December 13, 2010
News Release 10-138
Inv. No. 332-514
Contact: Peg O'Laughlin, 202-205-1819

Infringement of intellectual property rights (IPR) in China reduces market opportunities and undermines the profitability of U.S. firms when sales of their products and technologies are undercut by competition from illegal, lower-cost imitations, reports the U.S. International Trade Commission (USITC) in a new report.

There is also growing concern that the Chinese government's indigenous innovation policies, which promote the development, commercialization, and purchase of Chinese products and technologies, may create new barriers to U.S. foreign direct investment (FDI) and exports to China.

China: Intellectual Property Infringement, Indigenous Innovation Policies, and Frameworks for Measuring the Effects on the U.S. Economy, the first of two reports on IPR infringement and indigenous innovation policies in China and their effects on the U.S. economy, was released today. The USITC, an independent, nonpartisan, factfinding federal agency, is conducting the studies at the request of the U.S. Senate Committee on Finance.

As requested, the report released today describes the principal types of reported IPR infringement in China and Chinese indigenous innovation policies. It also outlines an analytical framework for determining the effects of IPR infringement and indigenous innovation policies on the U.S. economy and jobs, which the USITC will utilize in its second report for the Committee.

Highlights of the first report follow.

• Enforcement of IPR laws remains a serious problem in China. Significant structural and institutional impediments undermine effective enforcement, including the protection of IPR infringing industries by local Chinese officials, a lack of coordination among government agencies, insufficient enforcement resources and training, and non-deterrent civil and criminal penalties. However, there are some signs of improvement in IPR enforcement, particularly in courts in major cities in China.
• Ineffective IPR enforcement contributes to the widespread infringement of U.S. firms' copyrights, trademarks, patents, and trade secrets in China. Intellectual property is often the most valuable asset that a company holds, but many companies, particularly small ones, lack the resources and expertise necessary to protect their intellectual property in China.
• Intellectual property (IP) creation and technological innovation drive U.S. economic growth through the creation of new and improved products and processes, greater efficiencies, and enhanced returns on investments. IP-sensitive industries reportedly pay their employees more and have higher output and sales per employee than those of non-IP sensitive industries.
• China is implementing indigenous innovation policies that may reduce business opportunities for U.S. firms in China's fast-growing economy. This "web of policies" often embedded in government procurement, technical standards, anti-monopoly, and tax regulations may make it difficult for foreign companies to compete on a level playing field in China.

China: Intellectual Property Infringement, Indigenous Innovation Policies, and Frameworks for Measuring the Effects on the U.S. Economy (Investigation No. 332-514, USITC Publication 4199, November 2010) will be available on the USITC's Internet site at http://www.usitc.gov/publications/332/pub4199.pdf. A CD-ROM of the report may be requested by e-mailing pubrequest@usitc.gov, calling 202-205-2000, or contacting the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436. Requests may also be faxed to 202-205-2104.

USITC general factfinding investigations, such as this one, cover matters related to tariffs or trade and are generally conducted at the request of the U.S. Trade Representative, the House Committee on Ways and Means, or the Senate Committee on Finance. The resulting reports convey the Commission's objective findings and independent analyses on the subjects investigated. The Commission makes no recommendations on policy or other matters in its general factfinding reports. Upon completion of each investigation, the USITC submits its findings and analyses to the requester. General factfinding investigation reports are subsequently released to the public unless they are classified by the requester for national security reasons.