Remarks by Deputy USTR Robert Holleyman to the U.S. Chamber of Commerce
Intellectual Property Center 2015 Global IP Summit
Ambassador Robert W. Holleyman II
November 6, 2015
As Prepared for Delivery
Introduction
Thank you, David, for that warm introduction, and the Global Intellectual Property Center for inviting me to participate in today’s event. It is an honor for me to be here today to talk about how the Obama Administration is using trade policy to promote a virtuous cycle of innovation around the world. Yesterday we released the text of the highest-standard free trade agreement ever negotiated. Since it implicates several of the fastest growing economies in Asia, my primary focus today will be on our efforts to promote higher standards of intellectual property rights protection and enforcement in that region.
Protecting the intellectual property of American companies when they sell their products and invest abroad is key to our country’s comparative advantage in the global economy. According to estimates, approximately 70 percent of the value of our publicly traded companies is attributable to their “intangible assets”—or IPR. In 2010, the value added of U.S.-held IPR was approximately US$5 trillion, contributing 34 percent to our Gross Domestic Product. Protection and enforcement of IPR around the globe directly affects an estimated 40 million U.S. jobs in IP-intensive and associated industries. Those jobs pay on average 42 percent higher wages than other jobs.
We also know that the large-scale theft of American IP amounts to billions of dollars per year and that this problem is growing. As we reported in this year’s Special 301 Report, trade secret theft, including industrial and economic espionage conducted by cyber means, is escalating.
In 2013, the National Bureau of Asian Research issued a report on the Theft of American Intellectual Property. The IP Commission that prepared the report explained that virtually every sector and technology has been impacted by trade secret theft—from low-tech to high-tech; from agricultural machinery and biotechnology to wind-power generation; from mobile phones, computers, and televisions to chemical compounds and aeronautics. General Keith Alexander, the former head of the U.S. Cyber Command, stated that of the US$5 trillion in intellectual property held in the United States, approximately US$300 billion was stolen over networks every year. General Alexander described this theft as “the greatest transfer of wealth in history.”
According to the IP Commission’s estimates, somewhere between 50 to 80 percent of intellectual property theft in all categories—both globally and in the United States—can be traced back to China. Therefore, the rules that China adopts to promote IPR protection directly impact our economy. If IPR protection in China were improved to a level comparable to the United States, U.S. net employment might increase by 2.1 million jobs and American companies would benefit from an estimated $107 billion in additional annual sales, according to U.S. International Trade Commission estimates.
However, we see a troubling contrast between the stated policy intentions of China’s leadership to protect and enforce intellectual property rights and the actual facts on the ground. Chinese leadership has increasingly signaled its recognition of the role that intellectual property rights play in spurring innovation. Consistent with this posture, high-level planning documents issued by the Government of China in 2014 and 2015 articulated a commitment to protect and enforce IPR; to allow industry and entrepreneurs a greater voice in policy development; and to allow market mechanisms to play a greater role in guiding research and development efforts. Furthermore, in late 2014, China launched a three-year pilot program to study the merits of specialized intellectual property courts which, if they gain expertise and remain impartial, could provide for more efficient resolution of claims by rights holders in China. These are good signs.
However, the pace of reform in China has been halting and is often at odds with the facts on the ground. China continues to adopt measures to promote indigenous innovation that contradict its stated commitment to promote intellectual property protection and enforcement. For example, China’s recent measures restricting banking sector purchases to so called “secure and controllable” technology would have undermined the ability of our ICT companies to compete in that market without handing over their core intellectual property to Chinese authorities. Existing and proposed measures in China—cutting across multiple sectors—also would require firms to either relocate their intellectual property ownership rights and R&D facilities to China or accept that they will not be able to compete in the Chinese market on a level playing field. Finally, there is a concern that China’s existing and draft anti-monopoly law enforcement guidelines could be used to improperly value intellectual property rights, which calls into doubt the seriousness of China’s avowed intentions to create a system that promotes and protects IPR.
