Wednesday, March 12, 2008

Since 2005 China Has Tried To Amend The WTO TBT Agreement & Favored Open, Not Proprietary Standards: Why Has China Not Learned The Value Of IP Rights?

China Leads Developing Country Push For Balance In IP And Standards

Intellectual Property Watch

24 April 2007

By William New

BEIJING - China’s rapid development can be seen everywhere in the capital, where the skyline is perforated by construction cranes in all directions. But China’s vigorous effort to update structures does not stop at its borders. China is one of several leading developing countries that have become players on the global economic stage and now are demanding a balancing of global governance institutions.

Key developing countries such as China, Brazil, India and South Africa are increasing their efforts to influence global standards-setting proportionate to their rising economic might. But this effort may require substantive changes to the existing structure, changes that some say are already taking place.

A key focus is on the treatment of standards for technology and the related intellectual property rights. Yi Xiaozhun, vice-minister of the Chinese Ministry of Commerce, said at a conference last week that standards and IP rights are critical for economies such as China’s that are basing their development on science and technology. But, he said, an “inappropriate convergence” between standards and IP rights has “caused problems.”

“Delayed or inadequate IPR [intellectual property rights] disclosure, stringent IPR licensing conditions and expensive licensing fees run counter to fair competition, hinder the promotion and application of new technologies, obstruct the normal operation of international trade and impede the harmonious development of global economy and society,” Yi said at an 17-18 April conference cosponsored by the commerce ministry and other Chinese agencies, as well as Sun Microsystems. “Developing countries are the worst hit by such problems which effectively hinders their greater participation in economic globalization.”

Chinese officials such as Yi say international standards bodies, which are typically based in western developed countries, have begun to recognise the imbalance in their policies that insufficiently reflect the interests of developing countries. “Standards bodies are mainly controlled by developed countries,” he said. As a result, new standards putting developing countries in an “underprivileged position” have “become new obstacles to international trade.”

Yi urged the World Trade Organization to take into account changes made in the standards bodies. China has argued at the WTO since 2005 for changes to the WTO Agreement on Technical Barriers to Trade (TBT), and officials at the conference vowed to continue the fight.

“China holds that in order to ensure smooth implementation of the TBT agreement, attention should be given on the one hand to the efficiency and quality of setting international standards, and on the other hand to the difficulties members face in adopting international standards,” he said.

A primary concern is that standards in the public interest can be affected when it turns out that hidden underlying patents give monopolistic licensing power to companies, usually in the developed countries that own most of the world’s patents. Yi suggested that consortia, groups of industry experts and others assembled to accomplish tasks such as a standards change, may use monopoly power to push their interests in standard-setting. “We cannot deny that an international deviation effect arises,” he said.

In the speech, Yi stressed China’s seriousness about further increasing efforts to protect and enforce intellectual property rights, even though “IPR has created new barriers in the form of standards which have harmed developing countries.”

Manuel Lousada Soares, Brazil’s deputy secretary for industrial technology at the Ministry of Development, Industry and Foreign Trade, did not fault companies for protecting their innovations or consortia for promoting standards. He said the problem is when standards impact public interest issues.

Soares said the TBT agreement states that a technical regulation should be “presumed not to create an unnecessary obstacle to international trade.” He cited efforts by standards bodies to improve early disclosure of patents in standards. Soares reiterated the concern about hidden patents getting included in standards, and said standards can be developed without the technical solutions protected by patents. Brazil backs standards bodies’ efforts to find ways enforce early disclosure, and encourages more cooperative work on the issues, including at the WTO, WIPO and the standards organisations, he said. This includes better analysis of the issues as well as better definitions of terms, he said.

China’s Strategy for Standards

Ni Guangnan, a fellow at the Chinese Academy of Engineering, criticised the standards status quo and laid out a strategy for China to gain influence over standards. He said proprietary standards “cause unfair competition.”

“In the IT [information technology] field, some technologies or products prevail and are thus accepted as de facto standards,” he said. “If these standards are not made open, their intellectual property right will be owned by companies developing them and then become proprietary standards, which will further prevent other rivals from growth and contribute to the monopoly of the companies. For example, Microsoft’s Windows, Office and IE browser.”

Proprietary standards have the negative impact of impeding fair competition, imposing high costs on users, and are a security risk, he said. Therefore, “the adoption of open standards will be promoted,” he said, because they generate fair competition, impose less burden on users, and provide greater system security.

