Intellectual Property Violations and China: Legal Remedies

Congressional research reportSep 17, 2020

Ask Donna

What actually matters in this document.

Text

Intellectual Property Violations and China:

Legal Remedies

September 17, 2020

Congressional Research Service

https://crsreports.congress.gov

R46532

SUMMARY

Intellectual Property Violations and China:

Legal Remedies

Concerns that the government of the People’s Republic of China (China) fails to protect and

enforce intellectual property (IP) rights, and thus harms U.S. IP rights holders, have been one of

the key issues in U.S.-China relations for decades. These concerns extend both to actions of

China’s government itself and state-affiliated entities, as well as to actions of Chinese persons

and entities not affiliated with the Chinese government. The primary issues raised by the U.S.

government and U.S. businesses have evolved over time, from an earlier focus on the adequacy

of Chinese domestic IP protection and enforcement (e.g., to counter piracy and counterfeiting), to

more recent concerns about cyber intrusions and strategic acquisitions.

R46532

September 17, 2020

Kevin J. Hickey,

Coordinator

Legislative Attorney

Nina M. Hart

Legislative Attorney

Brandon J. Murrill

Legislative Attorney

During the Trump Administration, the U.S. Trade Representative (USTR) investigated China’s

actions with respect to IP and concluded that a number of Chinese policies and practices violated

Kevin T. Richards

Section 301 of the Trade Act of 1974. In response, the United States initiated a World Trade

Legislative Attorney

Organization (WTO) dispute against China and imposed tariffs on billions of dollars of Chinese

imports. China responded by imposing tariffs on U.S. goods and challenging the U.S. tariffs at

the WTO. In January 2020, the United States and China reached a deal known as the “Phase One

Agreement” that addressed some of the trade and IP issues between the parties. However, major

issues—such as coerced technology transfer—were not resolved by the Phase One Agreement. Although the parties

anticipated further negotiations, the onset of the Coronavirus Disease 2019 (COVID-19) pandemic has increased tensions

between the nations and stalled progress toward a Phase Two Agreement.

Violations of IP rights by Chinese persons and entities are not a monolithic phenomenon, and general terms like “IP theft”

often obscure important distinctions that affect the legal options available to address IP violations. One such distinction is the

type of IP at issue. Different varieties of IP—such as patents, copyrights, trademarks, or trade secrets—protect different types

of intellectual creation, involve different procedures for obtaining rights, and grant the IP owner distinct rights that vary in

scope and duration. A second important distinction is the type of IP violation at issue—that is, the particular policy, practice,

or action that is alleged to undermine U.S. IP rights. Possible violations include a failure to provide adequate legal protection

for IP, a failure to enforce existing IP laws, trade secret misappropriation (including via cyber intrusion), discriminatory IP

licensing laws, coerced technology transfer as a condition of regulatory approval or market access, or bad-faith assertion of

IP rights. The legal remedies available will depend on the type of violation, the type of IP, and where the violation occurred.

Existing U.S. legal remedies for IP violations can be grouped into two broad categories. First, there are remedies for systemic

violations, which are usually initiated by the executive branch to address widespread trade or IP violations by foreign actors.

The executive branch possesses a number of constitutional and statutory authorities to protect IP rights. These include

enforcement provisions in international agreements and authority to negotiate such agreements. U.S. law also contains

several statutory provisions that allow the executive branch to investigate IP violations that affect international trade and then

impose different types of remedies, including import and export controls, suspension of trade benefits, imposition of tariffs,

and regulation or prohibition of certain transactions.

Second, there are legal remedies for individual violations—that is, discrete IP violations by a particular person or entity.

Several legal doctrines limit domestic legal remedies for violations involving foreign actors or activity, however. First, under

the presumption against extraterritoriality, U.S. law generally does not reach activity that occurred outside of the United

States unless a statute clearly indicates otherwise. Second, under the requirement of personal jurisdiction, U.S. courts may

only adjudicate disputes involving a defendant who has a sufficient connection with the forum or who has submitted to the

court’s power in some way. Presuming that U.S. law applies and any jurisdictional barriers can be overcome, possible

remedies for individual violations include civil actions for infringement; import controls by the International Trade

Commission and U.S. Customs and Border Protection agency; and criminal prosecutions for economic espionage, computer

hacking, and, in some circumstances, IP infringement.

Moving forward, Congress may consider whether these existing legal options are sufficient to deter or remedy continued

practices or future IP violations by Chinese entities.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

Contents

Intellectual Property Violations and China ...................................................................................... 5

Types of Intellectual Property ................................................................................................... 6

Basis and Rationales for IP Rights ...................................................................................... 6

Patents ................................................................................................................................. 7

Copyrights ........................................................................................................................... 8

Trademarks ......................................................................................................................... 9

Trade Secrets ...................................................................................................................... 11

Overlap and Interactions Among Different Forms of IP ................................................... 12

Forms of “IP Theft”................................................................................................................. 15

Under-Protection ............................................................................................................... 15

Infringement and Under-Enforcement .............................................................................. 17

Trade Secret Misappropriation and Cyber Intrusions ....................................................... 19

Coercive Technology Transfer .......................................................................................... 20

Discriminatory Restrictions on Contractual IP Licensing................................................. 21

Bad-Faith Assertion/Registration ...................................................................................... 22

State Sponsorship and IP Violations........................................................................................ 23

Existing Legal Remedies ............................................................................................................... 24

Systemic Violations: Foreign Affairs and Trade Remedies ..................................................... 24

TRIPS and WTO Disputes ................................................................................................ 25

Diplomacy and International Agreements......................................................................... 27

Section 301 of the Trade Act of 1974 ............................................................................... 28

Export Controls ................................................................................................................. 31

Section 232 of the Trade Expansion Act of 1962.............................................................. 32

Section 201 of the Trade Act of 1974 ............................................................................... 34

The International Emergency Economic Powers Act ....................................................... 35

Individual Violations: Civil, Criminal, and Administrative Remedies .................................... 37

Remedial Issues: Jurisdiction and Territoriality ................................................................ 37

Civil Actions ..................................................................................................................... 41

Import Controls ................................................................................................................. 47

Criminal Prosecutions ....................................................................................................... 50

Conclusion ..................................................................................................................................... 54

Tables

Table 1. Comparison of Each Form of Federal Intellectual Property Protection .......................... 14

Contacts

Author Information........................................................................................................................ 55

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

ntellectual property (IP) plays a critical role in the global economy by encouraging

innovation, creativity, and the development of new and useful technologies, as well as

facilitating international trade and investment.1 IP laws generally aim to encourage

individuals and businesses to invest time, effort, and money into developing new

technologies and creative works by providing legal protections for different forms of

intellectual creation.2 As the U.S. economy has become increasingly knowledge-based and reliant

on creativity and technological innovation as sources of competitive advantage, IP-intensive

industries have become a significant and critical part of the U.S. economy.3

Concerns that the government of the People’s Republic of China (China) fails to protect and

enforce IP rights, and thus harms U.S. IP rights holders, have been key issues in U.S.-China

relations for decades.4 These concerns extend both to actions of China’s government itself and

state-affiliated entities, as well as to actions of Chinese persons and entities unaffiliated with the

Chinese government.

The primary concerns raised by the U.S. government and American businesses have evolved over

time. In the 1990s, before China’s 2001 accession to the World Trade Organization (WTO),

China’s failure to provide basic levels of legal protection for some forms of IP was a central

concern.5 During China’s WTO accession process, its use of regulatory structures to coerce

technology transfers from U.S. businesses to Chinese entities as a condition of doing business in

China was another concern.6 In the early 2000s, China’s failure to adequately enforce its IP laws

received significant attention, leading to a 2007 WTO dispute between the United States and

China.7 Unauthorized cyber intrusions and trade secret misappropriation were—and remain—an

area of concern.8

In recent years, the United States has increasingly focused on coercive technology transfers,

strategic acquisitions, and cyber intrusions. On August 18, 2017, the U.S. Trade Representative

(USTR) initiated an investigation under Section 301 of the Trade Act of 1974 (Section 301) into

“whether acts, policies, and practices of the Government of China related to technology transfer,

1 See generally DANIEL C.K. CHOW & EDWARD LEE, INTERNATIONAL INTELLECTUAL PROPERTY 1–17 (3d ed. 2018).

2 See, e.g., Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 480 (1974) (“The patent laws promote [technological

progress] by offering a right of exclusion for a limited period as an incentive to inventors to risk the often enormous

costs in terms of time, research, and development.”); Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156

(1975) (“The immediate effect of our copyright law is to secure a fair return for an ‘author’s’ creative labor. But the

ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good.”).

3 See generally U.S. PATENT & TRADEMARK OFF., INTELLECTUAL PROPERTY AND THE U.S. ECONOMY: 2016 UPDATE

(2016), https://www.uspto.gov/sites/default/files/documents/IPandtheUSEconomySept2016.pdf; CRS Report RL34292,

Intellectual Property Rights and International Trade, by Shayerah Ilias Akhtar, Ian F. Fergusson, and Liana Wong, at

6–9.

4 See CRS Report RL33536, China-U.S. Trade Issues, at 39–54 [hereinafter CRS China-U.S. Trade Report]. Enhancing

IP protection and enforcement internationally is a long-standing and significant component of U.S. international trade

policy as a general matter. See generally Ilias Akhtar et al., supra note 3.

5 See Donald P. Harris, The Honeymoon is Over: The U.S.-China WTO Intellectual Property Complaint, 32 FORDHAM

INT’L L.J. 96, 106–08 (2008) (reviewing pre-WTO history of U.S.-China IP disputes).

6 See World Trade Organization, Report of the Working Party on the Accession of China, ¶¶ 48–49, WTO Doc.

WT/MIN(01)/3 (Nov. 10, 2001).

7 See Requests for Consultations by the United States, China—Measures Affecting the Protection and Enforcement of

Intellectual Property Rights, WTO Doc. WT/DS362/1 (Apr. 16, 2007).

8 See OFF. OF THE U.S. TRADE REPRESENTATIVE, FINDINGS OF THE INVESTIGATION INTO CHINA’S ACTS, POLICIES, AND

PRACTICE RELATED TO TECHNOLOGY TRANSFER, INTELLECTUAL PROPERTY, AND INNOVATION UNDER SECTION 301 OF THE

TRADE ACT OF 1974 (2018), at 151–54, https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF [hereinafter

SECTION 301 INVESTIGATION REPORT].

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

intellectual property, and innovation” were unreasonable or discriminatory, and burdened or

restricted U.S. commerce.9

On March 22, 2018, the USTR concluded its investigation, finding that four Chinese policies and

practices violated Section 301: (1) use of foreign ownership restrictions and administrative

licensing requirements to pressure technology transfer from U.S. companies to Chinese entities;

(2) IP licensing restrictions that discriminate against foreign entities; (3) systematic investment in

or acquisition of U.S. companies to acquire targeted technologies; and (4) unauthorized cyber

intrusions into U.S. networks to obtain IP and other confidential business information.10

In light of the USTR’s conclusions, the President issued a memorandum directing the USTR to

consider three responses: (1) increased tariffs on goods imported into the United States from

China; (2) initiation of a WTO dispute settlement process with respect to China’s discriminatory

licensing practices; and (3) executive branch actions to address concerns about Chinese inbound

investment and acquisition.11 On March 26, 2018, the United States initiated a WTO dispute

alleging that China’s discriminatory licensing practices violate its WTO commitments.12

Beginning in July 2018 and continuing through 2019, the United States imposed tariff increases

on Chinese products worth over $200 billion in several stages.13 China responded by issuing

retaliatory tariffs on U.S. goods worth over $100 billion and filing a WTO dispute challenging the

United States’ actions.14

9 Initiation of Section 301 Investigation, Hearing, and Request for Public Comments: China’s Acts, Policies, and

Practices Related to Technology Transfer, Intellectual Property, and Innovation, 82 Fed. Reg. 40,213 (Aug. 24, 2017).

The investigation followed an August 14, 2017, memorandum from the President directing the USTR to determine

whether to investigate these practices. Id. at 40,213.

10 SECTION 301 INVESTIGATION REPORT, supra note 8. For a summary of the USTR’s conclusions, see CRS Legal

Sidebar LSB10109, Tricks of the Trade: Section 301 Investigation of Chinese Intellectual Property Practices

Concludes (Part II), by Brandon J. Murrill.

11 Presidential Memorandum on the Actions by the United States Related to the Section 301 Investigation of China’s

Laws, Policies, Practices, or Actions Related to Technology Transfer, Intellectual Property, and Innovation, 2019

DAILY COMP. PRES. DOC. 1 (Mar. 22, 2018), https://www.whitehouse.gov/presidential-actions/presidentialmemorandum-actions-united-states-related-section-301-investigation/.

12 See Request for Consultations by the United States, China—Certain Measures Concerning the Protection of

Intellectual Property Rights, WTO Doc. WT/DS542/1 (Mar. 26, 2018); see infra notes 231–237 and accompanying text

(summarizing the dispute and its current status).

To address concerns about inbound foreign investment, Congress passed the Foreign Investment Risk Review

Modernization Act of 2018 (FIRRMA), which the President signed into law on August 13, 2018. See Pub L. No. 11232, tit. XVII, subtit. A, 132 Stat. 1636, 2174–2207 (2018). FIRRMA is intended to modernize the processes and

authority of the Committee on Foreign Investment in the United States (CFIUS) to review the national security effects

of certain transactions. Id. at 2175–76; Statement on Congressional Action on Legislation to Reduce the National

Security Risks Posed by Certain Types of Foreign Investment, 2018 DAILY COMP. PRES. DOC. 1 (June 27, 2018),

https://www.whitehouse.gov/briefings-statements/statement-president-regarding-investment-restrictions/ (urging

Congress to pass FIRRMA to address the foreign investment concerns raised in the Section 301 investigation).

13 See CRS In Focus IF10708, Enforcing U.S. Trade Laws: Section 301 and China [hereinafter CRS Section 301 and

China]; CRS Report R45529, Trump Administration Tariff Actions (Sections 201, 232, and 301): Frequently Asked

Questions, coordinated by Brock R. Williams, at 3.

14 See Williams et al., supra note 13, at 7; see also CRS Insight IN10971, Escalating U.S. Tariffs: Affected Trade,

coordinated by Brock R. Williams; CRS Section 301 and China, supra note 13; CRS In Focus IF10708, Enforcing U.S.

Trade Laws: Section 301 and China; CRS In Focus IF11085, China’s Retaliatory Tariffs on U.S. Agricultural

Products; Request for Consultations by China, United States—Tariff Measures on Certain Goods from China, WTO

Doc. WT/DS543/1 (Apr. 5, 2018). On September 15, 2020, a WTO panel issued a report finding that the United States

violated several WTO obligations by imposing the Section 301 tariffs. Panel Report, United States—Tariff Measures on

Certain Goods from China, WTO Doc. WT/DS543/R (Sept. 15, 2020).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

On January 15, 2020, the United States and China signed a trade deal known as the “Phase One

Agreement” intended to address issues relating to the Section 301 investigation and other trade

concerns.15 The Phase One Agreement touches on several areas in China-U.S. trade relations,

including agriculture, financial services, macroeconomic policy, currency exchange rates, and

trade purchases.16 With respect to IP, China makes several commitments in the Phase One

Agreement, agreeing to



increase enforcement against trade secret misappropriation by expanding the

scope of persons who may be sued for trade secret theft, providing broader

preliminary and criminal penalties, and addressing unauthorized disclosures

of trade secrets by Chinese regulatory authorities;17

strengthen patent protections for pharmaceuticals by creating a mechanism

for the early resolution of pharmaceutical patent disputes, and providing for

patent term extensions and adjustments based on regulatory delays in the

grant of patents or marketing approval for pharmaceutical products;18

improve procedures to counter copyright infringement online and

counterfeiting on major e-commerce platforms;19

take effective enforcement actions against counterfeit medicines and other

counterfeit goods with health and safety risks;20 and

provide for procedures to improve border enforcement actions against

counterfeit goods, such as requirements that customs and judicial authorities

generally destroy such goods.21

The Phase One Agreement did not resolve technology transfer issues—one of the central focuses

of the Section 301 investigation—leaving the matter for future negotiations.22 The Phase One

Agreement does contain general commitments by the parties not to “require or pressure”

technology transfer, but it avoids details on implementing that commitment.23

15 OFF. OF THE U.S. TRADE REPRESENTATIVE & U.S. DEP’T OF THE TREASURY, ECONOMIC TRADE AGREEMENT BETWEEN

THE UNITED STATES OF AMERICA AND THE PEOPLE’S REPUBLIC OF CHINA: PHASE ONE, Jan. 15, 2020, https://ustr.gov/

sites/default/files/files/agreements/phase%20one%20agreement/Economic_And_Trade_Agreement_Between_The_Uni

ted_States_And_China_Text.pdf [hereinafter Phase One Agreement]. For a summary of the Phase One Agreement, see

CRS Insight IN11208, U.S. Signs Phase One Trade Deal with China, by Karen M. Sutter. For an analysis of the legal

basis for the President to enter into this agreement without congressional involvement, see CRS Legal Sidebar

LSB10403, The Legal Basis for the U.S.-China “Phase One” Agreement and Implications for Implementation, by Nina

M. Hart.

16 See Phase One Agreement, supra note 15, chs. 3–6.

17 Id. arts. 1.2–1.9.

18 Id. arts. 1.10–1.23.

19 Id. arts. 1.13–1.14.

20 Id. arts. 1.18–1.19.

21 Id. arts. 1.20–1.22.

22 See David J. Lynch, Trump Signs off on Deal to Ease China Trade War, WASH. POST (Dec. 12, 2019),

https://www.washingtonpost.com/business/2019/12/12/trump-says-trade-deal-with-china-is-very-close-just-daysahead-tariff-deadline/ (“[The] so-called ‘phase one’ agreement would leave the thorniest issues in the U.S.-China trade

dispute to future negotiations[, including China’s] practice of forcing foreign companies to surrender technology

secrets in return for access to the Chinese market . . . .”).