Over the past year, we have had some success persuading the Chinese authorities that it is not in their interest to adopt regulations that force technology transfers—particularly in the banking sector. However, China’s efforts to promote domestic innovation through policies such as these are not ceasing. We are pursuing these matters vigorously with China including in the context of the upcoming, 2015 Joint Commission on Commerce and Trade, which will take place in two weeks in Guangzhou. Furthermore, we believe that engaging with other partners in the region to establish rules that directly challenge this approach is the most effective mechanism for ensuring that these policies do not spread.
TPP
China is not party to the Trans-Pacific Partnership negotiations, but TPP’s rules on intellectual property rights and enforcement offer a stronger, and better, vision on IPR protection. In TPP, we have secured a strong and balanced framework for intellectual property rights protection to promote innovation, encourage creativity, and reduce obstacles to the development of new technologies and business models throughout the Asia-Pacific region.
TPP will liberalize trade and investment between 12 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam) that comprise 40 percent of the world economy. TPP will eliminate 18,000 tariff lines on American products—tariffs that serve no other purpose than to make Made-in-America goods and materials more expensive when they are sold abroad. TPP will also establish enforceable standards in a multitude of areas where non-tariffs barriers historically have impeded trade, including most significantly for purposes of our discussion today, in the area of intellectual property rights protection.
This past summer, Congress established the process by which it will review, consider, and vote on TPP through the 2015 Bipartisan Trade Priorities and Accountability Act—or TPA. I want to thank the Chamber and so many of you in this room for the role you played in helping secure passage of that Act. Yesterday, pursuant to the provisions of that Act, President Obama provided Congress with a 90-day notice of his intention to sign the agreement, and USTR published a link to the entire text of the Agreement on our website.
These notification and transparency requirements will enable you and your companies to assess the benefits of the agreement and its high-standard provisions on IPR long before Congress actually votes on it. I am sure many in this room have already downloaded the IP Chapter and other chapters in the Agreement. So in the interest of guiding your review of the IP Chapter, I want to highlight how it establishes higher standards for intellectual property rights protection in the Asia-Pacific region in six key areas: trademarks, copyrights, patents, pharmaceuticals, trade secrets, and enforcement.
- On Trademarks, TPP will harmonize various aspects of trademark procedures, making it easier for businesses to search, register, and protect their trademarks in new markets—something which is particularly important to our small business innovators.
- TPP will also require the Parties to allow for the protection of certification and collective trademarks, which assist U.S. producer groups like wine exporters in doing business in overseas markets. In addition, TPP will require the Parties to allow for geographical indications to be protected through each Party’s trademark system.
- Cutting red tape in IP protection systems is of particular importance to small businesses. For this reason, TPP requires the Parties to maintain efficient and transparent procedures governing trademark applications, including through electronic trademark registration mechanisms.
Copyright and Related Rights
- As everyone here knows, there is an enormous appetite for U.S. content throughout the world. Yet in the digital era, when copyright infringement goes unchecked, markets for new movies, songs, and videogames can be destroyed.
- To combat this problem, TPP includes strong copyright protections—drawn from international norms—to respect the rights of creators, establish clear protection of works, and create strong enforcement measures, including against cam-cording in movie theaters and commercial-scale copyright privacy.
- TPP provides more consistency toward a regional standard copyright term: the minimum term for works of authorship is life plus 70 years, and for works whose term is calculated based on publication date, like movies and recordings, 70 years.
- TPP will also require Parties to establish copyright safe harbors for Internet service providers (ISPs). These safe harbors will allow legitimate providers of cloud computing, user-generated content sites, and other Internet-related services to develop their businesses online while ensuring that Internet copyright piracy can also be addressed in an effective manner.
- Additionally, for the first time in any U.S. trade agreement, TPP will obligate Parties to seek to achieve an appropriate balance in their copyright systems, including by way of copyright exceptions and limitations for purposes such as criticism, comment, news reporting, teaching, scholarship, and research.
- These principles are critical aspects of the U.S. copyright system, and USTR worked closely with diverse stakeholders in developing this language.
