[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


         INTERNATIONAL ANTITRUST ENFORCEMENT: CHINA AND BEYOND

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                           REGULATORY REFORM,
                      COMMERCIAL AND ANTITRUST LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 7, 2016

                               __________

                           Serial No. 114-80

                               __________

         Printed for the use of the Committee on the Judiciary
         
         
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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
LAMAR S. SMITH, Texas                ZOE LOFGREN, California
STEVE CHABOT, Ohio                   SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas              DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia                SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 
                                 
                                 ------                                

    Subcommittee on Regulatory Reform, Commercial and Antitrust Law

                   TOM MARINO, Pennsylvania, Chairman

                 BLAKE FARENTHOLD, Texas, Vice-Chairman

DARRELL E. ISSA, California          HENRY C. ``HANK'' JOHNSON, Jr.,
DOUG COLLINS, Georgia                  Georgia
MIMI WALTERS, California             SUZAN DelBENE, Washington
JOHN RATCLIFFE, Texas                HAKEEM JEFFRIES, New York
DAVE TROTT, Michigan                 DAVID N. CICILLINE, Rhode Island
MIKE BISHOP, Michigan                SCOTT PETERS, California

                      Daniel Flores, Chief Counsel

                      Slade Bond, Minority Counsel
                            
                            
                            
                            C O N T E N T S

                              ----------                              

                              JUNE 7, 2016

                                                                   Page

                           OPENING STATEMENTS

The Honorable Darrell E. Issa, a Representative in Congress from 
  the State of California, and Member, Subcommittee on Regulatory 
  Reform, Commercial and Antitrust Law...........................     1
The Honorable Henry C. ``Hank'' Johnson, Jr., a Representative in 
  Congress from the State of Georgia, and Ranking Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust Law     3
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary     4
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................    24

                               WITNESSES

The Honorable Maureen Ohlhausen, Commissioner, Federal Trade 
  Commission
  Oral Testimony.................................................     6
  Prepared Statement.............................................     8
Mark A. Cohen, Senior Counsel, United States Patent and Trademark 
  Office
  Oral Testimony.................................................    30
  Prepared Statement.............................................    32
Sean Heather, Vice President, Center for Global Regulatory 
  Cooperation, U.S. Chamber of Commerce
  Oral Testimony.................................................    40
  Prepared Statement.............................................    42
Thomas J. Horton, Professor of Law and Heidepriem Trial Advocacy 
  Fellow, University of South Dakota School of Law
  Oral Testimony.................................................    59
  Prepared Statement.............................................    61

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................    25
Material submitted by the Honorable Mike Bishop., a 
  Representative in Congress from the State of Michigan, and 
  Member, Subcommittee on Regulatory Reform, Commercial and 
  Antitrust Law..................................................    85

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Questions for the Record from the Honorable Maureen 
  Ohlhausen, Commissioner, Federal Trade Commission..............   100
Response to Questions for the Record from Mark A. Cohen, Senior 
  Counsel, United States Patent and Trademark Office.............   102
Response to Questions for the Record from Sean Heather, Vice 
  President, Center for Global Regulatory Cooperation, U.S. 
  Chamber of Commerce............................................   104

 
         INTERNATIONAL ANTITRUST ENFORCEMENT: CHINA AND BEYOND

                              ----------                              


                         TUESDAY, JUNE 7, 2016

                       House of Representatives,

                  Subcommittee on Regulatory Reform, 
                      Commercial and Antitrust Law