23 Phase One Agreement, supra note 15, arts. 2.1–2.4.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

Observers have noted that many of the Phase One Agreement’s IP provisions reflect changes or

commitments that China had made before,24 or are phrased at high levels of generality without

specific timelines for implementation.25 After the Phase One Agreement was reached, however,

the United States and China agreed to attempt to deescalate their trade conflict. In February 2020,

both sides agreed to delay imposition of the next round of proposed tariff increases: the United

States agreed to reduce some tariffs it imposed in 2019, and China agreed to suspend some of its

retaliatory tariffs.26

Since the onset of the Coronavirus Disease 2019 (COVID-19) pandemic, a number of events and

issues have increased tensions between the nations. This has led to a delay of the planned sixmonth review of the Phase One Agreement27 as well as an apparent halt to further negotiations of

a Phase Two Agreement.28 Observers are uncertain whether the Phase One Agreement will prove

lasting and whether a further agreement will emerge.29 In the meantime, the United States

continues to raise concerns about IP theft by Chinese entities, including recent criminal

allegations of Chinese state-sponsored hacking of COVID-19 vaccine research.30

This report seeks to place these developments into a broader legal context by reviewing the

various legal options available to address IP violations by Chinese entities. First, it describes

various forms that “IP theft” by Chinese entities may take, depending on the form of IP at issue

(e.g., patents, copyrights, trademarks, or trade secrets) and the nature of the violation. These

24 See Sutter, supra note 15 (“China’s commitments on counterfeiting, patent and trademark, and pharmaceutical

protections reflect domestic actions China already took and similar language from earlier commitments, according to

former U.S. government negotiators.”).

25 See, e.g., Phase One Agreement, supra note 15, art. 1.34 (“Each party shall determine the appropriate method of

implementing the provisions of this Agreement within its own system and practice.”); Sutter, supra note 15 (“[The] IP

commitments appear to be more open-ended and are not linked to corresponding changes required in existing Chinese

laws, regulations, rules, practices and industrial policies.”); Ningling Wang et al., Phase 1 China Trade Deal: Patent

Provisions, FINNEGAN (Jan. 27, 2020), https://www.finnegan.com/en/insights/blogs/prosecution-first/phase-1-us-chinatrade-deal-patent-provisions.html (“The value of [the Phase One Agreement’s patent] provisions will not be known

until more details are known in terms of how [they] will be implemented . . . .”); Bill Donahue, US-China Trade Deal

Aims to Bolster IP Protection, LAW360 (Jan. 15, 2020) (“While substantively ambitious, Wednesday’s agreement is

loose on time frames for Chinese action. The deal requires an ‘action plan’ within [thirty working days] but lacks any

other hard deadlines.”).

26 Williams, Escalating U.S. Tariffs, supra note 14; Sutter, supra note 15; David Lawder et al., What’s in the US-China

Phase 1 Trade Deal, REUTERS (Jan. 15, 2020), https://www.reuters.com/article/us-usa-trade-china-details-factbox/

whats-in-the-us-china-phase-1-trade-deal-idUSKBN1ZE2IF.

27 Jenny Leonard, U.S., China Postpone Weekend Talks on Trade Deal, BLOOMBERG (Aug. 14, 2020),

https://www.bloomberg.com/news/articles/2020-08-14/u-s-china-postpone-weekend-talks-on-tradedeal?sref=iK6sCltL.

28 Grace Segers, Trump Says He’s “Not Interested” in Talking to China About Trade, CBS NEWS (July 14, 2020),

https://www.cbsnews.com/news/trump-china-trade-deal-phase-2-not-interested-talking/.

29 U.S.-China Trade Deal Is ‘Fine,’ Trump Advisor Kudlow Says, BLOOMBERG (Aug. 12, 2020),

https://www.bloomberg.com/news/articles/2020-08-12/u-s-china-trade-deal-is-fine-trump-adviser-kudlowsays?sref=iK6sCltL; Claire Reade, Commentary: Trade May Still Be the Ballast in U.S.-China Relations—At Least for

Now, CSIS (Aug. 10, 2020), https://www.csis.org/analysis/trade-may-still-be-ballast-us-china-relations-least-now;

Scott Lincicome, Trump’s China Trade Deal was Designed to Fail, CATO INST. (June 26, 2020), https://www.cato.org/

publications/commentary/trumps-china-trade-deal-was-designed-fail; Eamon Barrett, ‘Unrealistically High:’ Experts

Doubt China Can Fulfill Its Targets in ‘Phase One’ of the U.S. Trade Deal, FORTUNE (Jan. 16, 2020),

https://fortune.com/2020/01/16/us-china-trade-deal-details-purchases/.

30 Ellen Nakashima & Devlin Barrett, U.S. Accuses China of Sponsoring Criminal Hackers Targeting Coronavirus

Vaccine Research, WASH. POST (July 21, 2020), https://www.washingtonpost.com/national-security/us-china-covid-19vaccine-research/2020/07/21/8b6ca0c0-cb58-11ea-91f1-28aca4d833a0_story.html; see infra notes 499–501 and

accompanying text.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

distinctions are significant because the remedies available to the U.S. government and individual

rights holders will depend on the nature and circumstances of the IP violations. Second, the report

reviews the scope and requirements of the legal remedies available under U.S. and international

laws. These remedies fall into two broad categories: (1) remedies for systemic IP violations,

which are initiated by the U.S. executive branch to target widespread IP violations by foreign

actors by relying on trade or international law; and (2) remedies for individual IP violations,

which seek to redress discrete IP violations by particular entities by relying on domestic civil,

administrative, and criminal processes.

Intellectual Property Violations and China

Although news reports and U.S. entities often accuse China of “stealing IP,”31 this general usage

conflates both different types of IP and different types of IP violations. For example, in several

reports,32 the USTR has found that Chinese corporations, individuals, and its government

(collectively, Chinese entities), have, among other things,



used legal and regulatory requirements, such as foreign ownership

restrictions and administrative approval processes, to require or pressure

technology transfer from U.S. companies seeking to do business in China;33

imposed discriminatory technology licensing restrictions that impair U.S.

companies’ ability to negotiate fair, market-based terms when they seek to

license IP or transfer technology to Chinese companies;34

conducted and supported unauthorized intrusions into U.S. computer

networks to acquire valuable confidential business and technical

information,35 as well as misappropriating such confidential information

through other means;36

manufactured, marketed, and exported counterfeit trademarked goods;37 and

permitted and facilitated online piracy of copyrighted music, television,

movies, and other creative works.38

31 See, e.g., Erik Sherman, One in Five U.S. Companies Say China Has Stolen Their Intellectual Property, FORTUNE,

(Mar. 1, 2019), https://fortune.com/2019/03/01/china-ip-theft/; Grant Clark, What Is Intellectual Property, and Does

China Steal It?, WASH. POST (Jan. 21, 2019), https://www.washingtonpost.com/business/what-isintellectual-propertyanddoes-china-steal-it/2019/01/21/180c3a9e-1d64-11e9-a759-2b8541bbbe20_story.html; Robert Boxwell, How

China’s Rampant Intellectual Property Theft, Long Overlooked by U.S., Sparked Trade War, SOUTH CHINA MORNING

POST MAG. (Oct. 28, 2018), https://www.scmp.com/magazines/post-magazine/long-reads/article/2170132/how-chinasrampant-intellectual-property-theft.

32 See, e.g., OFF. OF THE U.S. TRADE REPRESENTATIVE, 2019 SPECIAL 301 REPORT (2019), https://ustr.gov/sites/default/

files/2019_Special_301_Report.pdf [hereinafter 2019 SPECIAL 301 REPORT]; SECTION 301 INVESTIGATION REPORT,

supra note 8; OFF. OF THE U.S. TRADE REPRESENTATIVE, 2017 REPORT TO CONGRESS ON CHINA’S WTO COMPLIANCE

(2018), https://ustr.gov/sites/default/files/files/Press/Reports/China%202017%20WTO%20Report.pdf [hereinafter 2017

CHINA WTO COMPLIANCE REPORT].

33 SECTION 301 INVESTIGATION REPORT, supra note 8, at 19–43; 2019 SPECIAL 301 REPORT, supra note 32, at 17, 46–47.

34 SECTION 301 INVESTIGATION REPORT, supra note 8, at 48–61.

35 Id. at 153–76; 2019 SPECIAL 301 REPORT, supra note 32, at 18, 46.

36 2019 SPECIAL 301 REPORT, supra note 32, at 18, 40; 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 16–17,

115.

37 2019 SPECIAL 301 REPORT, supra note 32, at 24–26, 42–43; 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at

116–17.

38 2019 SPECIAL 301 REPORT, supra note 32, at 21–22, 44; 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 18,

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

IP violations by Chinese entities are thus not a monolithic phenomenon, and general terms like

“IP theft” often obscure important legal distinctions. Different actions by Chinese entities

implicate distinct IP or trade laws, which affects the various legal remedies that may be available.

To better understand these distinctions, this section presents a taxonomy of IP violations along

two dimensions: (1) the particular type of IP at issue, and (2) the type of violation—that is, what

is meant by “theft.” It also briefly notes a third distinction—the degree to which the IP violation

is committed by the Chinese government or state-affiliated entities (or with their support), or

instead by Chinese individuals or entities not affiliated with the Chinese government.

Types of Intellectual Property

IP law comprises a set of legal rights to exclude others from making, copying, misappropriating,

selling, disclosing, or using certain intangible creations of the human mind.39 There is no

universally accepted definition of what qualifies as “intellectual property.” Sometimes, IP is used

as an umbrella term to refer, at least primarily, to three distinct forms of legal protection: patents,

copyrights, and trademarks.40 Other times, IP is used more broadly to include related areas of law,

including trade secrets, rights of publicity, misappropriation, and moral rights, as well as narrower

legal regimes protecting plant varieties, industrial design, circuit design, geographical indications,

and the like.41

Based on their primarily federal nature and commercial importance, this report focuses on four

types of IP: patents, copyrights, trademarks, and trade secrets. Each of these forms of IP protects

a different type of intellectual creation, involves different procedures for obtaining rights, and

grants the IP owner distinct rights that vary in scope and duration. After a brief discussion of the

purposes and rationales for IP, this section overviews these four major forms of IP protection.

Basis and Rationales for IP Rights

Federal IP laws are legally grounded in one of two constitutional provisions. First, the U.S.

Constitution’s IP Clause provides Congress with the power “[t]o 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.”42 The IP Clause provides the constitutional basis for

U.S. patent and copyright law.43 Under the IP Clause, patents and copyrights are intended to

115–16.

39 See Intellectual Property, BLACK’S LAW DICTIONARY (11th ed. 2019) (defining IP as a “category of intangible rights

protecting commercially valuable products of the human intellect”).

40 See, e.g., id. (“[IP] comprises primarily trademark, copyright, and patent rights, but also includes trade-secret rights,

publicity rights, moral rights, and rights against unfair competition.”); JAMES BOYLE & JENNIFER JENKINS,

INTELLECTUAL PROPERTY: LAW & THE INFORMATION SOCIETY ix (4th ed. 2018) (defining IP as “the set of private legal

rights that allows individuals and corporations to control intangible creations and marks” and stating that trademarks,

copyrights, and patents are “the three main forms of US federal intellectual property”).

41 See, e.g., TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh

Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299, 301 (1994) [hereinafter TRIPS]

(defining IP for purposes of the Agreement as comprising patents, copyrights, trademarks, geographical indications,

industrial design protections, trade secrets, and integrated circuit design protection); Rochelle C. Dreyfuss & Justine

Pila, Intellectual Property Law: An Anatomical Overview, in THE OXFORD HANDBOOK OF INTELLECTUAL PROPERTY

LAW 5–6 (Rochelle C. Dreyfuss & Justine Pila eds., 2018) (defining IP as “the area(s) of law concerned with the

recognition and protection of exclusionary rights in” a number of categories of subject matter, including authorial

works, inventions, plant varieties, signs of commercial origin, designs, and confidential information).

42 U.S. CONST. art. I, § 8, cl. 8.

43 See generally Copyrights and Patents: Origins and Scope of the Power, in CONSTITUTION OF THE UNITED STATES:

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

encourage innovation and the spread of knowledge by providing incentives to create new creative

works and generate useful technological inventions.44

Other federal IP laws, covering subjects such as trademarks and trade secrets, are enacted under

the Commerce Clause, which grants Congress authority “[t]o regulate Commerce with foreign

Nations, and among the several States, and with the Indian Tribes.”45 These IP laws are less

centrally concerned with promoting creative activity, but are an aspect of Congress’s power to

regulate economic activity and establish rules for fair competition. For example, trademarks

protect consumers and lower search costs by preventing businesses from misrepresenting the

source of goods or services,46 while trade secrets serve both to encourage innovation and to

prevent unfair means of competition between businesses.47

Patents

Any person who invents or discovers “any new and useful process, machine, manufacture, or

composition of matter, or any new and useful improvement thereof” may apply for a patent under

U.S. law.48 Patents may be granted for almost any type of technology made by humans, save for

laws of nature, abstract ideas, and natural phenomena.49 For example, innovations in

pharmaceutical drugs, biotechnology, chemistry, computer hardware and software, electrical

engineering, agriculture, mechanical engineering, and manufacturing processes may be

patented.50

To obtain a patent, the inventor must file a formal application with the U.S. Patent and Trademark

Office (PTO).51 The process for obtaining a patent, called “patent prosecution,”52 is fairly

demanding. The patent application must contain a written specification that describes the claimed

invention with enough detail that a person skilled in the relevant technical field can make and use

the invention.53 During prosecution, a PTO patent examiner reviews the application to determine

whether the claimed invention is (1) directed at patent-eligible subject matter, (2) useful, (3) new,

ANALYSIS AND INTERPRETATION, CONG. RSCH. SERV., https://constitution.congress.gov/browse/essay/artI_S8_C8_1_1/

(last visited Aug. 10, 2020).

44 See Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984) (“[Copyrights and patents are]

intended to motivate the creative activity of authors and inventors by the provision of a special reward, and to allow the

public access to the products of their genius after the limited period of exclusive control has expired.”).

45 U.S. CONST. art I., § 8, cl. 3. Protection for trademarks and trade secrets may also be available under state laws.

46 Qualitex Co. v. Jacobson Prod. Co., 514 U.S. 159, 163–64 (1995) (“[T]rademark law, by preventing others from

copying a source-identifying mark, reduces the customer’s costs of shopping and making purchasing decisions . . . . At

the same time, the law helps assure a producer that it (and not an imitating competitor) will reap the financial,

reputation-related rewards associated with a desirable product.” (citations and internal quotations omitted)).

47 Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 481 (1974) (“The maintenance of standards of commercial ethics

and the encouragement of invention are the broadly stated policies behind trade secret law.”).

48 35 U.S.C. § 101.

49 See Alice Corp. Pty. v. CLS Bank Int’l, 573 U.S. 208, 216–17 (2014); Diamond v. Chakrabarty, 447 U.S. 303, 309–

10 (1980); see generally CRS Report R45918, Patent-Eligible Subject Matter Reform in the 116th Congress, by Kevin

J. Hickey, at 10–20 (reviewing current law of patent-eligible subject matter).

50 See Patent Technology Centers Management, U.S. PATENT & TRADEMARK OFF., https://www.uspto.gov/patent/

contact-patents/patent-technology-centers-management (last visited Aug. 10, 2020) (listing technological divisions for

PTO examiners).

51 35 U.S.C. § 111.

52 See General Information Concerning Patents, U.S. PATENT & TRADEMARK OFF. (Oct. 2015), https://www.uspto.gov/

patents-getting-started/general-information-concerning-patents.