- TPP also contains provisions precluding tampering with technological protection measures. Technological protection measures that work effectively are important not just for traditional content companies, in other words studios, labels, authors, and performers, but also for those developing new models for distributing content and services. Subscription services, for example, rely on TPMs. These are the keys to the digital economy.
- Additionally, our TPP proposals provide policy space for law and policymakers to make new exceptions for the digital environment, for example by permitting legitimate cell phone unlocking. It is important to preserve protections for the digital environment trade while ensuring that the Agreement is sufficiently flexible to evolve to meet new, unforeseen challenges in the modern era.
Patents
- On patents, TPP requires the Parties to make patents available for inventions consistent with internationally-recognized criteria for patentability subject to appropriate exceptions and limitations drawn from the TRIPs agreement.
- Building on that, TPP establishes a requirement to make patents available, provided they meet the standards of patentability for at least one of the following: new uses, new methods, or new processes of existing products. We believe this provision is critical to promote incremental but vitally important modifications that would not be developed without the incentive of patent protection.
- TPP also requires the Parties to adopt a U.S.-style best practice of allowing a grace period of 12 months during which time public disclosures of an invention will not be used to invalidate it. This grace period means that inventors—particularly in the emerging biotech sector—can publish and present their research findings without forfeiting their chances of patenting their inventions and raising capital for their innovation.
- More broadly, without the security of a patent in hand, our innovators’ ability to do business or invest in other markets can be hampered. To safeguard that, TPP promotes speedy examination of patents by providing patent term adjustment for unreasonable delays in the issuance of patents—for all fields of technology.
- Turning to pharmaceuticals, specifically, TPP provides a range of strong and balanced commitments designed to promote robust markets for both innovative and generic medicines.
- For example, TPP will require an adjustment for the patent term when the marketing approval process unreasonably cuts into the effective term of a patent on pharmaceutical products.
- TPP will also require Parties to establish an effective system for addressing patent issues expeditiously in connection with applications to market pharmaceutical products. This includes a system of notice to a patent holder when a competitor is seeking to market a generic/follow-on pharmaceutical product, as well as sufficient time and opportunity to see available remedies, sometimes called “patent linkage.”
- With respect to data protection in the area of small molecule pharmaceuticals, TPP will require Parties to provide at least a 5-year period for the protection of undisclosed test or other data concerning safety or efficacy of new pharmaceutical products, which companies must submit to secure marketing approval for their products. This protection provides at least five years of protection against follow-on, competitor companies seeking to sell copies of the originator’s product on the basis of the test or other data submitted by the originator company.
- TPP also clarifies that for purposes of data protection, a “new” pharmaceutical product is one that is new to that TPP Party’s regulatory agency, not necessarily new to the world.
- We know that data protection is of crucial importance to our innovative biopharmaceutical companies—which rely heavily on the strength of their patents to generate investment and commercialize their discoveries. Biologic drugs need extended data protection because those drugs require enormous amounts of time and money to develop. Before entrepreneurs (in the United States and across the world) are willing to make the investment in new therapies, they must have confidence that they will have rights to protect their research data for a certain period of time in order to ensure a return on their investments.
- The TPA law the President signed earlier this year included objectives to further promote and enhance the protection of intellectual property rights, as we have in the United States. The TPP outcome on biologics clearly accomplishes these objectives.
- TPP will require, for the first time in a trade agreement, Parties to provide an extended term of effective market protection for biologic medicines, a key element of future medical advancement.
- TPP gives partner countries two ways to meet that standard. One way is to provide a minimum of at least 8 years of data protection. The other way is to deliver a comparable outcome through both data protection of at least 5 years plus other measures like regulatory procedures or other administrative actions.
- There are many ways to provide effective market protection that are strong and meaningful. As many of you know, Japan does this through their post-marketing surveillance process, which gives effectively more than 8 years of protection for these drugs.
- Make no mistake. This is a landmark provision that sets an important minimum standard thought the free trade area. Not only is this the first time that we have achieved an outcome that gives enhanced protection to biologics. But, even the EU, had to accept zero years of patent protection for biologics in their recent FTA with Peru.