                      Committee on the Judiciary,

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 4:02 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Darrell 
E. Issa (acting Chairman of the Subcommittee) presiding.
    Present: Representatives Goodlatte, Issa, Collins, 
Ratcliffe, Bishop, Johnson, and Conyers.
    Staff Present: (Majority) Anthony Grossi, Counsel; Andrea 
Lindsey, Clerk; (Minority) Slade Bond, Minority Counsel; and 
James Park, Counsel.
    Mr. Issa. The Subcommittee on Regulatory Reform, Commercial 
and Antitrust Law will please come to order.
    Without objection, the Chair is authorized to declare 
recesses of the Committee at any time.
    We welcome here everyone, and particularly our witnesses 
supporting International Antitrust Enforcement: China and 
Beyond, and I now recognize myself for an opening statement.
    We convene today's hearing to examine the enforcement of 
competition laws across the globe but with a focus on how China 
is enforcing its laws. This focus is a result of troubling 
reports that China may be using its competition laws or, if you 
will, its antitrust laws, to advance industrial policy at the 
expense of America and other foreign companies. We will also 
examine how the executive branch has responded to China's 
administration and its competitive laws.
    Over the past 30 years, China's economy has experienced 
remarkable growth, increasing at a rate of nearly 10 percent 
per year. During that time, China has become an important trade 
partner to the United States and a significant influence in the 
American economy. Between 1990 and 2015, total trade with China 
rose from $20 billion to $598 billion and, just last year, 
China passed Canada as the United States' largest trading 
partner.
    China is the second largest U.S. agricultural export 
market, the third largest U.S. merchandise export market, and 
the fourth largest U.S. service export market. In total, China 
is estimated to be a $400 billion market to American companies.
    While these statistics provide stark numbers, one need only 
look no further than the labels on phones, toys, cars, clothes, 
and a wide array of other consumer products to see a familiar 
marking ``made in China'' to understand the pervasive impact of 
China's economy in the United States. As China's economy 
developed, so did its laws and regulations designed to foster 
future growth. In 2007, China enacted its competition laws 
called the ``Anti-Monopoly Law,'' or ``AML.''
    Since the AML's enactment, there have been troubling 
reports of China deploying the law in a manner that violates 
international norms of due process with the result of 
prioritizing the advancement of China's industry policies over 
promoting competition. These reports include allegations that 
China prevented foreign lawyers from representing their clients 
before competition authorities, threatened foreign executives 
during the course of competition investigations, targeted 
foreign companies more frequently than Chinese companies with 
respect to merger remedies, and conduct investigations pursued 
the extraction of intellectual property at below market rates, 
and sought remedies that directly benefited the Chinese 
industry.
    Given the size of the Chinese economy and the importance to 
American industry, these are serious allegations. Following 
these reports, the executive branch has responded in a variety 
of ways. Notably, the Commerce Department has engaged with 
China through the U.S.-China Joint Commission on Commerce and 
Trade and the Departments of State and Treasury similarly 
engaged in the U.S.-China Strategic/Economic Dialogue, which is 
taking place this week in Beijing.
    Past meetings with U.S. officials have resulted in non-
binding voluntary commitments by China to improve transparency, 
increase due process, and enhance the fairness of the AML.
    We should ensure that U.S. companies are treated fairly, 
consistently, and objectively by international jurisdiction. 
Today's hearing will help inform the Committee regarding 
international competition law enforcement, particularly China, 
and whether other countries are influenced by China's use of 
the AML.
    Additionally, the hearing will update us regarding how the 
executive agencies are coordinating with each other and 
engaging with China and other countries on the treatment of 
U.S. companies and citizens abroad. On a personal note, I was 
an electronics executive during the era in which many, many 
American companies found themselves moving abroad, often to 
Taiwan, the new territories, and then into Mainland China. 
During that era, this was not the law, and yet there was 
inherently a desire to build a future China. And to this, on a 
personal note, I want to build a better China, and commerce is 
the answer, but it's only the answer if in fact they embrace 
the international norms that allow them to win when they're 
competitive and choose other vendors when in fact the most 
competitive vendor comes from somewhere other than China.
    I look forward to today's discussion and our excellent 
panel, and it's my honor to recognize the Ranking Member, Mr. 
Johnson of Georgia, for his opening remarks.
    Mr. Johnson. I thank the Chairman.
    Today's hearing is a welcome discussion of international 
antitrust enforcement with a specific focus on China's approach 
to competition policy under its Anti-Monopoly Law. Over the 
past several decades, one of the most profound developments in 
antitrust law has been its expansion into the global economy.
    In the 1980's, as few as five countries robustly enforce 
the antitrust laws. Today, more than 100 jurisdictions are 
members of the International Competition Network, an 
organization of enforcement agencies. This growing interest in 
antitrust law reflects a broader trend that reflects Nations 
moving away from centrally planned economies to open markets.
    In recent years, there has also been some divergence from 
the U.S. approach to antitrust enforcement among Nations with 
established competition authorities. This change is 
particularly evident in China's aggressive enforcement of its 
Anti-Monopoly Law, which includes both procompetition goals 
such as preventing monopolization, and noncompetition 
directives such as improving economic efficiencies and 
development in China.
    Some have suggested that these twin goals have at times 
served to protect domestic commerce rather than promote 
competition. Examining these differences is important because 
local enforcement decisions can have global effects, as Federal 
Trade Commission Chairwoman Edith Ramirez has observed. But 
diversity and enforcement policy is itself--in itself is not 
necessarily bad.
    Progressives have long suggested that we rethink our 
antitrust policies to move beyond the excesses of the Chicago 
school of economic theory, as our former colleague Senator Herb 
Kohl has referred to it, to incorporate noneconomic values that 
promote the public interest through enforcement policy.
    With this in mind, I commend our enforcement agencies for 
taking a long view in competition policy that embraces diverse 
antitrust frameworks and respects local autonomy, while also 
seeking to establish a fair, independent, and transparent 
enforcement process internationally. While most work remains to 
be done to broaden international consensus and ensure that 
enforcement policy is not just a tool for promoting domestic or 
industrial policy goals, I'm confident that we can continue to 
work productively to bridge our differences and complement 
divergent enforcement regimes.
    As we seek consensus, it is imperative that we avoid an 
exceptional view of our own enforcement practices if we are to 
build upon ongoing dialogues with other sovereign Nations to 
establish economic and political comity. Indeed, progressives 
have long suggested a rethinking of our antitrust policies to 
move beyond what Senator Herb Kohl again referenced as the 
excesses of Chicago school of economic theory, and that we seek 
to incorporate noneconomic values that promote the public 
interest through enforcement policy.
    In closing, I thank the Chair for holding today's hearing, 
and I hope to continue to look beyond our own antitrust 
enforcement practices in future hearings. I also thank our 
witnesses for their testimony. We truly have a wealth of 
expertise on the panel. I'm looking forward to hearing your 
views, particularly on the issue of whether or not there should 
be just one regime and it be our regime for antitrust 
enforcement. And when I say ``ours,'' I mean the American 
formula. And with that, I will yield back the balance of my 
time.
    Mr. Issa. I thank the gentleman. It's now my pleasure to 
introduce the Chairman of the full Committee for his opening 
statement, the gentleman from Virginia, Mr. Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    The Judiciary Committee routinely exercises its oversight 
authority to ensure that our Nation's antitrust laws are 
applied in a manner that is transparent, fair, predictable, and 
reasonably stable over time. A natural extension of this 
oversight is ensuring that our Nation's companies and citizens 
receive comparable treatment in foreign jurisdictions.
    As commerce becomes an increasingly global enterprise, the 
manner in which antitrust and competition laws are applied to 
companies and citizens located or engaged in business outside 
of the United States also grows in importance. In particular, 
China has risen in prominence as an economic marketplace as 
well as a competition law jurisdiction.
    Over the past several years, reports have surfaced that 
allege China is deploying its competition laws in a manner that 
strains the boundaries of due process, that focuses on 
advancing domestic industrial policies, and that seeks to 
extract valuable American innovations without fair 
compensation.
    I would like to thank Chairman Issa for holding today's 
hearing to delve into these potentially serious abuses. Today's 
testimony will help the Committee gain a better understanding 
of the history of China's competition laws, how they have been 
enforced, and the potential impact of this enforcement on other 
international competition jurisdictions. Furthermore, it will 
provide a record regarding how our executive agencies, 
including our antitrust enforcement agencies, have been 
coordinating among each other and engaging with China and other 
foreign countries on international competition law enforcement.
    This hearing also serves as a reminder that the United 
States should be a leader in fair and reasonable antitrust 
enforcement. To that end, enacting important antitrust reforms 
such as the SMARTER Act, will help to ensure that the U.S. 
continues to be an example to international competition law 
authorities.
    I look forward to hearing from today's excellent panel of 
expert witnesses on these important issues, and I yield back 
the balance of my time.
    Mr. Issa. I thank the gentleman for his opening statement 
and his comments.
    If Mr. Conyers arrives, we'll take his opening statement in 
due course. But it's now my pleasure to introduce the 
distinguished panel here today. The witnesses' written 
statements will be entered into the record in their entirety, 
and I would ask each of the witnesses to summarize their 
testimony within 5 minutes.
    Since virtually all of you are pros, I'll summarize by 
saying, the red lights work just like they do on city streets. 
Please look at them for the same indications of go, go faster, 
and stop. To help you stay within that time period, please 
observe them.
    It's now my honor to introduce our witnesses, but before I 
do that, in concert with the rules of the Committee, I would 
ask that all four of you please rise to take the oath. Please 
raise your right hands.
    Do you solemnly swear that the testimony you're about to 
give will be the truth, the whole truth, and nothing but the 
truth?
    Thank you. Please be seated. And let the record reflect 
that all witnesses answered in the affirmative.
    It's now my pleasure to introduce Commissioner Ohlhausen.
    Commissioner Ohlhausen was sworn in to her position as the 
Commissioner of the Federal Trade Commission on April 4th, 
2012, to a term that expires September of 2018. Prior to 
becoming the Commissioner of the FTC, the Commissioner spent 11 
years working for the Federal Trade Commission in various 
capacities, including Director of the Office of Policy and 
Planning and Attorney Adviser to the former FTC Commissioner 
Swindle.
    She has spent a number of years in the private sector 
working on FTC issues and as a partner at the law firm of 
Wilkinson Barker and Knauer, LLP. The Commissioner earned her 
bachelor's degree in English with honors from the University of 
Virginia and her J.D. from George Mason, newly named Antonin 
Scalia Law School. I see somebody picked that up right away.
    Our next witness, Mark Cohen, is a Senior Counsel at the 
United States Patent and Trademark Office where he leads a 21-
person team focused specifically on the expertise of China. 
It's got to be a full-time job with just 21 of you.
    Mr. Cohen has over 30 years of private and public sector 
in-house and academic experience in the China transition 
economies, serving in such roles as the director of IP for 
Microsoft Corporation and a counsel at the law firm of Jones 
Day, a Cleveland-based company of my youth, but worked in their 
Beijing office.
    In addition to his position at the Patent and Trademark 
Office, Mr. Cohen lectures at universities in the United States 
and abroad, including Harvard, Fordham, and the China 
University of Political Science and Law. Mr. Cohen earned his 
bachelor's degree in Chinese studies from the State University 
of New York in Albany, his master's degree in Chinese language 
and literature from the University of Wisconsin, and his J.D. 
From Columbia. I'm impressed.
    Next, we have Mr. Sean Heather. Sean Heather is the Vice 
President of the U.S. Chamber of Commerce Center for Global 
Regulatory Cooperation, which seeks to align trade, regulatory, 
and competition policy in support of open and competitive 
markets. During his 16-year career at the Chamber, Mr. Heather 
has worked in a wide range of issues spanning from 
international trade and antitrust to tax technology and 
corporate governance. Mr. Heather is also the co-author of the 
Chamber's comprehensive report on China's enforcement of its 
competition laws.
    Mr. Heather received his bachelor's degree in business 
administration and an MBA both from the University of Illinois.
    Last and definitely not least, we have Professor Thomas 
Horton, professor of law at the University of South Dakota 
School of Law. Professor Horton transitioned to a full-time 
academic position following a 28-year career as an antitrust 
lawyer where he served at both the Federal Trade Commission and 
the Antitrust Division of the Department of Justice, in 
addition to partnership at several major international law 
firms.
    Professor Horton earned his bachelor's degree from Harvard, 
cum laude, his J.D. from Case Western Reserve University School 
of Law, right there on the near east side of Cleveland where he 
graduated with the Order of the Coif, and a master's degree 
with honors in Liberal Studies from Georgetown University.
    Before I recognize the Commissioner, thank you Mr. Horton 
for going to Case. Everyone in my family either applied or went 
there. I went to Kent State. You can tell why.
    Your Honor.