53 35 U.S.C. § 112(a); Ariad Pharms., Inc. v. Eli Lilly & Co., 598 F.3d 1336, 1343–45 (Fed. Cir. 2010) (en banc).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

(4) nonobvious, and (5) adequately disclosed and claimed in the patent application.54 If the

examiner finds these requirements met, the PTO will issue (i.e., grant) the patent.55

If the PTO grants the patent, the patent holder has the exclusive right to make, use, sell, offer to

sell, or import the invention in the United States until the patent expires.56 Patents typically expire

twenty years after the initial patent application is filed.57 Any other person who makes, uses, sells,

or imports the invention without the patent holder’s permission is said to “infringe” the patent and

is potentially legally liable.58 To enforce the patent, the patent holder may sue alleged infringers

in federal court to seek an injunction (i.e., a judicial order to cease infringing activity), damages,

and other remedies.59 Patents are presumed to be valid,60 but accused infringers may defend

against lawsuits by asserting, among other things, (1) noninfringement (i.e., their allegedly

infringing actions were not covered by the patent), or (2) invalidity (i.e., the patent should not

have issued because, for example, the claimed invention was not new).61

Copyrights

creative works.62 Forms of expression that are copyrightable include literary works (such as

books and computer code); musical works and sound recordings; pictorial, graphic, and sculptural

works; audiovisual works (such as movies and television); and architectural works.63 The key

requirements for a copyright are that the work is independently created, at least minimally

creative, and fixed in some tangible form.64 Copyright does not extend to ideas, processes,

systems, discoveries, or methods of operation.65

recorded in a computer file or on a piece of paper).66 In contrast to patents, the author of a

copyrightable creative work need not apply with the government to obtain a copyright.67

However, for U.S. works, copyright holders must register their copyrights with the U.S.

54 35 U.S.C. §§ 101–103, 112.

55 Id. § 131.

56 Id. § 271(a).

57 Id. § 154(a)(2).

58 Id.

59 Id. §§ 281, 283–285.

60 Id. § 282(a); Microsoft Corp. v. i4i Ltd. P’ship, 564 U.S. 91, 95 (2011).

35 U.S.C. § 282(b).

62 17 U.S.C. §§ 102(a), 106.

63 Id. § 102(a)(1)–(8).

64 Id. § 102(a); Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 345–47 (1991).

65 17 U.S.C. § 102(b); see also Baker v. Selden, 101 U.S. 99, 102–04 (1880).

66 Id. § 102(a).

67 Id. §§ 102(a), 408(a).

68 Id. § 411(a). Although a copyright holder may bring a claim in court even if the Copyright Office refuses to register

the work, see id., the Copyright Office must either register the work or refuse registration before the copyright holder

can file suit. Fourth Estate Pub. Benefit Corp. v. Wall-Street.com, LLC, 139 S. Ct. 881, 886 (2019).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

submitting an application, paying a fee, and sending a copy or copies of the work to the

display it, distribute it, and prepare derivative works from it.70 Any person who takes one of those

actions without the permission of the copyright owner is potentially legally liable for copyright

infringement.71 For most works created today, copyright does not expire until seventy years after

the death of the work’s author.72 Once a copyright holder registers the copyright, she may sue

infringers in federal court to seek injunctions, damages, and other legal remedies.73 In addition to

these civil remedies, certain willful copyright infringements may be criminal offenses.74

The exclusive rights of a copyright holder are subject to many specific limitations and

exceptions.75 The most important limitation is the doctrine of fair use, which permits certain

socially valuable uses that would otherwise be infringements (e.g., using portions of a

copyrighted work in a criticism, parody, or educational instruction).76 Courts consider a number

of factors to evaluate whether a use is fair, such as (1) the purpose and character of the use;

(2) the nature of the original work; (3) the substantiality of what was copied; (4) any market harm

from the use; and (5) whether the use is “transformative,” that is, whether it adds new expression,

has a different purpose, or alters the original work with new expression or meaning.77

Trademarks

In general, any “word, name, symbol, or device” may be used as a trademark or service mark to

identify a particular business’s goods or services.78 Familiar examples of trademarks include

brand names and logos such as NIKE and its “swoosh” symbol.

The availability of trademark protection depends on the distinctiveness of the proposed mark.79

Generic terms (i.e., a common descriptive name for a particular type of product80) and deceptive

terms (i.e., those that materially misrepresent the product81) may not be registered or protected as

a trademark.82 Descriptive terms (i.e., those that convey information about the qualities of the

product83), surnames, and geographically descriptive marks generally cannot be registered or

69 17 U.S.C. §§ 407–410; U.S. COPYRIGHT OFFICE, CIRCULAR 2: COPYRIGHT REGISTRATION (2019),

https://www.copyright.gov/circs/circ02.pdf.

70 17 U.S.C. § 106(1)–(6).

71 Id. §§ 106, 501(a).

72 Id. § 302(a). Copyright in works made for hire (which often have corporate authors) as well as anonymous or

pseudonymous works last for 95 years after the work’s publication or 125 years after its creation, whichever term is

shorter. Id. § 302(c).

73 Id. §§ 501–505.

74 Id. § 506(a); 18 U.S.C. § 2319.

75 See 17 U.S.C. §§ 108–122.

76 See id. § 107; Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 575–78 (1994).

77 17 U.S.C. § 107(1)–(4); Campbell, 510 U.S. at 579.

78 5 U.S.C. § 1127 (defining “trademark” and “service mark”).

79 Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768 (1992); Abercrombie & Fitch Co. v. Hunting World, Inc.,

537 F.2d 4, 9–11 (2d Cir. 1976) (Friendly, J.).

80 Park ’N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194 (1985).

81 In re Budge Mfg. Co., Inc., 857 F.2d 773, 775 (Fed. Cir. 1988).

82 15 U.S.C. §§ 1052(a), 1052(e), 1064(3); Two Pesos, 505 U.S. at 768–69.

83 Park ’N Fly, 469 U.S. at 194.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

protected as a trademark unless such terms acquire an association by consumers with a particular

source of a product: so-called “secondary meaning.”84 For example, Coca-Cola (a drink originally

made with coca leaves and cola nuts) might not have been initially protectable because its brand

name was descriptive of the product. Yet, the mark subsequently became protectable when the

public began to associate the mark with a particular producer.85 Arbitrary terms (i.e., terms that in

no way describe the goods or service86) and merely suggestive terms are “inherently distinctive”

and may be registered and protected as marks without a showing of secondary meaning.87

Certain federal trademark rights are available based on actual use of (or a bona fide intent to use)

a mark in commerce.88 Because federal law does not generally preempt state laws protecting

trademarks,89 rights under applicable state trademark laws may be available as well, based either

on use of the mark or state registration.90

To obtain presumptive nationwide federal trademark rights, a business must first register the mark

with the PTO.91 Along with the distinctiveness requirements discussed above, the PTO will only

trademark registration is tied to the use of a mark with particular categories of goods or services

(e.g., clothing, vehicles, or telecommunications services).93 Thus, different owners may use an

identical or similar mark for different types of products (e.g., Delta Airlines and Delta faucets), so

long as this parallel use would not confuse consumers.94

Owners of valid trademarks generally have the right to prevent other businesses or persons from

using similar marks to identify their products if the use is likely to cause consumer confusion as

to the product’s source.95 Trademark owners may sue in federal or state court to obtain

84 15 U.S.C. § 1052(e)(1)–(2), (e)(4), (f); Wal-Mart Stores, Inc. v. Samara Brothers, Inc., 529 U.S. 205, 210–11 (2000);

Two Pesos, 505 U.S. at 769.

85 See Coca-Cola Co. v. Koke Co. of Am., 254 U.S. 143, 146–47 (1920).

86 See 2 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 11:11, What Are Arbitrary Word Marks? (5th ed.

2019).

87 Wal-Mart Stores, 529 U.S. at 210–11; Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4, 11 (2d Cir.

1976).

88 See 15 U.S.C. §§ 1125(a), 1127; Two Pesos, 505 U.S. at 768.

89 See Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 232 (1964); Dorpan, S.L. v. Hotel Melia, Inc., 728 F.3d 55,

62 (1st Cir. 2013); BOYLE & JENKINS, supra note 40, at 106.

90 See generally 3 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION ch. 22, State Protection and Registration of

Marks (5th ed. 2019); State Trademark Information Links, U.S. PATENT & TRADEMARK OFF., https://www.uspto.gov/

trademarks-getting-started/process-overview/state-trademark-information-links (last visited Aug. 18, 2020).

91 See 15 U.S.C. §§ 1051, 1057(b).

92 Id. § 1052(d). Moreover, certain types of marks may not be registered pursuant to specific statutory exceptions,

including (1) marks that falsely suggest a connection with persons or institutions; (2) the names of living persons

without their consent; and (3) marks consisting of the U.S., state, or municipal flags. See id. § 1052(a)–(c). Federal law

also purports to bar the registration of marks that contain “immoral, deceptive, or scandalous matter” or those that “may

disparage” persons and institutions, but the Supreme Court has invalidated these provisions on First Amendment

grounds. Iancu v. Brunetti, 139 S. Ct. 2294, 2297 (2019); Matal v. Tam, 137 S. Ct. 1744, 1751, (2017).

93 15 U.S.C. § 1051(a)(2); see 37 C.F.R. §§ 2.85(a), 6.1.

94 15 U.S.C. § 1052(d); BOYLE & JENKINS, supra note 40, at 104–05; Barton Beebe & Jeanne C. Fromer, Are We

Running Out of Trademarks? An Empirical Study of Trademark Depletion and Congestion, 131 HARV. L. REV. 945,

952 & n.22 (2018).

95 15 U.S.C. §§ 1114(1), 1125(a); KP Permanent Make-Up, Inc. v. Lasting Impression I, Inc., 543 U.S. 111, 117

(2004). In determining whether consumers are likely to be confused by two similar marks, courts consider a number of

factors, such as (1) strength of the mark; (2) similarity of the marks; (3) proximity of the products; (4) evidence of

actual confusion; (5) the defendant’s intent in selecting the mark; (6) the type of goods and sophistication of the

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

injunctions, damages, and other legal remedies.96 In addition to civil remedies, intentional

trafficking in goods or services using a counterfeited mark is a federal criminal offense.97 If

properly renewed and maintained, trademark rights may last indefinitely.98

Trade Secrets

Trade secret law protects competitively valuable, confidential information. Trade secrets include

“all forms and types of financial, business, scientific, technical, economic, or engineering

information” where (1) the owner has taken reasonable measures to keep the information secret;

and (2) the information derives actual or potential independent economic value from not being

generally known or readily ascertainable to another person (usually, a business competitor).99

Examples include secret recipes, formulas, financial information, source code, or manufacturing

processes. Matters of public knowledge or information generally known in an industry may not

be a trade secret.100

Until recently, trade secret protection was mainly a matter of state law.101 In 2016, Congress

passed the Defend Trade Secrets Act (DTSA), which created a federal civil remedy for trade

secret misappropriation.102 The DTSA built upon the Economic Espionage Act of 1996, which

criminalized economic espionage and certain thefts of trade secrets.103 Under the DTSA, the

misappropriation of a trade secret is a federal civil violation that may be remedied through a

lawsuit by the trade secret’s owner.104 Protection for trade secrets is also available under state

laws, which are generally similar to federal requirements.105

consumers; and (7) similarity of advertising or marketing. See, e.g., AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 348–

49 (9th Cir. 1979); Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d Cit. 1961); see generally Barton

Beebe, An Empirical Study of the Multifactor Tests for Trademark Infringement, 94 CAL. L. REV. 1581, 1587–90, 1591

tbl. 1 (2006) (summarizing the factors considered by different federal courts of appeals to determine the likelihood of

consumer confusion in trademark cases).

96 15 U.S.C. §§ 1116–1117; 28 U.S.C. § 1338(a).

97 See 18 U.S.C. § 2320(a). A “counterfeit mark” is a “spurious” mark that must be (1) identical to, or substantially

indistinguishable from, a registered mark; (2) used in connection with the same good or services as the registered mark;

and (3) likely to cause confusion, to cause mistake, or to deceive. Id. § 2320(h)(i)–(iv).

98 15 U.S.C. § 1058(a)–(b).

99 18 U.S.C. § 1839(3). Factors that courts may consider in determining whether information is a trade secret include

(1) the extent to which the information is known outside of the business; (2) the extent to which the information is

known by employees and others involved in the business; (3) the extent of measures taken by the owner to guard the

secrecy of the information; (4) the value of the information to the owner and the owner’s competitors; (5) the amount of

effort or money expended by the owner in developing the information; and (6) the ease or difficulty with which the

information could be properly acquired or duplicated by others. See RESTATEMENT (1ST) OF TORTS § 757 cmt. b. (AM.

LAW INST.1939).

100 18 U.S.C. § 1839(3)(B); Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 475 (1974) (“The subject of a trade secret

. . . must not be of public knowledge or of a general knowledge in the trade or business.”).

101 See BOYLE & JENKINS, supra note 40, at 769.

102 Pub. L. No. 114-153, § 2, 130 Stat. 376, 376–82 (2016) (codified at 18 U.S.C. §§ 1836(b)–(d), 1839).

103 Pub. L. No. 104-294, tit. I, 110 Stat 3488, 3488–91 (1996) (codified as amended at 18 U.S.C. §§ 1831–1839).

104 18 U.S.C. § 1832(b)(1).

105 Almost all the states have adopted the Uniform Trade Secrets Act in some form. See UNIF. TRADE SECRETS ACT

(Unif. Law Comm’n 1985) [hereinafter UTSA]; 1 MILGRIM ON TRADE SECRETS § 1.01[2][c][i] (2019) (noting that fortyeight states have adopted UTSA, with local variations, as of 2018). The federal definitions of “trade secret,”

“misappropriation,” and “improper means” generally follow the UTSA. 1 MILGRIM ON TRADE SECRETS § 1.01[5]

(2019).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

Owners of commercially valuable information need not formally apply with federal or state

governments to obtain legal protection for an asserted trade secret. However, the owner must take

“reasonable measures” to keep the information secret.106 For example, an owner may restrict

access to the information within the business, require confidentiality agreements of employees or

any others who receive the information, or place the information on secure computer systems.107

Whether the measures taken are reasonable depends on the factual circumstances and the nature

of the information.108

The owner of a valid trade secret may not legally prevent all acquisitions, uses, and disclosures of

the information. Rather, federal and state law provide a remedy only when a trade secret is

“misappropriated.”109 There are two main forms of misappropriation. First, misappropriation

occurs when an unauthorized person acquires a trade secret through “improper means,” such as

theft, bribery, electronic espionage, or a breach of a duty to maintain secrecy (e.g., violation of a

nondisclosure agreement).110 Acquiring a trade secret through lawful means, such as reverse

engineering, or independently discovering the trade secret, is not a misappropriation.111 Second, a

person may not use or disclose a trade secret if that person knows or has reason to know that

(1) knowledge of the trade secret derives from a person who used improper means to acquire the

trade secret; (2) the trade secret was acquired under circumstances creating a duty to maintain

secrecy; or (3) knowledge of the trade secret derives from a person owing a duty to maintain

secrecy.112

Owners of trade secrets may sue in state or federal court to enjoin actual or threatened

misappropriations and obtain monetary damages for losses caused by misappropriations.113 Civil

seizures of property necessary to prevent the dissemination of a trade secret may be available in

extraordinary circumstances.114 The EEA also criminalizes two forms of trade secret

misappropriation: (1) economic espionage, which includes the unauthorized appropriation or

transmission of a trade secret with the intent to benefit a foreign government;115 and (2) theft of a

trade secret, which includes the unauthorized appropriation or transmission of a trade secret when

the offender knows that the act will injure the owner of a trade secret for the economic benefit of

another person.116

Overlap and Interactions Among Different Forms of IP

Table 1 summarizes the differences between patents, copyrights, trademarks, and trade secrets.

Although this section has presented each form of IP separately because they are legally distinct,

there is a degree of overlap in the subject matter that each form of IP protects. This can lead to

situations in which an owner must choose between different forms of IP protection. For example,

106 18 U.S.C. § 1839(3)(A).

107 See generally 1 MILGRIM ON TRADE SECRETS § 1.01[c][iii][D] (2019).

108 Id.

109 18 U.S.C. § 1836(b)(1); UTSA §§ 2(a), 3(a).

110 18 U.S.C. § 1839(5)(A), (6)(A). In addition, a person who used improper means to acquire a trade secret may not

disclose or use the trade secret without authorization. Id. § 1839(5)(B)(i).

111 Id. § 1839(6)(B).

112 Id. § 1839(B)(ii)(I)–(III).

113 Id. § 1836(b)(3)(A)–(B).

114 Id. § 1836(b)(2).

115 Id. § 1831(a).

116 Id. § 1832(a).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

the owner of a novel discovery may strategically decide whether to protect that information as a

trade secret or instead seek a patent.117 While trade secret protection covers a broader range of

information and potentially lasts longer than a patent, it provides narrower rights because it lacks

any protection against independent discovery or reverse engineering by third parties.118 By

applying for a patent, however, the owner gives up any claim to trade secret protection because

issued patents and patent applications are publicly available.119

In other situations, an individual may be able to protect the same information or product by

relying on multiple forms of IP protection. For example, computer code is eligible for copyright

protection as a literary work, yet the owner may also choose to keep the code as a trade secret.

Moreover, different aspects of a product may be protected by different types of IP rights, such as

a patented pharmaceutical product with a trademarked brand name.

