New Measures to Combat Chinese Trade Secrets Theft: Will They Work?

For trade secret owners, international IP theft is of particular concern because of the difficulty in catching and enforcing remedies against the thieves.  For many U.S. companies with a global reach, an overriding concern has been how to combat economic espionage from Chinese state-owned companies or individuals.  During his campaign, President Trump certainly had China on his mind.

While the earlier part of his administration did not focus much on Chinese trade secrets theft, President Trump recently signed an executive memo, asking the U.S. Trade Representative to determine whether to launch an investigation into China’s alleged theft of IP under Section 301 of the Trade Act of 1974.  The hope is that an investigation would help protect American companies from having to share their valuable IP with the Chinese government or companies.  Current Chinese laws require U.S. companies in many industries to form joint ventures with local Chinese firms (and thus, engage in a forced technology transfers with Chinese partners), or store certain sensitive data within Chinese borders—often leading to leaks or outright theft.  An investigation under Section 301 could lead to broad penalties, including tariffs, quotas, or other restrictions on services.  Section 301 investigations are rarely used and their impact is questionable.  The last Section 301 case was initiated in 2010 by the United Steel Workers, and focused on the solar panel and wind turbine industries—industries that China has come to dominate.

While it may take months before any action is taken under the Section 301 investigation, the suggestion of the investigation may have spurred some action on the part of the Chinese government.  Earlier this week and ahead of a visit by President Trump to Beijing, China announced a crackdown on violations of trade secrets and other IP rights.  In particular, there will be a fourth-month campaign to attack theft of foreign trade secrets and violations of patents, copyright, and trademarks as the Chinese Ministry of Commerce’s goal is to increase foreign investment.  While the Chinese government will increase fines during this campaign, this type of action may not be enough without a real sea change in IP protection policies by the Chinese government.  How that will be best managed and implemented remains to be seen.  Perhaps the upcoming visit by President Trump to Beijing will provide additional guidance for IP-owners (and the world), but that visit has yet to be set.