  TESTIMONY OF THE HONORABLE MAUREEN OHLHAUSEN, COMMISSIONER, 
                    FEDERAL TRADE COMMISSION

    Ms. Ohlhausen. Chairman Issa, Ranking Member Johnson, and 
Members of the Subcommittee, thank you for the opportunity to 
appear before you today.
    International antitrust law has been very dynamic over the 
past two decades. The FTC engages in multilateral fora and 
bilateral consultations. It also offers technical assistance to 
build stronger relationships with foreign competition agencies 
and to encourage convergence on sound economic competition 
policy and enforcement. The global economy, competition, and 
consumers benefit when competition laws function coherently and 
effectively. Enforcement predictability also reduces the cost 
of doing business and improves outcomes for consumers.
    While the FTC's focus has been global, the agency has 
devoted significant attention and resources to two areas that 
have received particular attention in recent years: China's 
antitrust enforcement and the application of antitrust 
intellectual property rights. I personally spend a lot of time 
on these issues. I have traveled to China seven times in recent 
years to engage in dialogue, both formal and informal, on 
antitrust policy and enforcement, including attending a 
conference on antitrust in Asia in Hong Kong just last week.
    Even before the enactment of China's Anti-Monopoly Law, or 
the AML, in 2007, the FTC and the DOJ worked with Chinese 
officials to promote predictability, fairness, and efficiency 
in antitrust enforcement. We have also stressed the importance 
of economics to sound antitrust policy.
    China's AML resembles the competition laws of the United 
States in many ways, including, for example, provisions on 
cartel conduct and anticompetitive mergers. The AML, however, 
also has important differences, including the prohibition of 
unfairly high pricing and consideration of noncompetition 
factors, such as the effect of a merger on economic 
development.
    Our engagement with Chinese authorities on the development 
and implementation of the AML has produced some positive 
tangible results. A good example is China's adoption of a 
simplified merger review procedure last year, which saves time 
and reduces costs for merging companies. We have also observed 
that MOFCOM increasingly sets forth its economic analysis in 
published merger decisions.
    Nonetheless, our efforts with the Chinese AML agencies are 
best seen as a work in progress as there is continued concern 
regarding the procedural and substantive application of the 
AML. Issues raised by Chinese procedures include the degree of 
transparency, the opportunity to present a defense, and the 
ability to be represented by counsel. Due process is a critical 
element to ensure fair, transparent, and nondiscriminatory 
application of antitrust laws. At the recent meeting in Hong 
Kong, I was particularly encouraged to see all three Chinese 
agencies acknowledge these procedural concerns.
    On a substantive level, there continues to be a belief that 
Chinese agencies are pursuing noncompetition objectives to 
antitrust enforcement to promote domestic industries or Chinese 
competitors. We take such concerns seriously and have worked 
through multiple avenues, including our most recent vice 
minister level bilateral meeting in April to encourage China's 
agencies to ensure appropriate transparency and fairness.
    So far, we have seen some promising responses, including 
through the Strategic and Economic Dialogues, as well as the 
U.S.-China Joint Commission on Commerce and Trade. In 2014, 
through these dialogues, China officially recognized that the 
objective of competition policy is to promote consumer welfare 
and economic efficiency rather than promote individual 
competitors or industries, and that enforcement of competition 
laws should be fair, objective, transparent, and 
nondiscriminatory. Through these dialogues, China also provided 
certain commitments regarding AML enforcement procedures. We 
will continue to engage with Chinese antitrust authorities on 
these issues.
    International convergence on unilateral conduct remains a 
challenging area overall, particularly for conduct involving IP 
rights. Many of the concerns about IP-related enforcement have 
focused on China because its competition law prohibits unfairly 
high pricing as well as places limits on refusals to deal. The 
Chinese AML agencies' current draft IP guidelines reinforce 
this concern with provisions that would create liability for 
refusals to license intellectual property deemed necessary to 
compete in a given market, as well as provisions that would 
prohibit unfairly high IP royalties.
    The FTC and the DOJ have voiced concerns over the potential 
danger of reducing incentives to innovation, not only in China 
but globally, and have thus urged caution in enforcing these 
provisions. The FTC will continue to advocate for policies and 
approaches that promote innovation and competition as these 
guidelines continue to develop.
    Thank you for your time, and I look forward to your 
questions.
    [The prepared statement of Ms. Ohlhausen follows:]
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                               __________
                               
    Mr. Issa. Thank you. It's now my pleasure to introduce the 
Ranking Member of the full Committee for his opening statement, 
Mr. Conyers of Michigan.
    Mr. Conyers. Thank you, Chairman Issa, and I want to put my 
statement in the record.
    Mr. Issa. Without objection.
    Mr. Conyers. And just note that today's hearing, with these 
particular witnesses, promises to be not only informative and 
timely, particularly with respect to China's enforcement of its 
Anti-Monopoly Law, and I appreciate your comments in that 
regard. And over the last days even, Treasury Secretary Jacob 
Lew, who was in China for the latest round of talks in the 
ongoing U.S.-China Strategic/Economic Dialogue, makes our 
discussion here so significant and important. I commend the 
Chairman for it, and I leave you with this one thought. What 
impact will China's alleged discriminatory enforcement 
practices have on American jobs?
    And I thank the Chairman for his indulgence, and I yield 
back the balance of my time.
    [The prepared statement of Mr. Conyers follows:]
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                               __________
                               
    Mr. Issa. I thank the gentleman, and hopefully we'll see 
the answer to that question as we speak.
    With that, we go to Mr. Cohen for his opening statement.

          TESTIMONY OF MARK A. COHEN, SENIOR COUNSEL, 
           UNITED STATES PATENT AND TRADEMARK OFFICE

    Mr. Cohen. Chairman Issa, Ranking Member Johnson, Members 
of the Committee, thank you for the opportunity to discuss 
competition law in China from the perspective of the U.S. 
Patent and Trademark Office. It's an honor to appear before you 
today.
    USPTO is engaged with China on all IP issues, including 
those that involve antitrust and licensing. Last year, Under 
Secretary Lee met with Chinese Vice Premier Wang Yang, and just 
last week, I accompanied Deputy Under Secretary Slifer to 
Beijing to advance talks on critical IP issues. Along with the 
United States Trade Representative, Under Secretary Lee also 
cochairs the IP Working Group of the Joint Commission on 
Commerce and Trade, or JCCT, to engage bilaterally on 
improvements to China's IP regime.
    Over the years, the JCCT and related dialogues have 
included several commitments on IP, including on standards, 
licensing, legitimate sales of IP-intensive goods, and judicial 
reform. The USPTO's China team consists of 21 people, including 
experienced IP attaches in three Chinese cities. We have signed 
agreements to support cooperative activities in IP with several 
Chinese agencies. We also frequently meet with industry to 
exchange views, educate them, and share their concerns.
    In our experience, the current environment for IP and 
antitrust in China has three pronounced characteristics. These 
are: one, strong antitrust enforcement is counterposed against 
weak IP protection; two, there's little foreign use of the IP 
enforcement system while there is considerable foreign concern 
about being targeted for competition law violations; and, 
three, industrial policy in China makes it difficult to 
legitimately license technology to third parties.
    Regarding the first item, China's weak enforcement system, 
Chinese IP damages are too low weakening fundamental 
protections IP right holders need. IP holders who run afoul of 
Chinese AML authorities often do not believe that their 
legitimate rights have been protected. In summary, China is 
pursuing IP abuse without first having adequately secured IP 
use.
    As an example of this unbalanced environment, the antitrust 
fine imposed against Qualcomm for 975 million U.S. Dollars is 
thousands of times more than the average damages in a patent 
litigation in China. Second, surveys and press reports suggest 
that many foreign companies feel targeted. While Chinese 
antitrust authorities have taken pains to show that they are 
enforcing their laws evenhandedly, this sense of feeling 
targeted is coupled with little affirmative use of China's IP 
system as well as concerns over due process and a sense that 
foreigners' rights are not being adequately protected.
    As for the third item, industrial policy, I share the 
concerns of many here. Much of the problem with 
commercialization of technology today in China is due to an 
overinterventionist Chinese economy. Notwithstanding the 
international consensus that IP is a ``private right,'' China's 
state planners have created a wealth of interventions in IP 
creation and licensing from which it is reasonable to assume 
antitrust policy is not excluded.
    These three serious problems highlight the challenges our 
companies face: Weak IP protection, targeting, and industrial 
policy. The Administration has pushed back on the more onerous 
aspects of these policies. USPTO is also taking the lead on 
highlighting challenges involved in licensing IP to China, 
including negotiating with our Chinese counterparts, training 
programs, and research.
    In summary, the Administration strongly supports China's 
efforts to develop an antitrust regime consistent with the 
practices of other market economy countries. However, there are 
many aspects of China's economy that may not be fully market 
driven in the context of both IP and IP-related antitrust.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. Cohen follows:]
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                               __________
    Mr. Issa. Thank you.
    Mr. Heather.

