com/shows/surviving-r- kelly/about (last visited Nov. 19, 2019). 10 Mark Savage, R. Kelly: The history of allegations against him, BBC NEWS (Aug. 6, 2019), https://www.bbc.com/news/entertainment-arts-40635526. 11 Nicole Hong, R. Kelly Used Bribe to Marry Aaliyah When She Was 15, Charges Say, N.Y. TIMES (Dec. 5, 2019), https://www.nytimes.com/2019/12/05/nyregion/rkelly-aaliyah.html. 12 Jordan Runtagh, Aaliyah’s Age Ain’t Nothing But a Number at 25: Revisiting Its Complex Legacy Amid R. Kelly Reckoning, PEOPLE (May 24, 2019), https://people.com/music/aaliyah-age- aint-nothing-but-a-number-25-anniversary-r-kelly-relationship/. 13 Id.
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In 2002, when Kelly was at a high point in his career, Chicago police “charged [Kelly] with 21 counts of making child pornography, involving intercourse, oral sex, urination, and other sexual acts.”14 Kelly posted bail and despite the charges, “he continue[d] headlining tour stops and recording new music—even snagging six Grammy nominations.”15 It was not until 2008, after a three week trial, the court deemed Kelly not guilty.16 He left the courtroom to face screaming fans who were there to show their support.17 In 2017, Buzzfeed News released an article claiming that Kelly had a “‘cult’ of women living with and totally controlled by the singer.”18 The author of the article interviewed three women who knew Kelly, and they claimed that he “control[ed] every aspect of their lives: dictating what they eat, how they dress, when they bathe, when they sleep, and how they engage in sexual encounters that he records.”19 Two years later, Lifetime released Surviving R. Kelly,20 which has scored over twenty-six million viewers.21 The producers spoke with over 50 people “including two of Kelly's siblings, his ex-wife, former employees and mentees, journalists, psychologists and several of his accusers — in a survey of allegations against Kelly dating back to the early 1990s.”22 These allegations included: (1) hanging around high schools and picking up girls ages 14, 15, 16, or 17 while Kelly was in his twenties; and (2) taking these underaged girls back to his mansion where they were kept apart from each other and their families, “trained” not to talk at all, to ask for permission to use the bathroom or watch television, and “told to have sex with him, and each other, whenever he felt like it.”23 Jovante Cunningham, “recalls seeing [Kelly] having sex [with these] girls in the tour bus,” and stated Kelly “destroyed a lot of people, and lot of people who loved and adored him. And [she] can’t stress enough how much people are still suffering.”24 These are only a few of the numerous allegations against him.
14 Savage, supra note 10. 15 Colin Dwyer & Anastasia Tsioulcas, The Allegations Against R. Kelly: An Abridged History, NPR: MUSIC (Jan. 11, 2019), https://www.npr.org/2019/01/11/683936629/r-kelly- allegations-an-abridged-history. 16 Id. 17 Id. 18 Jim DeRogatis, Parents Told Police Their Daughter Is Being Held Against Her Will In R. Kelly’s “Cult”, BUZZFEED NEWS (July 17, 2017), https://www.buzzfeednews.com/article/jimderogatis/parents-told-police-r-kelly-is-keeping- women-in-a-cult. 19 Dwyer, supra note 15. 20 Id. 21 Lisa Respers France, ‘Surviving R. Kelly Part II’ – what we know, CNN (Dec. 12, 2019), https://www.cnn.com/2019/12/12/entertainment/surviving-r-kelly-reckoning/index.html. 22 Dwyer, supra note 15. 23 Lucy Mangan, Surviving R Kelly review – disturbing but deeply flawed, GUARDIAN (Feb. 6, 2019), https://www.theguardian.com/tv-and-radio/2019/feb/06/surviving-r-kelly-review- disturbing-but-deeply-flawed. 24 Id. At the beginning of 2020, a follow up to Surviving R. Kelly was released, which “covered the charges against singer R. Kelly, threats to the women who spoke out against him and new details about his life and relationships.” Elizabeth A. Harris, ‘Surviving R. Kelly’ Recap: the Year Everything Changed, N.Y. TIMES (Jan. 4, 2020), s
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The docuseries effectively “renewed interest in the allegations of sexual misconduct by the signer.”25 Kelly is currently in jail awaiting trial on charges including child pornography and witness tampering.26 B. Aftermath—Companies Speaking Up RCA records cut ties with R. Kelly after protesters delivered a petition with over 200,000 signatures asking for the record company to “drop” Kelly.27 Kelly will remain on the artist roster on the RCA website, and his back catalog will remain with RCA, but they will no longer produce any of his music in the future.28 Universal Music Publishing Group also “quietly dropped R. Kelly from its songwriter roster.”29 In 2018, Spotify removed “music by R. Kelly and XXXTentacion from its editorial and algorithmic playlists.”30 This move was a part of the company’s “Hate Content & Hateful Conduct policy.”31 Their music was still available on the streaming service, but Spotify no longer actively promoted it.32 A Spotify representative explained, “We don't censor content because of an artist's or creator's behavior . . . But we want our editorial decisions—what we choose to program— to reflect our values.”33 Apple Music and Pandora also quietly followed Spotify’s lead and stopped promoting Kelly’s music.34 https://www.nytimes.com/2020/01/04/arts/television/surviving-r-kelly-2.html (last updated Jan. 14, 2020). 25 France, supra note 21. 26 Spencer Kornhaber, The R. Kelly Story Is Bigger Than Most People Know, ATLANTIC (Jan. 2, 2020), https://www.theatlantic.com/entertainment/archive/2020/01/surviving-r-kelly-part- ii-lifetime-review/604345/. 27 Dwyer, supra note 15; Dan Rys & Hannah Karp, Sony, R. Kelly Agree to Part Ways: Exclusive, BILLBOARD (Jan. 18, 2019), https://www.billboard.com/articles/business/8494077/sony- r-kelly-agree-part-ways. 28 Mathew Strauss & Braudie Blais-Billie, Sony Music and RCA Part Ways With R. Kelly, PITCHFORK (Jan. 18, 2019), https://pitchfork.com/news/sony-music-and-rca-part-ways-with-r- kelly-report/. 29 Melinda Newman, Universal Music Publishing Group Dropped R. Kelly Last Spring: Exclusive, BILLBOARD (Jan. 18, 2019), https://www.billboard.com/articles/news/8494152/r-kelly- dropped-by-universal-music-publishing-group?curator=MusicREDEF. 30 Mathew Strauss, Spotify Removes R. Kelly and XXXTentacion From Its Playlists, PITCHFORK (May 10, 2018), https://pitchfork.com/news/spotify-removes-r-kelly-from-its-playlists/. 31 Id. “Hate content is content that expressly and principally promotes, advocates, or incites hatred or violence against a group or individual based on characteristics, including, race, religion, gender identity, sex, ethnicity, nationality, sexual orientation, veteran status, or disability. We do not permit hate content on Spotify. When we are alerted to content that violates this standard, we will remove it from the platform. If you believe a piece of content violates our hate content policy, complete the form here and we will carefully review it against our policy. We are also continuing to develop and implement content monitoring technology which identifies content on our service that has been flagged as hate content on specific international registers.” FAQ, SPOTIFY FOR ARTISTS, https://artists.spotify.com/faq/music#what-content-is-prohibited-on-spotify (last visited Nov. 18, 2019). 32 Strauss, supra note 28. 33 R Kelly, Spotify removes singer from playlists, BBC NEWS (May 10, 2018), https://www.bbc.com/news/newsbeat-44073801. 34 Noah Yoo, Apple Music and Pandora No Longer Promoting R. Kelly, PITCHFORK (May 11, 2018), https://pitchfork.com/news/apple-music-and-pandora-no-longer-promoting-r-kelly/. s
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This move by Spotify was met with criticism, and led to the company reversing the policy weeks later.35 Artists worried their prior mistakes would come back to haunt them, especially mistakes they made in their youth.36 In a statement, the company explained their “role is not to regulate artists,” and that is why they are “moving away from implementing a policy around artist conduct.”37 Spotify further explained that the policy was too vague and left too much open to interpretation.38 Then, at the beginning of 2019, Spotify gave the users of its service the ability to mute an artist from automatically “playing in personal and curated playlists, charts, radio stations and a user’s personal library.”39 People on Twitter have named this button “the R Kelly button.”40 Despite these efforts of regulations and protest, Kelly’s music is still “listened to by more than 5.3 million people [around the world] every month.”41 C. Protesting Art and Censorship Different countries and cultures view art in several ways.42 These differences have become even more prominent in the post #MeToo era. A recent example is the Woody Allen (“Allen”) film, A Rainy Day in New York. Amazon originally agreed to distribute the film but ended the contract after Allen’s “insensitive remarks about the #MeToo movement.”43 After Allen’s deal with Amazon ended, he struggled to find a distributor in America, and was forced to release his film in Europe, South Africa, Asia and some
35 Evan Minsker & Noah Yoo, Spotify Walks Back Controversial “Hateful Conduct” Policy, Adds XXXTentacion to Major Playlists, PITCHFORK (June 1, 2018), https://pitchfork.com/news/spotify-walks-back-controversial-hateful-conduct-policy/. 36 Amir Vera, Spotify reverses artist conduct policy weeks after removing R. Kelly and other artists from playlists, CNN (June 1, 2018), https://www.cnn.com/2018/06/01/us/spotify-r-kelly- streaming/index.html. 37 Minsker & Yoo, supra note 35; Spotify Policy Update, FOR THE RECORD (June 1, 2018), https://newsroom.spotify.com/2018-06-01/spotify-policy-update/ (last visited Nov. 18, 2019). 38 Minsker & Yoo, supra note 35. 39 Amy X. Wang, Spotify Now Lets You Mute R. Kelly Yourself, ROLLING STONE (Jan 22, 2019), https://www.rollingstone.com/music/music-news/spotify-mute-r-kelly-yourself-782268/. 40 Tom Hawking, The R Kelly conundrum: does Spotify’s new mute button go far enough?, GUARDIAN (Jan. 31, 2019), https://www.theguardian.com/music/2019/feb/01/the-r-kelly- conundrum-does-spotifys-new-mute-button-go-far-enough. 41 Id. 42 Rachel Donadio, The Disparate Reactions to a New Woody Allen Film, ATLANTIC (Sept. 24, 2019), https://www.theatlantic.com/entertainment/archive/2019/09/woody-allens-rainy-day- new-york-review-paris-premiere/598696/. 43 “What’s more, [Allen’s] name recently surfaced in connection to the financier and convicted sex offender Jeffrey Epstein. After Epstein committed suicide in federal prison last month, the business columnist James Stewart wrote in the Times that Epstein had once asked Stewart if he wanted to have dinner with him and Allen. (Allen’s publicist didn’t respond to Stewart or to my request for comment.) These reports and allegations—of older men preying on underage girls— swirled together in the media ether and the public imagination. The journalist Richard Morgan read through 56 boxes of Allen’s personal archive in a Princeton library and said the through line was Allen’s ‘vivid obsession with young women and girls.’” The Associated Press, Woody Allen and Amazon End Legal Battle, BLOOMBERG (Nov. 9, 2019), https://www.bloomberg.com/news/articles/2019-11-09/woody-allen-and-amazon-end-legal-battle. Allen has been accused of molesting his daughter when she was young, but Allen denies these allegations. Id. s
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Latin American countries.44 The Paris premiere of the film was sold out.45 Attendees interviewed could not comprehend why American theaters would not show the film.46 One critic wrote: “too bad for the Americans, who will be deprived of a small wonder of a romantic comedy.”47 The acceptance of the film in foreign markets highlights the different ways people view art through their cultural lens.48 These reactions to Surviving R. Kelly and A Rainy Day in New York raise alarming censorship concerns.49 By protesting art made by men who have abused women or engaged in other deplorable conduct, a different problem arises.50 Protesting in this way does nothing to “address systemic problems,” but instead, “it shuts down the necessary debates that lead to reform.”51 The question remains: can art exist independently of the artist, or should it be “muted” as an act of protest against the artist? II. THE ECONOMIC ISSUE A. An American Copyright Analysis The American copyright system seems to support the censorship of art, at least on its face. America has an economic emphasis focusing on the promotion of the public good.52 As the U.S. Supreme Court explained: “The economic philosophy behind the clause empowering Congress to grant patents and copyrights is the conviction that encouragement of individual effort by personal gain is the best way to advance public welfare through the talents of authors and inventors in
44 Donadio, supra note 42. 45 Id. 46 Id. 47 Id. 48 “So far, everyone’s playing to type. America—that is, Amazon—in its righteous moral stance (a stance rife with hypocrisy, though; Amazon won’t distribute A Rainy Day but still sells Allen’s DVDs and streams some of his films on Amazon Prime). France in its cult of the auteur, its ambivalence about #MeToo, its total commitment to free artistic expression, its high-minded belief that the art transcends the artist. And Allen in his tendency to produce hollow, throwback, pre- feminist-movement fantasies.” Id. 49 “I hope the #MeToo movement will end an era in which men abuse women with impunity—but I also hope that it won’t lead to artistic censorship.” Id. 50 “From the NCAC’s perspective, ‘the removal or silencing or erasure of art is never good.’ That, she said, includes the works of individuals who have sexually harassed or assaulted others, like Louis C.K., although she emphasized that the viewers’ decisions about whose art to consume and support financially is of course up to them. ‘Everyone is allowed to react to art in exactly the way they naturally do,’ she said. ‘Where we intervene is when you try to impose your reaction to a piece on others’ ability to see it.’” Stav Ziv, Has #MeToo Gone Too Far? The Case Against Censoring Art, NEWSWEEK (Dec. 6, 2017), https://www.newsweek.com/has-metoo-gone-too-far- case-against-censoring-art-736260. In a statement, PEN America explained, “We are alarmed about what seems to be a rising tendency to turn to artistic censorship as a way to express social, political, or other grievances.” Id. 51 Id. 52 “Under the United States Constitution, ‘the Congress shall have Power … to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries ….’” Jean-Luc Piotraut, An Authors’ Rights-Based Copyright Law: The Fairness and Morality of French and American Law Compared, 24 CARDOZO ARTS & ENT L.J. 548, 554 (2006).
