TradeVistas | USTR reports on intellectual property theft

Trade Policy’s Naughty and Notorious List for IP Deficiencies

Making a List

The Office of the US Trade Representative (USTR) published its 2020 “Special 301” and “Notorious Markets Review” annual reports on April 29. The Special 301 report identifies trading partners that do not adequately or effectively protect and enforce intellectual property (IP) or otherwise deny market access to U.S. innovators. Thirty-three countries were cited this year as presenting the most significant concerns.

The Special 301 report categorizes countries based upon the severity of the IP deficiencies as assessed by various U.S. government agencies and the private sector. The ten countries USTR placed on its “Priority Watch List” will be subject to an action plan to resolve the issues that caused this designation. The remaining 23 countries have been placed on the “Watch List” because of IP deficiencies, but deficiencies that are not as detrimental to U.S. economic interests as those on the Priority Watch List.

2020 PWL Countries on Map (1)

The Special 301 report also indicates countries that will be subject to an “out-of-cycle” review. Generally, this means that rather than waiting until the annual review occurs, USTR will conduct interim reviews of specific IP deficiencies at various times during the year to assess a country’s progress in remedying the concern. This year, USTR designated Saudi Arabia as a Priority Watch List country and also indicated it would be subject to an out-of-cycle review in 2020. Malaysia is not on either the Priority Watch List or the Watch List, but is identified as being subject to an out-of-cycle review because of concerns lingering from 2019 about its enforcement regime.

Checking it Twice

The 2020 Special 301 report also identifies “significant cross-cutting IP issues” deserving of special attention. These include: IP protections, enforcement and market access for pharmaceutical and medical devices; restrictive patentability criteria; inadequate border measures or lack of customs enforcement authority, inability to stop in-transit shipments and to destroy infringing goods; online and broadcast piracy affecting the copyright industries, government use of unlicensed software, inadequate protection of trade secrets, and market access barriers due to EU-type geographical indications implementation.

Tech Transfer and Online Infringement Top the List

In addition to these persistent cross-cutting issues, technology transfer and online IP infringement have become a key focus of U.S. concerns.

Technology transfer requirements triggered the investigation and imposition of tariffs on China-origin goods after the United States concluded that China used joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies. But China is not alone in this regard. The Special 301 report notes that U.S. IP owners operating in foreign markets find “an increasing variety of government measures, policies, and practices that require or pressure technology transfer from U.S. companies. These measures are sometimes styled as means to incentivize domestic ‘indigenous innovation.’ In practice, they disadvantage U.S. companies, requiring them to give up their IP as the price of market entry.”

The technology transfer issue may be exacerbated during a time of economic downturns and hardships as they are being experienced globally today. Thus, U.S. companies may need to be more willing to openly challenge governments that impose these requirements in the future.

The issue of IP enforcement is a mainstay in the report year after year. The report heading, Border, Criminal and Online Enforcement, now refers to traditional enforcement shortcomings (border and criminal) as well as more recent challenges posed by online infringement.

The Internet’s impact on IP infringement is significant. Consumer demand supports massive production of counterfeit goods. The volume of counterfeits, in turn, spurs increased criminal conduct in producing and distributing the counterfeit goods. The Internet provides a vehicle for ordering goods and conducting financial transactions that feed the illegal activity.

Underscoring the enforcement challenge, U.S. Customs and Border Protection (CBP) reported that in fiscal year 2019 it processed approximately 1.8 million express consignment and international mail shipments every day (over 600 million in a year). CBP also reported that in fiscal year 2019, over 90 percent of the 27,599 IP seizures occurred in the express carrier and international mail environments.

IP seizures of international mail

Gaining Notoriety

USTR’s Notorious Markets Listidentifies online and physical markets that “reportedly engage in, facilitate, turn a blind eye to, or benefit from substantial copyright piracy and trademark counterfeiting.” Produced as the result of an annual Review of Notorious Markets for Counterfeiting and Piracy, this year’s report cited 38 online markets and 34 physical markets as rife with pirated and counterfeit goods. The report also explored the nexus between online piracy and malware.

While CBP reports enforcement challenges at the U.S. border, USTR’s Notorious Markets report underscores the economic threats posed by online and physical markets abroad that raise concerns because the “scale of infringing activity in these markets can cause significant harm to U.S. intellectual property (IP) owners, consumers, legitimate online platforms, and the economy”.

Notorious markets

The 2020 Notorious Market Review, while maintaining a focus on the distribution of pirated content and counterfeit goods online, dove deeper into challenges related to counterfeit and pirated goods on e-commerce platforms and third-party marketplaces. Emerging piracy models include illicit streaming devices and other portals and apps that harm the digital marketplace for legitimate music, television and movies.

The report identifies specific social media platforms that contribute to the proliferation of infringing goods available on the internet. USTR, in identifying specific platforms, encourages these platforms to begin to address problems of IP infringement by “establishing industry standard IP enforcement policies, increasing transparency and collaboration with right holders to quickly address complaints, and working with law enforcement to identify IP violators”. These recommendations are consistent with recommendations that were issued in the Department of Homeland Security’s January 2020 report, Combating Trafficking in Counterfeit and Pirated Goods.

Seller Beware

USTR’s annual reporting regarding the state of IP in countries around the world is a valuable tool for U.S. enterprises considering commercial activity abroad. Indeed, both reports are the product of U.S. industry engagement with government to provide valuable information about their experiences.

Due to the value of IP assets, the need to assess risk to an IP portfolio is an absolute necessity in today’s global commercial environment. USTR’s annual reports provide enterprises with an opportunity to determine how and whether countries have made progress over the past few decades to improve their IP environment for businesses or whether significant business risks remain.