 TESTIMONY OF SEAN HEATHER, VICE PRESIDENT, CENTER FOR GLOBAL 
        REGULATORY COOPERATION, U.S. CHAMBER OF COMMERCE

    Mr. Heather. Thank you, Chairman Issa and Ranking Member 
Johnson, for today's important hearing and inviting the Chamber 
to testify.
    The Chamber's approach to antitrust is grounded in the 
belief that antitrust should be transparent, fair, predictable, 
reasonably stable over time, consistent across jurisdictions, 
and based on sound economic analysis.
    For the past several years, the Chamber has worked with 
China on its Anti-Monopoly Law, and China has made some 
positive progress. In part, improvements can be traced to high 
level engagement between the two governments. The Chamber 
welcomed the commitment by the two Presidents during President 
Xi's State visit in 2015 where it was agreed, quote, ``Both 
countries affirm the importance of competition policy 
approaches that ensure fair and nondiscriminatory treatment of 
entities and that avoid the enforcement of competition law to 
pursue industrial policy goals.'' However, China's antitrust 
enforcement has yet to live up to this ideal.
    The AML itself allows China's agencies wide latitude to 
inject industrial policy into their enforcement activity. 
Further, stakeholders in China's government, not directly 
charged with enforcing the AML, have the potential to weigh in 
and steer the outcome of an antitrust investigation. As a 
result, in many cases, foreign companies find themselves as a 
victim of industrial policy goals that promote also 
discrimination and protectionism. Merger reviews have created 
opportunities for China's own national champions to expand and 
increase their market share, have capped prices for products 
and technology on which domestic companies rely, and protect 
famous Chinese brands from acquisition by foreign companies.
    To date, all merger transactions blocked or conditionally 
approved have involved foreign companies. Similarly, AML 
transactions--AML investigations have forced foreign companies 
that market consumer products to reduce prices, even when such 
prices appear to be the result of market forces rather than 
anticompetitive conduct.
    The Chamber is particularly concerned with China's ongoing 
efforts to develop IP abuse guidelines under the AML. Those 
guidelines endorse a broad, unbalanced essential facilities 
doctrine, impose stiff Anti-Monopoly sanctions for refusing to 
license IP or charging, quote, ``excessively highly'' 
royalties.
    As drafted, the guidelines would force companies that 
possess critical technologies to license their intellectual 
property to Chinese competitors or to lower licensing costs to 
benefit local firms. As China concludes its drafting process 
later this year, the American business community hopes that 
China will remove its unbalanced essential facilities doctrine, 
delete provisions on excessive pricing, and eliminate 
provisions that prohibit or restrict the refusal to license. We 
believe such a course correction is ultimately in China's long-
term interest as it seeks to move up the value chain and become 
a global innovative contributor.
    Let me mention a word or two about due process. Concerns 
regarding the substance of China's AML and its enforcement are 
compounded by continuing concerns over transparency and due 
process. Limited evidence is often presented to the target in 
support of vague or novel theories of harm. The absence of an 
independent judiciary, as well as potential threats of 
retaliation, deters companies from seriously considering an 
appeal. The result, more often than not, is an investigative 
process that incentivizes the foreign target of investigation 
to settle on terms favorable to the Chinese government.
    Looking beyond China, the Chamber actively follows upwards 
of a dozen jurisdictions annually. Many of the concerns we 
discuss here today exist elsewhere in the world to varying 
degrees. Today, it can be difficult to discern what is an 
appropriate international antitrust norm. Take a statement from 
the Korea Fair Trade Commission regarding its 2015 enforcement 
plan. It stated that one of its primary goals was to strengthen 
enforcement against global monopolistic enterprises holding 
original technologies having a significant influence in the 
Korean industry.
    The wording of such a statement demonstrates how perverse 
uses of antitrust can creep toward becoming an acceptable 
international norm. Last year, China issued a fine to Qualcomm 
for just under a billion dollars. That amount may seem like a 
lot, but it is actually the third highest fine behind the 
questionable fines issued by Europe against Intel and 
Microsoft. China also raised eyebrows over the condition it 
imposed on the Microsoft-Nokia merger, only for Korea to follow 
and place significantly more questionable conditions on that 
same merger.
    In these examples, China's actions can be seen to further 
stretch international norms while also claiming to live within 
them. It also demonstrates that the world of international 
trust presents problems beyond China.
    In closing, the Chamber greatly appreciates the work of the 
U.S. antitrust agencies and this Administration, yet more work 
needs to be done. Let me conclude by highlighting some of the 
recommendations from my written testimony for Congress and this 
Committee to consider.
    First, it is important to endorse a whole-of-government 
approach wherever antitrust is misused and abused. It is 
critical that competition policy advocacy, vis--vis, China 
occur within the framework of the Administration's broader 
economic and commercial policy toward China as set forth by the 
President of the United States.
    Second, Congress, through rigorous oversight support, 
should support the Administration to do everything in its power 
to ensure provisions of China's IP abuse guidelines are at 
least as consistent with U.S., EU, and Japanese approaches. 
This must be a top and urgent priority.
    Finally, Congress should be more vocal in its support for 
addressing these concerns through bilateral investment treaty 
negotiations with China and through competition chapters in our 
trade agreements.
    Thank you, and I look forward to answering your questions.
    [The prepared statement of Mr. Heather follows:]
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    Mr. Issa. Thank you.
    Professor Horton.

TESTIMONY OF THOMAS J. HORTON, PROFESSOR OF LAW AND HEIDEPRIEM 
TRIAL ADVOCACY FELLOW, UNIVERSITY OF SOUTH DAKOTA SCHOOL OF LAW