There is no general one-to-one correspondence between IP protection and a particular consumer

product. For example, the various technologies within a typical smartphone (e.g., computer

hardware and software, design, and networking) are protected by many thousands of different

patents,120 along with the copyrighted computer code of the operating system and various

applications. Valuable pharmaceutical products are often protected by dozens of different patents

relating to the active ingredient, formulations, administration, methods of treatment, or methods

of manufacturing the drug.121

117 See Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 485–92 (1974).

118 Compare 35 U.S.C. § 271(a) (patentee has the exclusive right to make, use, and sell the patented invention), with 18

U.S.C. § 1839(6) (permitting reverse engineering and independent derivation of trade secrets).

119 35 U.S.C. §§ 10, 122(b), 153; 37 C.F.R. §§ 1.11(a), 1.211.

120 Steve Lohr, Apple-Samsung Patent Battle Shifts to Trial, N.Y. TIMES (July 29, 2012), https://www.nytimes.com/

2012/07/30/technology/apple-samsung-trial-highlights-patent-wars.html.

121 See CRS Report R45666, Drug Pricing and Intellectual Property Law: A Legal Overview for the 116th Congress,

coordinated by Kevin J. Hickey, at 12–14.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

Table 1. Comparison of Each Form of Federal Intellectual Property Protection

Patent

Trademark

Trade Secret

Constitutional

Basis

IP Clause (U.S.

CONST. art. I, § 8,

cl. 8)

IP Clause (U.S.

CONST. art. I, § 8,

cl. 8)

Commerce Clause

(U.S. CONST. art. I,

§ 8, cl. 3)

Commerce Clause

(U.S. CONST. art. I,

§ 8, cl. 3)

Statutory Basis

1952 Patent Act, as

amended, 35 U.S.C.

§§ 1–390

1976 Copyright Act,

as amended, 17

U.S.C. §§ 101–1332

1946 Lanham Act,

as amended, 15

U.S.C. §§ 1051–

1141n

DTSA and Economic

Espionage Act of

1996, 18 U.S.C.

§§ 1831–1839

Initial Rights

Holder

Inventor

Author

Business or person

using mark to

identify goods or

services

Owner of

commercially

valuable, confidential

information

Subject Matter

New and useful

processes, machines,

manufactures, or

compositions of

matter

Original works of

authorship

Any word, name,

symbol, or device

used to identify

goods or services

Financial, business,

scientific, technical,

economic, or

engineering

information

Subject Matter

Examples

Pharmaceuticals,

engineering,

manufacturing

processes

Books, musical

works, movies, fine

art, architecture,

software

Brand names, logos,

distinctive trade

dress

Formulas, source

code, prototypes,

customer lists,

financial information

Requirements

for Protection

Novelty;

nonobviousness;

utility; first to file

Independent

creation; minimal

creativity; fixation

Use in commerce;

registration (for

presumptive

nationwide rights)

Information derives

economic value from

not being generally

known

Excluded From

Protection

Laws of nature,

natural phenomena,

and abstract ideas

Any idea, procedure,

process, system,

method of operation,

concept, principle, or

discovery

Generic terms;

deceptive terms;

descriptive terms

that lack secondary

meaning

Information generally

known,

independently

discovered, reverse

engineered, or

lawfully acquired

Process to

Secure Rights

PTO patent

application process

(patent prosecution)

Create and fix the

work (registration is

required to sue)

PTO trademark

registration process

Take reasonable

measures to keep

information secret

Exclusive

Rights Granted

To make, use, offer

to sell, sell, and

import the patented

invention

To reproduce,

distribute, or publicly

perform/display the

work, and make

derivative works

Prevent confusingly

similar uses of the

mark

Prevent others from

misappropriating

trade secret (e.g.,

acquisition through

improper means)

Duration

20 years from date

of application

Life of author plus 70

years

Potentially indefinite

Infringement

Test

Practice the claimed

invention

Substantially similar

to original

Likely to confuse

consumers

Misappropriation

Main Defenses

Invalidity;

noninfringement;

inequitable conduct

Fair use; lack of

substantial similarity

Fair use; nominative

use; lack of

confusion

Information was not

a trade secret or was

not misappropriated

Source: Congressional Research Service.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

Forms of “IP Theft”

“IP theft” and “stealing IP” are colloquial terms, not legal concepts. Strictly speaking, most forms

of IP (with the important exception of trade secrets) cannot be “stolen.” A patent, for example, is

a publicly available legal document granting the patent holder certain exclusive rights; another

person might infringe the patent (e.g., by making and selling the patented invention without

permission), but infringers do not “steal” the patent. Nor does IP law necessarily preclude persons

other than the IP owner from using or acquiring protected information without permission; third

parties may lawfully reverse engineer a trade secret, for example, or make a fair use of a

copyrighted work.122 Rather, the colloquial usage of “IP theft” usually seeks to capture concerns

about varied laws, policies, and practices of—in the context of this report—the Chinese

government and other Chinese entities related to IP and technology transfer, which harm U.S. IP

rights holders.123 This section describes several forms that these IP-related violations may take.

Under-Protection

One way in which a foreign nation might undermine IP rights is through a lack of substantive

legal protections for IP available under that country’s domestic law. Under the WTO Agreement

on Trade-Related Aspects of Intellectual Property Rights (TRIPS), all members of the WTO

(including the United States and China) agree to certain minimum standards for IP protection and

enforcement.124 First, members agree to provide, under their domestic laws, a basic level of

substantive protection for copyrights, trademarks, patents, trade secrets, and other forms of IP.125

Second, members agree to ensure that certain minimum civil, criminal, and administrative

procedures to enforce IP rights are available to permit effective action against infringements.126

Members further agree to provide “national treatment,” a nondiscrimination principle under

which each WTO member must treat nationals of other members no less favorably than they treat

their own citizens with respect to IP rights.127

TRIPS’s substantive provisions set forth required minimum levels of IP protection. For example,

with respect to trademarks, members agree that “any sign . . . capable of distinguishing [the]

goods or services” of a business shall be eligible for trademark registration, subject to limited

exceptions.128 Owners of valid registered trademarks must have the right to exclude others from

“using in the course of trade identical or similar signs for goods or services [where] such use

would result in a likelihood of confusion.”129 Initial trademark registrations must last for at least

122 See 17 U.S.C. § 107; 18 U.S.C. § 1839(6)(B).

123 See, e.g., SECTION 301 INVESTIGATION REPORT, supra note 8, at 4.

124 See TRIPS, supra note 41; see generally Ilias Akhtar et al., supra note 3, at 15–17.

125 TRIPS, supra note 41, pt. II. Geographical indications, industrial design, and integrated circuit design are the other

forms of IP that must be protected by WTO members under TRIPS. Id. TRIPS explicitly incorporates by reference

many of the provisions of earlier (and still in force) IP treaties, such as the Paris Convention for the Protection of

Industrial Property, Mar. 20, 1883, revised at Stockholm July 14, 1967, 21 U.S.T. 1583, 828 U.N.T.S. 305, and the

Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, revised at Paris July 24, 1971, 1161

U.N.T.S. 3. See, e.g., TRIPS, supra note 41, arts. 1–3, 9, 15–16, 39.

126 TRIPS, supra note 41, pt. III.

127 Id. arts. 1, 3. A similar but distinct nondiscrimination principle required by TRIPS is known as “most-favored nation

treatment,” which generally requires that if a member extends to the nationals of one country any advantage relating to

the availability, acquisition, scope, maintenance, and enforcement of IP, it must also extend that same privilege to the

nationals of all other members. Id. art. 4.

128 Id. art. 15.

129 Id. arts. 16–17.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

seven years, and must be renewable indefinitely.130 If a WTO member were to, for example,

provide a shorter initial term or a nonrenewable term of trademark registration, that nation would

fail to meet the minimum substantive standards set forth in TRIPS.

Concerns about China failing to meet its WTO obligations with respect to IP are long-standing.

TRIPS, which first went into effect in 1996, became applicable to China after its accession to the

WTO in 2001.131 In 2007, the United States initiated a dispute against China before the WTO,

alleging inadequacies in China’s substantive IP laws and its enforcement of those laws.132 After

the United States prevailed on several of its claims,133 China agreed to implement the WTO’s

ruling in the dispute by March 2010.134

U.S. stakeholders continue to lodge complaints about whether China’s domestic laws meet

TRIPS’s substantive requirements,135 while acknowledging progress by China in recent years.136

Since 2005,137 the USTR has placed China on the Priority Watch List, indicating “that particular

problems exist in that country with respect to IP protection, enforcement, or market access for

persons relying on IP.”138 Specifically, the USTR found that China has an “urgent need for

fundamental structural changes to strengthen IP protection and enforcement, including as to trade

secret theft, online piracy and counterfeiting, the high volume manufacture and export of

counterfeit goods, and impediments to pharmaceutical innovation.”139 The USTR has also

designated many online or physical markets based in China as “notorious markets”140 that are

“prominent and illustrative examples of online and physical marketplaces that reportedly engage

in and facilitate substantial piracy and counterfeiting.”141 In its most recent Special 301 Report,142

the USTR concluded that although China reorganized its IP protection and enforcement

authorities and made progress in some areas, ultimately its actions “fell short of needed

fundamental changes to the IP landscape in China.”143

130 Id. art. 18.

131 See 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 2, 107.

132 Request for Consultations by the United States, China—Measures Affecting the Protection and Enforcement of

Intellectual Property Rights, WTO Doc. WT/DS362/1 (Apr. 16, 2007).

133 Panel Report, China—Measures Affecting the Protection and Enforcement of Intellectual Property Rights, WTO

Doc. WT/DS362/R (adopted Jan. 26, 2009).

134 Communication from China and the United States concerning Article 21.3(b) of the [WTO Understanding on Rules

and Procedures Governing the Settlement of Disputes (DSU)], China—Measures Affecting the Protection and

Enforcement of Intellectual Property Rights, WTO Doc. WT/DS362/13 (July 3, 2009); see generally CRS China-U.S.

Trade Report, supra note 4, at 53; Devon Spencer, Not in It for the Long Run: China’s Solution for Compliance with

TRIPS Requires More Than a Nine-Month Campaign, 19 U. MIAMI INT’L & COMP. L. REV. 197, 211–18 (2012).

135 See generally 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 107–13

136 See, e.g., CRS China-U.S. Trade Report, supra note 4, at 40–41 (citing surveys of IP holders finding that, although

many find the IP enforcement environment in China to be ineffective or inadequate, over 90% believed the IP

environment in China had improved between 2009 and 2016).

137 International Intellectual Property Alliance, History of USTR’s Special 301 Decisions Since 1989 (Feb. 7, 2019),

https://iipa.org/files/uploads/2019/02/2019SPEC301HISTORICALCHART.pdf.

138 2019 SPECIAL 301 REPORT, supra note 32, at 8.

139 Id. at 6.

140 OFF. OF THE U.S. TRADE REPRESENTATIVE, 2018 OUT-OF-CYCLE REVIEW OF NOTORIOUS MARKETS 16–17, 22–23,

(2019), https://ustr.gov/sites/default/files/2018_Notorious_Markets_List.pdf.

141 Id. at 2.

142 See discussion infra in “Section 301 of the Trade Act of 1974” (discussing Special 301 authority).

143 2019 SPECIAL 301 REPORT, supra note 32, at 41.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

For example, as to the substantive level of IP protection afforded by Chinese law, the USTR has

asserted that



China fails to provide adequate patent protection for pharmaceutical products

by imposing unduly restrictive and “opaque” patent examination

procedures;144

China fails to impose adequate criminal liability for copyright infringement

through high monetary thresholds and profit motive requirements;145

China’s trade secret law may exclude some types of proprietary information,

and is limited to actions of commercial entities (rather than any legal

person);146 and

China has failed to make clear that sports and other live broadcasts are

eligible for copyright protection in China.147

Such substantive legal shortcomings could conceivably be the basis of a WTO complaint based

on TRIPS noncompliance,148 or other remedies discussed below. Notably, the Phase One

Agreement addresses some of these issues.149

Infringement and Under-Enforcement

Together with its provisions for minimum levels of substantive IP protection, TRIPS also sets

forth minimum standards for IP enforcement by WTO members.150 Presuming that a nation’s IP

laws meet TRIPS’s minimum substantive standards, IP rights may still be undermined if a nation

does not adequately enforce those IP laws. For example, a nation may lack adequate institutions

or procedures, such as an effective and fair court system, that are necessary to vindicate IP rights.

TRIPS requires that WTO members have enforcement procedures that “permit effective action”

against infringements of IP rights.151 For example, members must make “fair and equitable” civil

judicial procedures available to IP rights holders.152 These judicial authorities must have authority

to grant effective and adequate relief, including injunctions and damages.153 For counterfeit

trademarked goods and pirated copyrighted goods, members must establish border control

procedures through which rights holders may apply to customs authorities to block the

importation of infringing goods.154 For cases of willful trademark infringement or copyright

piracy “on a commercial scale,” members must establish criminal procedures and penalties.155

144 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 110–11; 2019 SPECIAL 301 REPORT, supra note 32, at 44–

45.

145 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 108.

146 Id. at 109; 2019 SPECIAL 301 REPORT, supra note 32, at 41–42.

147 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 108; 2019 SPECIAL 301 REPORT, supra note 32, at 45.

148 See discussion infra in “TRIPS and WTO Disputes.”

149 See supra notes 15–29 and accompanying text.

150 TRIPS, supra note 41, pt. III.

151 Id. art. 41.1.

152 Id. arts. 41–42.

153 Id. arts. 44–45.

154 Id. arts. 51–60.

155 Id. art. 61.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

As with the substantive aspects of TRIPS, U.S. rights holders have long maintained that Chinese

authorities fail to enforce existing IP laws adequately, or that China lacks effective procedures

and institutions for rights holders to enforce their IP rights.156 Two areas of continuing concern

about China’s IP enforcement environment are (1) the manufacture, sale, and export of

counterfeit trademarked goods (counterfeiting); and (2) unauthorized copying, performance, and

distribution of copyrighted works, particularly online (piracy).

As to trademark counterfeiting, a 2019 study of customs seizures by the Organization for

Economic Co-operation and Development (OECD) and the EU Intellectual Property Office

(EUIPO) found that China was the world’s leading source of counterfeit goods.157 Together with

Hong Kong (through which exported Chinese merchandise often transships), China was the

source of over 63% of counterfeited and pirated exports, representing $322 billion in value.158

The United States was the largest victim of these infringements, with nearly 25% of seized

counterfeits affecting IP rights registered in the United States.159 Looking just at seizures by U.S.

authorities, China (together with Hong Kong) was the origin of 87% of the goods seized by U.S.

Customs and Border Protection for IP violations in FY2018, representing $1.2 billion in retail

value.160 Trademark counterfeiting by Chinese entities encompasses a vast array of goods,

including apparel and footwear, toys, sporting goods, and other consumer products.161 On top of

the harms that counterfeiting has on trademark holders, counterfeit goods may also create health

and safety concerns, as in the case of counterfeit pharmaceuticals, food and beverages,

semiconductors, and automotive parts.162

Piracy of copyrighted works is a second area of long-standing concern for U.S. rights holders.

The internet is an efficient vehicle enabling the unauthorized distribution of copyrighted movies,

music, software, and television programs in China, as well as other nations.163 The USTR reports

that copyright piracy is “widespread” in China, particularly online.164 For example, the Business

Software Alliance’s most recent study found that 66% of all software in China is unlicensed (that

is, used without permission from the copyright holder), representing $6.8 billion in commercial

156 See generally CRS China-U.S. Trade Report, supra note 4, at 39–43.

157 OECD & EUIPO, TRENDS IN TRADE IN COUNTERFEIT AND PIRATED GOODS 12, 27–28 (2019). OECD defines

“counterfeit and pirated goods” broadly, see id. at 14, so its estimates include goods that violate patents, design rights,

and copyrights, as well as trademarks. The study’s list of the most affected industries (footwear, clothing, leather,

watches, cosmetics), id. at 31, suggests that trademark infringements are a substantial component of these estimates.

158 Id. at 46.

159 Id. at 32–33.

160 U.S. CUSTOMS & BORDER PROT., INTELLECTUAL PROPERTY RIGHTS: FISCAL YEAR 2018 SEIZURE STATISTICS 16, 24

(2019), https://www.cbp.gov/sites/default/files/assets/documents/2019-Aug/IPR_Annual-Report-FY-2018.pdf

[hereinafter FISCAL YEAR 2018 SEIZURE STATISTICS]. These statistics aggregate seizures for both trademark and

handbags), id. at 17, suggest that trademark infringements are a substantial component of these estimates.

161 2019 SPECIAL 301 REPORT, supra note 32, at 24.

162 Id. at 24–25; 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 116–17.

163 2019 SPECIAL 301 REPORT, supra note 32, at 22; 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 18.