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‘Science and useful Arts.’”53 Further, “the right conferred by copyright are designed to assure contributors to the store of knowledge a fair return for their labors.”54 Generally, the first person to fix an idea in a tangible medium has the exclusive right to the fixed art.55 The American system splits every song into two distinct copyrights: composition56 and sound recording.57 Typically, the sound recording belongs to the recording artists and the record label producing the song.58 “Recording artists” are the people that perform the song that is recorded; these may be the principal musician or musicians, or “smaller players” like the backing band or backup singers.59 The ownership of intellectual property rights is usually determined by contract before the sound recording takes place.60 The record labels often act as employers, and may be considered an author in the case of a work made for hire,61 “unless the parties have expressly agreed otherwise in a written instrument signed by them,” and will own all of the “rights comprised in the copyright.”62 It is important whether the artist is working as an employee or as an independent contractor because this distinction determines what rights are due to the artist.63 This fine line is why artists need to know their rights and have the opportunity to seek representation before signing or negotiating contracts.64
53 Mazer v. Stein, 347 U.S. 201, 219 (1954); see also Piotraut, supra note 52, at 548, 554. 54 Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539 (1985); see also Piotraut, supra note 52 at 548, 556. 55 17 U.S.C. 102(a) (2019). 56 The “composition” consists of the lyrics and melody. Amy X. Wang, How Musicians Make Money—Or Don’t at All—in 2018, ROLLING STONE (Aug. 8, 2018), https://www.rollingstone.com/music/music-features/how-musicians-make-money-or-dont-at-all- in-2018-706745/. 57 “Sound recording” is the actual audio recording of the song. Id. 58 Id. 59 Wang, supra note 39. 60 Tuneen E. Chisolm, Whose Song Is That? Searching for Equity and Inspiration for Music Vocalists Under the Copyright Act, 19 YALE J.L. & TECH. 274, 308-315 (2017). 61 “A ‘work made for hire’ is— (1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.” 17 U.S.C.S. § 101 (Lexis 2019). 62 17 U.S.C. § 201 (2018). 63 Independent Contractor v. Employee, CALCHAMBER, https://www.calchamber.com/california-labor-law/independent-contractor (last visited Dec. 31, 2019); Independent Contractor “ABC Test” May Soon Be Codified to Apply to Claims Made Under the California Labor and Unemployment Insurance Codes, With Some Exceptions, GORDON & REES SCULLY MANSUKHANI (Sept. 2019), https://www.grsm.com/publications/2019/independent- contractor-abc-test-may-soon-be-codified-to-apply-to-claims-made-under-the-california-labor- and-unemployment-insurance-codes-with-some-exceptions?noredirect=true. 64 Derek Diemer, Fighting giants: using standard form contracts to protect the industry outsider, INFO. & COMM. TECH. L. 10-11 (2019); Kate Darling, Contracting About the Future: Copyright and New Media, 10 NW. J. TECH. & INTELL. PROP. 501-02, 507-08 (2012). s
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Thus, the economic issue is that every time a song by a problematic artist is streamed, he receives royalties.65 Listening to a song by someone like R. Kelly may be seen as financially supporting him, and so it seems logical to boycott the art. B. Joint Works—Problem or Solution? Further issues arise when there are multiple contributors to a work of art. In the modern entertainment industry, it is more common that art will be a joint work.66 The production of music, movies, and television primarily require the contribution of more than one person.67 All of R. Kelly’s top-selling records were the product of many minds.68 The more people that worked to create a work of art, the less it makes sense to boycott the art to make a statement. There may be one name mainly associated with the song or album, but boycotting the art harms more than just the wrongdoer. One may argue that the other contributors should not have worked with the wrongdoer in the first place, especially after allegations become public. That is more understandable for stars like Chance the Rapper69 and Lady Gaga,70 but the music business is a business like any other, and there many other smaller players who take whatever work they can get. C. Disconnecting Art from the Artist There are situations when art may be disconnected from its original creator.71 The intellectual property rights may be sold, assigned, or licensed to
65 Rory PQ, How Music Royalties Work in the Music Industry, ICON COLLECTIVE (June 13, 2018), https://iconcollective.edu/how-music-royalties-work/. 66 A joint work is “a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.” 17 U.S.C. 101 (2019); see also Piotraut, supra note 52, at 548, 561. 67 Hundreds of people work on movies. Albums are also produced by numerous talented individuals who collect to create a single project. 68 R. Kelly’s 10 top charting albums, L.A. TIMES, https://www.latimes.com/entertainment/la-et-ms-r-kellys-top-charting-albums-photos- photogallery.html (last visited Nov. 26, 2019); R. Kelly, ALLMUSIC, https://www.allmusic.com/album/r-kelly-mw0000177221/credits (last visited Nov. 26, 2019); 12 Play, ALLMUSIC, https://www.allmusic.com/album/12-play-mw0000103763/credits (last visited Nov. 26, 2019); TP-2.com, ALLMUSIC, https://www.allmusic.com/album/tp-2com- mw0000097347/credits (last visited Nov. 26, 2019). 69 Chance the Rapper, one of the many artists who have spoken out against R. Kelly in the months since Surviving R. Kelly, explained: “At the time, it wasn’t even present in my mind that people could feel any type of way about his presence on a track of mine. . . I made a mistake and I’m happy that those women are getting voices now and I can grow to understand better what my positioning should be or should’ve been when that opportunity came.” Daniel Kreps, Chance the Rapper: ‘Making a Song With R. Kelly Was a Mistake’, ROLLING STONE (Jan. 5, 2019), https://www.rollingstone.com/music/music-news/chance-the-rapper-r-kelly-mistake-775431/. 70 Lady Gaga has also expressed remorse about working with R. Kelly. She posted a tweet explaining, “I stand behind these women [in the docuseries] 1000% percent . . . I think it’s clear how explicitly twisted my thinking was at the time.” Anastasia Tsioulcas, Lady Gaga Apologizes For R. Kelly Collaboration in Wake of Lifetime Series, NPR (Jan. 10, 2019), https://www.npr.org/2019/01/10/683900713/lady-gaga-apologizes-for-r-kelly-collaboration-in- wake-of-lifetime-series. 71 In the United States, the general rule holds the rights to art automatically go to the person that fixed the idea in a tangible medium. 17 U.S.C. 102(a) (2019). s
11 HIDING ACTUALITIES Vol. 11:2 r others.72 The intellectual property may become available for use through fair use or the public domain. Literary works may be adapted into a film more popular than its source.73 Songs may be covered by an even more popular artist who brings the work more attention.74 A song may also find a new life as a political campaign song,75 a television show theme song,76 or as the backdrop of a famous scene in a blockbuster film.77 The automatic ownership of copyright by its creator does not last forever.78 Currently, the American system has deemed 70 years after the death of the artist as the cutoff of legal ownership to the copyright. However, that is only legal ownership, as Mozart and Beethoven prove, that metaphysical association may live on for centuries after their death.79 A potential solution to the financial aspect could be if, once convicted or deemed liable, the court orders that the wrongdoer’s credit is stripped from the song or album, and their copyright in the work is transferred to a trust or charity.80 Their career would be greatly impacted, possibly ended, but it would prevent censorship
72 The Beach Boys a reworked cover of a Charles Manson song (originally titled “Cease to Exist,” and retitled “Never Learn Not to Love” by the Beach Boys). Gabrielle Bruney, Mindhunter and Once Upon a Time in Hollywood Used Real Charles Manson Songs, ESQUIRE (Aug. 25, 2019), https://www.esquire.com/entertainment/a28810125/charles-manson-music-once-upon-a-time-in- hollywood-mindhunter/. Manson allegedly sold the songwriting credit to a member of the beach boys for a one-time payment and a motorcycle. Id. 73 Drew Schwartz, Joker Used a Song by Convicted Pedophile Gary Glitter in One of Its Biggest Scenes, VICE (Oct. 7, 2019), https://www.vice.com/en_us/article/j5yb5k/joker-used-a-song- by-convicted-pedophile-gary-glitter-rock-n-roll-part-2-dancing-stairs-scene; Leah Asmelash, ‘Joker’ uses a song by convicted pedophile Gary Glitter. He’s probably making money off it, CNN (Oct. 7, 2019), https://www.cnn.com/2019/10/07/entertainment/gary-glitter-joker-movie-song- trnd/index.html; Steve Appleford, Will a convicted pedophile make a fortune from a ‘Joker’ song?, S.D. UNION TRIBUNE (Oct. 12, 2019), https://www.sandiegouniontribune.com/entertainment/music/story/2019-10-12/joker-gary-glitter- rock-and-roll-part-2. “[‘Rock and Roll Part 2’ has] consistently attracted filmmakers and TV showrunners long before ‘Joker,’ landing in ‘Meet the Fockers,’ ‘Boyhood,’ ‘South Park’ and ‘The Office.’ ‘People generally come to us,’ added the spokesman. ‘We don’t promote it at all.’” Id. 74 “Over the years, [Charles Manson’s] songs have been covered by musicians including Marilyn Manson (who took the cult leader’s infamous last name for his stage name), Guns N’ Roses, and the Brian Jonestown Massacre.” Bruney, supra note 72. 75 Shirley Halperin, Steven Tyler Demands Trump Stop Playing Aerosmith Songs At Rallies, VARIETY (Aug. 22, 2018), Https://Variety.Com/2018/Politics/News/Steven-Tyler-Aerosmith- Trump-Rally-Song-Cease-Desist-120ds2913493/. 76 Aisha Harris, This Is That Song From ‘Russian Doll’, N.Y. TIMES (Feb. 1, 2019), https://www.nytimes.com/2019/02/01/arts/television/russian-doll-netflix-harry-nilsson-gotta-get- up.html. 77 Schwartz, supra note 73; Asmelash, supra note 73; Appleford, supra note 73. 78 Applies to most works created after 1978. ART NEILL & TERI KAROBONIK, DON’T PANIC: A LEGAL GUIDE (IN PLAIN ENGLISH) FOR SMALL BUSINESSES AND CREATIVE PROFESSIONALS 14 (New Media Rights, 2d ed. 2017). If the work is owned by a corporation or another legal entity, the term of years is 95 years after creation. Id. 79 Richard Taruskin, Why Mozart Has Become an Icon for Today, N.Y. TIMES (Sept. 9, 1990), https://www.nytimes.com/1990/09/09/arts/music-why-mozart-has-become-an-icon-for- today.html; Beethoven’s Fifth: The World’s Most Famous Symphony, HOUSTON SYMPHONY (Jul. 9, 2018), https://houstonsymphony.org/beethoven-5-famous-symphony/. 80 This trust or charity would pay the royalties to the victims of the artist or use the royalties to help the victims in some way. s
12 AM. U. INTELL. PROP. BREIF Vol. 11:2 r of the existing art. The public may still enjoy the art without financially supporting the wrongdoer, and instead may support the wrongdoer’s victims. 1. Precedent for Stripping Rights or Property—Levies, Disenfranchisement, and Constructive Trusts Historically, American law has penalized negligent or intentional bad behavior by stripping individuals of their rights. The Secretary of the Treasury may place a “levy upon all property and rights to property . . . belonging to such person or on which there is a lien provided in this chapter for the payment of such tax.”81 This property does not need to be physical82 “[b]ecause intangible property is not susceptible of physical seizure, posting, or tagging, levy upon it is effected by serving the appropriate form upon the party holding the property or rights to property.”83 If the government may place a levy on an individual for not paying taxes,84 it is reasonable to place a levy on the intellectual property of artists like R. Kelly once they are officially convicted or liable. This notion has been reflected in current case precedence, where convicted criminals have been stripped of their rights. In Richardson v. Ramirez, the U.S. Supreme Court interpreted section 2 of the Fourteenth Amendment to allow states to disenfranchise85 convicted criminals.86 The Court could interpret the Fourteenth Amendment in a similar way when it comes to an artist’s right to their intellectual property. In America, “[e]veryone has the right to the use and enjoyment of his property. The law may subordinate such use and enjoyment to the interest of society.”87 These rights are not without limits because “[n]o one shall be deprived of his property except upon payment of just compensation, for reasons of public utility or social interest and in the cases and according to the forms established by law.”88
81 26 U.S.C.A. § 6331 (2015). 82 Both real estate and private property, tangible and intangible, are subject to levy. G.M. Leasing Corp. v. United States, 429 U.S. 338, 350 (1977). 83 Id. (citing See Treas. Reg. § 301.6331-1(a)(1), 26 C FR § 301. 6331-1 (a)(1) (1976)). 84 Maisano v. Welcher, 940 F.2d 499, 500-01 (9th Cir. 1991); Stone v. Commissioner, Docket No. 7277-78., 1984 Tax Ct. Memo LEXIS 483, at *22 (T.C. Apr. 16, 1984); Brian v. Gugin, 853 F. Supp. 358, 360-61 (D. Idaho 1994). 85 To be banished or stripped of full membership in a political society, and in the U.S., to lose the right to vote. Franchise (Affranchise or Enfranchisement or Disenfranchisement), WOLTERS KLUWER BOUVIER LAW DICTIONARY DESK EDITION (2012). 86 Richardson V. Ramirez, 418 U.S. 24, 54-55 (1974). Only individuals in Vermont and Maine have no restrictions on their right to vote, every other state has some form of disenfranchisement. FELONY DISENFRANCHISEMENT LAWS, AM. CIVIL LIBERTIES UNION, Https://Www.Aclu.Org/Issues/Voting-Rights/Voter-Restoration/Felony-Disenfranchisement- Laws-Map (last visited Nov. 26, 2019) (Map). 87 American Convention On Human Rights: “Pact Of San Jose, Costa Rica”, United Nations—Treaty Series (Aug. 27, 1979), Https://Treaties.Un.Org/Doc/Publication/Unts/Volume%201144/Volume-1144-I-17955- English.Pdf; Daniel Walker, Property Rights, American Constitutionalism, And International Human Rights Law, Foundation For Economic Education (Sept. 1, 1994), Https://Fee.Org/Articles/Property-Rights-American-Constitutionalism-And-International-Human- Rights-Law/. 88 Id. Daniel Walker explains, “all a government entity need do is declare that a government ‘acquisition’ of private property is done in the ‘interest of society,’ and the victimized property s