    Mr. Horton. Chairman Issa, Ranking Member----
    Mr. Issa. Could you pull it a little closer to you so we 
could hear you?
    Mr. Horton. Chairman Issa----
    Mr. Issa. And make sure the light is on, the little button 
down in the middle.
    Mr. Horton. Oh, there we go.
    Mr. Issa. There we go. Thank you.
    Mr. Horton. Thank you.
    Chairman Issa, Ranking Member Johnson, distinguished 
Committee Members, counsel, and staff members, thank you so 
much for inviting me to testify here today. And thank you 
Chairman Issa for your kind words about Case Western Reserve 
University in northeast Ohio.
    To understand China's Anti-Monopoly Law and its recent 
enforcement efforts, it's necessary and crucial not only to 
carefully examine the words of the Anti-Monopoly Law but to 
read them in the context and light of Chinese history, culture, 
and traditions. First and foremost, we must recognize that 
China may be the only civilization the world has known upon 
which Western thought exercised little or no influence until 
modern times. China's historical culture was largely 
independent of Western influences, and its responses to its 
people's economic needs are often peculiar to China and sharply 
differentiated from other countries.
    Second, it's important to keep in mind that China's 
political system does not share our values of Western legal 
traditions. China is not in any sense a Western-styled 
democracy, and in reality, the country still is without rule of 
law.
    Furthermore, the leaders of the Chinese Communist Party are 
not interested in bringing about a change of allegiance by 
bringing Western political systems to China. Consequently, 
China's Anti-Monopoly Law enforcement activities ultimately are 
not directed toward carrying out or reenforcing Western 
neoclassical economic ideologies but toward helping to protect 
the socialist rule of law system with Chinese characteristics.
    China's determination to chart its own antitrust course 
without following or adhering to Western ideologies has 
resulted in four major trends during the first 8 years of AML 
enforcement.
    First, China aspires to protect and buttress its economy by 
safeguarding what it perceives to be fair market competition in 
the consumer and public interest of China's citizens.
    Second, China's determined to protect at all costs its own 
perceived long-term security and economic interest.
    Third, China's focused on protecting its indigenous 
business and entrepreneurs, including its diverse multitude of 
small- and medium-sized businesses.
    And fourth, China's demonstrating a strong propensity to 
focus on potential barriers to entry and use of exclusionary 
practices. Ironically, echoing the comments of Representative 
Johnson, America would be well served by following similar 
objectives in our antitrust enforcement policies instead of 
continuing the current underenforcement of antitrust laws which 
have led to alarming levels of concentration and diminished 
competition in industry after industry.
    Rather than simply criticizing China and trying to lure it 
into following current neoclassical American economic models, 
we should humbly ask ourselves whether we might learn from the 
Chinese and their Confucian traditions and values. On one hand, 
China should be lauded for promulgating an aggressive antitrust 
policy that takes into account Confucian norms of ethics, 
morals, and fairness, and seeks to inspire increased corporate 
social responsibility. We would be well served to pursue 
similar objectives.
    On the other hand, as stated here by the other witnesses, 
the Chinese and their antitrust enforcers are going to need to 
pay more attention going forward to their own Confucian 
traditions and values. Ongoing business and governmental 
corruption in China must be aggressively addressed. 
Furthermore, the Chinese need to acknowledge and realistically 
address the pressures on their AML enforcers to aggressively 
target foreign companies in order to protect and bolster 
indigenous Chinese companies and businesses.
    And finally, the theft of IP and IT to bolster the Chinese 
economy must stop. Instead of trying to pretend that they're 
acting neutrally and objectively in their AML enforcement, the 
Chinese need to find better ways to focus primarily on 
competition policies as opposed to industrial protectionism.
    As always, the future is uncertain, but the stakes could 
not be higher. Whether we like it or not, China's and our 
economies are inextricably linked and positively correlated. 
Both China and the West must continue our ongoing dialogues and 
seek to continue building strong economic, cultural, and 
political bridges. After all, much more than future 
international antitrust enforcement is at stake. Thank you.
    [The prepared statement of Mr. Horton follows:]
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                               __________
    Mr. Issa. Thank you.
    We now go to the gentleman from Georgia for his round of 
questioning, Mr. Collins.
    Mr. Collins. Thank you, Mr. Chairman. I want to take just a 
moment to sort of broaden out the picture just a little bit, 
and I think it's what we're looking at and this is sort of an 
open question to all.
    I think we all can understand that China, and with even the 
last comments Mr. Horton said, is very protectionist, very 
looking after theirself, but yet at the same time wanting to 
aggressively market everywhere else in the world. Okay. We can 
understand that even from a capitalist standpoint in looking at 
that.
    The problem I'm looking at is, especially in this area of 
IP, I mean, this is a country that have its own, quote, State-
owned business moving factories out of Mainland China to other 
areas in the Middle East to keep their own theft from 
occurring. So I think we've got an issue here, but I have just 
a general question, and it was mentioned in a couple of your 
comments.
    In the area of trade, in the area of working with the 
world, with the negotiations of the TPP and with the past few 
years of the AML, what do we see in China in regard--have you 
seen an uptick in the protectionism--I know I have seen in some 
areas--in maybe a response to the other countries and the TPP? 
I'd like to get your--just a perspective, maybe an overall 
perspective on that. And anybody wants to start. Ms. Secretary 
or whoever wants to start.
    Mr. Cohen.
    Mr. Cohen. Maybe I'll take a first shot at that. Obviously, 
you know, USTR is the lead on negotiating----
    Mr. Collins. Right.
    Mr. Cohen [continuing]. The TPP. In our bilateral 
discussions, China has expressed an interest in the TPP, 
although I think its primary focus is on its own internal 
demands and needs. And I think in that area we do see a 
heightened level of technical interest and engagement on 
intellectual property, primarily because China wants to become 
an innovative economy.
    Mr. Collins. Right.
    Mr. Cohen. And that's really shaping its engagement 
globally.
    Mr. Collins. And I want to just bring that up, and again, 
feel free, as a matter of discussion. But you could probably--
with it being an innovative economy, I think, are we seeing 
other problems here when you're looking even outside and even 
internal estimates of their growth and the issues of their 
economic growth, which is, at best, stagnating, at best, from 
the norms of where they were basically governing. What are we 
seeing when you're saying innovation and--where are we seeing 
the innovation? It still seems that they're copying a great 
deal and then protecting it as it comes along. Is that an 
unfair statement, especially in a restrictive economy at this 
point?
    Mr. Cohen. I think the good news is China is interested in 
innovating, and the bad news is China is interested in 
innovating. The good news is that hopefully it will help 
foreign rights holders of foreign companies if they can compete 
equally and fairly. And in some areas, China is achieving some 
measure of success. High-speed rail, for example.
    Mr. Collins. Right.
    Mr. Cohen. Some of the research in the life sciences, and 
we've seen a lot of activity in patenting. But there is concern 
that in the process of seeking to become an innovative economy, 
the field won't be balanced or fair and that foreign entry 
could be restricted.
    Mr. Collins. Well, and I think that's what we're seeing.
    Mr. Horton and Mr. Heather, I'd like to say this. The 
interest is not--to me, creativity, and what we talk about in 
this Committee a lot, is creativity is thinking something new. 
Creativity is not seeing my pencil and then making another--
copying it and painting it red instead of yellow and calling it 
creative. That's not creative. And I think that's some of the 
concern.
    But the other concern is using--and I'd like to hear from 
the two here, is taking this idea of protection but also then 
taking companies that have made innovative strides, have went 
into China to actually work, becoming--where it becomes more of 
an economic disincentive, they're saying you're taking over and 
then we're--basically, all we're doing is rate manipulation at 
that point.
    Mr. Heather and then Mr. Horton, I'd like to hear your 
comments on that.
    Mr. Heather. Yes. In response for the Chamber's antitrust 
policy, I'm not our China expert who's actually in China, but I 
think if he was here today, he would share with you the way the 
Chamber looks at it is outside of the antitrust realm, that 
there are a range of Chinese policies that are all geared 
toward kind of industrial policy means and ends. And therefore, 
the antitrust law, in some ways, runs counter to those larger 
policies that the Chinese government is advancing and, 
therefore, opens up itself to the opportunity to advance those 
industrial policy goals.
    It's also important to I think note in the China context 
that the three Chinese agencies, NDRC, MOFCOM, and SAIC all 
have other missions within their jurisdiction that are much 
more central to the way the Chinese organize and operate their 
economies. And the AML function that they fulfill is kind of on 
the margins of what is their core responsibility, which is more 
in this industrial policy vein.
    As it relates to IP protection and these things, I think 
there's a number of avenues in which the U.S. Government and 
the Chamber have been advocating by which to eliminate forced 
transfer of U.S. companies where they go into China and then as 
a condition of investing in China, as a condition of operating 
in China, they are required to somehow joint venture with the 
state-owned enterprise to pass off their technology in some 
way, shape, form, or the other. There's a number of ways in 
which we're working to try to combat that, including through 
negotiations of a U.S.-China bilateral investment treaty.
    Mr. Collins. Okay. Mr. Horton.
    Mr. Horton. I grew up in a family where I was indoctrinated 
as to the importance of the patent laws. My father has 39 
patents in the ceramic engineering field, primarily for the use 
in aircraft engines. And so I believe that the patent laws are 