164 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 116.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

value.165 China is also a leading source and exporter of websites and software that facilitate

Trade Secret Misappropriation and Cyber Intrusions

Improper acquisition and disclosure of trade secrets represents another way that Chinese entities

and its government may harm U.S. IP rights holders. Because trade secret law generally requires

a misappropriation to be actionable—such as acquisition of a trade secret through theft, bribery,

breaches of contractual duties, or electronic espionage167—this type of IP violation fits more

naturally within a “theft” paradigm than other IP infringements.

Trade secret misappropriation by Chinese entities takes many forms. Perhaps the most direct

means of improperly acquiring a trade secret is through unauthorized intrusion by Chinese

entities into U.S. firms’ computer networks to obtain confidential business information.168 The

USTR has found that China’s government conducts or supports many of these cyber intrusions.169

Several industries targeted by China—such as information technology, aerospace, and energy—

match those identified as key areas in China’s state-led industrial policies.170 According to the

USTR, “[a]s the global economy has increased its dependence on information systems . . . cyber

theft became one of China’s preferred methods of collecting commercial information because of

its logistical advantages and plausible deniability.”171

Trade secret misappropriations by Chinese entities extend beyond hacking and cyber intrusions,

however. In other situations, current or former employees of a business, such as locally hired

engineers of U.S. entities doing business in China, may disclose trade secrets to Chinese

authorities or competitors without authorization.172 Chinese entities also allegedly use means such

as physical intrusions, bribery, fraud, breach of confidentiality agreements, or misrepresentation

to acquire trade secrets.173 For example, U.S. authorities have raised concerns about unauthorized

disclosures to Chinese entities of confidential biomedical research proposals submitted to the

National Institutes of Health, allegedly in violation of peer review confidentiality agreements.174

Although trade secret misappropriation is itself a civil and potentially criminal violation under

U.S. law,175 other civil and criminal laws may be implicated as well, depending on the means used

to acquire the trade secret. For example, as discussed below, unauthorized cyber intrusions may

165 SOFTWARE ALL., SOFTWARE MANAGEMENT: SECURITY IMPERATIVE, BUSINESS OPPORTUNITY, BSA GLOBAL

SOFTWARE SURVEY 7, 10, 12 (2018), https://gss.bsa.org/wp-content/uploads/2018/06/2018_BSA_GSS_Report_A4_

en.pdf.

166 2019 SPECIAL 301 REPORT, supra note 32, at 44.

167 18 U.S.C. §§ 1836(b), 1839(5)–(6).

168 SECTION 301 INVESTIGATION REPORT, supra note 8, at 153–76.

169 Id. at 153.

170 See id. at 11–13, 156.

171 Id. at 154.

172 See 2019 SPECIAL 301 REPORT, supra note 32, at 18; 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 115.

173 See Keith Bradsher, How China Obtains American Trade Secrets, N.Y. TIMES (Jan. 15, 2020),

https://www.nytimes.com/2020/01/15/business/china-technology-transfer.html; CRS China-U.S. Trade Report, supra

note 4, at 42–43; 18 U.S.C. § 1839(5)–(6).

174 See CRS Insight IN11207, Foreign Interference in NIH Research: Policy Implications, by Kavya Sekar; Gina

Kolata, Vast Dragnet Targets Theft of Biomedical Secrets for China, N.Y. TIMES (Nov. 4, 2019),

https://www.nytimes.com/2019/11/04/health/china-nih-scientists.html.

175 See 18 U.S.C. §§ 1831–1832, 1836.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

be a crime under the Computer Fraud and Abuse Act or other anti-hacking laws.176 Similarly,

obtaining trade secrets through unauthorized physical intrusions or bribery may violate various

state or federal laws (e.g., burglary or fraud), depending on the circumstances. As discussed

below, however, the ability of U.S. authorities to exercise jurisdiction over the person and

violation represents a significant limitation on remedies for these crimes.177

Traditional trade secret misappropriation does not reach all of the various means that Chinese

entities use to obtain technology and other know-how from U.S. firms. Coercive technology

transfer and regulatory extraction, discussed below,178 may or may not be a trade secret violation

depending on the circumstances. Strategic acquisition of U.S. firms by Chinese corporations to

acquire technology is another means of acquisition that does not generally represent a trade secret

violation, but still may raise national security or other legal concerns.179

Coercive Technology Transfer

Acquisition of trade secrets and technology by Chinese entities may take somewhat subtler forms

than outright misappropriations like cyber intrusions or physical theft. In its 2018 investigation

report conducted under Section 301,180 the USTR describes China’s industrial policies and

practices concerning IP and other technological know-how as an “unfair technology transfer

regime.”181 The USTR characterizes this “regime” of coerced technology transfer, applicable to

U.S. and other foreign entities seeking to do business in China, as taking two main forms. First,

China uses formal and informal foreign ownership restrictions to pressure transfer of technology

to Chinese entities, effectively as a condition of foreign companies doing business in China.182

Second, China uses regulatory licensing requirements to force technology transfer in exchange

for various administrative approvals needed to conduct business in China.183

The first form of coercive technology transfer concerns Chinese foreign investment restrictions,

such as requirements that foreign businesses seeking to enter the Chinese market form a joint

venture (JV) with Chinese entities or state-owned enterprises. Under Chinese law, foreign

companies in certain industries may not enter the Chinese market unless they partner with a

Chinese company.184 The Chinese JV partner or Chinese governmental entities may, informally or

formally, require or pressure technology transfer from the foreign entity to the Chinese partner as

a condition of concluding the partnership deal and obtaining access to the Chinese market.185

Moreover, in some cases, the Chinese JV partner or its employees may have ties to the Chinese

176 See discussion infra in “Computer Fraud and Abuse Act.”

177 See discussion infra in “Remedial Issues: Jurisdiction and Territoriality.”

178 See discussion infra in “Coercive Technology Transfer.”

179 See CRS China-U.S. Trade Report, supra note 4, at 28–29.

180 See discussion infra in “Section 301 of the Trade Act of 1974.”

181 SECTION 301 INVESTIGATION REPORT, supra note 8, at 19. The Report uses the term “technology” broadly to

encompass not just information protected by patents, copyrights, trademarks, and trade secrets, but also “know-how”

such as “production process, management techniques, expertise, and the knowledge of personnel” even if not legally

protected as IP. Id. at 6.

182 Id. at 19.

183 Id.

184 Id. at 23–24. Depending on the industry, the Chinese party may be required to be the controlling shareholder. Id. at

24–29.

185 Id. at 21–24.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

partner’s existing operations, which may compete with the JV operation.186 In such a situation,

the JV’s technology or trade secrets may be misappropriated or leaked to the firm’s Chinese

competitors.187

The second form of coerced technology transfer relates to administrative licensing and regulatory

approvals required by China for companies to establish or expand operations in many industries,

such as food, drugs, mining, or telecommunications.188 In the abstract, there is nothing inherently

improper about the government regulating industries for health, safety, or environmental reasons.

However, the USTR has alleged that China leverages necessary regulatory approvals as a tool to

force technology transfer.189 For example, a company may disclose proprietary formulas and

designs to regulatory authorities to receive marketing approval, only to find that this sensitive

information is passed along to Chinese competitors.190 In other cases, the “expert panel” to which

companies submit sensitive technical information for regulatory approval consists not only of

governmental officials, but also of representatives from Chinese industry or academia with a

competitive interest in the technology.191

Discriminatory Restrictions on Contractual IP Licensing

Owners of most forms of IP can assign or license their rights to another person, just as tangible

property may be sold or leased to another party.192 For example, ownership of a copyright may be

transferred from one person to another by signed, written contract,193 usually in exchange for

compensation. The IP owner may also retain ownership and grant a license to another person, that

is, either exclusive or nonexclusive permission to use the IP.194 Thus, for example, a patent owner

may grant permission to another person to use and sell the patented invention through a contract

in exchange for money or other compensation (e.g., royalties), or a musician may sell or license

the rights in his work to a record company or a music publisher.195 Sale or licensure can be an

important way for IP owners to make money from their creations, especially for smaller entities

that may not have the resources to commercialize their IP themselves. If IP owners cannot freely

license their works at market rates, this may diminish the IP’s value.

In its Section 301 investigation report, the USTR found that Chinese laws, policies, and practices

preclude foreign entities from fairly negotiating market-based terms when licensing technology to

Chinese entities.196 Under Chinese law, foreign entities negotiating technology transfers or

186 Id. at 28.

187 Id.

188 Id. at 36–39.

189 Id.

190 Id. at 42–43

191 Id.

192 See, e.g., 17 U.S.C. § 201(d) (copyrights); 35 U.S.C. § 261 (patents); Ruckelshaus v. Monsanto Co., 467 U.S. 986,

1002 (1984) (trade secrets). Trademarks may be assigned or licensed as well, but subject to limitations such as

prohibitions on “naked licensing” and “assignments in gross.” See generally 3 MCCARTHY ON TRADEMARKS AND

UNFAIR COMPETITION ch. 18, Assignment and Licensing of Trademarks (5th ed. 2019). 193 17 U.S.C. § 204(a).

193 17 U.S.C. § 204(a).

194 See License, BLACK’S LAW DICTIONARY (11th ed. 2019) (defining a license as “permission . . . to commit some act

that would otherwise be unlawful”).

195 See, e.g., MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 121–22 (2007) (patent license agreement); Cohen v.

Paramount Pictures Corp., 845 F.2d 851, 852 (9th Cir. 1988) (copyright license agreement).

196 SECTION 301 INVESTIGATION REPORT, supra note 8, at 48–61.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

licenses are subject to different contractual restrictions than comparable provisions applicable to

Chinese entities.197 For example, Chinese regulations mandate that, in a technology license, a

foreign licensor cannot stop the licensee from making improvements to the technology, and the

Chinese licensee must own any such improvements made to the licensed technology. 198 Thus, the

licensor cannot preclude the licensee from altering the licensed technology and then seeking a

patent on that improvement.199 In the context of JVs with Chinese entities, Chinese regulations

mandate that the contract be limited to a ten-year duration, but the Chinese entity must

nonetheless be granted the rights to use the technology in perpetuity.200 The USTR alleges that

these legally mandated licensing terms in effect put U.S. companies at a disadvantage relative to

Chinese entities, decrease the value that U.S. companies can obtain from licenses, and limit

foreign IP rights holders’ ability to control future uses of licensed technologies.201

As discussed in further detail below,202 on March 26, 2018, the United States filed a complaint

with the WTO over these discriminatory licensing practices, alleging that China (1) imposes

mandatory adverse contract terms that discriminate against and are less favorable to imported

foreign technology; and (2) denies foreign patent holders the ability to enforce their patent rights

against a Chinese JV partner even after a technology transfer contract ends.203 The proceedings

have been suspended since June 2019 at the request of the United States, although with brief

periods of activity to ensure the WTO panel’s authority does not lapse.204

Bad-Faith Assertion/Registration

Another form of harm to U.S. IP rights holders concerns the bad-faith over-enforcement of IP

rights. In some ways, this issue is the inverse of concerns about under-enforcement of IP rights;

instead of ignoring widespread infringement, the issue here relates to exploitation of the IP

system using specious claims that harm the legitimate interests of IP rights holders and users.

For example, bad-faith trademark registrations in China are an area of “growing concern.”205

Many U.S. brand owners have complained that third parties are registering large numbers of

marks in China that are identical or similar to existing, well-known U.S. brands.206 This practice

may harm the U.S. trademark holder in two ways. First, if the registrant uses the mark to establish

a business in China passing off its goods as those of the U.S. brand, this may confuse Chinese

consumers and harm U.S. rights holders in ways analogous to ordinary trademark infringement.207

Second, some bad-faith registrants have sought to “ransom” the mark to the U.S. rights holder,

forcing U.S. trademark holders to purchase their “own” rights back to avoid damage to their

197 Id. at 49–51.

198 Id. at 49.

199 Id.

200 Id. at 50.

201 Id. at 51–54.

202 See infra notes 231–237 and accompanying text.

203 Request for Consultations by the United States, China—Certain Measures Concerning the Protection of Intellectual

Property Rights, WTO Doc. WT/DS542/1 (Mar. 26, 2018).

204 See Communication from the Panel, China—Certain Measures Concerning the Protection of Intellectual Property

Rights, WTO Doc. WT/DS542/14 (June 18, 2020); Communication from the Panel, China—Certain Measures

Concerning the Protection of Intellectual Property Rights, WTO Doc. WT/DS542/10 (June 14, 2019).

205 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 110.

206 2019 SPECIAL 301 REPORT, supra note 32, at 42.

207 Id.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

brand.208 U.S. stakeholders do not view the existing trademark opposition process in China as

adequate to address concerns about bad-faith registration.209

Bad-faith assertion issues may also occur within the U.S. IP system. Chinese applications for

trademarks in the United States have surged recently, rising from 0.07% to 10.5% of all

trademark registration applications between 1985 and 2017.210 A recent empirical study found that

nearly 67% of trademark applications originating from China in 2017 in the apparel category

showed signs of being fraudulent because the registrants did not appear to intend to use the mark

in commerce.211 Even so, fraudulent trademarks harm U.S. rights holders through trademark

depletion (i.e., a decrease in the supply of available, effective trademarks) and “clutter” in the

Principal Register, the primary U.S. trademark registry.212 While the motivation for these

fraudulent trademark applications is unclear, some speculate it results from the cash incentives

offered by Chinese provincial governments for the registration of trademarks,213 and it may be

intended to harm U.S. competitiveness.214

State Sponsorship and IP Violations

IP violations also differ in terms of the actor who committed the alleged violation. In the context

of this report, a potentially relevant distinction is whether the IP violation was committed or

supported by the Chinese government or government-affiliated entities, or instead by private

Chinese individuals or entities not affiliated with or supported by the Chinese government. The

discussion above has generally used the term Chinese entities to include both governmental and

nongovernmental actors, in part because the complex relationship between the private sector in

208 2017 CHINA WTO COMPLIANCE REPORT, supra note 32, at 110.

209 2019 SPECIAL 301 REPORT, supra note 32, at 48.

210 See Fraudulent Trademarks: How They Undermine the Trademark System and Harm American Consumers and

Businesses: Hearing Before the S. Subcomm. on Intellectual Property of the S. Comm. on the Judiciary, 116th Cong.

17–18 (statement of Profs. Barton Beebe and Jeanne Fromer) (showing increase from 42 trademark applications

originating from China in 1985 to 51,312 applications in 2017), https://www.judiciary.senate.gov/imo/media/doc/

Beebe%20Testimony.pdf [hereinafter Beebe & Fromer Statement].

211 Id. at 18–20. Such fraudulent trademark applications relied on “specimens of use” that, for example, consisted of

multiple, nearly identical images of the same consumer product digitally altered with a different brand name on the tag,

or relied on a product image associated with another company. Id. at 19 (laying out indicia of fraudulent specimens of

use); see also Jacob Gershman, Flood of Trademark Applications From China Alarms U.S. Officials, WALL ST. J. (May

5, 2018), https://www.wsj.com/articles/flood-of-trademark-applications-fromchinaalarms-u-s-officials-1525521600.

212 See Beebe & Fromer Statement, supra note 210, at 32–33.

213 Gershman, supra note 211; Trade Relations: Bringing in the Big Guns, WORLD INTELL. PROP. REV. (Apr. 11, 2019),

https://www.worldipreview.com/contributed-article/trade-relations-sending-in-the-big-guns (“As part of a national

effort to drive growth and IP ownership, China’s provincial governments began paying citizens for each trademark

registered in the US, in some cases paying $790 for each US trademark application, according to reports.”).

214 See Fraudulent Trademarks: How They Undermine the Trademark System and Harm American Consumers and

Businesses: Hearing Before the S. Subcomm. on Intellectual Property of the S. Comm. on the Judiciary, 116th Cong. 8

(responses to questions for the record by Megan K. Bannigan), https://www.judiciary.senate.gov/imo/media/doc/

Bannigan%20Response%20QFRs.pdf (“I cannot say concretely why China is doing this and can only assume it is to

negatively impact the American economy and competitiveness, while bolstering the Chinese economy and

competitiveness.”); Bruce Berman, 12-Fold Increase in China’s U.S. Trademark Apps; Many Are Said to Be

Fraudulent and Improperly Filed, IP CLOSEUP (Sept. 4, 2018), https://ipcloseup.com/2018/09/04/12-fold-increase-inchinas-u-s-trademark-apps-many-are-said-to-be-fraudulent-and-improperly-filed/ (overviewing debate over whether

“China may be attempting to ‘disrupt’ the U.S. [trademark] system by flooding it with huge numbers of applications”).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

China and the government can make these distinctions more difficult to draw than in other

countries.215

For some types of IP violations—such as a failure to provide adequate IP protection216 or

discriminatory IP licensing regulations217—the actor at issue is necessarily a governmental entity,

as the complaint concerns the legal provisions of Chinese domestic law. In most cases, however,

the varieties of IP violations discussed above may be committed either by entities affiliated with

the Chinese government, or by private entities acting without state sponsorship. For example,

U.S. authorities have alleged that certain cyber intrusions are committed with the support of the

Chinese government, but this is not necessarily true in every case.218 With respect to IP

infringements such as piracy or counterfeiting, the infringers may be primarily nongovernmental

entities, although U.S. rights holders complain of a lack of effective enforcement by Chinese

authorities.219 In other cases, it may be unclear whether a particular IP violation is supported by

the Chinese government.