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Finally, the remedy of a Constructive Trust employed in situations where one party is unjustly enriched.89 In the context of a constructive trust, there is no trustee, instead the unjustly enriched party is ordered to transfer the property to the intended party.90 Stephen Michael Sheppard, explains it as “aris[ing] over property held by a person or entity who—in good conscience—should not keep the property.”91 Even though artists like R. Kelly are not unjustly enriched in the conventional sense,92 one may argue they should no longer profit from their art. As a remedy to the victims, the rights to that wrongdoer’s intellectual property should be transferred to a trust, similar to a constructive trust, that receives the wrongdoer’s royalties and divides it among those wronged. 2. Precedent Within the Entertainment Industry These issues also arise when filmmakers use songs by problematic artists in their films. In 2019, two popular films included songs by controversial artists.93 The first was Once Upon a Time in Hollywood, which used a song by Charles Manson.94 The filmmakers used the song because they were assured that “no one connected to Manson would receive royalties.”95 The film also does not give any credit to Manson for the use of his song.96 The Music coordinator explained that a trust exists for the victims of the Manson Family, and thus the solution put forth in this Note is already being implemented to a certain extent, and legislation needs to be implemented to make this the legal standard.97
owner is legally powerless.” Daniel Walker, Property Rights, American Constitutionalism, and International Human Rights Law, FOUNDATION FOR ECONOMIC EDUCATION (Sept. 1, 1994), https://fee.org/articles/property-rights-american-constitutionalism-and-international-human-rights- law/. 89 Constructive Trust, LEGAL INFORMATION INSTITUTE, https://www.law.cornell.edu/wex/constructive_trust (last visited Nov. 26, 2019). 90 Id. 91 Constructive Trust, WOLTERS KLUWER BOUVIER LAW DICTIONARY DESK EDITION (2012). 92 “One’s gain at another’s expense as a result of one’s unjust action. Unjust enrichment is a basis of liability that arises when one party acts in an unjust manner, in violation of a duty in law or in equity and realizes a gain of some form at the expense of another party. A party who unjustifiably retains a thing or funds that are owned by another commits unjust enrichment. Thus, a bailee who retains the bailment and refuses to return it to the bailor; a trustee who converts assets from the trust corporation to a corporation owned by the trustee; a landlord who retains a damage deposit when a tenant leaves without having damaged the property all commit unjust enrichment. Even so, unjust enrichment turns upon the specific facts of every case, and a party seeking to recover for unjust enrichment must demonstrate that the defendant has acted unjustly to the harm of the plaintiff and to the benefit of the defendant, in which case the court has an equitable power to order restitution by the defendant to the plaintiff.” Unjust Enrichment, WOLTERS KLUWER BOUVIER LAW DICTIONARY DESK EDITION (2012). 93 Appleford, supra note 73. 94 Id. 95 Id. 96 Bruney, supra note 72. 97 Id.; Chris Willman, Quentin Tarantino’s ‘Once Upon a Time… in Hollywood’: Deconstructing the Soundtrack, VARIETY (July 26, 2019), https://variety.com/2019/music/news/quentin-tarantino-music-supervisor-mary-ramos-once-upon- a-time-in-hollywood-1203281034/. s
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The other film was Joker.98 The film’s pivotal scene is set to a song by Gary Glitter, a convicted pedophile.99 Similar to Once Upon a Time in Hollywood, Glitter will not receive royalties for the use of his song in the film.100 Two decades ago, the artist sold the right to all of his music to Snapper Music.101 This situation raises another potential solution: the artist may be ordered to sell their rights to a third party, that may or may not pay out a portion to the victims of the artist. Either way, the artist will not receive any future compensation when people listen to the song or it is used in an alternate medium, solving the financial issue. D. The Solution By stripping the wrongdoer of his credit and rights to the work, only the wrongdoer is punished, there is no censorship of art, and the smaller players will still receive proper compensation and credit for their work on the song or album. This solution will achieve the goals of the American system: (1) to advance public welfare by allowing the art to still be enjoyed and contribute to the American economy;102 and (2) allow the smaller players “a fair return for their labors.”103 III. ISSUES AND OBJECTIONS—THE METAPHYSICAL ISSUE Recall a time when you heard a song on the radio for the first time. You may have been unaware of the artist or the name of the song. That is the most authentic experience with music; you experienced the song in itself without any knowledge of its creator or its creation clouding your perspective. This is how art should be perceived; authentically enjoyed for what it is, independent of the artist. Nevertheless, problems arise once that song is placed back in the perspective of reality. Once one learns the name of the artist who created the song, that name and that song will be forever linked in the individual’s memory. From then on, the individual will associate that song with that artist, perpetuating his legacy. This metaphysical association may become problematic when that artist is a convicted pedophile or rapist. It is arguable that the economic solution does not remove the art far enough from the artist. However, Jay-Z said, “The key is to change the person. And we change people through conversation, not through censorship.”104 By removing the financial aspect through a court order, the issue of censorship is removed. It allows the art to live on, economically independent of the artist. By continuing to listen to the wrongdoer’s music, we can keep his dreadful conduct in our mind instead of erasing
98 Schwartz, supra note 73; Asmelash, supra note 73; Appleford, supra note 73. 99 Appleford, supra note 73. 100 Id. 101 “In the U.S., rights to the songwriting on ‘Rock and Roll Part 2’ belong to Universal Music Publishing Group, which represents Glitter, and BMG, which represents Leander. A representative for Universal’s publishing group stated: ‘Gary Glitter’s publishing interest in the copyright of his songs is owned by UMPG and other parties, therefore UMPG does not pay him any royalties or other considerations.’” Id. 102 Mazer v. Stein, 347 U.S. 201, 219 (1954); Piotraut, supra note 52, at 548, 554. 103 Harper & Row, Publishers, Inc. v. Nation Enters., 471 U.S. 539 (1985); Piotraut, supra note 52, at 548, 556. 104 Jay-Z, Decoded: Epilogue (Excerpts), GENIUS, https://Genius.Com/Jay-Z-Decoded- Epilogue-Excerpts-Annotated (Last Visited Nov. 26, 2019).
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15 HIDING ACTUALITIES Vol. 11:2 r it from our memories. The music may start conversations and allow us to learn from the mistakes and problematic conduct of the wrongdoer. Further, the message that certain music puts forth must also be analyzed. Many of R. Kelly’s lyrics are derogatory towards women, especially when viewed within the light of his allegations. Historically, pop music has idolized underage girls.105 It is reasonable to assume that the art we consume influences our world view,106 and if young men are listening to music that portrays women as objects, they may too view women as objects.107 Art should also be censored the artist’s illicit acts influence the art.108 If the art embodies and perpetuates the artist’s harmful conduct, it should be protested. However, if the music in itself is not problematic, but was only created by a problematic individual, the music should exist independently. CONCLUSION Under the American system, it may be acceptable to disconnect the art from the artist. This theory is supported by precedents in tax law, criminal law, and property law. The solution put forth by this Note is also already at play in the entertainment industry. However, there are specific situations where music should
105 “In the first episode, the writers Ann Powers and Nelson George offer a primer on the long, twisted history of pop music’s idolization of relationships with young girls, on and off wax. Citing songs like Chuck Berry’s ‘Sweet Little Sixteen’ and the Beatles’ ‘I Saw Her Standing There’ and the romances of Jerry Lee Lewis and Elvis Presley with much younger women, they present a framework for how girls are mistreated in pop music, devolving from shameless, barely legal marriages to being viewed as a sort of prize that comes as ‘part of the life style.’ Men’s indiscretions are chalked up as the inevitable result of consensual idol worship.” Briana Younger, “Surviving R. Kelly” Reframes R. Kelly and The Songs We Once Loved, NEW YORKER (Jan. 8, 2019), https://www.newyorker.com/culture/cultural-comment/surviving-r-kelly-reframes-r-kelly-and-the- songs-we-once-loved. 106 Within Heidegger’s philosophy, perception can’t happen without your presuppositions about the world. MARTIN HEIDEGGER, BEING AND TIME 434 (1962). This is where Heidegger’s theory of “historicality” and “historizing” fit in. The thesis of historicality is the following: “Dasein factically has its ‘history’, and it can have something of the sort because the Being of this entity is constituted by historicality” Id. Historicality is defined as, “the a priori condition on the basis of which past events and things may have significance for us.” Michael Wheeler, Martin Heidegger, STANFORD ENCYCLOPEDIA OF PHILOSOPHY (Oct. 12, 2011), plato.stanford.edu/entries/Heidegger/#HisHis. 107 TASK FORCE ON THE SEXUALIZATION OF GIRLS, REPORT OF THE APA TASK FORCE ON THE SEXUALIZATION OF GIRLS, AMERICAN PSYCHOLOGICAL ASSOCIATION (2007), https://www.apa.org/pi/women/programs/girls/report-full.pdf; Jaimee Swift & Hannah Gould, Not An Object: On Sexualization and Exploitation of Women and Girls, UNICEF USA: END TRAFFICKING CAMPAIGN (Jan. 31, 2019), https://www.unicefusa.org/stories/not-object- sexualization-and-exploitation-women-and-girls/30366. 108 “Even the songs R. Kelly worked on with and for others merit a second inspection: “You Are Not Alone,” which Kelly penned for Michael Jackson, is revealed to have perhaps taken inspiration from a teen-age girlfriend (if she could even be called such) who had miscarried their child; “Age Ain’t Nothing But a Number,” the title track of Aaliyah’s début, is about as on the nose as it gets. Any suggestion that it’s possible to separate art from artist, when deployed in response to someone like Kelly and others who dole out abuse, is exposed as a sham. For R. Kelly, there can be no division between backstage behaviors and onstage performance when the trauma of these survivors—evidence of his crimes—has been pressed into his singles and sold back to us for profit.” Younger, supra note 105. s
16 AM. U. INTELL. PROP. BREIF Vol. 11:2 r be censored. If the music perpetuates or is influenced by the artist’s bad behavior, then it should be protested.
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WHY TARIFFS AGAINST CHINA ARE INEFFECTIVE FOR
INTELLECTUAL PROPERTY PROTECTION
Nan Lan *
ABSTRACT Alleged intellectual property theft is what started the “trade war,” but are tariffs truly effective for intellectual property protection? This article explores the question by analyzing the roles of tariffs in the current global economy, and categorically comparing Chinese and American intellectual property laws.
* Nan Lan is a J.D. Candidate anticipated to graduate from SMU Dedman School of Law in 2020. I would like to thank Professors David Taylor and Gregory Crespi at Southern Methodist University and Professor David Macpherson at Trinity University for their help throughout the research and writing process. I would also like to extend my gratitude to my husband for being so supportive and understanding throughout the past three years. s
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TABLE OF CONTENTS ABSTRACT ...... 17 TABLE OF CONTENTS ...... 18 INTRODUCTION ...... 19 I. Background ...... 19 A. Brief Introduction to Section 301 ...... 19 B. Comparison of the Chinese and American Intellectual Property Jurisdiction ...... 20 1. Notable International IP Treaties: Brief Overview of the Paris Convention and TRIPS ...... 20 2. Side-By-Side Comparison of Chinese And U.S. IP Law ...22 3. Administrative and Judicial Resolutions of IP Disputes in China ...... 25 4. Outlook of the Trade War ...... 28 II. Why Tariffs are Not Going to Enforce IP Protection ...... 28 A. Tariffs Are Hardly Effective, Even for Economic Purposes At Their Face Value ...... 29 B. China’s IP System Has Been Moving in The Right Direction ...... 31 C. Tariffs Fail to Address Even the Issues Addressed By Special 301 Report; The IP Argument Is Not Compelling ...... 32 D. A Categorical Analysis on Why Tariffs Do Not Effectively Address The Issues In Special 301 Report ...... 34 1. Trademark ...... 34 2. Copyright ...... 36 3. Patents ...... 38 i. Case Study—Consumer Electronics ...... 38 ii. Case Study—Pharmaceuticals ...... 42 CONCLUSION ...... 45
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INTRODUCTION The current “trade war” is a term referring to the series of tariffs imposed by the United States on China, and the subsequent retaliatory tariffs imposed by China on the U.S. starting from as early as 2016.111 Among the many reasons cited by the White House, a major one is the protection of Intellectual Property; as President Trump addressed in the 2018 State of Union:
America has also finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our Nation’s wealth. The era of economic surrender is over. From now on, we expect trading relationships to be fair and to be reciprocal. We will work to fix bad trade deals and negotiate new ones. And we will protect American workers and American intellectual property, through strong enforcement of our trade rules.112
Two months later, relying on Section 301 of the Trade Act of 1974,113 the administration started to employ numerous tariffs against China across hundreds of goods, targeting over $200 billion worth of Chinese imports.114 While the trade war provides dozens of legal, societal and political topics worth exploring, this comment focuses on why tariffs are inefficient approaches to protect American Intellectual Property. Part I will provide background on U.S. trade laws and tariffs, and a brief comparison of United States and Chinese intellectual property laws. Part II will discuss why tariffs are ineffective not only for economic purposes, but also for intellectual property protection. I. BACKGROUND A. Brief Introduction to Section 301 Section 301 of the Trade Act of 1974 authorizes the President and the United States Trade Representative (“USTR”) to “take all appropriate action, including retaliation, to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable, or discriminatory, and that burdens or restricts U.S. commerce.”115 Specifically, pursuant to Section 301, the USTR is required to go through the
111 Exec. Order No. 13,876, 82 Fed. Reg. 16,721 (2017). https://www.federalregister.gov/documents/2017/04/05/2017-06968/omnibus-report-on- significant-trade-deficits. 112 Donald Trump, President of the United States, State of the Union Address, (Jan. 30, 2018), https://www.whitehouse.gov/briefings-statements/president-donald-j-trumps-state-union-address/ (emphasis added). 113 19 U.S.C. § 2411 (2018). 114 Tariff Database, United States International Trade Commission, https://dataweb.usitc.gov/tariff/database (last visited Jan. 31, 2019); see also Bob Bryan, THE BIG ONE: Trump Slams China with Tariffs on $200 Billion Worth of Goods, Taking the Trade War to the Next Level, BUSINESS INSIDER (Sept. 17, 2018, 6:39 pm), https://www.businessinsider.com/trump-china-trade-war-tariff-chinese-goods-2018-9. 115 19 U.S.C. § 2411(d) (1975).