amongst the most important laws stated in our Constitution that 
Jefferson wrote into the Constitution. The bad news for the 
Chinese and why they're stealing IP is that their innovation is 
not happening from their large state-owned enterprises and 
their institutions are not producing enough good research. 
They're filing more patents than anyone in the world, but most 
of them are sham patents that have little value.
    The good news for the Chinese and what we might think more 
about emulating is that they have a growing bamboo thicket of 
capitalism of small business and entrepreneurs, and really, new 
innovations, new patents, new ideas come out of small 
companies. They come out of the garages. They come out of the 
Bill Gates working in his garage. They don't come out of the 
big companies. And so the Chinese are seeking to protect their 
small businesses, something we've gotten away from in the 
United States with our antitrust policy where we've allowed and 
even encouraged dominant firms with heavy market concentration, 
who then can make monopolistic profits that they don't put back 
into research. So we should emulate the Chinese in protecting 
our small businesses, entrepreneurs, and doing everything we 
can to encourage them.
    Mr. Collins. Mr. Chairman, I yield back.
    Mr. Issa. I thank the gentleman.
    We now stay with Georgia and go to the Ranking Member, Mr. 
Johnson.
    Mr. Johnson. Thank you, Mr. Chairman.
    Professor Horton, are there any other lessons that U.S. 
antitrust policy can take from China's antitrust enforcement 
efforts?
    Mr. Horton. Yes, I believe that there are. First, I think 
that in areas like monopoly leveraging, resale price 
maintenance, where our Supreme Court, just a few years ago in 
the Leegin case, overruled on a 5 to 4 basis more than 100 
years of sound antitrust policy under the name of 
neoconservative economics, and in predatory behavior by 
dominant firms.
    I think the Chinese are very progressive, and ironically, 
could end up being leaders in world antitrust enforcement if we 
in the United States do not become more progressive and put 
behind us the 40 years of neoclassical economics that have led 
us astray and that are really a key part of what we're hearing 
in today's current election cycle about all the unfairness 
that's endemic in the American economy.
    Mr. Johnson. What say you to that, Mr. Heather?
    Mr. Heather. I think that we're talking about apples and 
oranges. The Chinese system is one that doesn't have a rule of 
law, which I believe Professor Horton referred to, and so I 
think any discussion about what policy debate we may have in 
the United States about the role U.S. antitrust law should play 
in our market is not akin to what happens in China.
    Mr. Johnson. Well, I guess their enforcement mechanisms, 
without an independent judiciary, they're made in a different 
way.
    But Professor Horton, any rebuttal from you as to Mr. 
Heather's comment?
    Mr. Horton. Well, I think that the Chinese Anti-Monopoly 
Law where it's very sound and progressive is it talks about 
fairness, fairness to consumers, fairness to competitors, and a 
stable economy. And we seem to think that fairness is some kind 
of mushy idea that has no place in economics. In fact, fairness 
is fundamental to a sound economic system, and the Chinese 
recognize that. We need to get back to that.
    Mr. Johnson. Now, our independent judiciary, Mr. Heather, 
does it have fairness as its benchmark of making decisions or 
does it--I mean, what do you say to that, to what Professor 
Horton just said, the ideals that we apply our antitrust 
policies? I mean, what is our--is our--is there--can we learn 
something from the Chinese in terms of adopting ideals such as 
fairness to consumers?
    Mr. Heather. Well, given the fact that we have had the due 
process concerns in China's antitrust proceedings, I think it's 
ironic that we're talking about--or you're depositing the 
question whether or not we can learn anything about fairness 
from China. I think that certainly I expect our judiciary to 
provide fairness when anyone goes before it, but I think the 
question that underpins this is whether or not the Chicago 
school of economics is the school by which the U.S. antitrust 
laws should remain guided or be informed by.
    To that point, in referencing that in the context of China, 
it's one thing to make these kinds of broad statements; it's 
another thing to have the rigorous economic analysis to support 
them. And none of the cases that we see coming out of China has 
an economic proof to go with the statements that they make.
    And I think that regardless of where we want to take U.S. 
antitrust laws, which have changed over the last 100 years in 
terms of how they're interpreted, and I suspect they will 
change over the next 100 years, there will still be a 
requirement in the U.S. system to underpin that with rigorous 
economic analysis because it's not just about the law, it's 
about the economics.
    Mr. Johnson. And our courts apply rigorous economic thought 
to its decisions on antitrust policy? Yes.
    Mr. Heather. I believe they are--do so in most cases, yes.
    Mr. Johnson. I guess it depends on what school they are 
trained from, perhaps. But let me move on.
    China issued some regulations today on electronic payment 
services, and as global payment networks prepare to establish 
payment processing services in China, they potentially face 
impediments under these new rules, which I've not seen. I don't 
know if any of you all have, but the potential is there.
    They will be required to implement Chinese security and 
encryption standards rather than globally interoperable 
security standards, which are well established and 
internationally recognized. How can the U.S. continue to push 
for competitive access to the Chinese market while protecting 
the integrity of the international payment system in light of 
divergent security and encryption standards?
    Mr. Cohen, let me ask you that question.
    Mr. Cohen. Well, there have been longstanding concerns 
about market access for payment processing and for encryption 
and security standards that have been raised for a good 10 or 
15 years, and we've been raising them bilaterally as 
potentially discriminatory treatment of U.S. companies and U.S. 
rights holders, and in some cases, demanding forced transfer of 
technology with some successes to date.
    I'm not familiar with the latest rules. My office has 
mostly been concerned about forced transfers of intellectual 
property or adopting standards that primarily rely on China's 
indigenous innovation and would thereby discriminate U.S. 
innovation and U.S. technology.
    Mr. Johnson. What do you say to that, Professor Horton?
    Mr. Horton. Well, I would be concerned about the Chinese 
interoperability standard because I do think that the Chinese 
are very cognizant of their own security interest, and one of 
the big problems with the IP and IT theft has been the concern 
that this is going to Chinese military technology.
    So I think that we should put tremendous pressure on the 
Chinese to not allow their own indigenous system that they 
might take advantage of to be the standard for operating in 
China. I think the House here could put increasing pressure on 
China, as could the executive branch, to turn their own 
Confucian values around and say, you have to be fair toward the 
rest of the world, not just your own consumers and public.
    Mr. Johnson. All right.
    Mr. Heather.
    Mr. Heather. I'm unaware of the regulation you mentioned, 
but our China team would be more prepared to comment and answer 
questions you have that we can have followup with your staff.
    Mr. Johnson. Thank you.
    Mr. Issa. Thank you.
    Mr. Johnson. Ms. Ohlhausen, I will get to you next time.
    Mr. Issa. We'll now go to the gentleman from Michigan, Mr. 
Bishop.
    Mr. Bishop. Thank you, Mr. Chair, and I thank the panel for 
your insight today. I wanted to give you a chance to review 
some of the recent reports highlighting the problem of Chinese 
companies using stolen images and deceptive advertising to lure 
American consumers into buying poor quality apparel direct from 
the Chinese manufacturers.
    And that said, Mr. Chair, I'd like to ask unanimous consent 
to be able to submit this document which depicts blatant 
pictorial examples of Chinese advertising----
    Mr. Issa. Without objection----
    Mr. Bishop [continuing]. Using stolen images.
    Mr. Issa [continuing]. With unanimous consent, it will be 
granted.
    [The information referred to follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                                  __________
    Mr. Bishop. These images are so blatant and lawless, there 
is no incorporation of any Confucius laws of anything, 
especially ethics or fairness.
    American companies are increasingly discovering that their 
copyright images are being used in advertisements on sites like 
Google and Facebook, are preying upon Americans and the 
American consumers. When the customer receives the item, they 
look nothing like the picture they saw online in the 
advertisement. The clothing items are typically made of 
inferior material. They are constructed cheaply. They arrive in 
sizes that oftentimes are nowhere near and probably just big 
enough to fit a child.
    Consumers--we all know that customer service as well is 
nonexistent, and the American buyer has no option whatsoever 
for returning the product or getting a refund. These false and 
misleading advertisements using stolen images result in 
consumers receiving merchandise far below the quality they're 
expecting and threaten the competitiveness and sustainability 
of American clothing companies, which we all know are in great 
jeopardy right now anyway trying to compete.
    So I would like to, if I could, refer this question to 
Commissioner Ohlhausen and Mr. Cohen, and I just would like to 
know what steps you're taking to eliminate this practice by 
Chinese companies in order to protect American consumers and to 
protect the intellectual property of American companies and 
prevent this kind of activity by Chinese companies in the 
future.
    Ms. Ohlhausen. Thank you, Congressman Bishop. The FTC, as 
you know, in addition to our antitrust authority, is also a 
consumer protection agency, and so we work internationally with 
other consumer protection authorities to address these kinds of 
issues. Now, there can be a challenge for how you reach a 
company in another country. What is their contact with the 
U.S.?
    So to the extent we can reach companies that are misleading 
consumers, if they have some presence in the U.S., then we can 
try to bring an enforcement action. Otherwise, we need to work 
with our international counterparts.
    I would say our relationship with the consumer protection 
authorities in China is not as developed as they are with the 
consumer protection authorities in Canada and Europe and some 
other more developed economies, but we continue to try to work 
and build these kinds of relationships.
