How the U.S.-China Trade War Effects IP Strategy

In addition to the widening trade deficit, another driver of the trade war has been China's history of intellectual property misappropriation. While the United States alleges illicit activities including theft by Chinese agents, e.g., by breaking into U.S. corporate offices, and bribing U.S. corporate employees, to obtain high-value trade secrets, the allegations of misappropriation extend to subtler activities. Foreign companies doing business in China have complained of China's use of administrative measures, such as foreign ownership restrictions, licensing requirements, and product approvals, as mechanisms used to coerce foreign companies to transfer technology and IP to Chinese companies. Although foreign ownership requirements have been relaxed in some sectors, in others foreign businesses are still required to form joint ventures with Chinese firms in order to do business in China. These joint ventures often require some level of technology transfer, after which the Chinese partner has sometimes used the transferred technology to thereafter compete with the foreign company.

This battle between the world's two largest economies has resulted in increased uncertainty in the global business environment. Many companies are delaying new investments in capital equipment, research and development, and IP procurement. In light of the unpredictability of global economic conditions, trade negotiations between Washington and Beijing, and the upcoming 2020 U.S. presidential election, there is no telling how long the uncertainty will last. The tariffs will continue to have meaningful impacts on many companies — including how and where they source materials, how and where they manufacture, and how their products are sold. In the midst of this unpredictability, and in light of the way that businesses are changing in response to the trade war, there are a number of things that companies based outside of China can do to reconsider their corporate IP strategies.