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20 AM. U. INTELL. PROP. BREIF Vol. 11:2 r process of identifying countries that “(A) deny adequate protection for intellectual property rights (IPR) as provided for under any of a series of bilateral and multilateral agreements; or (B) deny fair and equitable market access for U.S. persons who rely on IPR.”116 This USTR report is aptly known as “Special 301 Report” or “Special 301.”117 Countries identified under Special 301 are subjected to investigation and enforcement proceedings under other parts of Section 301.118 In March 2018, the USTR released findings of the Section 301 Investigation against China.119 The Press Release highlighted the following findings against China:
• China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies. • China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations. • China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer. • China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.120
Over 1,300 categories of Chinese imports were listed for tariffs, totaling to over US$50 Billion worth of Chinese imports.121 B. Comparison of the Chinese and American Intellectual Property Jurisdiction 1. Notable International IP Treaties: Brief Overview of the Paris Convention and TRIPS It is well established that patent rights are territorial; therefore, there is no consolidated, uniform, worldwide patent system. In most instances, an inventor must file for patent protection in each individual country he wishes to seek
116 Id. 117 Id.; see also 2018 Special 301 Report, OFFICE OF THE U.S. TRADE REP., OFFICE OF THE PRESIDENT, https://ustr.gov/sites/default/files/files/Press/Reports/2018%20Special%20301.pdf. 118 19 U.S.C. § 2411(d) (1975); see also Memorandum from the Trade Lawyers Advisory Group LLC, A Review of TRIPS and TRIMS Enforcement Issues in the People’s Republic of China: Background and Analysis of the Intellectual Property Protection and Enforcement Crisis Facing U.S. Industry (Oct. 2007). 119 OFFICE OF THE U.S. TRADE REP., OFFICE OF THE PRESIDENT, Findings of The Investigation Into China’s Acts, Policies, And Practices Related to Technology Transfer, Intellectual Property, And Innovation Under Section 301 of the Trade Act Of 1974 (2018). 120 Press Release, OFFICE OF THE U.S. TRADE REP., OFFICE OF THE PRESIDENT, USTR Finalizes Tariffs on $200 Billion of Chinese Imports in Response to China’s Unfair Trade Practices (Sept. 18, 2018), https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/september/ustr- finalizes-tariffs-200. 121 Id. s
21 AM. U. INTELL. PROP. BREIF Vol. 11:2 r protection. However, there are a handful of treaties that impact and partially consolidate international patent practices. These treaties can trace back to more than 200 years ago. In 1883, the Paris Convention was held in an attempt to negotiate conflicts between member nations’ patent laws to ensure comparable treatment.122 China and the United States are both current contracting countries.123 The Paris Convention Treaty’s provisions are commonly broken down to three major categories: national treatment, property right and common rules.124 Notably, many of the legal provisions that are commonly taken for granted were made possibly by the Paris Convention. First, Articles 2 and 3 of the Treaty provide the national treatment, namely “each Contracting State must grant the same protection to nationals of other Contracting States that it grants to its own nationals.”125 In other words, an American company applying for patent protection in China would be treated the same as if it is domiciled in China. Second, the right of priority in Article 4 provides that contracting countries agree to grant “temporary protection to patentable inventions, utility models, industrial designs, and trademarks, in respect of goods exhibited at official or officially recognized international exhibitions held in the territories of them.”126 One of the notable protections granted by the right of priority is that an inventor usually has 6 to 12 months to decide which Paris Convention member countries they wish to seek protection in, without losing the novelty or their earlier priority date when the invention was first showed to the public.127 Third, a list of common rules were laid down in the Paris Convention, the most notable being patents granted in different countries for the same invention are independent of each other—the most direct impact is, a valid U.S. patent may not be valid in China.128 Another influential, modern international treaty on patent rights is The Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”), which is one of the legal agreements between all World Trade Organization (“WTO”) countries.129 TRIPS provides minimum standards for the regulation by national governments for intellectual property protection, and members are free to elect more protections.130
122 SUMMARY OF THE PARIS CONVENTION FOR THE PROTECTION OF INDUSTRIAL PROPERTY (1883), WORLD INTELLECTUAL PROPERTY ORGANIZATION, https://www.wipo.int/treaties/en/ip/paris/summary_paris.html (last visited Jan. 31, 2020). 123 WIPO-Administered Treaties, WORLD INTELLECTUAL PROPERTY ORGANIZATION, https://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=2 (last visited Jan. 31, 2020). 124 WORLD INTELLECTUAL PROPERTY ORGANIZATION, supra 122. 125 Paris Convention for the Protection of Industrial Property, as last revised at the Stockholm Revision Conference, Mar. 20, 1883, 21 U.S.T. 1583, Art. 2-3. 126 Id., Art. 4. 127 WORLD INTELLECTUAL PROPERTY ORGANIZATION, supra 122. 128 Id. 129 Agreement on Trade-Related Aspects of Intellectual Property Rights, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 33 I.L.M. 81 [hereinafter TRIPS] (Apr. 15 1994), http://wto.org/english/docs_e/legal_e/27-trips.pdf. 130 J.H. Reichman, Universal Minimum Standards of Intellectual Property Protection Under the TRIPS Component of the WTO Agreement, 29 INT’L LAW 345 (1995). s
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Notably, TRIPS provides that WTO members must grant patents for any invention in all fields of technology without discrimination; but there are discretionary exclusions from patentable subject matter that has been carved out. For example, a member may refuse to grant patents for certain types of inventions, such as “inventions necessary to protect ordre public or morality, including the protection of human, animal or plant life or health, or to avoid serious prejudice to the environment.”131 In Part IV of this comment, the patent protection in pharmaceuticals will be highlighted to contrast the United States patent system with the rest of the world.132 Additionally, TRIPS mandates that member countries must establish civil judicial forums for the enforcement of patent rights; these adjudicatory processes must have authority to issue appropriate injunctions and to award damages.133 This is by far the biggest improvement China has made to its patent system, and one of the major defenses China has against the IP theft allegations from United States. Meanwhile, plenty of legal scholars agree that utilizing these venues, instead of declaring a trade war, is a far more appropriate way to address IP theft concerns.134 On the other hand, in Trademark Law, TRIPS requires China to recognize unregistered well-known marks, and a minimum of a five year window from the registration date during which a foreign owner may request a cancellation of the infringing mark.135 More information about the Chinese trademark law system is introduced below. 2. Side-By-Side Comparison of Chinese And U.S. IP Law After lengthy negotiations, China became a WTO country in 2001 and adopted TRIPS. Based on World Intellectual Property Organization’s (“WIPO”) statistics, China had the world’s second largest number of international applications filed through the Patent Cooperation Treaty behind only the U.S.136 In the same year, China ranked third in the number of international trademark applications.137 Patents in China are granted by the China National Intellectual Property Administration (“CNIPA”), formerly the State Intellectual Property Office (“SIPO”). There are three categories of patents: invention patents, utility model patents, and design patents, with only the invention patents being substantively examined.138 Citing to various reasons, including a shortage in patent examiners, utility model patents and design patents are only “formally examined;” such patent
131 TRIPS, supra note 129. 132 See infra Part II.E.3.ii. 133 Id. at art. 28. 134 Paul Goldstein, Intellectual Property and China: Is China Stealing America IP?, STAN. L. SCH. BLOG (Apr. 10, 2018), https://law.stanford.edu/2018/04/10/intellectual-property-china-china- stealing-american-ip/. 135 Stephanie M. Greene, Protecting Well-Known Marks in China: Challenges for Foreign Mark Holders, 45 AM. BUS. L.J. 371, 375 (2008). 136 Peter K. Yu, A Half-Century of Scholarship on the Chinese Intellectual Property System, 67 AM. U.L. REV. 1045, 1047 (citing Who Filed the Most PCT Patent Applications in 2017?, WORLD INTELLECTUAL PROP. ORG. (2018)) 137 Id. at 1048. 138 EUROPEAN PATENT OFFICE, FAQ – China, https://www.epo.org/searching-for- patents/helpful-resources/asian/china/faq.html (last visited Jan. 31, 2020). s
23 AM. U. INTELL. PROP. BREIF Vol. 11:2 r applications are usually only rejected if an examiner finds something “abnormal,” and the threshold to meet the novelty requirement is low.139 As a result, utility model patents and design patents are easier to obtain, but only enjoys 10 years of patent rights.140 In comparison, the United States has only two categories: utility patents and design patents, but both are subject to careful examination in the USPTO, and both have 20 years of validity from the date of filing, unless invalidated.141 In the U.S., registration of trademarks is not a pre-requisite to claim trademark rights, it is merely prima facie evidence to show ownership. Trademarks in China have no commercial use requirement; in other words, in China, trademarks are pure “first-to-file” rights.142 There are four requirements to a trademark in China: it must not violate certain statutory prohibitions, must be distinctive, must not conflict with a previously-filed/registered trademark, and must not be functional or utilitarian.143 Since trademarks need not be used in commerce prior to filing, “trademark-squatting” has become a real issue for a lot of foreign trademark owners in China.144 There are provisions in the Chinese trademark law that allow a “well- known” or “famous” international mark owner to challenge an aforementioned “trademark squatter’s” registration and/or use of the well-known mark. However, the process is time-consuming and expensive, and the only option is to file a cancellation proceeding with the appeal board of the CTMO.145 In fact, President Trump and Michael Jordan are among the “famous” mark owners trying to litigate their way back to their trademarks.146 On the other hand, a lot of foreign business owners file “preliminary” trademark applications in China for businesses that they are not currently running: for example, Ivanka Trump obtained 16 more Chinese trade marks in 2018 despite announcing that she will shut down her brand.147
139 Thomas T. Moga, USPTO China IP Roadshow – Portland, USPTO (Nov. 13, 2018), https://www.uspto.gov/sites/default/files/documents/11132017_Portland_RoadShow%28TomMog a%29.pdf. 140 See id. at 2. (noting that the life span of design patents might increase to 20 years once China joins the Hague Agreement). 141 2014 Manual of Patent Examining Procedure 2701 (2018); see also 35 U.S.C.A. § 154 (1952). 142 Shangbiao Fa, (中华人民共和国商标法) [hereinafter Trademark Law of China], at 7, 9 (August 30, 2013) (promulgated by the Standing Comm. Nat’l People’s Cong., Aug. 23, 1982, effective Mar. 1, 1983), https://www.wipo.int/edocs/lexdocs/laws/en/cn/cn195en.pdf. 143 Id. at 3-4. 144 Id. at 9. 145 John DiGiacomo, Trademarks in China: Some Similarities, Many Large Differences, REVISION LEGAL (Dec. 18, 2017), https://revisionlegal.com/trademarks/trademarks-in-china/. 146 Id. See generally Jeremy Venook, The Story Behind Trump’s Chinese Trademark, ATLANTIC (Feb. 22, 2017), https://www.theatlantic.com/business/archive/2017/02/trump-chinese- trademark/517458/; Merrit Kennedy, Slam Dunk: Michael Jordan Wins Trademark Dispute in China, NPR (Dec. 8, 2016, 5:08 pm), https://www.npr.org/sections/thetwo- way/2016/12/08/504851153/slam-dunk-michael-jordan-wins-trademark-dispute-in-china; Steven Jiang et al., China Grants 16 Trademarks to Defunct Ivanka Trump Business, CNN (Nov. 6, 2018, 9:07 PM). 147 Steven Jiang et al., China Grants 16 Trademarks to Defunct Ivanka Trump Business, CNN (Nov. 6, 2018), https://www.cnn.com/2018/11/06/politics/ivanka-trump-trademarks/index.html. s
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It is also worth noting that U.S. Trademark Law restricts trademarks using “name, portrait, or signature identifying a particular living individual” or head of State, as well as trademarks that are geographically descriptive or geographically deceptively misdescriptive, while the Trademark Law of China has no such restrictions.148 TRIPS mandate that in member countries, creators of contents are granted “automatic” rights.149 Copyright in China lasts for the author’s life plus fifty years.150 Similar to their U.S. equivalents, Copyright Law of the PRC and Implementing Rules for the Copyright Law of the PRC do not require a copyright owner to register their works, but registration will greatly facilitate ownership disputes and infringement disputes.151 The Chinese copyright law states that it aims to protect copyright for the purpose of “building . . . a socialist society that is advanced ethically and materially, and promoting the progress and flourishing of socialist culture and sciences.”152 In her article, Rosen points out that the overall purpose of Chinese copyright law is to advance a particular governmental agenda, unlike U.S. copyright law which stems from the U.S. Constitution’s clause to promote invention and expression.153 China’s copyright laws have been widely criticized; one of the major reasons is that, culturally, many Chinese people do not believe that copying is wrong.154 As a result, China’s Copyright Law was heavily influenced by foreign pressure, and foreign authors actually receive greater protection than Chinese citizens.155 Another widely criticized facet of the China Copyright Law is the lack of strict enforcement of copyright protection; China does not criminalize copyright infringement conducted “without the intent of gaining profit.”156 Instead the Criminal Law provides for penalties in cases where the infringer “reproduce or distribute 500 or more unauthorized copies or derive profits in excess of 50,000 yuan.”157 Meanwhile, in the U.S., the threshold for criminal punishments on infringers are much lower; the No Electronic Theft Act provides that “any person who infringes a copyright willfully either (1) for purposes of commercial advantage or private financial gain, or (2) by the reproduction or distribution, including by electronic means, during any 180-day period, of 1 or more copies or phonorecords