    Mr. Cohen. So if I may, Congressman, the problem with 
counterfeit and shoddy substandard goods emanating from China 
is well known. Chinese exports are accountable for about 80 
percent, if I remember correctly, of U.S. seizures of 
infringing goods. There's a lot of litigation both within China 
and outside of China due to China's manufacturing and sales of 
counterfeit and substandard goods.
    Under the JCCT rubric, there is a commitment by the Chinese 
to work on reducing the incidence of these goods. We've been 
trying to work with platforms such as Alibaba, JD.com, and 
others to address this problem. The first recourse is, of 
course, voluntary steps taken by legitimate platforms to take 
down the goods, to respond to complaints, and to respond to the 
complaints not only of consumers but of rights holders who 
observe the counterfeit goods.
    There's a huge magnitude to this problem in terms of the 
growth of the platforms, the sales coming from overseas, the 
facility and ease with which the goods can be distributed, 
including by small parcels, which are hard to detect. And it's 
really an issue that skips many different agencies within U.S. 
Government and the Chinese Government, including our own 
Customs and Border Protection, our FBI, State and local 
enforcement, the USPTO, U.S Trade Representative, Federal Trade 
Commission. So it requires a lot of coordinated effort, 
including working with our rights holders and consumers to 
address the problem. But it's going to take time and 
considerable effort.
    Mr. Bishop. Thank you very much for your answer.
    Mr. Chairman, I yield back.
    Mr. Issa. I thank the gentleman.
    We'll now go to the gentleman from Texas, Mr. Ratcliffe.
    Mr. Ratcliffe. Thank you, Chairman. I appreciate all the 
witnesses and your testimony today. I think this topic is 
especially timely, given the U.S.-China Strategic and Economic 
Dialogue that's taking place this week.
    The trends that we've seen with respect to China enforcing 
its antitrust laws to advance its own industrial policies are 
troubling, to say the least. In fact, it's difficult to imagine 
China having a truly objective antitrust law when the very text 
of that law states that its purpose is to promote a socialist 
market economy.
    But even more telling, I think, are the anecdotes that we 
see from American and European companies, which in some cases 
are, frankly, shocking. We've seen reports of intimidation 
tactics, bullying companies into accepting punishments without 
full hearings, and even in some cases, companies being told not 
to challenge their investigations or even bring their lawyers 
to some of the hearings.
    You know, beyond the direct impact of China's behavior on 
American companies, I'm a little bit concerned that other 
rising economies out there will see China's behavior and 
perhaps follow suit. So the bottom line is, I think, that if 
China wants to be taken serious as a leading economy, then 
these issues need to be addressed or remediated.
    Mr. Heather, I want to start with you. I appreciate you 
being here to testify today. I know this can be a sensitive 
issue within the U.S. business community and I know some folks 
may actually fear retaliation for speaking up and voicing their 
experiences. So I appreciate you being here to speak on behalf 
of U.S. companies.
    Let me start with what I mentioned before, the U.S.-China 
Strategic and Economic Dialogue. What meetings and 
conversations do you hope that our Administration is initiating 
in that regard?
    Mr. Heather. Well, I believe that the S&ED has come to a 
conclusion in China I think as of this morning. I believe the 
outcomes statements from those meetings were posted late this 
morning. I do not believe there were any new developments 
coming out of this S&ED related to competition policy. That 
being said, I think the S&ED and the JCCT have been enormously 
helpful in particularly addressing those egregious due process 
concerns that you mentioned. In fact, I think most of the folks 
I talked to would say that it's probably been a year since 
those most egregious practices have been communicated back to 
the United States. So there is an effective dialogue there at 
the highest levels of the United States Government with China 
and China has shown some responsiveness.
    That being said, in my testimony I said there are still due 
process concerns with a company being able to understand what 
the theory of harm is against them, being able to see the 
evidence China has collected so they can mount a defense and 
respond to that evidence. So there remains many due process 
challenges in China, but those most egregious offenses that you 
refer to in your comments are things that, at least for the 
last year or so, seem to have subsided and you can track that 
pretty closely with these high level commitments that came out 
of the S&ED and the JCCT.
    Mr. Ratcliffe. Well, I'm glad to hear your perspectives on 
that. Let me ask you this question, are there areas of the 
United States broader economic and commercial policy toward 
China that you think might be exacerbating some of the concerns 
that we're talking about today?
    Mr. Heather. I think the answer to that is absolutely. As I 
testified, that the AML can be used as a force for good in 
creating greater competition within the Chinese market, but the 
legal framework that is the Anti-Monopoly Law also allows for 
supporting the social development of the market economy, as 
they refer to it. It carves out space for their state-owned 
enterprises and does a number of other things that provide 
unique twists on what antitrust enforcement would be in the 
United States being consumer welfare focused.
    Mr. Ratcliffe. Thank you.
    I move on quickly with my remaining time to you, 
Commissioner Ohlhausen. In your testimony you talk about 
China's agencies pursuing noncompetition objectives through 
competition enforcement to promote certain industries or 
particular Chinese competitors. You also talk about the fact 
that the FTC is working with other agencies within our 
government to advance consistent cooperation enforcement 
policies.
    I want to ask you in my remaining time, what is the 
interaction with the other agencies? And more particularly, are 
you receiving any pushback at all or a message that maybe you 
need to stop or back off a little bit with respect to China for 
the sake of U.S.-China relations?
    Ms. Ohlhausen. We work closely with the Department of 
Justice, and the Department of Commerce on these issues. And 
what we try to do is give advice to the antitrust agencies in 
China as fellow antitrust enforcers so that we can engage with 
them on an expert-to-expert kind of dialogue. I don't think 
we've gotten any pushback about what we've been doing or what 
we've been saying from other parts of the U.S. Government.
    Now, when I've talked to Chinese officials, we certainly 
have to be sensitive to the fact that their laws do allow for 
some noncompetition factors to be included. But one of the 
things that I've specifically advocated, and it's consistent 
with the general U.S. position, is if they are taking 
noncompetition factors into account, they should be clear about 
that. It shouldn't be just rolled up in a competition analysis 
so that we don't know what part is competition and what part 
may be some kind of an industrial policy. So at least as a 
first step be transparent about the reasons for their 
decisions. As a later step, it would be better to remove those 
kinds of noncompetition factors from an antitrust analysis 
completely.
    Mr. Ratcliffe. Thank you, Commissioner.
    My time has expired. I yield back, Mr. Chairman.
    Mr. Issa. I thank the gentleman.
    I'm going to follow up where that left off, though, 
Commissioner. China is part of the WTO, right? So any 
subjective, unwritten, we just win, you lose is subject to a 
challenge, isn't it?
    Ms. Ohlhausen. I'm not a trade expert, but I think that's 
correct. Certainly, they have to make commitments.
    Mr. Issa. Right. But you're an expert on unfair trade 
practices.
    Ms. Ohlhausen. Unfair trade practices being antitrust and 
consumer protection.
    Mr. Issa. Right. But as the chief watchdog of consumer 
protection.
    Ms. Ohlhausen. Yes.
    Mr. Issa. Domestically, what they're doing of injecting 
nondefined subjective standards is in fact the kind of 
manipulation that you investigate in private enterprises all 
the time to find out how these unpublished wrong selective 
interpretations go on, right?
    Ms. Ohlhausen. Right. Well, certainly, in the U.S. our 
antitrust law has evolved so that we only consider competition 
factors in the competition analysis.
    Mr. Issa. That wasn't the question.
    Ms. Ohlhausen. Okay.
    Mr. Issa. But I'll go to Mr. Cohen. The Federal Trade 
Commission regularly goes after people with false and deceptive 
practices, implying that you can win when in fact you can't. 
The WTO does require that there be essentially a transparent 
policy, and protectionism is inherent--not tariffs, but 
protectionism is inherently barred within the WTO, and the 
Administration, our government, can sue, as we are sued, if 
somebody believes we've crossed that line, correct?
    Mr. Cohen. As long as it offends a WTO requirement, that's 
correct.
    Mr. Issa. So in the case of Mr. Ratcliffe, his examples. 
The example of this dialogue of antitrust being mixed with, we 
just want our companies to win, that in fact could lead to WTO 
action, couldn't it?
    Mr. Cohen. Again, the lead agency here is USTR, which is 
not represented. The WTO disciplines on antitrust are rather 
limited. There are certain provisions in the TRIPS Agreement 
regarding----
    Mr. Issa. Actually, I wasn't talking antitrust. I was 
talking about other subjective standards that are causing 
determinations to be made that are inconsistent with the actual 
antitrust laws.
    Mr. Cohen. Perhaps if there are external influences that 
are inconsistent with the WTO requirements, such as national 
treatment or most favored Nations treatment in investment or 
market access, and those could be cognizable carried issues.
    Mr. Issa. Thank you. Let me follow up with this sort of a 
general question, but I think it's directed to the Commissioner 
primarily. Is it fair to say that active engagement--and I'll 
use a term that's my term, not yours--calling out China for its 
double standards on intellectual property and on antitrust, 
calling them out in a respectful way, but consistently and 
aggressively, if you will, at least behind closed doors, isn't 
that an essential part of what we have to do at a minimum to 
keep China's inherent policies from tipping the scales against 
us?
    And I want to be careful. I'm not necessarily an expert on 
Confucianism, but it does appear as though China only does that 
which we push hard to make them live up to. Is that a fair 
statement somewhat in your estimation?
    Ms. Ohlhausen. Well, I do think it's been important to have 
an honest but respectful exchange with the Chinese officials 
about where there might be deficiencies in their system or 