Existing Legal Remedies

The legal remedies available for IP violations by Chinese entities depend on many factors,

including the nature of the violation, the type of IP at issue, where the violation occurred, the

availability of personal jurisdiction over the accused, and whether the violation is part of a larger

pattern of IP violations.220 This section reviews some of the principal legal remedies available

under current law. First, it reviews remedies to address systemic violations, which are usually

initiated by the executive branch to address widespread IP violations by foreign actors. These

remedies generally rely on the President’s authority over foreign affairs or Congress’s statutory

delegation of its authority over trade to the executive branch. Second, this section reviews the

civil, criminal, and administrative remedies available for individual IP violations—that is,

discrete IP violations affecting a particular rights holder—such as infringement suits or import

controls. This section does not address the policy considerations relevant to pursuing these

various remedies.221

Systemic Violations: Foreign Affairs and Trade Remedies

This section examines actions that the executive branch could initiate against China’s alleged

violations of U.S. IP rights under international trade agreements, through the use of its

constitutional authority over foreign affairs, and under domestic international trade statutes.

215 SECTION 301 INVESTIGATION REPORT, supra note 8, at 25 (noting that the “complex relationship between China’s

private sector and the government” is a “particular challenge”).

216 See discussion supra in “Under-Protection.”

217 See discussion supra in “Discriminatory Restrictions on Contractual IP Licensing.”

218 See SECTION 301 INVESTIGATION REPORT, supra note 8, at 153; 2017 CHINA WTO COMPLIANCE REPORT, supra note

32, at 115.

219 See discussion supra in “Infringement and Under-Enforcement.”

220 Although this report focuses on China, these legal remedies are not restricted to addressing IP violations by Chinese

entities, but are available to address IP violations more generally.

221 For more on these policy aspects, see Ilias Akhtar et al., supra note 3.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

Although this section also examines remedies under some national security-related authorities,222

it does not address potential remedies under U.S. sanctions laws.223

TRIPS and WTO Disputes

The United States could consider challenging China’s IP practices by bringing cases against

China before a WTO dispute settlement panel. To initiate a WTO dispute, a complaining member

requests consultations with the respondent member in an effort to settle the dispute.224 If these

consultations fail, the member initiating a dispute may request the establishment of a dispute

settlement panel composed of trade experts to determine whether a country has violated WTO

rules.225 Prior to December 2019, if a WTO panel rendered an adverse decision against China, it

would be expected to bring its practices in line with its WTO obligations, generally within a

reasonable period of time, or face the possibility of paying compensation to the complaining

member or being subject to countermeasures allowed under the rules.226 Such countermeasures

could include the United States imposing higher duties on imports of selected products from

China.227

As of December 11, 2019, the WTO’s Appellate Body—the entity that considers appeals from

dispute settlement panel decisions—lost its quorum of three members necessary to decide such

appeals.228 Accordingly, if a WTO member appeals a panel report, the Dispute Settlement Body

(DSB) (i.e., the committee composed of all WTO members that oversees the dispute settlement

mechanism) can no longer adopt panel reports in line with the WTO’s Understanding on Rules

and Procedures Governing the Settlement of Disputes (DSU).229 Unless WTO members agree to

222 See, e.g., NAT’L COUNTERINTELLIGENCE & SEC. CTR., NATIONAL COUNTERINTELLIGENCE STRATEGY OF THE UNITED

STATES OF AMERICA 2020–2022, at 1, 8 (2020), https://www.dni.gov/files/NCSC/documents/features/20200205National_CI_Strategy_2020_2022.pdf [hereinafter COUNTERINTELLIGENCE STRATEGY REPORT] (listing as one of three

primary goals the promotion of “American prosperity by protecting our economy from foreign adversaries who seek to

steal our technology and intellectual property” and noting that “[t]he theft of our most sensitive technologies, research

and intellectual property harms U.S. economic, technological, and military advantage in the world”).

223 This section also does not examine whether the use of such authorities against China would violate U.S. obligations

under international agreements.

224 WTO Understanding on Rules and Procedures Governing the Settlement of Disputes arts. 3–6 [hereinafter DSU].

The texts of the DSU and other WTO agreements discussed in this report are available at https://www.wto.org/english/

docs_e/legal_e/final_e.htm.

225 Id.

226 DSU, supra note 224, arts. 21–22. Prior to the Appellate Body’s loss of a quorum in December 2019, WTO

members whose measures were deemed inconsistent with its WTO obligations and unjustified under one of the GATT

exceptions were expected to implement the panel or Appellate Body’s report. Id. art. 21.3. That is, the defending

member had to withdraw, modify, or replace its inconsistent measures. See id. If a disagreement arose as to whether the

defending member had, in fact, implemented the report, a WTO panel could be convened to hear the dispute over

compliance. Id. art. 21.5. The WTO Appellate Body also heard appeals of these compliance panel reports. Id. art. 17.1.

227 See id. art. 22.3. Prior to the Appellate Body’s loss of a quorum, when a defending Member failed to implement a

panel or Appellate Body report within the established compliance period, the prevailing member could request that the

defending member negotiate a compensation agreement. Id. art. 22.2. If such negotiations were not requested or if an

agreement was not reached, the prevailing member could also request authorization to impose certain trade sanctions

against the noncomplying member. Id. art. 22.2–22.3. Specifically, the WTO could authorize the prevailing member to

suspend tariff concessions or other trade obligations that it otherwise owed the noncomplying member under a WTO

agreement. Id.

228 Alan H. Price, Real WTO Reform Now Possible with Demise of Appellate Body, BLOOMBERG LAW (Dec. 20,

2019). For more on this issue, see CRS Legal Sidebar LSB10385, The WTO’s Appellate Body Loses Its Quorum: Is

This the Beginning of the End for the “Rules-Based Trading System”?, by Brandon J. Murrill.

229 DSU, supra note 224, art. 16.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

consider panel reports as final, the DSB can no longer oversee the losing member’s

implementation of a panel report or authorize the prevailing member to engage in trade retaliation

if the losing member ignores the dispute panel’s recommendations.230 Thus, even if the United

States obtained a favorable ruling against China from a dispute panel, there are doubts as to

whether the ruling would be enforceable under WTO procedures.

As an example, in March 2018, the United States initiated the WTO dispute process against China

based on its laws and implementing measures for importing and exporting technology and for

foreign JVs.231 Specifically, the United States alleged that these Chinese laws and regulations

were inconsistent with TRIPS’s national treatment principle,232 because they treated foreign IP

rights holders less favorably than Chinese IP rights holders.233 The United States also alleged that

Chinese regulations permitting a Chinese JV partner to continue using licensed technology even

after a contract’s expiration violate TRIPS article 28.1 because they deny the foreign patentee the

“exclusive” right to her invention.234 In other words, these Chinese laws and regulations allegedly

favor Chinese IP holders, while preventing U.S. IP rights holders from enforcing their valid IP

rights. On June 14, 2019, at the request of the United States, the WTO panel handling the dispute

suspended the proceedings.235 The suspension remains in effect at the request of the United States

and with China’s consent, although the panel resumed work for several brief periods between

June 14, 2019, and June 8, 2020. The most recent request for a suspension was filed in June

2020.236 Under the DSU, a panel retains its authority so long as it has not been suspended for

more than twelve months.237 The United States and China appear to interpret this rule as

permitting suspensions to extend beyond a year overall if the panel has resumed work, even

briefly, during that period.

WTO rules under the TRIPS Agreement are arguably inadequate for addressing China’s IP

violations because WTO members retain some flexibility with regard to implementation and

enforcement. In addition, there can be difficulties in collecting sufficient evidence to support a

WTO dispute. The executive branch’s decision to impose tariffs under domestic law to address

some of China’s IP practices identified in the USTR’s Section 301 Report may reflect this

concern.238

230 Some U.S. trading partners have agreed to an interim appeal system that does not—at least yet—include the United

States. See In Davos, DG Azevêdo Hears Support—and Urgency—for WTO Reform, WTO.ORG (Jan. 24, 2020),

https://www.wto.org/english/news_e/news20_e/minis_24jan20_e.htm.

231 Request for Consultations by the United States, China—Certain Measures Concerning the Protection of Intellectual

Property Rights, WTO Doc. WT/DS542/1 (Mar. 26, 2018).

232 TRIPS, supra note 41, art. 3; see supra note 127 and accompanying text.

233 Request for Consultations by the United States, China—Certain Measures Concerning the Protection of Intellectual

Property Rights, WTO Doc. WT/DS542/1 (Mar. 26, 2018), at 2.

234

Id.

235 Communication from the Panel, China—Certain Measures Concerning the Protection of Intellectual Property

Rights, WTO Doc. WT/DS542/10 (June 14, 2019).

236 Communication from the Panel, China—Certain Measures Concerning the Protection of Intellectual Property

Rights, WTO Doc. WT/DS542/14 (June 18, 2020).

237 DSU, supra note 224, art. 12.12.

238 Memorandum of March 22, 2018, Actions by the United States Related to the Section 301 Investigation of China’s

Laws, Policies, Practices, or Actions Related to Technology Transfer, Intellectual Property, and Innovation, 83 Fed.

Reg. 13,099 (Mar. 27, 2018); see also, e.g., Notice of Action and Request for Public Comment Concerning Proposed

Determination of Action Pursuant to Section 301: China’s Acts, Policies, and Practices Related to Technology

Transfer, Intellectual Property, and Innovation, 83 Fed. Reg. 28,710, 28,711 (June 20, 2018).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

Diplomacy and International Agreements239

The President possesses constitutional authority over diplomacy and foreign affairs.240 This

includes constitutional power to negotiate international agreements241 and non-legally binding

international pacts.242 The executive branch may use this authority to negotiate more extensive

protections for U.S. IP than is currently offered by TRIPS. Such protections may be contained

within a comprehensive bilateral free-trade agreement or as part of a multilateral agreement

among several countries.243 To the extent that international engagement with China may result in

international pacts that are not legally binding, the President historically has claimed the power to

conclude such pacts without congressional authorization.244 If a negotiation produces a binding

international agreement, however, Congress’s role varies depending on the final agreement’s

form (i.e., whether it is an Article II treaty that requires the Senate’s advice and consent, a

congressional-executive agreement that requires congressional approval, or a sole executive

agreement for which the President claims constitutional authority to conclude without

Congress).245

The executive branch has used this constitutional authority, in conjunction with statutory

authority under Section 301,246 to negotiate certain “structural reforms” to China’s IP practices to

protect U.S. IP rights holders as part of the Phase One Agreement.247 As explained by the USTR,

the Phase One Agreement was designed, in part, to address the issues identified during the

Section 301 investigation, and thus relied partly on statutory authority to enter into binding

agreements with a country “that commits it to eliminate or phase out the act, policy or practice in

question.”248 Issues not addressed by the Section 301 investigation (e.g., market access for

agriculture and purchase requirements) may have relied instead on the President’s authority over

foreign affairs. Unlike a number of other Section 301 agreements, the Phase One Agreement does

not include a binding obligation on the parties to remove tariffs or other countermeasures

239 Steve Mulligan, CRS Legislative Attorney, contributed to this section.

240 While recognizing that the Constitution divides the foreign affairs power between Congress and the Executive,

Zivotofsky v. Kerry, 576 U.S. 1, 16 (2015) (“In foreign affairs, as in the domestic realm, the Constitution ‘enjoins upon

its branches separateness but interdependence, autonomy but reciprocity.’” (quoting Youngstown Sheet & Tube Co. v.

Sawyer, 343 U.S. 579, 635 (1952) (Jackson, J., concurring))), the Supreme Court has stated that the President possesses

the “vast share” of foreign relations authority. Am. Ins. Ass’n v. Garamendi, 539 U.S. 396, 414 (2003) (quoting

Youngstown Sheet & Tube Co., 343 U.S. at 610–11 (Frankfurter, J., concurring)).

241 See Zivotofsky, 576 U.S. at 13 (“The President has the sole power to negotiate treaties . . . .”); CONG. RSCH. SERV.,

TREATIES AND OTHER INTERNATIONAL AGREEMENTS: THE ROLE OF THE UNITED STATES SENATE, S. REP. NO. 106-97, at

96–97 (2001) (discussing negotiations of treaties and other international agreements).

242 See CRS Report RL32528, International Law and Agreements: Their Effect upon U.S. Law, by Stephen P. Mulligan,

at 12–15 (discussing authority to negotiate and complete nonlegal pacts). The President also possesses specific

statutory authority over certain trade agreements, discussed in more detail below. See discussion infra in “Section 301

of the Trade Act of 1974.”

243 Currently, the WTO and the World Intellectual Property Organization (WIPO) represent the primary fora for global

cooperation on protecting IP. WIPO is a “self-funding agency of the United Nations, with 192 member states.” See

TRIPS, supra note 41; Inside WIPO, WORLD INTELL. PROP. ORG., https://wipo.int/about-wipo/en/ (last visited Aug. 18,

2020).

244 See Mulligan, supra note 242, at 12–15.

245 For a discussion of the forms of international agreements and the role of Congress, see id. at 2–15.

246 See discussion infra in “Section 301 of the Trade Act of 1974.”

247 Hearing on U.S.-China Trade Before the H. Comm. on Ways and Means, 116th Cong. 22 (2019) (statement of

Robert E. Lighthizer, U.S. Trade Rep.) (“The President is using his power under Section 301, which has been

delegated. And it is an executive agreement which the Constitution gives the President the right to enter into.”).

248 19 U.S.C. § 2411(c).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

imposed during the trade dispute. Moreover, the Phase One Agreement is somewhat unusual in

that it addresses a dispute outside the context of the WTO; by contrast, other recent uses of this

Section 301 negotiating authority have sought to resolve long-standing WTO disputes.249 As

discussed above, the increased tensions between the United States and China have led to more

uncertainty as to whether the Phase One Agreement will be fully implemented (or terminated) and

whether the contemplated Phase Two Agreement may ever be negotiated.

Section 301 of the Trade Act of 1974

To address China’s IP practices, the executive might also consider using authority under domestic

trade statutes. As noted, one broad authority that might be used is known as “Section 301.” The

statutory framework governing “Section 301” investigations is based in Sections 301 through 310

of the Trade Act of 1974, as amended.250 This framework is one of the principal means by which

the United States enforces U.S. rights under trade agreements and addresses “unfair” trade

barriers to U.S. exports.251

Investigations can be initiated as a result of a petition filed by an interested party with the USTR

or by the agency itself.252 If the USTR initiates an investigation under Section 301, then Section

303 requires that, on the date of initiation, the USTR must “request consultations with the foreign

country concerned” to reach a settlement within a set time frame.253 Section 303 also requires the

USTR to determine whether the Section 301 investigation “involves a trade agreement” and, if so,

must then follow the formal dispute settlement process under that agreement should consultations

with the other country fail.254 If the USTR makes an affirmative determination of “unfair” barriers

to U.S. trade, it generally must implement the action it determines to take, subject to any specific

direction of the President, no later than thirty days after the date of the affirmative

determination.255

249 See Hart, supra note 15.

250 19 U.S.C. §§ 2411–2420. This memorandum does not discuss all of the procedures the USTR must follow under

Section 301. See generally CRS Legal Sidebar LSB10108, Tricks of the Trade: Section 301 Investigation of Chinese

Intellectual Property Practices Concludes (Part I), by Brandon J. Murrill (discussing the executive branch’s use of

Section 301 against China and the procedures that the USTR follows when conducting a Section 301 investigation).

251 For a discussion of the policy considerations in Section 301 investigations and the history of their use with regard to

China specifically, see CRS Section 301 and China, supra note 13. For a discussion of the policy considerations related

to the Trump Administration’s tariff actions under Section 301, see Williams et al., supra note 13. For an overview of

Section 301 and policy considerations, see CRS In Focus IF11346, Section 301 of the Trade Act of 1974, by Andres B.

Schwarzenberg.

252 19 U.S.C. § 2412.

253 Id. § 2413.

254 Id.

255 Id. § 2415(a). Under certain circumstances, the agency may temporarily delay action. See id. Section 301 provides

that the action taken “to eliminate an act, policy, or practice shall be devised so as to affect goods or services of the

foreign country in an amount that is equivalent in value to the burden or restriction being imposed by that country on

United States commerce.” Id. § 2411(a)(3). Section 301 defines two types of executive action—mandatory or

discretionary—that can result from Section 301 investigations. Under Section 301(a)—the “mandatory action”

provision—the USTR must take action as specified by the statute, subject to certain exceptions, if he determines that

• “the rights of the United States under any trade agreement are being denied,” or

• “an act, policy, or practice of a foreign country . . . violates, or is inconsistent with, the provisions of, or

otherwise denies benefits to the United States under, any trade agreement,” or

• “an act, policy, or practice of a foreign country . . . is unjustifiable” (defined to mean conduct that “is in violation

of, or inconsistent with, the international legal rights of the United States”) “and burdens or restricts United

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

The statute authorizes the USTR to, among other things,256



suspend, withdraw, or prevent the application of certain benefits of trade

concessions in a trade agreement with the country under investigation;257



impose duties or other import restrictions on goods or fees or restrictions on

services;258

States commerce.”