148 Patricia Marquez, Trademark: A Comparative Look at China and the United States, 14 TOURO INT’L L. REV. 334, 339 (2011). 149 TRIPS, supra note 18, art. 9. 150 Trademark Law of China, supra note 142, art. 22(1)-(12), 23,. 151 Id.; China: Copyright Law of the People’s Republic of China, WORLD INTELLECTUAL PROPERTY ORGANIZATION [hereinafter Copyright Law of China], http://www.wipo.int/wipolex/en/text.jsp?file_id=186569 (last updated Feb. 26, 2010). 152 Amy Rosen, China v. United States: A Cosmopolitan Copyright Comparison, 15 PITT. J. TECH. L. & POL’Y, 1, 7 (2014) (internal citation omitted). 153 Id. at 9. 154 Daniel Dimov, Differences in Copyright Enforcement Between the U.S. and China, INFOSEC INSTITUTE (Dec. 17, 2012), https://resources.infosecinstitute.com/copyright-enforcement- the-u-s-and-china/#gref. 155 Rosen, supra note 152 (citing Robert S. Rogoyski et al., The Bloody Case that Started from a Parody: American Intellectual Property and the Pursuit of Democratic Ideals in Modern China, 16 UCLA ENT. L. REV. 237, 250 (2009)). 156 Dimov, supra note 154. 157 Rosen, supra note 152. s
25 AM. U. INTELL. PROP. BREIF Vol. 11:2 r of 1 or more copyrighted works, which have a total retail value of more than $1,000.”158 3. Administrative and Judicial Resolutions of IP Disputes in China In China, Intellectual Property disputes are commonly resolved in two different systems: the administrative system or the judicial system.159 The administrative agencies overseeing patents, copyrights and trademarks are the National Intellectual Property Administration (“CNIPA,” also known as the Chinese Patent Office, or formerly SIPO),160 the National Copyright Administration (“NCA”),161 and the Trademark Office within the State Administration for Industry and Commerce of the People’s Republic of China (“SAIC”),162 respectively. One fundamental difference between Chinese and American jurisprudence should be noted: the Chinese government has wider discretion and more rights than its United States equivalent when it comes to enforcing administrative proceedings; in fact, it can impose fines, confiscate infringing products and illicit income, and destroy the infringing products.163 Section 60 of the Chinese Patent Law provides:
Where a dispute arises as a result of the exploitation of a patent without the authorization of the patentee, it shall be settled through consultation by the parties. Where the parties are not willing to consult with each other or where the consultation fails, the patentee or any interested party may institute legal proceedings in the people’s court, or request the administrative authority for patent affairs to handle the matter. When the authority handling the matter considers that infringement is established, it may order the infringer to stop the infringing act immediately. If the infringer is not satisfied with the order, he may . . . institute legal proceedings in the people’s court in accordance with the Administrative Procedure Law of the People’s Republic of China. If . . . such proceedings are not instituted and the order is not complied with, the administrative authority may approach the people’s court for compulsory execution. The authority handling the matter may, upon the request of the parties, mediate in the amount of compensation for the damage caused by the infringement of the patent right. If the
158 17 U.S.C.S. § 506 (1976). 159 Marquez, supra note 148. 160 NAT’L. INTELL. PROP. ADMIN., PRC (“CNIPA”), About CNIPA, http://english.sipo.gov.cn/ (last visited Jan. 31, 2020). 161 STATE ADMIN. FOR INDUSTRY & COMMERCE OF THE PEOPLE’S REPUBLIC OF CHINA, About Us, http://home.saic.gov.cn/english/index.html (last visited Jan. 31, 2020). 162 NAT’L COPYRIGHT ADMIN. OF THE PEOPLE’S REPUBLIC OF CHINA, About Us, http://en.ncac.gov.cn/ (last visited Jan. 31, 2020). 163 Dimov, supra note 154. s
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mediation fails, the parties may institute legal proceedings in the people’s court . . . .164
Therefore, when a patent dispute arises in China, arbitration and administrative resolutions are almost inescapable. Meanwhile, the local authorities are known for responding to the filings quickly (usually within a day), and efficiently (sometimes requesting police interference).165 A practitioner concluded that the administrative route of patent enforcement is “cheap, quick, and simple,” especially when a patentee is only looking to injunctions.166 However, very few American patentees take this route—in 2009, 895 infringement dispute cases were received by local authorities, but only 9 of such cases were instigated by U.S. patentees.167 In 2016, the administrative authorities instituted 20,351 cases—a drastic increase from 2009—but only 800 of which were filed by foreign patent owners.168 Additionally, similar to the U.S. patent system, anybody can initiate an invalidation proceeding with the Patent Reexamination Board within SIPO.169 Once a patent is deemed invalid, the result is subject to a two-instance judicial review.170 Civil courts may dismiss an infringement case once the patent involved is declared invalid, even before the judicial review has been completed, yet the patentee is not barred from filing a new infringement suit if the invalidation does not survive the judicial review.171 For administrative trademark protection, the SAIC, which oversees the China Trademark office (“CTMO”), has broad discretion once it decides enforcement is warranted: it may order injunctions of selling and manufacturing the infringing products, impose fines, and confiscate any machines used to manufacture counterfeit goods.172 Within the SAIC there is also a separate department that oversees counterfeit goods, called the Consumer Protection Bureau.173 It claims to “investigate and punish . . . irregularities such as counterfeiting, faking, and inferior goods.”174
164 Zhuanli Fa, (中华人民共和国专利法) (promulgated by the Standing Comm. Nat’l People’s Cong., Mar. 12, 1984, effective Jul. 1, 1985) section 60 [hereinafter Patent Law of China], https://www.wipo.int/edocs/lexdocs/laws/en/cn/cn028en.pdf. For a high-level summary, see Shengping Yang, Patent Enforcement in China, 4 LANDSLIDE 2 (2011). 165 Shengping Yang, Patent Enforcement in China, 4 Landslide 2 (2011), https://www.americanbar.org/content/dam/aba/publications/landslide/landslide_november_2011/y ang_landslide_novedec_2011.authcheckdam.pdf. 166 Id. 167 Id. 168 SIPO, Annual Report (2017), http://english.sipo.gov.cn/laws/annualreports/ (last visited Jan. 31, 2019). 169 Dr. Roy Schestowitz, China’s Equivalent of PTAB and BoA, the Patent Reexamination Board (PRB), Can Confirm Some Chinese Patents are of Low Quality, TECHRIGHTS (Mar. 24, 2018), http://techrights.org/2018/03/24/prb-at-sipo/. 170 Id. 171 Id. 172 Marquez, supra note 148. 173 Id. 174 Marquez, supra note 148. s
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The majority of copyright cases in China are resolved in an administrative way, and less than 5% each year are transferred to judicial authorities.175 On the judicial side, there are four levels of courts in the Chinese judiciary system: basic courts, intermediate courts, high courts and the People’s Supreme Court.176 In most areas, the basic courts are the first-instance courts of intellectual property disputes, with the exception of areas where there are intellectual property courts (“IP courts”). In 2014, China instated three IP Courts as part of its patent reform, respectively in Beijing, Shanghai, and Guangzhou. These IP Courts are first-instance courts, but the appeals to decisions in IP Courts are heard in the High Court within the province; therefore, the IP Courts have the equivocal status of an intermediate court in China.177 Contrary to popular belief, in Chinese IP courts, foreign plaintiffs in patent infringement cases have higher win rates, higher injunction rates, and higher average damages than Chinese plaintiffs.178 Although a lot of scholars and attorneys criticize the amount of damages awarded are frequently “frustratingly low,”179 after President Xi proclaimed that “China must step up efforts to punish illegal infringement of intellectual property rights and force infringers to pay a heavy price,” a pending amendment to the Patent Law proposes to increase the statutory damages from the current ￥10,000 – ￥1 Million RMB (approximately $1,500 – $150,000 USD) window to ￥100,000 – ￥5 Million RMB (approximately $15,000—$746,000 USD).180 Additionally, studies revealed that plaintiffs win 80.16% of all patent infringement cases, higher than the U.S.181 (approximately 60%).182 Permanent injunctions are automatically granted in most cases—93.76%, to be exact—upon a finding of infringement.183 Starting in January 1, 2019, an appellate IP tribunal, as a part of the Supreme People’s Court of China, will open its doors.184 It is expected to hear only appeals regarding patent and other technology-related cases, while trademark and copyright related appeals will continue to be heard in intermediate courts, specialized IP courts or high courts within different provinces.185
175 Dimov, supra note 154. 176 See generally Nongji Zhang, People’s Republic of China Legal Research, HARV. L. SCH. LIBR. (last updated Dec. 2, 2019), https://guides.library.harvard.edu/ChineseLegalResearch. 177 REINHOLD COHN LLP, CHINA’S NEW INTELLECTUAL PROPERTY COURTS (Mar. 5, 2015), https://www.rcip.co.il/en/article/chinas-new-intellectual-property-courts/. 178 Renjian Bian, How Foreign Patentees Fared in Patent Litigation in China, PATENTLYO (Feb. 6, 2018), https://patentlyo.com/patent/2018/02/things-infringement-litigation.html; see also Renjun Bian, Many Things You Know about Patent Infringement Litigation in China Are Wrong (October 1, 2017), https://ssrn.com/abstract=3063566. 179 Renjian Bian, How Foreign Patentees Fared in Patent Litigation in China, PATENTLYO (Feb. 6, 2018), https://patentlyo.com/patent/2018/02/things-infringement-litigation.html. 180 William Weightman, China’s Progress on Intellectual Property Rights (Yes, Really), DIPLOMAT (Jan. 20, 2018), https://thediplomat.com/2018/01/chinas-progress-on-intellectual- property-rights-yes-really/. 181 Id. 182 Id. 183 Id. 184 Hui Zhang, Junkun Zheng & James Yang, China to Establish a National IP Appellate Court, KLUWER PATENT BLOG (Dec. 21, 2018), http://patentblog.kluweriplaw.com/2018/12/21/china-is-to-establish-a-national-ip-appellate-court/. 185 Id. s
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1. Outlook of the Trade War With a new round of negotiations between U.S. and China on the horizon, and a new cycle of U.S. presidential election springing into action, there are a lot of uncertainty regarding the outlooks of the trade war. A number of scholars agreed that China has already improved a lot on its intellectual property laws and policies, but these systematic changes cannot be implemented over night.186 Some also believe that the “trade war” is, in reality, a “tech war,” and the trade war would only “escalate the decoupling of Chinese and United States tech sectors,” leading to China “developing its own Silicon Valley.”187 However, if Beijing is continually being criticized for local protectionism,188 a trade war that compels China to isolate itself further from global collaboration obviously only exaggerates the problem. II. WHY TARIFFS ARE NOT GOING TO ENFORCE IP PROTECTION Although the tariffs aim at protecting intellectual property, they are likely ineffective, not only on intellectual property protection grounds, but also just as a macroeconomic tool in itself. Tariffs are first-and-foremostly ineffective as there are multiple ways for Chinese business owners to get around tariffs, such as smuggling, going through a third country, or go through a number of distributors and importers to avoid paying higher amounts of tax.189 Worse yet, the Chinese government can—and did—retaliate with more tariffs.190 Second, China has responded that it is working on improving the intellectual property Law System prior to the trade war; the tariffs not only ignore such improvements, but also failed to account for the value of reverse trade deficits from Intellectual Property Licensing.191
186 Kenneth Rapoza, China Trade War Update: Does Anybody Know What’s Going On?, FORBES (Mar. 10, 2019, 5:35 PM), https://www.forbes.com/sites/kenrapoza/2019/03/10/china- trade-war-update-does-anybody-know-whats-going-on/. 187 Id. 188 William Mauldin, U.S. Commerce Secretary Slams Beijing for Protectionist Actions Under Free-Trade Rhetoric, WALL STREET J. (Jan. 24, 2018, 12:14 PM), https://www.wsj.com/articles/u- s-commerce-secretary-slams-beijing-for-protectionist-actions-under-free-trade-rhetoric- 1516814099. 189 Milton Eztrati, Trade War from the Chinese Side, WALL STREET J. (Oct. 3, 2018, 3:54 PM), https://www.forbes.com/sites/miltonezrati/2018/10/03/trade-war-from-the-chinese-side/; see also U.S. Int’l Trade Comm’n, Use of the ‘First Sale Rule’ for Customs Valuations of U.S. Imports, USITC PUBL’N 4121, https://www.usitc.gov/publications/332/pub4121.pdf. 190 Karishma Vaswami, How China is Fighting Back in the Trade War, BBC (Sept. 24, 2018), https://www.bbc.com/news/business-45622815; see also Bloomberg, China’s Retaliatory Tariffs: A Roundup of Effects on U.S. Commodities, FORTUNE (Aug. 4, 2018), http://fortune.com/2018/08/04/list-of-china-tariffs-on-us/. 191 Brad W. Setser, The Right And The Wrong Ways to Adjust the US-China Trade Balance, COUNCIL ON FOREIGN RELATIONS BLOG POST (Jun. 25, 2018), https://www.cfr.org/blog/right-and- wrong-ways-adjust-us-china-trade-balance; see also Yu Yongding, Why US Accusations of IP Theft by China Don’t Add Up, SOUTH CHINA MORNING POST (Jun. 29, 2018, 2:03 AM), https://www.scmp.com/comment/insight-opinion/united-states/article/2152860/why-us- accusations-ip-theft-china-dont-add.