- In addition, TPP will go beyond previous trade agreements to promote incremental innovation by providing at least 5 years of data protection for combination products that contain at least one new chemical entity or at least 3 years of data protection for new indications for a previously approved product, so that there are incentives to develop fixed-dose combination drugs and find new therapeutic applications for previously approved products
Trade Secrets
- I have mentioned the significance of trade secret theft, and how theft of trade secrets, including cyber theft, is severely disadvantaging U.S. companies doing business in this region.
- TPP requires Parties to provide for legal mechanisms to prevent trade secret misappropriation, including misappropriation by state commercial enterprises. For the first time in any international trade agreement, it will also require criminal procedures and penalties for trade secret theft.
- Obtaining this provision was not easy. When we started negotiating, the United States was alone in pressing for trade secret standards in the TPP. But many in this room, and your partners and allies in other TPP member countries, rolled up their sleeves and did a great job of painstakingly explaining how trade secret theft, including cyber theft, is hurting your ability to fairly compete in global markets.
- This was compelling for the TPP Parties, and we expect to see more reform in the coming years that builds on the TPP standards.
- Finally, on enforcement, TPP tackles some of the most pressing challenges in the region, and reflects the digital era in which we live. For example, TPP makes it explicit that measures to enforce copyright and trademark rights should be no less available against infringement in the digital environment.
- I have mentioned commercial-scale copyright piracy and trade secret theft, but one key issue we are particularly proud of in TPP is the strong tools provided to combat dangerous and costly counterfeiting networks. We have seen the effects of this trade in counterfeits here at home. Fake airbags, children’s toys, and microchips for aviation systems have made their way into the U.S. market.
- TPP enhances protections against such products at the border, requires deterrent penalties for counterfeiting on a commercial scale, and closes loopholes for counterfeiters (like ensuring criminal procedures against trafficking in labelling and packaging for counterfeit products)
- TPP also strengthens civil and administrative procedures for protecting IPR in the free trade area, by promoting transparency and public accessibility to judicial decisions, administrative rulings, and statistical data on IPR enforcement.
These are just some highlights from the TPP’s IP chapter. I invite you to review the chapter yourselves. But before I conclude my discussion of TPP, I want to note there are also numerous, ground-breaking provisions in other chapters of the Agreement that will be critical to ensuring that our exporters of IP-intensive products and services can continue to access our Partners’ markets through the Internet.
The Internet has become central to many aspects of our lives, allowing all of us to obtain goods and services more conveniently and at cheaper prices. In fact, the growth of a unified, global Internet has created the most open and efficient global market for goods and services in the history of the world. We know that the impact of digital trade is enormous, and a supportive trade framework is critical for its continued expansion.
In TPP, we are negotiating provisions across a range of chapters designed to enhance digital trade in the region. Among the rules we have secured are: (1) a complete prohibition on customs duties for digital products; (2) rules that protect the free flow of data across borders; (3) rules that prohibit policies that require companies to localize their servers and data processing centers in-country; (4) rules that prevent our trading partners from requiring our companies to transfer their technology in exchange for doing business in their countries; and (5) enforceable consumer protections to ensure that baseline consumer trust on the Internet is enhanced.
These provisions exemplify how we have designed the entire TPP Agreement to tackle the 21st Century, cross-cutting trade issues that impact our IP-intensive industries.
Bilateral Engagements
Given that I spend much of my time dealing with both India and China, I do not want to leave you today without updating you on the status of our bilateral engagement around IPR protection and enforcement with these partners.
India
There is a lot of recent buzz and interest surrounding intellectual property rights in India. India is in the final stages of drafting a National IPR Policy that will help clarify the direction of the Modi Government’s policies in this area. We have been deeply engaged with the Modi Government in this process, both by providing detailed, written comments on the draft policy and through numerous bilateral discussions. We also have deepened our engagement with India through an IP Working Group established by President Obama and Prime Minister Modi last year.