Id. § 2411(a), (d)(4)(A). The provision further states that in order to enforce U.S. rights under a trade agreement or

obtain the elimination of certain unfair practices, “[a]ctions may be taken that are within the power of the President

with respect to trade in any goods or services, or with respect to any other area of pertinent relations with the foreign

country.” Id. § 2411(a)(1)(B)(ii) (emphasis added). Thus, the mandatory action provision generally applies in the

context of a trade agreement provision, or when a foreign country’s conduct violates or is inconsistent with

international legal rights (which likely are the product of such a trade agreement).

By contrast, under Section 301(b)—the “discretionary action” provision—the USTR may take certain actions

enumerated in the statute if he determines that “an act, policy, or practice of a foreign country is unreasonable or

discriminatory and burdens or restricts United States commerce, and . . . action by the United States is appropriate.” Id.

§ 2411(b). The statute specifies that conduct “is unreasonable if the act, policy, or practice, while not necessarily in

violation of, or inconsistent with, the international legal rights of the United States, is otherwise unfair and inequitable.”

Id. § 2411(d)(3)(A). Thus, the discretionary action provision can operate outside of the context of a trade agreement or

established “international legal rights.” Conduct is discriminatory under the statute when “any act, policy, and

practice . . . denies national or most-favored-nation treatment to United States goods, services, or investment.” Id.

§ 2411(d)(5). “Most-favored-nation treatment” is a commitment on the part of trading partners to treat another

country’s goods no less favorably than the goods of other trade agreement countries.

256 Section 301(a)(1)(B) states that the USTR shall take authorized actions

subject to the specific direction, if any, of the President regarding any such action, and shall take all

other appropriate and feasible action within the power of the President that the President may direct

the USTR to take under this subsection, to enforce such rights or to obtain the elimination of such

act, policy, or practice. Actions may be taken that are within the power of the President with respect

to trade in any goods or services, or with respect to any other area of pertinent relations with the

foreign country.

Id. § 2411(a)(1)(B).

257 This report does not examine the President’s authority to withdraw from free trade agreements altogether. For more

on this issue, see CRS Report R45557, The President’s Authority to Withdraw the United States from the North

American Free Trade Agreement (NAFTA) Without Further Congressional Action, by Brandon J. Murrill.

258 There are other international trade-related statutory authorities not discussed in this section that appear to provide

the President with broad authority to regulate international commerce. For example, Section 338 of the Tariff Act of

1930 authorizes the President to, among other things, impose duties on imports from a foreign country that

(1) Imposes, directly or indirectly, upon the disposition in or transportation in transit through or

reexportation from such country of any article wholly or in part the growth or product of the United

States any unreasonable charge, exaction, regulation, or limitation which is not equally enforced

upon the like articles of every foreign country; or

(2) Discriminates in fact against the commerce of the United States, directly or indirectly, by law or

administrative regulation or practice, by or in respect to any customs, tonnage, or port duty, fee,

charge, exaction, classification, regulation, condition, restriction, or prohibition, in such manner as

to place the commerce of the United States at a disadvantage compared with the commerce of any

foreign country.

19 U.S.C. § 1338.

As another example, Section 103(a) of the 2015 Bipartisan Congressional Trade Priorities and Accountability Act (Pub.

L. No. 114-26) authorizes the President to enter into limited trade agreements with foreign countries before July 1,

2021, in order to promote U.S. trade by obtaining the reciprocal reduction or removal of tariff barriers “or other import

restrictions,” provided the President follows certain procedural requirements and adheres to certain limitations on the

exercise of this authority. Id. § 4202(a). The executive branch might also consider using authorities specifically related

to tariffs and quantitative restrictions on agricultural imports. See, e.g., id. §§ 3601 (tariff-rate quotas), 3602 (special

agricultural safeguards).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies



revoke, suspend, or limit, in accordance with trade preference laws, certain

trade preferences that provide duty-free treatment to goods, regardless of

whether it affects goods or services in an amount equivalent to the burden

imposed by that country on U.S. commerce; and

enter into binding agreements that commit the offending country to eliminate

or phase out the act, policy, or practice in question; eliminate the burden or

restriction on U.S. commerce from such conduct; or compensate the United

States with trade benefits.259

After the statute was enacted in 1974, the United States conducted numerous Section 301

investigations to enforce its trade rights, with some of the most significant cases brought against

China in the early 1990s.260 Following the establishment in 1995 of the WTO’s dispute settlement

procedures under the DSU, however, the United States began to rely primarily on the WTO

dispute settlement process to enforce its trade rights.261 With the exception of the Trump

Administration’s unilateral tariffs imposed on Chinese imports, which a WTO panel ruled to

violate U.S. WTO commitments,262 the Section 301 investigations initiated after 1995 either

resulted in a WTO dispute settlement case; were used to enforce the outcomes of a previously

decided WTO dispute; or were not further pursued by the USTR.263

The Trump Administration has already imposed Section 301 tariffs on billions of dollars in

Chinese imports to address China’s alleged IP violations.264 However, Section 301 might provide

a variety of additional options for the United States to act directly or indirectly against China if

the USTR determines that China’s practices meet the statutory criteria for taking such action.

Section 301 provides that the USTR may take action against “any goods or economic sector

(A) on a nondiscriminatory basis or solely against the foreign country [in violation], and

(B) without regard to whether or not such goods or economic sector were involved in the act,

policy, or practice that is the subject of such action.”265 Accordingly, Section 301 might seemingly

be used to restrict imports of China products or services into the United States or to restrict

imports of goods and services of other countries or companies to pressure them not to do business

with China.266

An additional provision, known as “Special 301,” requires the USTR to issue an annual report

identifying foreign countries that are “priority foreign countries” because they deny effective

protection of U.S. IP rights267 or they deny fair and equitable market access to U.S. persons who

259 Id. § 2411(c).

260 See CRS Section 301 and China, supra note 13.

261 Bruce Hirsch, Taking Matters into Your Own Hands–Section 301 of the Trade Act of 1974, HINRICH FOUND. (Aug.

3, 2017), https://tradevistas.org/taking-matters-hands-section-301-trade-act-1974/.

262 See id.; Panel Report, United States—Tariff Measures on Certain Goods from China, WTO Doc. WT/DS543/R

(Sept. 15, 2020).

263 Williams et al., supra note 13, at 9.

264 For more on these tariffs, see CRS In Focus IF11346, Section 301 of the Trade Act of 1974, by Andres B.

Schwarzenberg.

265 19 U.S.C. § 2411(c).

266 Section 301 includes within its definition of “services” the “transfers of information,” raising the possibility that

USTR might restrict data flows to Chinese companies that enable them to provide goods or services. See id.

§ 2411(d)(1).

267 Regardless of whether it is in compliance with TRIPS, a “foreign country denies adequate and effective protection

of intellectual property rights if the foreign country denies adequate and effective means under the laws of the foreign

country for persons who are not citizens or nationals of such foreign country to secure, exercise, and enforce rights

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

rely upon IP protection.268 If these countries are not entering into good faith negotiations or

otherwise making significant progress in negotiations to protect IP effectively, then the USTR

must develop an action plan with respect to a country that has remained on the list for at least one

year.269 The President may take “appropriate action” with respect to a foreign country that fails to

meet action plan benchmarks.270

Export Controls271

The U.S. government may also regulate the transfer of U.S.-based IP to Chinese entities through

the use of the export control regime.272 The Export Controls Act of 2018 (ECA)273 provides the

President with certain powers to control the export of, among other things, certain U.S. dual-use

goods and technology.274 Specifically, it requires the executive branch to develop a list of

controlled items and a list of foreign entities and end-users that cannot receive certain U.S.

exports without a license because they are deemed “threat[s] to the national security and foreign

policy of the United States.”275 The U.S. Department of Commerce’s Bureau of Industry and

Security (BIS) maintains a list, known as the “Entity List,” of individuals and entities that are

subject to license requirements for the export of specific items.276 The concept of “export” is

broad and includes the transfer of technology or data to a foreign national within a U.S.

territory.277 Thus, the U.S. government could seek to prevent theft of U.S. IP rights by regulating

transfers of technology or data embodying U.S. IP rights to Chinese individuals or entities, even

if such transfers occur within the boundaries of the United States.

The U.S. government could also use export controls to pressure China to cease violating U.S. IP

rights by denying critical components to Chinese companies. The United States has added many

Chinese companies and their non-U.S. affiliates to the Entity List since 2019. For example, in

final rules issued in May and August 2019, BIS added Huawei Technologies Co., Ltd. (Huawei)

and 114 non-U.S. affiliates of Huawei to the Entity List.278 Because some Chinese companies

relating to patents, process patents, registered trademarks, copyrights, trade secrets, and mask works.” Id. § 2242(d)(2).

268 Regardless of whether it is in compliance with TRIPS, “[a] foreign country denies fair and equitable market access

if the foreign country effectively denies access to a market for a product protected by a copyright or related right,

patent, trademark, mask work, trade secret, or plant breeder’s right, through the use of laws, procedures, practices, or

regulations” that violate international law or agreements to which the United States and the foreign country are party,

or “constitute discriminatory nontariff trade barriers.” Id. § 2242(d)(3). The Special 301 Report also identifies countries

on additional administratively created categories, such as the “Priority Watch List” countries—a category that includes

China. See 2019 SPECIAL 301 REPORT, supra note 32, at 6.

269 19 U.S.C. § 2242(g).

270 Id.

271 Steve Mulligan, CRS Legislative Attorney, contributed to this section of the report.

272 See David S. Bloch, Intellectual Property Implications of Export Control Laws, BLOOMBERG LAW (2011),

https://www.winston.com/images/content/7/6/767.pdf (“Through the export control regime, the Government regulates

what U.S.-based IP can be conveyed to foreign parties, and how.”).

273 50 U.S.C. §§ 4801–4826.

274 Id. § 4812. For detailed background on the Export Controls Act and its authority, see CRS Report R41916, The U.S.

Export Control System and the Export Control Reform Initiative, by Ian F. Fergusson and Paul K. Kerr.

275 50 U.S.C. § 4813(a)(1)–(2).

276 See 15 C.F.R. app. supp. no. 4. to pt. 744.

277 15 C.F.R. § 734.13.

278 Addition of Entities to the Entity List, 84 Fed. Reg. 22,961 (May 21, 2019) (codified at 15 U.S.C. pt. 744); Addition

of Entities to the Entity List and Revision of Entities on the Entity List, 84 Fed. Reg. 43,493 (Aug. 21, 2019) (codified

at 15 U.S.C. pt. 744). However, BIS has maintained certain limited exemptions for some exports to these entities. See,

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

(e.g., telecommunications companies) depend on certain U.S. products, such as microchips, for

their supply chain, denial of exports of U.S. products can severely affect their business.279

Section 232 of the Trade Expansion Act of 1962

Section 232 of the Trade Expansion Act of 1962 authorizes the President to “adjust the imports”

of “articles” and their derivatives to address threats to national security.280 The statute’s use of the

term “articles” suggests that it is aimed at addressing imports of products (e.g., machinery or

DVDs containing counterfeit software or patent-infringing hardware).281 Although Section 232

addresses imports of articles that threaten national security, the U.S. government has noted the

close relationship between foreign theft of U.S. IP rights and national security.282 For example,

the 2020 National Counterintelligence Strategy notes that “[t]he theft of our most sensitive

technologies, research and intellectual property harms U.S. economic, technological, and military

advantage in the world.”283 Because Section 232 defines the concept of “national security”

broadly to include economic effects, the executive could likely use this authority to restrict or

prohibit imports of IP-infringing goods from China or to pressure other countries to cease doing

business with China.284

The President’s authority under Section 232 is triggered if the Department of Commerce conducts

an investigation and concludes that the articles are “being imported into the United States in such

quantities or under such circumstances as to threaten to impair the national security.”285 The

“adjustment” of imports might take the form of tariffs, quotas, tariff-rate quotas, import licenses,

embargos, or other restrictions for a duration that the President determines is appropriate286—or

the negotiation of trade agreements that limit or restrict the import into, or export from, the

United States of the article at issue.287

e.g., Press Release, U.S. Dep’t of Commerce, U.S. Department of Commerce Extends Huawei Temporary General

License (Nov. 18, 2019), https://www.commerce.gov/news/press-releases/2019/11/us-department-commerce-extendshuawei-temporary-general-license.

279 In November 2018, Huawei released a list of core suppliers, and thirty-three of ninety-two suppliers were U.S.

companies. Yuan Yang & Lucy Hornby, China Raises Alarm over Its Dependency on Foreign Chips, FIN. TIMES (July

18, 2018), https://www.ft.com/content/410306d8-8ae0-11e8-bf9e-8771d5404543 (“China relies on imported

semiconductors to build the hardware—including phones, telecoms gear and computers—that account for almost onethird of its exports . . . .”).

280 19 U.S.C. § 1862. For a comprehensive overview of Section 232, see CRS Report R45249, Section 232

Investigations: Overview and Issues for Congress, coordinated by Rachel F. Fefer.

281 Article, MERRIAM-WEBSTER, http://www.merriam-webster.com/dictionary/article (defining “article” as “a member

of a class of things, especially: an item of goods”) (last visited Aug. 18, 2020).

282 See, e.g., COUNTERINTELLIGENCE STRATEGY REPORT, supra note 222, at 1, 8 (listing as one of three primary goals,

the promotion of “American prosperity by protecting our economy from foreign adversaries who seek to steal our

technology and intellectual property” and noting that “[t]he theft of our most sensitive technologies, research and

intellectual property harms U.S. economic, technological, and military advantage in the world”).

283 Id. at 8.

284 19 U.S.C. § 1862(d).

285 Id. § 1862(c)(1).

286 Fed. Energy Admin. v. Algonquin SNG, Inc., 426 U.S. 548, 561 (1976).

287 19 U.S.C. § 1862(c)(3)(A).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

The statute provides that the Department of Commerce and the President shall consider a wide

variety of factors when determining whether imports threaten national security and how to adjust

them if necessary.288 It characterizes national security concerns broadly, stating the following:

In the administration of this section, the Secretary [of Commerce] and the President shall

further recognize the close relation of the economic welfare of the Nation to our national

security, and shall take into consideration the impact of foreign competition on the

economic welfare of individual domestic industries; and any substantial unemployment,

decrease in revenues of government, loss of skills or investment, or other serious effects

resulting from the displacement of any domestic products by excessive imports shall be

considered, without excluding other factors, in determining whether such weakening of our

internal economy may impair the national security.289

Prior to the Trump Administration’s use of Section 232, there was relatively little case law

interpreting the scope of the President’s authority under Section 232, although a 1976 Supreme

Court case upheld Section 232 as a constitutional delegation of authority to the President.290 The

U.S. Court of Appeals for the Federal Circuit (Federal Circuit) has relied upon and reaffirmed this

precedent in recent litigation291 challenging President Trump’s 2018 proclamations imposing

tariffs on certain steel and aluminum.292

Further case law from the U.S. Court of International Trade (CIT) suggests some limits to the

scope of the President’s authority under Section 232. For instance, in Transpacific Steel LLC v.

United States, a U.S. company that imports steel products from various countries, including

Turkey, sought a refund of the allegedly excess Section 232 duties it paid on imports of Turkish

steel.293 The CIT held that the President’s power to impose tariffs under Section 232(b), while

broad, is not unlimited.294 Specifically, the court decided that the President must closely adhere to

the statute’s procedural requirements when exercising such authority.295 The court also

288 These factors include

domestic production needed for projected national defense requirements, the capacity of domestic

industries to meet such requirements, existing and anticipated availabilities of the human resources,

products, raw materials, and other supplies and services essential to the national defense, the

requirements of growth of such industries and such supplies and services including the investment,

exploration, and development necessary to assure such growth, and the importation of goods in

terms of their quantities, availabilities, character, and use as those affect such industries and the

capacity of the United States to meet national security requirements.

Id. § 1862(d).

289 Id.

290 Algonquin SNG, 426 U.S. at 561.

291 Am. Inst. for Int’l Steel, Inc. v. United States, 806 F. App’x 982 (Fed. Cir. 2020), cert. denied, No. 19-1177, 2020

WL 3405872 (mem.) (U.S. June 22, 2020).

292 Proclamation 9704 of March 8, 2018: Adjusting Imports of Aluminum Into the United States, 83 Fed. Reg. 11,619

(Mar. 15, 2018); Proclamation 9705 of March 8, 2018: Adjusting Imports of Steel Into the United States, 83 Fed. Reg.

11,625 (Mar. 15, 2018). The Department of Commerce has also developed a process whereby individuals or

organizations can file requests for exclusions from the tariffs. The exclusion process might also be used as a form of

leverage over companies or countries. For more on the Section 232 process, the historical use of this authority, and the

exclusion process, see CRS Report R45249, Section 232 Investigations: Overview and Issues for Congress, coordinated

by Rachel F. Fefer.