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Lastly, there are more effective venues that protect American Intellectual Property overseas, but they were often ignored by the current government. Intellectual Property appropriation nowadays is far more discrete and often achieved through contract negotiations; therefore, enforcing American intellectual property Rights in Chinese courts, or undergoing the WTO’s Trade-Related Aspects of Intellectual Property Rights Process, are better resolutions than tariffs. As Goldstein—a leading patent law scholar—concludes, “addressing these [intellectual property] appropriations with trade sanctions is like performing microsurgery with a sledge hammer.”192 A. Tariffs Are Hardly Effective, Even for Economic Purposes At Their Face Value Outside of intellectual property protection, one of the biggest reasons President Trump cited for tariffs is to offset the trade deficit. Trade deficit is the difference between the value of goods and services exported and the value imported; numerous economists have pointed out that the mere existence of a trade deficit is not an indicator of an economy’s health. For example, as one scholar explains, “a trade surplus caused by a country’s inability to pay for imports is a bad thing. A trade deficit caused by the high demand for globally diverse products and services can be a healthy thing.”193 Plenty of data support the neutrality of trade deficit, and notably: (1) the current trade deficit as a percentage of the economy has not changed significantly in almost a decade; (2) the last time the U.S. had a trade surplus was to fund the Marshall Plan in Europe after World War II.194 Globalization of supply chain enables a large amount of U.S. companies to move their production processes overseas to take advantage of cheaper labor.195 The driving force behind the current trade deficit, as some economist argued, are two-fold: manufacturing of goods is overseas due to cheap labor, and buying goods is a staple of American consumerism and a major driving force of American economics. Neither of these factors, especially the first, would be impacted by the tariffs. Indeed, as the tariffs pile on, plenty of manufacturers are seeking to transfer their production outside of China to other Southeast Asian countries. Forcing manufacturers out of China does not compel them to move back to the U.S., because labor is still far cheaper in a wide array of third-world countries, such as Thailand, Vietnam, and Philippines.196
192 Goldstein, supra note 134 193 DavId.Bahnsen, Taking the Understanding Deficit Out of Trade Deficits, FORBES (Apr. 18, 2018, 05:51 PM), https://www.forbes.com/sites/davidbahnsen1/2018/04/18/taking-the- understanding-deficit-out-of-trade-deficits/#4d1727e68d6b. 194 Id. 195 See generally Roger L. Martin, Why the U.S. Trade Deficit Can Be a Sign of a Healthy Economy, HARV. BUS. REV. (July 27, 2018), https://hbr.org/2018/07/why-the-u-s-trade-deficit-can- be-a-sign-of-a-healthy-economy. Ironically, one common way to outsource is licensing intellectual property rights to an Original Equipment Manufacturer (“OEM”) to produce products that embody the IP owner’s patents or bear the IP owner’s trademarks. 196 Michelle Toh, The Trade War Is Pushing Business Out of China, But Not into America, CNN (Nov. 16, 2018, 3:31 AM), https://www.cnn.com/2018/11/16/business/trade-war-us- tariffs/index.html. s
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This economic fiasco would not be called a “trade war” if it was just one party posing tariffs on the other. China, eager for its voice to be heard on the global stage, immediately retaliated with tariffs.197 Obviously, retaliating tariffs will only decrease the amount of U.S. exports into China, thus expanding the trade deficit. The trade war—which is essentially “the trade dispute between the world’s largest economy and the world’s second-largest economy”—has started to impact not only U.S. and Chinese economy, but also global economy negatively.198 Going forward, the trade war would neither help close the gap in trade deficit nor boost American economy. Additionally, increasing tariffs drastically to retaliate or press a fellow WTO member country is against the purpose of WTO. The fundamental agreement to WTO, the General Agreement on Trade in Services (“GATS”), is a result of the Uruguay Round negotiations during 1986 – 1994.199 All members of the WTO are signatories to the GATS and have to assume the resulting obligations, regardless of their countries’ policy stances.200 The WTO cites the basic purpose of the GATS is “to contribute to trade expansion under conditions of transparency and progressive liberalization and as a means of promoting the economic growth of all trading partners and the development of developing countries.”201 As demonstrated above, a trade war consists of tariffs between the world’s largest economies is quite the opposite of the goal of GATS. Similarly, the General Agreement on Tariffs and Trade (“GATT”), which was signed in 1947, still remains effective as part of the WTO framework.202 While GATS mainly focuses on the service sector, it runs parallel with the General Agreement on Tariffs and Trade (“GATT”) for merchandise. 203 A majority of GATS—totaling at 22,500 pages—are member countries’ commitments on their tariff rates.204 Developed countries are typically bound to more tariff cuts than developing countries.205 Meanwhile, Article 21 of GATT provides that member nations may break their tariffs restrictions if done so in the defense of national security.206 Additionally, President Trump cited Section 232 of
197 INT’L TRADE ADMIN., CURRENT FOREIGN RETALIATORY ACTIONS (2018), https://www.trade.gov/mas/ian/tradedisputes-enforcement/retaliations/tg_ian_002094.asp (last visited Jan. 31, 2019). 198 Ben White, Trump Can’t Have His Tariffs and Stock Market Too, POLITICO (Dec. 19, 2018), https://www.politico.com/story/2018/12/19/trump-stock-market-tariffs-1038383. 199 WORLD TRADE ORGANIZATION, Introduction – GATS Training, https://www.wto.org/english/tratop_e/serv_e/cbt_course_e/intro1_e.htm (last visited Jan. 31, 2019). 200 Id. 201 General Agreement on Trade in Services [hereinafter GATS], Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, 1869 U.N.T.S. 183, 33 I.L.M. 1167, article 1.2 (1994). https://www.wto.org/english/tratop_e/serv_e/cbt_course_e/c1s2p1_e.htm. 202 WORLD TRADE ORGANIZATION, General Agreements on Tariffs and Trades 1994, https://www.wto.org/english/docs_e/legal_e/06-gatt_e.htm (last visited Mar. 1, 2020). [hereinafter GATT]. 203 See generally Id. 204 WORLD TRADE ORGANIZATION, Understanding the WTO: The Agreements, https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm2_e.htm (last visited Jan.31, 2019). 205 Id. 206 GATS, supra note 201, art 21. s
31 AM. U. INTELL. PROP. BREIF Vol. 11:2 r the Trade Expansion Act as a basis for the new tariffs.207 To be more specific, the Act provides legal basis for “protectionist” trade measures if the goods or trade practices in question threaten United States security.208 However, both Article 21 of GATT and Section 232 are seldom invoked.209 Legal scholars have been criticizing two facets of this statutory basis: first, whether there is actually a threat to national security; second, when the United States trade partners impose retaliating tariffs citing Article 21, it might lead to the United States quitting WTO, or create a “crisis in the WTO.”210 The tariffs are not only economically unfruitful, but also may trigger a series of catastrophic chain reactions in both international politics and international trade. C. China’s IP System Has Been Moving in The Right Direction On the other hand, China has responded that it is working on improving its intellectual property Law System.211 The implementation of patent trial courts around the country, for one, arguably puts China ahead of a lot of jurisdictions. For example, in the U.S., the only dedicated intellectual property tribunal is the Federal Circuit. The Outline of the Judicial Protection of Intellectual Property in China (2016-2020) published by the Supreme People’s Court points out that China has taken significant steps to eliminate local judicial protectionism and ensure adequate adjudication process in intellectual property cases.212 A lot of intellectual property attorneys have warned against the risks of litigation in China due to its difference from the U.S. judicial system; one of the most prominent differences is the lack of a formal discovery process.213 However, in 2015, the Supreme People’s Court produced a new interpretation of the Chinese Civil Procedure Law, which provides that one party may request that the court order the opposing party to produce specific documentary evidence under the other party’s control.214 As mentioned above, an amendment of the Patent Law is also proposing to drastically increase the amount of statutory damages awarded to patentees.215 Lastly, the high win rates and even higher injunction rates for foreign
207 19 U.S.C. § 1862 (1962). 208 Id.; see also Rachel Ansley, Are Trumps Tariffs Aimed at the WTO?, ATLANTIC COUNCIL (Mar. 6, 2018), https://www.atlanticcouncil.org/blogs/new-atlanticist/are-trump-s-tariffs-aimed-at- the-wto. 209 Rachel Ansley, Are Trumps Tariffs Aimed at the WTO?, ATLANTIC COUNCIL (Mar. 6, 2018), https://www.atlanticcouncil.org/blogs/new-atlanticist/are-trump-s-tariffs-aimed-at-the-wto. 210 Id. 211 CNIPA, WHITE PAPER RESPONDS TO U.S. ALLEGATION OF WEAK IP PROTECTION IN CHINA, http://english.sipo.gov.cn/news/officialinformation/1132635.htm. 212 Weightman, supra note 180. 213 Id.; see also Yang, supra note 165; Jason Ma, Patent Litigation in China from a Comparative Perspective, 10 U. PA. E. ASIA. L. REV. 66 (2014), https://scholarship.law.upenn.edu/ealr/vol10/iss2/6; Tom Rozylowicz et al., Patent Law Developments in the United States and China, Fish & Richardson P.C., https://www.fr.com/wp- content/uploads/2016/09/IP-Perspectives-Patent-Law-Developments-CLE-REMOVED-9.20- 2016.pdf. 214 Paul Keller et al., New Options for getting Evidence into Chinese Courts, LAW 360 (Feb. 2016), http://www.nortonrosefulbright.com/knowledge/publications/137423/new-options-for- getting-evidence-into-chinese-courts. 215 Weightman, supra note 180. s
32 AM. U. INTELL. PROP. BREIF Vol. 11:2 r patent owners litigating in China rebuts the notation that there is an inherent bias against foreign patent owners in China.216 The under-utilization of the administrative and judicial resolutions by foreign patent owners is likely the major reason behind the frequently-complained lack of enforcement in China. D. Tariffs Fail to Address Even the Issues Addressed By Special 301 Report; The IP Argument Is Not Compelling As introduced above, USTR’s Special 301 report called out the following appropriations in China:
• China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies. • China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations. • China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer. • China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.217
A majority of these accusations are very difficult to quantize or set a bright- line rule for. Every transaction has “consideration” as a major component: what one party is willing to pay in exchange for some benefits. While China uses means such as “joint venture requirements, foreign investment restrictions, administrative review and licensing processes to require or pressure technology transfer from U.S. companies,” the Chinese parties are merely bargaining to get more out of the same transaction. U.S. Companies are not without options: they can choose to accept the additional conditions and enter the Chinese market, or simply walk away. Some may argue the latter option of walking away from the world’s second biggest economy is not viable for an international company, but that is because a lot of companies cannot afford to lose a market of the size of China, not because the Chinese government is compelling a U.S. company to enter the deal. In other words, the U.S. companies willingly transfer some of their intellectual property in exchange for the entrance ticket to the Chinese market, such as distribution and marketing channels provided by the Chinese side of the transaction. While some criticize this is a form of protectionism, economic protectionism is very different from judicial protectionism—the former is legal and common practice, just like the Capital Hill gift shop that “only carries products made in the U.S.A.;” not to mention that President Trump’s government centered their entire economic policy around protectionism.218 A similar argument could be applied on the “compelled licensing” accusations in the report.
216 Bian, supra note 178. 217 Office of the U.S. Trade Rep., supra note 120. 218 Robert Z. Lawrence et al., Why Protectionism Doesn’t Pay, HARV. BUS. REV. (May 1987), https://hbr.org/1987/05/why-protectionism-doesnt-pay. s
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Indeed, if a U.S. company finds the price of intellectual property transfer too high, they can simply back out of the transaction – and some do. In a survey conducted by the US-China business council, 19% of participants said they have been directly asked to transfer technology to China, among which, only 10% responded that the technology transfer is unacceptable, but “we had to comply to do business,” 50% responded “it was unacceptable and we mitigated the request, but we still had to transfer some tech,” and 30% responded “it was acceptable and we transferred the tech.”219 The last 10%, who found the request truly unreasonable, withdrew from the transaction.220 In other words, less than 2% of members within the US-China business council who participated in the survey chose protecting their intellectual property over a chance to enter the Chinese market. If anything, the survey shows that forced technology transfer is much less common that what is commonly precepted, and most of the time it is simply a part of the bargaining process prior to entering a contract. A leading scholar in economics and policy privacy, Branstetter, suggested that instead of indiscriminate tariffs, carefully targeted sanctions on the Chinese entities are much more direct ways to address the forced technology transfer problem.221 Multilateral policy tools, such as exercising export controls with the Bureau of Industry and Security, filing Section 337 cases (instead of Section 310) under the 1930 Tariff Act in front of the United States International Trade Commission, and strengthening United States technological leadership in key domains, are also suggested as complimentary tools to the proposed sanctions.222 The Special 301 Report also criticized China’s Cybersecurity Law, that it may “require the IP rights be owned in China, that associated research and development be conducted in China, or both,” and the such requirements “may . . . force U.S. right holders to choose between protecting their IP against unwarranted disclosure . . .” There are several fallacies of this criticism. First, as discussed above, intellectual property rights are territorial and not international, and only “intellectual property rights owned in China” are enforceable in China. For example, asking Apple’s Chinese subsidiary to apply for Chinese patents makes Chinese patent protection available to Apple, both administratively and judicially; as demonstrated above, these are effective yet under-utilized avenues for foreign patent owners to defend their intellectual property rights. Second, the quid pro quo nature of intellectual property means most intellectual property is made available to the public by government entities. In other words, there is no “unwarranted disclosure” of patents – a U.S. patent or copyrighted material is made available to the public and easily accessible on the Internet. Some may argue that U.S. companies will be forced to disclose trade secret as well, but it is not a common intellectual property right, especially in the high-tech areas that the U.S. government and U.S. manufacturers are most nervous about. Additionally, there
219 US-China Business Council,2017 USCBC Member Survey, https://www.uschina.org/sites/default/files/2017_uscbc_member_survey_1.pdf. 220 Id. 221 Lee G. Branstetter, China’s Forced Transfer Problem – And What to Do About It, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS POLICY BRIEF (June 2018), https://piie.com/system/files/documents/pb18-13.pdf. 222 Id. s
34 AM. U. INTELL. PROP. BREIF Vol. 11:2 r are other ways to fence around trade secret; for example, Coca-Cola has been operating their factory through a joint venture in China since 1988, and the famous coke recipe, the most famous trade secret in the world, is still protected.223 Branstetter concludes that tariffs “would be a cure worse than the disease they are meant to remedy.”224 Similarly, Goldstein points out that addressing these discrete appropriations with trade sanctions “is like performing microsurgery with a sledgehammer.”225 To more efficiently solve these local protectionism issues, according to Goldstein, is to utilize WTO’s far better dispute resolution channels, as well as other trade alternatives such as bilateral investment treaties. 226 E. A Categorical Analysis on Why Tariffs Do Not Effectively Address The Issues In Special 301 Report In the following section, the three main categories of intellectual property— Trademarks, Copyrights and Patents—will be analyzed individually to demonstrate that the tariffs will not achieve the goals of protecting each of the intellectual property rights. 1. Trademark As discussed above, China, like a lot of civil law countries, grants trademarks on a first-to-file basis.227 Even celebrities in the U.S. have spent years fighting to reclaim the trademarks bearing their names in China. 228 Without an intention to downplay the harm to the global economy of counterfeit goods, this section aims to point out that the Special 301’s accusation of counterfeiting from Chinese manufacturers are exaggerated. The Special 301 Report cited the U.S. Customs Office and claimed that “Together with Hong Kong, through which Chinese merchandise often transships, China accounted for 78 percent of the value (measured by manufacturer’s suggested retail price (“MSRP”)) and 87 percent of the seizures by CBP in 2017 . . . counterfeits may account for over 12 percent of Chinese merchandise reports.”229 There are multiple ways to calculate the value of counterfeit goods, but measuring by the MSRP is one of the most illogical ones. To put it simply, if a counterfeit luxury purse has the same value as a genuine one—i.e. a consumer is willing to pay as much as he or she would for a genuine one—the counterfeit market would cease to exist. In a 2010 report, the government’s General Accountability Office (“GAO”) has called out the Customs and Border Protection Service (“CBP”) and Federal Bureau of Investigation (“FBI”) for providing data that “cannot be
223 Scott Cendrowski, Opening Happiness: An Oral History of Coca-Cola in China, FORTUNE (Sept. 12, 2014), http://fortune.com/2014/09/11/opening-happiness-an-oral-history-of-coca-cola- in-china/. 224 Branstetter, supra note 221. 225 Brink Editorial Staff, How Much American IP is China “Stealing”?, BRINK NEWS (Apr. 25, 2018), http://www.brinknews.com/how-much-american-ip-is-china-stealing/; see also Goldstein, supra note 134. 226 Id. 227 Trademark Law of China, supra note 142. 228 Venook, supra note 146. 229 OFFICE OF THE U.S. TRADE REP., supra note 119, at 40. s
35 AM. U. INTELL. PROP. BREIF Vol. 11:2 r substantiated.”230 The same report pointed out that two variables are crucial to the estimation of economic losses due to counterfeit goods: substitution rate and value of fake goods.231 Substitution rate is “the assumed rate at which a consumer is willing to switch from purchasing a fake good to the genuine product,” and the value can be determine by balancing the production cost, the domestic value, or the MSRP.232 Economists have called out that a one-to-one substitution rate is not likely when counterfeit goods are significantly cheaper than the legitimate goods.233 Some economists even argue that there may not be any losses associated with counterfeiting: if the consumers who buy fakes are a market segment that purchase counterfeit because of their inability to afford the genuine product, consequentially buyers in that segment do not really represent lost sales.234 The GAO 2010 Report supports this view, at least partially, by noting that the extent of deception among consumers of audiovisual products is likely lower because the sales venues for counterfeit audiovisual goods tend to be separate from the legitimate ones.235 Lastly, the GAO report concluded that unless the substitution rates and valuations of counterfeit goods are “transparently explained,” “it is difficult, if not impossible, to assess the reasonableness of the resulting estimate.”236 Additionally, attorneys who are familiar with international trademark law has recommended trademark owners to protect their intellectual property in as many ways as possible – for example, obtaining copyright registration for the artistic design element in the trademark.237 The rationale is that by registering copyright for a design mark, the owner obtains copyright protection which covers all goods and services, while trademark protection covers only limited goods and services that are applied for in the application.238 This can effectively mitigate the risk of trademark dilution litigation in a Chinese court, and the trademark registration certificate can be implemented in cease and desist letters fairly easily. As noted coherently in this comment, there are ways to protect intellectual property that is unique to China, but very few U.S. intellectual property owners utilize them. However, they are far more effective than relying on the U.S. government’s tariffs.
