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8 March 2019Patents

China may ban forced technology transfers

China is set to implement a new law banning the forced transfer of technology from companies wishing to enter the Chinese market.

A new draft Foreign Investment Law, which was published in December 2018, is being debated at the second session of the 13th National People’s Congress, the parliament of the People’s Republic of China.

Chinese Premier Ning Jizhe told reporters at a press conference in Beijing on Tuesday, March 5, that the government was set to press ahead with the reforms. The proposed law would forbid companies being forced to exchange their IP when attempting to sell goods in China.

Forced technology transfer has been a major source of tension between the US and China governments, amid stalling talks over a new trade deal between the countries.

At a World Trade Organization (WTO) meeting last May, the US claimed that China’s current licensing and administrative laws enabled Chinese companies to coerce foreign companies into handing over their IP before they did business in the country.

According to the  Peterson Institute for International Economics, foreign companies, particularly those offering digital services, are often forced to partner with Chinese firms in order to access the market due to China’s internet censorship regime.

“Even in officially open sectors, foreign firms must obtain approval from relevant regulators in a process that lacks transparency and is subject to political influence”, the institute said.

“Foreign firms can often be quietly pressured to transfer technology to local firms in order to obtain these necessary approvals”, it alleged.

At the WTO meeting last May, a Chinese official said that “there is no forced technology transfer in China”.

China is now set, however, to clarify its position on the alleged practice. Ning said that the new reforms would ensure that foreign companies “cannot be required to transfer technology by administrative means, providing a more encompassing and beneficial legal guarantee”, Associated Press  reported.

Speaking to WIPR, Fabio Giacopello, partner at  HGF in Shanghai, said that the provisions in the new law were “declarations of principles instead detailed regulation”. The efficacy of the measures could only be evaluated when regulations implementing the new law were issued, Giacopello said.

He said, however, that the reforms could be considered a concession to the US. Giacopello said that although the US was “right” to require an improved level of protection for IP rights, the Chinese government has demonstrated an ambition to improve its legal regime.

Giacopello noted that in recent years, China’s economy has developed much faster than its legal system, and that this had posed challenges. However, “the lack of strict regulations and the weak applications of existing laws” has partly enabled China’s level of economic growth.

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