India remains on our Special 301 Priority Watch List, and we expect increased engagement with our Indian counterparts on IPR issues to continue. We will remain focused on achieving substantive and measurable results for U.S. companies through that engagement.
Just last week, we hosted our annual Trade Policy Forum with India which provided useful outcomes on intellectual property matters. For example, USTR continues to push for India to adopt a standalone trade secrets law to ensure strong and consistent protection of trade secrets in India. Over the course of the past year and in the context of this dialogue, we have sought to clarify the link between effective trade secrets protection and the ability to promote innovation and investment. We were pleased that India agreed to publicly recognize the importance of “strong protection of trade secrets” in the Joint Statement we issued at the conclusion of the Trade Policy Forum. We are also encouraged that India has committed to further explore this issue through a joint workshop with industry in 2016.
On copyright, we continue to explore ways to maximize our shared interest in promoting our two countries’ successful creative content industries through strong copyright protection. India is moving forward with legislation that provides new criminal penalties for recording or “cam-cording” of films in cinemas, and we will convene a joint conference early next year to identify best practices for protecting and enforcing copyrights.
Finally, our engagement on IPR in the Trade Policy Forum, as well as work by companies in this room, have been instrumental in shifting the narrative on long-standing sensitive patent issues. There are still challenges, but we’ve moved beyond the rhetoric and are beginning to identify some practical ways forward to promote innovation and instill predictability for inventors.
China
With respect to China, we continue to push for greater respect of our rights holders and their property interests in every engagement. During the State Visit of China’s President Xi in September, China committed that it would not conduct or knowingly support the misappropriation of trade secrets or other intellectual property to provide competitive advantages to their companies or commercial sectors.
On the question of technology localization, we have recently secured commitments by China to treat foreign and domestic intellectual property the same. China has also committed to refrain from requiring the transfer of intellectual property rights or technology as a condition of doing business. These commitments are important, but it is even more important that China live up to them.
Another key focus of our bilateral engagement is on China’s enforcement of its anti-monopoly law, as I mentioned in my opening. There is concern that Chinese competition authorities may target for investigation foreign firms that hold valuable intellectual property rights, particularly when those rights may be essential to the implementation of certain technological standards. We are also concerned by reports of intimidating and non-transparent investigative procedures. Through our engagement in the Joint Commission on Commerce and Trade last year, we secured commitments from China on procedural fairness in enforcement actions under its Anti-Monopoly Law. We continue to press China to confirm that the purpose of AML enforcement is to protect competition and not individual competitors or sectors or other industrial policy goals.
We are also pursuing very important issues impacting the licensed distribution of creative content, including China’s copyright law revisions and the need to combat media box piracy.
Conclusion
I hope this gives you a sense of how we are seeking to shape the rules of the road for IP protection and enforcement in Asia. Formal systems for IPR protection in most of Asia are relatively new, and we believe that the rules we have negotiated in TPP will fundamentally alter the evolution of those systems. Furthermore, given that both India and China, the two most populous countries in the world, are in the process of reforming their IPR ecosystems to enhance their own innovation economies, establishing a road map for high-standard IPR protection could not come at a better time.
In TPP we have reinforced and built upon existing multilateral standards for IPR protection by insisting on the strongest penalties to protect against trade secrets and trademark theft and to deter copyright piracy.
We have secured robust patent and data protection standards for our innovators throughout the region.
And we have established a strong and balanced framework for copyright protection to promote the dissemination of innovative content in the digital economy.
This is the strongest package of IPR disciplines negotiated in any trade agreement to date.
As the Global Intellectual Property Center demonstrated in its International IP Index earlier this year, strong IPR protection begets innovation and “economies with robust IP environments yield 50% more innovative output compared with IP regimes in need of improvement.” Innovation is at the heart of our comparative advantage and something our country has always been committed to promoting. In TPP, we have created a pathway not only for protecting our rights holders and workers, but also for promoting innovation throughout the Asia-Pacific region and globally.
Thank you