293 Transpacific Steel LLC v. United States, No. 19-00009, 2020 WL 3979838, at *1 (Ct. Int’l Trade July 14, 2020); see

also Transpacific Steel LLC v. United States, 415 F. Supp. 3d 1267 (Ct. of Int’l Trade 2019) (prior decision denying

the United States’ motion to dismiss the complaint because the court found the constitutional and statutory allegations

were plausible).

294 Transpacific Steel, 2020 WL 3979838, at *1.

295 Id. at *3–4.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

determined that the executive violated constitutional guarantees of equal protection protected by

the Fifth Amendment’s Due Process Clause when imposing, without a rational basis, the

additional steel tariffs only on imports from Turkey.296 This decision indicates that courts may

scrutinize whether the executive branch has followed the proper procedures, including meeting

statutory deadlines, when exercising Section 232 authority.

Provided proper statutory procedures are followed and the imposition of tariffs comports with

constitutional requirements, Section 232 might be used to restrict additional imports of Chinese

products, among others, that infringe U.S. IP rights and thereby threaten national security (e.g.,

products with IP-infringing hardware that might be used to carry out cyberattacks in the United

States). A finding under Section 232 that certain imports threaten national security does not itself

necessarily implicate a specific country, such as China, as the responsible actor; rather, the focus

of Section 232 investigations is whether domestic vulnerabilities indicate that the volume or type

of imports pose risks to national security.

Section 201 of the Trade Act of 1974

Sections 201 through 204 of the Trade Act of 1974 (Section 201) authorize the President to

impose temporary tariffs, import restrictions, and other similar measures (known as “safeguards”)

following an investigation by the independent U.S. International Trade Commission (ITC) if it

reaches an affirmative determination of injury or the threat thereof to a domestic industry.297 The

President must impose such measures to protect a domestic industry from significant increases in

imports of products comparable to those produced by the domestic industry.298 For these

safeguard measures, the President decides on the amount and, to an extent, the form of relief; no

finding of an unfair trade practice is required.299

Using this authority, the executive could consider imposing safeguard duties, provided the

statutory procedures and prerequisites for action are satisfied (i.e., there is a surge of IP-infringing

Chinese products, such as counterfeit software or patent-infringing hardware, that injure or

threaten to injure a particular U.S. industry). In general, a decision to impose safeguard duties

would not necessarily indicate that China itself is involved in creating the surge or aware of the

IP-infringing nature of the products for several reasons: (1) the investigations are global in nature,

and (2) import surges can be caused by factors other than state-sponsored practices that affect

trade patterns. Nonetheless, if there was a surge of IP-infringing imports into the United States, an

investigation may encompass products whose IP-infringing elements are known to the Chinese

government.

296 Id. at *6–8.

297 19 U.S.C. §§ 2251–2254. For background and policy considerations, see CRS In Focus IF10786, Safeguards:

Section 201 of the Trade Act of 1974, by Vivian C. Jones.

298 19 U.S.C. §§ 2251–2254. Generally, measures may be imposed on products from all countries (except in certain

cases in which an international agreement provides otherwise) or products from those countries responsible for a surge

in imports. Id. The President may impose provisional relief in certain circumstances with respect to certain products,

including perishable agricultural products. See generally id. § 2252(d). Under Section 406 of the Trade Act of 1974,

which bears some similarities to Section 201, the ITC is responsible for investigating, “with respect to imports of an

article which is the product of a Communist country, whether market disruption exists with respect to an article

produced by a domestic industry” and the President can act to provide relief. Id. § 2436.

299 Id. § 2253.

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

The International Emergency Economic Powers Act300

The International Emergency Economic Powers Act (IEEPA)301 grants the President power to

regulate a broad range of economic transactions when the President declares that a national

emergency exists pursuant to the provisions of the National Emergencies Act.302 The President

might rely on IEEPA to block exports to, or imports from, entities believed to engage in IP

violations if he declared that IP theft created a national emergency (e.g., because of its threat to

U.S. economic and national security interests).303 Upon a national emergency declaration, the

President may (subject to certain exceptions described below) investigate, regulate, or prohibit

foreign exchange transactions, transfers of credit involving foreign nationals or foreign countries,

and the importation or exportation of currency and securities involving persons or property

subject to U.S. jurisdiction.304 IEEPA also allows the President to take certain specified action

relating to property in which a foreign country or person has an interest, including blocking

property or specific interests in property; prohibiting U.S. persons from entering into transactions

involving frozen assets or blocked property; and regulating transactions involving frozen assets

and blocked property.305

Nonetheless, IEEPA is not boundless. The President cannot use IEEPA to regulate transactions

involving certain communications that do not involve a transfer of anything of value;

informational materials; or transactions incident to travel.306 IEEPA also is limited jurisdictionally

to transactions involving U.S. persons or property subject to the jurisdiction of the United

States.307 It does not permit the President to “confiscate” (i.e., take title to) property unless that

property is owned by a person, nation, or entity that has planned, authorized, aided, or engaged in

hostilities or attacks against the United States.308 And while IEEPA permits economic sanctions, it

does not require the President to impose or maintain them, nor does it place any congressional

review process on the executive’s decision to lift IEEPA-based sanctions.309

The President used this authority on August 6, 2020, to issue executive orders to prohibit certain

transactions involving the mobile applications TikTok and WeChat. These executive orders build

on a prior executive order addressing vulnerabilities in information and communications

technology and services. In May 2019, the President issued an executive order declaring a

national emergency due to “vulnerabilities in information and communications technology and

services, which store and communicate vast amounts of sensitive information,” including

personal information “to commit malicious cyber-enabled actions, including economic and

industrial espionage against the United States.”310 The President also determined that

“unrestricted acquisition or use” of such technology and services that was “designed, developed,

manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or

300 Steve Mulligan, CRS Legislative Attorney, contributed to this section of the report.

301 See 50 U.S.C. § 1702. For additional analysis of IEEPA, see CRS Report R45618, The International Emergency

Economic Powers Act: Origins, Evolution, and Use, coordinated by Christopher A. Casey.

302 Pub. L. No. 94-412, 90 Stat. 1255 (1976) (codified as amended at 50 U.S.C. §§ 1601–1651).

303 50 U.S.C. § 1702(a)(1)(B).

304 Id. § 1702(a)(1)(A).

305 Id. § 1702(a)(1)(B).

306 See id. § 1702(b).

307 See id. § 1702(a)(1).

308 See id. § 1702(c).

309 See id. § 1701(a)(1) (providing that the President “may” prescribe sanctions in response to a national emergency).

310 Exec. Order No. 13,873, 84 Fed. Reg. 22,689 (May 15, 2019).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

direction of foreign adversaries” could allow such adversaries to “create and exploit

vulnerabilities,” thereby also qualifying as “an unusual and extraordinary threat to the national

security, foreign policy, and economy of the United States” under IEEPA.311 “Foreign adversary”

is defined as “any foreign government or foreign non-government person engaged in a long-term

pattern or serious instances of conduct significantly adverse to the national security of the United

States or security and safety of United States persons.”312

Based on these previous determinations, the President’s August 6, 2020, executive orders found

that “additional steps must be taken to deal with the national emergency” due to the alleged

threats posed by TikTok and WeChat.313 In particular, the President found that China “continues

to threaten the national security, foreign policy, and economy of the United States” and that

TikTok and WeChat present risks based on how much information they collect from users.314 This

information “threatens to allow the Chinese Communist Party access to Americans’ personal and

proprietary information,” which could allow China to track federal employees, build files of

personal information for blackmail, and carry out “corporate espionage.”315 To implement the

orders, the Secretary of Commerce must develop a list of prohibited transactions between

individuals subject to the jurisdiction of the United States and ByteDance Ltd. and Tencent

Holdings (the parent companies of TikTok and WeChat, respectively) and their subsidiaries.316

The Secretary must identify these prohibited types of transactions within forty-five days after

August 6, 2020.317 As of the time of writing, these transactions have not been identified, although

experts speculate that these could include removing the apps from online stores run by U.S.

companies or prohibiting financial institutions from supporting transactions conducted on the

apps or via their parent companies.318

As these executive orders suggest, at least part of the concern about TikTok and WeChat involves

economic espionage, potentially including IP. China appears to view these orders as related to the

broader U.S.-China trade disputes and negotiations, even reportedly seeking to discuss them

during the currently postponed review of the Phase One Agreement.319 In addition to these

executive orders invoking IEEPA, on August 14, 2020, President Trump issued an executive order

ordering ByteDance to divest from Musical.ly, a company that ByteDance acquired in 2017,

within ninety days, finding that the acquisition threatened national security insofar as Musical.ly’s

acts occurred in interstate commerce in the United States.320 This order relied on statutory

authority that the President may use to prohibit or limit foreign investment in the United States

311 Id.

312 Id.

313 Exec. Order No. 13,942, 85 Fed. Reg. 48,637, 48,637 (Aug. 6, 2020); Exec. Order No. 13,943, 85 Fed. Reg. 48,641,

48,641 (Aug. 6, 2020).

314 The executive orders appear to find that China qualifies as a “foreign adversary” under the May 2019 executive

order, although this is not made explicit.

315 Exec. Order No. 13,942, 85 Fed. Reg. at 48,637; Exec. Order No. 13,943, 85 Fed. Reg. at 48,641.

316 Exec. Order No. 13,942, 85 Fed. Reg. at 48,638; Exec. Order No. 13,943, 85 Fed. Reg. at 48,641–42.

317 Exec. Order No. 13,942, 85 Fed. Reg. at 48,638; Exec. Order No. 13,943, 85 Fed. Reg. at 48,642.

318 Alex Lawson, Confusion Prevails over Extent of Trump’s TikTok ‘Ban,’ LAW360 (Aug. 10, 2020),

https://www.law360.com/articles/1299421; Martin Chorzempa, Trump’s Ban on WeChat and TikTok Lacks Clarity and

Will Not Solve Our Data Security Problems, PETERSON INST. FOR INT’L ECON. (Aug. 7, 2020), https://www.piie.com/

blogs/realtime-economic-issues-watch/trumps-ban-wechat-and-tiktok-lacks-clarity-and-will-not-solve.

319 China to Bring up WeChat, TikTok in Next U.S. Trade Talks, BLOOMBERG (Aug. 12, 2020),

https://www.bloomberg.com/news/articles/2020-08-12/china-to-bring-up-wechat-tiktok-in-upcoming-u-s-trade-talks.

320 Exec. Order of Aug. 14, 2020, 85 Fed. Reg. 51,297 (Aug. 19, 2020).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

that threatens national security,321 and determined the order was necessary because other laws,

including IEEPA, could not adequately address the national security risks.322 This final order does

not address WeChat and, insofar as U.S. entities may continue transactions with TikTok until the

Secretary of Commerce identifies which transactions are prohibited, the President’s August 6,

2020, executive orders remain in effect.323 Both TikTok and WeChat have filed lawsuits against

the Administration, seeking to enjoin the effects of the executive orders on constitutional

grounds.324

Individual Violations: Civil, Criminal, and Administrative

Remedies

The preceding section focused on legal remedies initiated by the President based on executive

authority over foreign affairs or delegations of congressional power over trade to the executive

branch, primarily to address systemic IP violations by foreign actors. By contrast, this section

focuses on legal remedies available to IP rights holders under U.S. law to address individual IP

violations, including civil, criminal, and administrative processes.

Remedial Issues: Jurisdiction and Territoriality

A threshold question in all litigation, including litigation aimed at remediating IP theft, is whether

a court has the power to adjudicate the underlying allegations. In particular, the court must have

power over both the conduct and parties involved. In a case involving alleged IP theft, each of

these requirements can present challenges for a U.S. IP owner. For example, it may be difficult

for an owner of U.S. IP to pursue a domestic remedy for IP theft when the offending conduct is

performed by a foreign entity or occurs abroad (although it may be possible to pursue remedies in

the foreign jurisdiction itself). Two such challenges faced by IP owners that limit the opportunity

for U.S.-based remediation of IP theft—territoriality and personal jurisdiction—are described

below.325

Activity Outside the United States and the Principle of Territoriality

Congress has the power “to enforce its laws beyond the territorial boundaries of the United

States.”326 Nevertheless, “[i]t is a longstanding principle of American law ‘that legislation of

Congress, unless a contrary intent appears, is meant to apply only within the territorial

321 50 U.S.C. § 4565.

322 Exec. Order of Aug. 14, 2020, 85 Fed. Reg. at 51,297.

323 Some commentators have suggested that perhaps the most immediate effect of President Trump’s August 14, 2020,

executive order may be to increase pressure on ByteDance to find a U.S.-based (or non-Chinese) buyer. See, e.g., Evan

Semones, Trump Hits TikTok’s Owner Again by Ordering Sale of U.S. Operations, POLITICO (Aug. 14, 2020),

https://www.politico.com/news/2020/08/14/trump-tiktok-us-operations-sale-395720.

324 Ryan v. Trump et al., Case No. 20-cv-05948 (N.D. Cal.); TikTok Inc. et al. v. U.S. Dep’t of Commerce et al., Case

No. 20-cv-07672 (C.D. Cal.); In Re: U.S. WeChat Users Alliance et al., Case No. 20-cv-05910 (N.D. Cal.).

325 In addition, foreign states, such as China, may be entitled to sovereign immunity from civil suits, subject to certain

exceptions. 28 U.S.C. §§ 1604–1607; Verlinden B.V. v. Cent. Bank of Nigeria, 461 U.S. 480, 488–89 (1983). For

purposes of sovereign immunity, a “foreign state” includes “a political subdivision of a foreign state or an agency or

instrumentality of a foreign state.” 28 U.S.C. § 1603(a)–(b). Suits against officials of a foreign state are not barred by

sovereign immunity under statute, but may be barred under common law or if the foreign state is the real party in

interest. Samantar v. Yousuf, 560 U.S. 305, 324–25 (2010).

326 EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991) (“Both parties concede, as they must, that Congress has

the authority to enforce its laws beyond the territorial boundaries of the United States.”).

Congressional Research Service

Intellectual Property Violations and China: Legal Remedies

jurisdiction of the United States.’”327 According to the Supreme Court, this principle “serves to

protect against unintended clashes between our laws and those of other nations which could result

in international discord.”328 Consistent with this principle, U.S. IP laws generally reach only

conduct that occurs within the United States. For example, “the Copyright Act is considered to

have no extraterritorial reach.”329 Similarly, “purely extraterritorial conduct cannot constitute

direct infringement of a U.S. patent.”330 Thus, if the underlying acts of infringement occurred

purely outside of the United States, it may be difficult to remedy those acts in a U.S. court.

There are exceptions to the generally territorial reach of U.S. IP law, however. For example, a

trademark owner may sue for extraterritorial infringement where (1) the violations “create some

effect on American foreign commerce”; (2) the effect is “sufficiently great to present a cognizable

injury to the plaintiffs”; and (3) the link to American foreign commerce is “sufficiently strong in

relation to those of other nations to justify an assertion of foreign authority.”331 Where copyright

infringement occurs domestically and enables foreign infringement, the copyright owner may be

able to recover damages and the infringer’s extraterritorial profits.332

Similarly, various types of indirect patent infringement involve extraterritorial acts. For example,

“where a foreign party, with the requisite knowledge and intent, employs extraterritorial means to

actively induce acts of direct [patent] infringement that occur within the United States, such

conduct is not categorically exempt from redress” as an act of indirect patent infringement.333

Moreover, a person may infringe a patent by, without authority (1) supplying or causing to be

supplied in or from the United States “all or a substantial portion” of the uncombined components

of a patented invention “in such a manner as to actively induce the combination of such

components outside of the United States in a manner that would infringe the patent if such

combination occurred within the United States”;334 (2) supplying in or from the United States any

component of a patented invention “especially made or especially adapted for use in the invention

and not a staple article or commodity of commerce suitable for substantial noninfringing use,”

with knowledge that the component “is so made or adapted,” and intending that the component

will be combined outside of the United States in a manner that would infringe if it occurred

327 Id. (quoting Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285 (1949)).

328 Id.

329 Tire Eng’g & Distrib., LLC v. Shandong Linglong Rubber Co., 682 F.3d 292, 306 (4th Cir. 2012); see also, e.g.,

Allarcom Pay Television, Ltd. v. Gen. Instrument Corp., 69 F.3d 381, 387 (9th Cir. 1995) (“[F]ederal copyright law

does not apply to extraterritorial acts of infringement.”); accord Geophysical Serv., Inc. v. TG S-NOPEC Geophysical

Co., 850 F.3d 785, 799–800 (5th Cir. 2017) (“Where a copyright plaintiff claims contributory infringement predicated

on direct infringement that occurred entirely extraterritorially, the plaintiff has stated no claim.”).

330

Merial Ltd. v. Cipla Ltd., 681 F.3d 1283, 1302 (Fed. Cir. 2012) (citing 35 U.S.C. § 271(a)); see also 35 U

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.