230 GENERAL ACCOUNTABILITY OFFICE, U.S. GENERAL ACCOUNTABILITY OFFICE, Intellectual Property: Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods, GAO-10-423 INTELLECTUAL PROPERTY: OBSERVATIONS ON EFFORTS TO QUANTIFY THE ECONOMIC EFFECTS OF COUNTERFEIT AND PIRATED GOODS 18, 19 (2010), https://www.gao.gov/new.items/d10423.pdf. [Hereinafter the GAO 2010 Report]. 231 Id. at 17. 232 Id. 233 Id.at 18. 234 P.E. CHAUDRY ET AL., PROTECTING YOUR INTELLECTUAL PROPERTY RIGHTS: UNDERSTANDING THE ROLE OF MGMT., GOV’T. CONSUMERS AND PIRATES 1110 (2013). 235 GAO 2010 Report, supra note 230. 236 Id. 237 Laura Kees, The Chinese “Super Trademarks”: A Creative Strategy for Overseas IP Protection, IP WATCHDOG (Aug. 16, 2018), https://www.ipwatchdog.com/2018/08/16/chinese- super-trademarks-creative-strategy-overseas-ip-protection/id=100167/. 238 Id. s
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2. Copyright The Section 301 Report highlights that some of the biggest intellectual property infringement issues remain in the realm of copyright, such as in “legitimate film and television programming, music, software, video games, and books and journals, including scientific, technical, and medical publications.”239 It also noted that “although China has the largest population and second largest economy in the world, it remains just the twelfth largest music market.”240 The report advanced to criticize that “China’s Foreign Investment Catalogue continued to prohibit foreign investment in the production of audiovisual products and network publication services” despite an opportunity to reform the rule, and it “continues to discriminate against foreign content, interfere with the simultaneous release of foreign content in China and other markets require SOEs to hold an ownership stake in online platforms for film and television content, and exclude or limit the participation of foreign entities.”241 Ironically, such criticism ignores the fundamentals of China’s copyright regime, and the tariffs may have made copyright enforcement much more difficult in China. The Section 301 criticism, although not unwarranted, missed a crucial piece of China’s copyright enforcement: that is driven primarily by the communist agenda. In other words, copyright enforcement remains one of the most important tools in the government’s censorship measures. In fact, the government has never tried to hide this agenda; instead, they actively promote and started the copyright law with the following language:
Article 1 – This law is enacted, in accordance with the Constitution, for the purpose of protecting the copyright of authors in their literary, artistic and scientific works and the rights and interests related to copyright, encouraging the creation and dissemination of works conducive to the building of a socialist society that is advanced ethically and materially, and promoting the progress and flourishing of socialist culture and sciences.242
As Rosen pointed out in her research, “the overall purpose of Chinese copyright law differs from the general purpose of intellectual property law in the United States . . . the Chinese government controls which works receive copyright protection based on whether or not the work promotes or advances the [aforementioned] purpose and a particular government agenda . . . [while] U.S. copyright law promotes invention and expression.”243 Therefore, copyright enforcement in China is arguably both drastically stronger and weaker than its equivalent in the United States, depending on what the material promotes, especially whether the material supports the government agenda.
239 OFFICE OF THE U.S. TRADE REP., supra note 119, at 41. 240 Id. 241 Id. at 42. 242 Rosen, supra note 152; Copyright Law of China, supra note 151, Chap. 1, Art. 1. 243 Rosen, supra note 152. s
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A report by the International Intellectual Property Alliance found that 90 percent of the DVDs distributed in China are unauthorized copies.244 One of the main reasons behind such a high piracy rate is that China only allows 34 foreign films to be released in Chinese theaters each year.245 Additionally, these movies are imported on a revenue-sharing basis for a cut of the box office, and the local distribution are handled exclusively by two state-owned companies, China Film Co. and Huaxia Distribution.246 Consequently, a lot of international blockbusters do not have an official theater release in China. To further complicate the matter, all DVDs have to undergo a lengthy censorship process in order for it to be officially released in legal channels.247 Naturally, a lot of Chinese movie fans are left with no choice but to seek out “black market” copies or illegal downloads.248 There are even grassroot online groups that translate and edit such movies and distribute them online.249 Interestingly, the Chinese authorities led by the State Administration of Radio Film and Television of China are after these groups not because of copyright infringement, but because these grassroot distributions slipped through the scrutiny of strict censorship.250 The 34 foreign movie quota is a means the Chinese government uses to promote the local entertainment industry and the communist agenda; the rationale being, if foreign movies are restricted in Chinese theaters, then locally-produced movies would have more screen time in China. As of 2011, China is the third biggest box office, trailing only behind Japan and North America.251 In 2017, box office in china has grossed at about USD $8.6 billion.252 The Chinese market is obviously lucrative, and there had been negotiations starting in 2017 between Hollywood executives and Chinese authorities to expand the quota to 50 and increase the number of local distributors in China.253 However, multiple media outlets have reported that the trade war has been suspected to cause Chinese authorities to delay the negotiations.254 Outside of economic incentives, the Chinese government has little interest to protect the copyright of movies like Captain America, because Hollywood blockbusters are not likely to further the Chinese propaganda agenda. But now that the importation of movies like Captain American could be leveraged against United States as part of the trade war, the Chinese government is even less motivated to encourage and expand the legal distribution of American movies. Being denied
244 Christopher Beam, Bootleg Nation – How Strict Are Chinese Copyright Laws?, SLATE (Oct. 22, 2009, 6:16 PM), https://slate.com/news-and-politics/2009/10/is-copyright-law-in-china- any-different-from-in-the-united-states.html. 245 Brent Lang & Patrick Frater, China Film Quota Talks Could Be a Casualty in Trump’s Trade War, VARIETY (Mar. 29, 2018, 1:37 PM), https://variety.com/2018/film/news/china-film- quota-hollywood-trump-trade-war-1202739283/. 246 Id. 247 Xiaochun Zhang, The Phenomenon of Fansubbing in China, MULTILINGUAL (Aug. 2013), http://www.academia.edu/14040280/The_Phenomenon_of_Fansubbing_in_China. 248 Id. 249 Id. 250 Id. 251 Lang, supra note 245. 252 Id. 253 Id. 254 Id. s
38 AM. U. INTELL. PROP. BREIF Vol. 11:2 r entry to the Chinese market hurts not only the box office, but also exaggerates the copyright infringement problem as Chinese movie goers have to resort to illegal copies to see some specific movies. As a result, the tariffs undoubtedly hindered the film industry’s progress to promote copyright protection of American movies and television shows in China. 3. Patents Compared to its other siblings in intellectual property, patent rights receive a lot more attention due to its relation with technology and big enterprises. One common misconception worth noting is that, although high-tech industries are often tied with national security concerns, patent rights should not be discussed under a national security framework. The reason is plain and simple—a patent is the disclosure of technology in exchange for a limited monopoly in a geographical region; therefore, every patented invention is public knowledge, and should not be confused with confident information within the realm of national security and military. To demonstrate that the trade war is not necessarily the best avenue to protect, this section will compare and contrast patent rights in two industries: consumer electronics and pharmaceuticals. These two industries are chosen because they are polar opposites when lobbying for patent reform: Silicon Valley giants, including Google, Apple, Intel and Cisco, “tend to do better when there are fewer patents to deal with,” while “big pharmas” such as GlaxoSmithKline and AbbVie constantly advocate for stronger patent protection.255 For both extremes, tariffs cannot be effective means to protect U.S. patent rights, and it is likely difficult to argue that tariffs would help with any industry that falls in between the two extremes. i. Case Study—Consumer Electronics Consumer electronics show how pointless the trade war is for multiple reasons. First of all, mainstream consumer electronic products are constantly examined under the media’s spotlight because one small device is commonly an embodiment of hundreds, if not thousands, of patents. Second, with thousands of components and an integrated global supply chain, they can be used to demonstrate how trade deficit calculations are skewed. Lastly, researches show that patent rights are not necessarily the most important driving force of research and development of consumer electronics; instead, companies innovate for what is commonly known as “first mover advantage.” To recap, a trade deficit is calculated by subtracting the value of exports from the value of imports.256 Therefore, each unit of Chinese-made product like the
255 Rana Foroohar, Big Tech vs Big Pharma: The Battle Over US Patent Protection, FIN. TIMES (Oct. 16, 2018), https://www.ft.com/content/6c5b2cca-ae8b-11e7-beba-5521c713abf4. 256 John W. Schoen, The Apple iPhone Shows That Trump is Misreading Trade Deficits and What They Mean, CNBC (Jun. 19, 2018, 12:47 PM), https://www.cnbc.com/2018/06/19/trump-is- wrong-on-tariffs-and-trade-just-look-at-his-iphone.html; see also Adam Jourdan, Designed in California, Made in China: How the iPhone Skews U.S. Trade Deficit, REUTERS (Mar. 21, 2018, 7:05 AM), https://www.reuters.com/article/us-usa-trade-china-apple/designed-in-california-made- in-china-how-the-iphone-skews-u-s-trade-deficit-idUSKBN1GX1GZ256. s
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Apple iPhone will be calculated by the cost of making each iPhone, which is estimated to be about $370 (while the retail price is usually $1,000).257 CNBC provided an anatomy of the $370 manufacturing cost: the most expensive part is the display, which comes from Samsung Electronics, and represents about $110 of the final price of the phone; another $44.45 is paid to Japan’s Toshiba and South Korea’s SK Hynix for the memory chips.258 Usually, the suppliers of the rest of the components from Japan, South Korea, Switzerland and Singapore, who are among the U.S.’s biggest trade partners.259 The value Chinese workers add by assembling the parts that come from suppliers all over the world represents only between 3 to 6 percent of the retail price of the phone, even though the full $370 was calculated towards the U.S. trade deficit with China.260 Therefore, analysts estimate that a vast majority – could be as much as 90% – of the $70 Billion U.S.-China cellphone trade deficit come from other U.S. trade partners, such as South Korea, Japan, and Singapore.261 An economist, Louis Kuijis, evaluated that if the complex nature of global supply chains like these are included in current trade deficit calculations, the U.S.–China trade deficit would be about 36% lower.262 Kuijis further explains that the trade war will cause “collateral damage” to other Asian economies, a lot of which are U.S. trade partners.263 Modern global supply chains pool together resources from different countries, each “[lends its] comparative advantage to make goods as efficiently as possible.”264 In other words, modern trade is not about “relying on cheap labor in one country” anymore; instead, it takes “many countries’ diverse skills and resources to make technology like the iPhone [economically] accessible.” 265 Targeting only one country for being the final link of a global supply chain is pointless, and the trade war’s interruption on an optimized, integrated supply chain will inevitably drive up the manufacturing costs of consumer electronics like the iPhone. The manufacturing cost of the iPhone does not include the intellectual property value Apple adds to the device, most of which are embodied in utility and design patents. With a manufacturing cost of about $400, a wholesale cost of about $800, and a MSRP of over $1,000,266 the iPhone X is easily one of the most expensive cellphones in the market, and it is doubtful that Apple would be able to raise the MSRP by a substantial amount. As explained above, the interruption of the supply chain will likely drive up the manufacturing costs of the iPhone, therefore eating into the amount Apple earns from its intellectual property in the devices, as well as the revenue of downstream distributors, wholesalers and retailers
257 Jourdan, supra note 256. 258 Schoen, supra note 256. 259 Id. 260 Id. 261 Id. 262 Jourdan, supra note 256. 263 Id. 264 Allison Schrager, The iPhone Alone Accounts for $15.7 Billion of the US Trade Deficit with China, QUARTZ (Mar. 21, 2018), https://qz.com/1234437/the-iphone-alone-accounts-for-16- billion-of-the-us-trade-deficit-with-china. 265 Id. 266 Jourdan, supra note 262. s
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– all of which are contributions to American economy from American businesses. Summarily, the tariffs, which are based on skewed calculation of trade deficit, do far more harm than good to U.S. businesses. Second, some scholars have argued that the real advantage in consumer electronics accomplished by R&D is not the limited monopoly granted by patents, but the “first mover advantage” by claiming high grounds in the market. The “development lead time,” which measures the time from the formation of an idea to the idea is fully incorporated in manufacturing, is frequently used to evaluate product development performance.267 Obviously, lead times differ widely based on the scale of the invention and the industry. A study shows that in consumer electronics, the average development lead time in North America is approximately 70.6 weeks.268 Additionally, it takes approximately 5-6 weeks for productivity to settle to normal levels in mass manufacturing in U.S. companies.269 A different study estimates about 9 – 12 years for a company to develop a “complex or novel new product” from scratch, and about 6 months for a company to develop a “straightforward new product” in an area where the company has existing experience.270 Meanwhile, the traditional total pendency time—the average number of months from the patent application filing date to the date the application has reached final decision in front of the USPTO—is 23.8 months (about 103 weeks) as of February 2019. 271 While 71 weeks does not sound drastically shorter than 103 weeks, it is worth noting that a new idea cannot be filed for patent protection right away; the inventor has to be able to develop the idea substantially to the point that the patent filing can meet the enablement requirement, i.e. a person of ordinary skill in the art must be able to reproduce the patented technology without undue experimentation.272 Therefore, it is a conservative estimation that a new invention would not be ready for patent filing until the development team is halfway through the development process. As a result, even in the best-case scenario, a patent will be issued about a year after the product has entered mass production. One year of first mover advantage is drastic in consumer electronics, where a lot of consumers are constantly looking for the newest and most cutting-edge product, and a lot of features lose their novelty in a matter of months. Specifically, Scherer pointed out in a 2015 research paper that there are several ways forms of non-patent first mover advantages enjoyed by the innovator, the ones applicable to consumer electronics are provided below:
267 Nick Oliver, Emma Dewberry & Isabelle Dostaler, Developing Consumer Electronics Products: Practice and Performance in Japan, North America and the UK, U. CAMBRIDGE WORKING PAPERS (Oct. 2000), https://www.jbs.cam.ac.uk/fileadmin/user_upload/research/workingpapers/wp0028.pdf. 268 Id. at 12. 269 Id. at 13. Please note that U.S. companies do not necessarily manufacture their products in U.S. facilities. 270 How Long Does Product Development Take?, NMG-GROUP (Feb. 11, 2015), https://nmg- group.com/2015/02/long-product-development-take/. 271 USPTO, Data Visualization Center – Patents Dashboard, https://www.uspto.gov/corda/dashboards/patents/main.dashxml?CTNAVID=1004 (last visited Mar. 9, 2019). 272 35 U.S.C. § 112 (2012). s
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For one, it takes time for would-be imitators to recognize the advantages of an innovation and quite possibly even more time to carry out their own developmental work needed to imitate successfully. In some cases, when the imitator can benefit from knowledge spillovers, that expense may be much less than the first mover’s expense, but in other cases . . . the imitator may have to speed as much and take as much time as the first mover did. . . . Third, and very importantly, the first to market a new product often engrains in the minds of consumers in an “image’ of superiority—that is, a product differentiation advantage—allowing it to retain a substantial market share while charging prices substantially higher than those realizable by latecomers. Fourth, in industries such as aircraft, semiconductors, and solar converters, unit production costs fall with additional production and hence “learning by doing.” The first mover begins progressing down its learning curve sooner than others and may therefore enjoy a substantial cost advantage over latecomers .273
A different research by Boldrin and Levine argued that first-mover advantage is preferable to patent protection as a competition strategy. They explained that:
In most industries, the first-mover advantage and the competitive rents it induces are substantial without patents. The smartphone industry—laden as it is with patent litigation—is a case in point. Apple derived enormous profits in this market before it faced any substantial competition….While it is hard to prove this delayed imitation also would have occurred in the absence of patents, intuition suggests—and our formal model in Boldrin and Levine predicts—that there is little reason to assert patent rights while the first-mover advantage is still active. Apple did not initially try to use patents to prevent the Android phones from coming into its market and the subsequent 'patents fight' has been taking pace largely after 2010; these facts are consistent with a substantial first-mover advantage.