Ni said China, in order to help its companies which have been struggling with the high royalty payments charged by patent-holders whose technologies were accepted in standards, plans to a series of actions. They will form their own patent pools, and will gain the support of international standards development organisations, and will participate in the drafting of standards favourable to China. Government agencies will assist companies in responding to intellectual property rights disputes.

Another plan is to back ex ante RAND terms, meaning disclosure of intellectual property rights before the establishment of a standard, and [license] standards on a reasonable and non-discriminatory basis, which has gained support of the US Justice Department. Also, China will support open-source code in software “because its use, copying, modification and re-issuance don’t require royalty,” he said. China also will support open standards for critical areas, he said. De facto standards for Microsoft’s Office have been the dominant document format, which Ni said “has hindered fair competition and prevented manufacturers from getting access to public and important information.”

Richard Suttmeier, a political science professor at the University of Oregon (US), suggested that the rise of “fragmenting” free-trade agreements might have implications for standardisation. He also said the rise of large new economies voicing dissatisfaction raises the question of how much existing economies are interested in reforming organisations or replacing them with something else, as well as to what extent it would be possible to raise coalitions to bring about change.

Zhang Naigen, law professor and director of the international law and intellectual property study centers at Fudan University (China), said the US and the European Union emphasized private rights of intellectual property rights but that they differ on antitrust law. China is still working on its antitrust law, he said.

Andrew Updegrove, an attorney at Gesmer Updegrove in Boston who represents standards coalitions, said patent holders might be the “new colonialists” and said that those who can control standards can control markets. He said a danger is if newly large economies who make their own standards. He encouraged policymakers to seek standards that are in the best interest of all.

Rishob Ghosh, senior researcher at the Maastricht (Netherlands) United Nations University, cited examples of standards that became institutionalised through heavey popular use even though better technologies followed, such as keyboards.

Patrick Rata of the World Trade Organization trade and environment division said the 2005 WTO report on trade showed the application of standards can have beneficial and negative effects on trade. He said the WTO TBT Agreement is flexible on the measures governments take, but says they should not unnecessarily restrict trade. The agreement contains encouragements to harmonise, and says standards should be developed in a transparent and indiscriminate way. Rata also said it would be up to China to decide whether to pursue its concerns about the TBT and standards and to “gauge the interest of other governments” in changing the agreement. China brought it up again in March, he said.

US Officials Busy in China

A number of US officials have been busy in Beijing in recent weeks for a variety of reasons. These include talks on innovation, intellectual property rights and standards, with officials such as Mark Lewis, a US standards expert. Last week, Chris Adams, soon to be the new USTR official in China, was in town with fellow USTR officials Tim Stratford, assistant USTR for China Affairs, and Audrey Winter, his deputy. Last week officials from the two governments met on the Joint Commission on Commerce and Trade (on structural issues and trade remedies), and this week a planning meeting was expected to held in Beijing for the Strategic Economic Dialogue, an event led by Treasury Secretary Henry Paulson in late May. The JCCT involves USTR and the US Commerce Department together.

Audrey Winter, deputy assistant US trade representative on China affairs, speaking on her own behalf, said in the United States, the government generally leaves standards-setting to private organisations as government might not know what is best for consumers or business. China is considering its anti-monopoly law, and Winter said recent legal cases and statements by US antitrust authorities have set boundaries for action in the area in the US. International trade rules, she said, are aimed at getting government out of the market.

Speaking at a separate 19 April conference at Beijing (Peking) University, Mark Cohen, the US Patent and Trademark Office representative in Beijing, highlighted the debate in China over whether intellectual property rights are a private right, as in the west, or a public right. He referred to Chinese government subsidies for domestic patent applications and said treating IP rights as a private right encourages “robust” innovation, and would lead China to become “a truly innovative economy.” Cohen also downplayed the role of foreign firms in the Chinese IP market as very small.

Also at the 19 April conference, Sun Microsystems Chief Standards Officer Carl Cargill said a lack of research into how standards related to information and communications technology are made makes it an “uncharted area” made up of side deals” consisting of “whispers” and “hopes.” He said no one coordinates consortia and that there are more than 500 standards organisations with few changes since the 1970s. “They never die,” he said.

Cargill also said that standards organisations are unwilling to take full responsibility for identifying who owns the intellectual property rights underneath standards, so the costs of standards are unknown but there is no way to avoid the rights. If one doesn’t pay for them, it’s illegal, if they don’t use them they’re out of the competition, and nations that try to make their own standards as China did with mobile standard WAPI are stopped, he said.

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