Additionally, a 2000 study showed that over 50 percent of R&D managers indicate that first-mover advantage is more important to earning a return on innovation; outside of the pharmaceutical and medical instruments industry, less than 35% of managers indicate that patents are more important.274 As Scherer summarized in his study, patent protection is a “relatively unimportant requisite for business firms’ investments in research, development,
273 F.M. Scherer, First Mover Advantages and Optimal Patent Protection, HARV. KENNEDY SCH. FACULTY RES. WORKING PAPER SERIES, (Nov. 2014). 274 Wesley M. Cohen, Richard R. Nelson & John P. Walsh, Protecting Their Intellectual Assets: Appropriability Conditions and Why U.S. Manufacturing Firms (or Not), NBER WORKING PAPER 7552 (February 2000), http://www.nber.org/papers/w/7552. s
42 AM. U. INTELL. PROP. BREIF Vol. 11:2 r and innovation. Much more important in the average case are diverse non-patent advantages from being the first to commercialize a new product or process.”275 Needless to say, tariffs have very little to do with encourage American firms to innovate and maintain their first-mover advantage. ii. Case Study—Pharmaceuticals In stark contrast to high-tech companies, the pharmaceutical industry has always been advocating for more stringent patent rights. U.S. pharmaceutical giants are known for expanding their patent rights and padding their “patent thickets,” and patented drugs in the U.S. are shown to be the most expensive in the world.276 The U.S. patent system enables pharmaceutical companies to extend their monopolies, which is a proximate cause of the high drug prices in the U.S.277 For example, Humira, one of AbbVie’s most successful drugs, accounts for approximately 60% of AbbVie’s annual revenue in 2018.278 As a result, AbbVie has obtained over 100 patents in on treatments related to Humira, therefore successfully extending its patent protection until the 2030s.279 On the other hand, the generic bioequivalents of Humira has already hit the Europe market in 2018, largely thanks to a lawsuit filed by competitors Fujifilm Kyowa Kirin Biologics Co. and Samsung Bioepis, which successfully challenged AbbVie’s patent portfolio in England’s High Court.280 As a result of the lawsuit, Humira’s patents expired and generic versions were able to hit the market in October 2018, therefore lowering the cost of Humira by more than 50%.281 There are two types of patents associated with pharmaceutical innovation: “primary” patents that protect the drug active ingredient, and “secondary” patents that seeks to improve upon existing pharmaceuticals and their use in treating patents.282 Proponents of secondary patent protections argue that follow-on innovation are sometimes as important as the primary patents, because such innovations may present “significant improvements in the safety-efficacy profile,” create extended-release formulations which improves patient compliance, or provide orally administrable formulations of drugs that could previously only be administered by more invasive injections.283 There are obvious pitfalls to these aggressive approaches to patent protection. The most common criticism is that the
275 Scherer, supra note 273. 276 Joe Nocera, Drug-Price Transparency Won’t End the Patent Games, BLOOMBERG (Oct. 16, 2018, 1:00 PM), https://www.bloomberg.com/opinion/articles/2018-10-16/humira-patents- show-why-fda-s-drug-price-shaming-won-t-work. 277 Id. 278 ABBVIE INC., ABBVIE REPORTS FULL-YEAR AND FOURTH-QUARTER 2018 FINANCIAL RESULTS (Jan. 25, 2019), https://news.abbvie.com/news/abbvie-reports-full-year-and-fourth- quarter-2018-financial-results.htm. 279 Nocera, supra note 276. 280 Peter Loftus, Denise Roland, The Strategies AbbVie Employed to Protect Humira from Copycats, WSJ (Oct. 16, 2018, 7:00 AM), https://www.wsj.com/articles/the-strategies-abbvie- employed-to-protect-humira-from-copycats-1539687601. 281 Id. 282 Christopher M. Holman, Inside Views: Why Follow-On Pharmaceutical Innovations Should Be Eligible for Patent Protection, INTELL. PROP. WATCH (Sept. 21, 2018), http://www.ip- watch.org/2018/09/21/follow-pharmaceutical-innovations-eligible-patent-protection/. 283 Id. s
43 AM. U. INTELL. PROP. BREIF Vol. 11:2 r prolonged monopoly has forced American consumers to spend more on prescription drugs per capita, both based on value and as a fraction of GDP.284 Additionally, a comparative study of all the drugs on the market between 2005 and 2015, carried out by Robin C. Feldman, shows that drug companies “repeatedly pile new [secondary patent] protections onto each drug,” and it has become common practice in the industry to “seek and obtain repeated extensions of their [patent monopolies].”285 Feldman suggests that such practices “could be a sign of an unhealthy patent system.”286 However, some scholars argue that the high prices in the U.S. are necessary for the future of the industry; in other words, just because the U.S. is an outlier in prescription drug expenses, does not necessarily mean the U.S. patent system is at fault.287 A study from the Council of Economic Advisers (“CEA”) shows that United States pharmaceutical companies have to subsidize the astronomical sunk cost of research and development of a drug, while a lot of foreign government negotiate drug prices based on “marginal production cost” and exercise extensive price control.288 In other words, “pharmaceutical innovators—and foreign governments—across the world rely on America’s patients and taxpayers to finance critical research and development.”289 The imbalance of global patent systems is directly attributable to the patent issues in the pharmaceutical industry, regardless of whether one agrees with the patent strategies taken by the ultra-pro-patent-protection practices. In other words, the entire world could be said to be “stealing” the true value of American pharmaceutical intellectual properties.290 Dana P. Goldman pointed out two key approaches to solve such an imbalance: economically, to scrutinize foreign drug- pricing schemes and make up innovation funding shortfalls; regulatorily, to harmonize the “international patchwork of regulatory agencies and patent systems.”291 The latter opinion is widely supported in the patent law community.292 Similarly, the CEA report points out that the two goals of reducing American drug prices and stimulating innovation are consistent, and can be achieved through a
284 Dana Sarnak et al., Paying for Prescription Drugs Around the World: Why Is the U.S. an Outlier?, COMMON WEALTH FUND (Oct. 5, 2017), https://www.commonwealthfund.org/publications/issue-briefs/2017/oct/paying-prescription- drugs-around-world-why-us-outlier. 285 Robin Feldman, May Your Drug Price be Evergreen, J. L. & BIOSCIENCES (Dec. 7, 2018). 286 Id. 287 COUNCIL OF ECONOMIC ADVISERS, PERFORMING BIOPHARMACEUTICAL PRICING AT HOME AND ABROAD (2018). 288 Id. 289 Dana P. Goldman & Darius N. Lakdawalla, Opinion: This is What’s at Stake If U.S. Drug Prices Fall and Europeans Don’t Pay More, MARKETWATCH (Feb. 1, 2018, 4:23 AM), https://www.marketwatch.com/story/this-is-whats-at-stake-if-us-drug-prices-fall-and-europeans- dont-pay-more-2018-01-31/print. 290 See generally id. 291 Goldman, supra note 289; see also DANA P. GOLDMAN & DARIUS N. LAKDAWALLA, HANDBOOK OF HEALTH ECON. 825-72 (2nd ed. 2011). 292 See generally Jerome H. Reichman & Rochelle Cooper Dreyfuss, Harmonization Without Consensus: Critical Reflections on Drafting a Substantive Patent Law Treaty, 57 DUKE L.J. 85 (2007); Cynthia M. Ho, Should All Drugs Be Patentable?: A Comparative Perspective, 17 VAND. J. ENT. & TECH. L. 295 (2014-2015). s
44 AM. U. INTELL. PROP. BREIF Vol. 11:2 r combined strategy of correcting government policies that hinder price-competition at home, while at the same time limiting free-riding abroad.293 The most direct resolutions for restoring a balance in global patent systems are treaties and trade negotiations; by default, trade agreements and treaties can make other countries resonate more with the U.S. patent system by advancing trade partnerships closer to free trade.294 Tariffs might seem like good bargaining chips in trade negotiations, but they dwarf in front of values of intellectual property; a Canadian law scholar, Amir Attaran, made the following comment in regard to intellectual property and trade negotiations: “An eye for an eye won’t work when one side is small and the other is large . . . you hit us on tariffs, we hit you on patents.”295 Attaran suggested that the leverage in a successful trade negotiation is held by the party that owns less intellectual property.296 In fact, Antigua, Barbuda and Brazil have adopted similar strategies to succeed in tariff negotiations with the U.S.297 The Trans-Pacific Partnership (“TPP”) was one of the agreements that “push[ed] [U.S.] trade partners to conform to U.S. standards of [intellectual property] protection.”298 There was an entire chapter of TPP with “groundbreaking” provisions that furthered U.S. intellectual property objectives and priorities.299 The United States’ withdrawal from the TPP, consequently, was seen as a big loss for U.S. patent owners.300 This opinion is further supported by the fact that the successor to TPP, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”), suspended a significant number of intellectual property provisions in the original TPP agreement.301 Ironically, the U.S. government also proposed 25% tariffs on raw drug ingredients as well.302 The FDA estimates that up to 80% of active pharmaceutical ingredients come from India and China.303 Since generic drug makers have significantly lower profit margins, the direct result of the tariffs is increased manufacturing costs and higher prescription drug costs in the U.S.304 In conclusion, tariffs contribute very little to protecting intellectual property, even in the most pro-patent-protection pharmaceutical industry.
293 COUNCIL OF ECONOMIC ADVISORS, supra note 287 (emphasis added). 294 Kelly Crowe, Drug patents could be Canada's special weapon in U.S. trade dispute, CBC (Jun. 16, 2018 9:00 AM), https://www.cbc.ca/news/health/second-opinion-trade-dispute-canada-us- drug-patents-intellectual-property-1.4708630. 295 Id. 296 Id. 297 Id. 298 Jay Erstling, What U.S. Patent Owners Lost in Trump’s TPP Pullout, CFO (Mar. 24, 2017), http://www.cfo.com/global-business/2017/03/u-s-patent-owners-lost-trumps-tpp-pullout/. 299 Id. 300 Id. 301 WHAT DOES THE CPTPP MEAN FOR INTELLECTUAL PROPERTY?, GOVERNMENT OF CANADA, https://international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr- acc/cptpp-ptpgp/sectors-secteurs/ip-pi.aspx?lang=eng (last visited Mar. 11, 2019). 302 PHARMACEUTICAL TECHNOLOGY, IS THE BIOPHARMA INDUSTRY SAFE FROM THE US- CHINA TRADE WAR?, (Apr. 12, 2018), https://www.pharmaceutical- technology.com/comment/biopharma-industry-safe-us-china-trade-war/. 303 Id. 304 Id. s
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CONCLUSION While tariffs may be used to coerce another country into trade negotiations, they are very insufficient means for intellectual property protection. The trade war was a deviation from WTO’s principles, and ignores the fundamental policy of multiple international treaties. Worse yet, the tariffs did not even accomplish its initial goal of reducing trade deficit; in fact, the trade deficit grew 12.5% from 2017 to 2018 and hit a record high of U.S. $891.3 billion.305 The negative impact of the tariffs goes beyond merely trade deficits. Thanks to the trade war, the U.S. economy experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network, reductions in availability of imported varieties, and complete passthrough of the tariffs into domestic prices of imported goods; the total reduction in U.S. real income was estimated to be $1.4 billion per month by the end of 2018.306 The tariffs are also inefficient for protecting American intellectual property, either in trademarks, copyrights, or patent rights. “Addressing IP appropriation with trade sanctions is like performing microsurgery with a sledge hammer,” 307 as the trade war ignores the truly efficient ways to address intellectual property infringement, such as utilizing the Chinese judicial system, or undergoing the WTO’s resolution processes, encouraging American capital to invest in Chinese innovation (although ironically that would widen the trade deficit),308 or attracting Chinese businesses to license American intellectual property.309 An ideal international trade environment should be one that has similar intellectual property protections while valuing free trade;310 such a goal is reflected in the coherence and progression across intellectual property-related treaties, from the Paris Convention agreement to the most recent USMCA agreements.311 As the latest round of China-US trade negotiation ensues, there may be some positive changes on reconciling the two countries’ patent systems. In the meantime, tariffs do far more harm than good towards that goal.
305 Ana Swanson & Jim Tankersley, In Blow to Trump, America’s Trade Deficit in Goods Hits Record $891 Billion, N.Y. TIMES (Mar. 6, 2019), https://www.nytimes.com/2019/03/06/us/politics/us-trade-deficit.html. 306 Mary Amiti, Stephen J. Redding, & DavId.E. Weinstein, The Impact of the 2018 Trade War on U.S. Prices and Welfare, INT’L TRADE AND REGIONAL ECON. 1 (2019). 307 Goldstein, supra note 134. 308 Charlie Campbell, Even This Chinese CEO Who’s Benefiting From Trump’s Trade War Says It’s a Dumb Idea, TIME (Sept. 13, 2018), http://time.com/539781/nio-li-bin-electric-cars- china-trade-war/. 309 Setser, supra note 191. 310 Doyle Slifer, Intellectual Property Rights: The Last Barrier to International Free Trade, 9 ILL. BUS. L.J. 197, 198-200 (2009); see also Uniltalen Attorneys At Law, China: Fast Growth of China IP License Trade in the First Half of 2018, MONDAQ (Oct. 30, 2018), http://www.mondaq.com/china/x/749246/Trademark/Fast+Growth+of+China+IP+License+Trade +in+the+First+Half+of+2018. 311 WORLD INTELLECTUAL PROPERTY ORGANIZATION, supra note 122; see also Jennifer L. Wilkie, The USMCA: What Does It Mean For Patents And The Pharmaceutical Industry?, GOWLING WLG (Oct. 5, 2018), https://gowlingwlg.com/en/insights-resources/articles/2018/usmca- what-it-means-for-patents-and-pharmaceutical/. s