where there have been some inconsistencies. So for example, 
when the U.S. Chamber put out their report in 2014, the Chinese 
agencies had a press conference where they pushed back and they 
said, no, we are not administering our law in an unfair way. 
But what was important is they then continued to engage with us 
and we saw not just words but deeds followed on by that to have 
some improvements.
    Mr. Issa. And you keep using the word ``respectful,'' and I 
think that's critical. This is a large trade partner, but I'm 
going to ask respectfully each of you to answer yes or no. Is 
it true that China is abhorrent in their respect for 
intellectual property both patents and particularly copyright 
and trademarks?
    Commissioner?
    Ms. Ohlhausen. Are they--I'm sorry, I missed the word. 
Abhorrent?
    Mr. Issa. Abhorrent was the word I used, but deficient, 
quite deficient by international standards. Is that fair to 
say?
    Ms. Ohlhausen. I think it's fair to say that they're weak.
    Mr. Issa. Okay. Would you go further, Mr. Cohen?
    Mr. Cohen. Yes. They are somewhere between weak and 
abhorrent. Some areas they're improving, but the track record 
is pretty bad.
    Mr. Issa. And I'll go with the ``improving,'' but I'll 
stick with the ``abhorrent'' too.
    Mr. Heather, you certainly represent a huge amount of 
companies that are constantly frustrated. Would you use the 
word abhorrent, deficient, regardless of improving below 
international standards of many developed countries?
    Mr. Heather. I won't worry about the adjective. I will just 
simply say, yes, China's enforcement of intellectual property 
rights is substandard.
    Mr. Issa. Thank you.
    Mr. Horton, Professor Horton?
    Mr. Horton. I would say seriously deficient. Addressing 
your comment quickly, the United States enabled China to get 
into the WTO, the United States has been China's best economic 
ally in promoting its growth and helping it. And the United 
States is still the greatest economic engine on the face of the 
Earth. So if the United States stands up and tells the Chinese, 
look, you have to treat us with the same kind of fairness and 
equal rights that you want to instill in your own Anti-Monopoly 
Laws, that's what it's going to take if you want to continue 
having shipload after shipload of goods come here into the 
United States.
    Mr. Issa. So we should speak regularly and affirmatively if 
we're going to go have them behave?
    Mr. Horton. I would say we should followed Teddy Roosevelt 
and speak softly and carry a very big stick.
    Mr. Issa. I thank the gentleman.
    I now go the gentleman from Georgia for a second round.
    Mr. Johnson. Thank you, Mr. Chairman.
    Ms. Ohlhausen, what has been the relationship between the 
FTC and, if you know, the Department of Justice in terms of the 
Chinese antitrust enforcement authorities? Have they reached 
out? What is the relationship between your agency and DOJ, if 
you know, and the Chinese enforcement agencies? And if you 
could describe that relationship, if any.
    Ms. Ohlhausen. Certainly. We signed a memorandum, the DOJ 
and the FTC in 2011 signed a memorandum of understanding with 
the three Chinese antitrust agencies. And what that does is 
establish a framework for cooperation and dialogue between the 
U.S., the senior competition officials in the U.S. and in the 
Chinese agencies.
    We also developed a guide for case cooperation on 
particular cases where we are investigating, the U.S. agencies 
are investigating and the Chinese agencies are--or a Chinese 
agency, usually MOFCOM, is investigating, to allow us to talk 
about it or coordinate in some way. So that's some of the more 
formal ways that we do this.
    And under the memorandum of understanding we have regular 
high level meetings. We also have a lot of informal engagements 
and talks. And so, for example, as I mentioned, I've been to 
China on numerous occasions, often to meet with these officials 
and to talk with them, to further understanding, to raise 
important concerns that we might have about their enforcement.
    Mr. Johnson. So would it be safe to say that improvements 
are being made in terms of Chinese acknowledgment of American 
ideals in terms of antitrust enforcement? And also with respect 
to intellectual property, if you could comment about that.
    Ms. Ohlhausen. So I think there are improvements being 
made. I don't think we are close to saying all the problems are 
taken care of. I do think that there has been progress. It's 
been slow, it's been very incremental. And one of the things 
that we often try to talk about or I often try to talk about is 
why these approaches, the U.S. approaches are not not just good 
for the U.S., but they're good for the Chinese economy.
    Certainly, the Chinese officials rightly are caring about 
the Chinese economy and their growth and their innovation. And 
so I think it's incumbent on us to explain to them why our 
approach will lead to the best outcomes for their economy and 
for their movement from a manufacturing economy to an 
innovation economy. So protecting IP rights can help their own 
industries advance, their own industries invest, and have them 
become stronger players in an innovation model.
    So I think that's an important part of the dialogue. And 
when we point to the problems with them devaluing IP rights, 
it's not just that it may hurt U.S. companies, but it may hurt 
their own economy in the long run.
    Mr. Johnson. So this kind of dialog between an advanced 
Nation such as America and a developing Nation with respect to 
China, is this the way to go or should we--you said carry a big 
stick, Professor Horton. Is there a different way of 
approaching this than the way that we're doing it now? Would 
you recommend another approach, Professor Horton? 
    Mr. Horton. Well, first we have to recognize that we're 
dealing with essentially a dictatorship. The Chinese Communist 
Party is not in any way, shape, or form a democracy as we know 
it here in the United States. And that kind of government goes 
back thousands of years in China. So we're coming to any 
negotiations with China from a very different perspective and 
standpoint.
    Putting ourselves in the Chinese Communist Party leader's 
shoes, they see all the changes that are transpiring in the 
world. They fear what was happening in Tiananmen Square, they 
fear the spread of democracy in China. And so on the one hand 
they're trying to tamp all of this down while at the same time 
creating this economic miracle that can help keep them in power 
by giving more money and goods to the Chinese citizens.
    So I think on the one hand we need to step back and say, 
we're dealing with the Chinese from a very strong position. We 
have a very sound fundamental democracy. We have a very sound 
fundamental economy. We have excellent allies throughout the 
world. We have excellent trade relations. So we should not be 
intimidated by China's growth or it's 1.5 billion people. We 
should go into any negotiations with the Chinese and say, look, 
you know, we helped defeat the Japanese in World War II to 
liberate your country, we've been good allies with you, we've 
helped build your economic miracle, but you have serious, 
serious problems in terms of dealing with the rest of the world 
and it's in your interest, as Commissioner Ohlhausen said, to 
step up to the plate and recognize this if you want to go 
forward as a sound economic partner throughout the world.
    Mr. Johnson. All right. I thank you, Professor Horton.
    And I yield back. Thank you, Mr. Chairman.
    Mr. Issa. Thank you. And I'll be brief the second round.
    Mr. Cohen, you were shaking your head during quite a bit of 
that in a positive way, so I thought I'd follow up a little 
bit.
    There is a government in China that looks out for China. Is 
it fair to say that two of the challenges businesses face, one 
of them is a Chinese centric, how do the Chinese view 
intellectual property? How do the Chinese view competition? 
Which is sort of a business-to-business one. And then there is 
the government's desire to, if you will, protect its progress. 
Used to be it's 10 percent, but whatever number it happens to 
state that it can achieve that. Is that fair to say that we 
have two pots there to deal with?
    Mr. Cohen. I think that's a fair assessment. In fact, in 
innovation we see state-driven innovation and private sector 
innovation. The type that Professor Horton has mentioned is 
another example of that, one coming from the top down and one 
from the bottom up.
    Mr. Issa. So when we have, as Commissioner Ohlhausen is 
dealing with, government-to-government activity, I presume that 
we're dealing then with two sets of problems. One is that which 
the government controls directly, which is their policy and 
procedures, their execution of laws, and then that which really 
has more to do with the very strong provinces and more local 
authority that often it's like pushing a string, in my own 
words, that you can't necessarily expect the government to 
control, but they can attempt to make a difference. Is that 
sort of a fair assessment of the China that we are dealing with 
that which they control, that which they influence?
    Mr. Cohen. There is--I mean, China is not a unified state, 
it's not a Federal system, but, you know, there is such a 
saying that the emperor is far and that in the provinces 
there's a little bit less control. But people still roughly 
follow national guidelines and the structural weaknesses such 
as the intervention of the party is pervasive. The courts are 
no more or less independent than any part of China because the 
party is still very active there serving its interests.
    Mr. Issa. Well, you know, there's a lot of lawyers here at 
the table. So isn't it true, as it was more than a decade ago 
when I was with the late Henry Hyde in China, that they have 
practically no lawyers educated in the sense that we think of 
members of the bar?
    Mr. Cohen. The legal community has been under a lot of 
attack in China. They have educated a lot more lawyers, but 
many of the human rights lawyers have been thrown in jail, many 
of the outspoken lawyers have suffered repercussions. But at 
the same time the courts are proceeding well in a technical 
sense. So you have a very interesting moment in time where the 
courts are under pressure, yet at the same time, technically, 
they're improving their expertise in a range of areas.
    Mr. Issa. When I was there with Henry Hyde who made a major 
address, the number at that time was barely into double digits, 
sort of 10 percent of judges actually were lawyers. The court 
system was being administered by people who had not been 
trained in the law.
    Mr. Cohen. I think that's no longer the case.
    Mr. Issa. So it's risen?
    Mr. Cohen. It used to be the case that the judges were all 
former military officials. They since have had to take an exam 
and they've gotten legal training and in many cases they not 
only have basic law degrees but graduate----
    Mr. Issa. So that's a good news statement.
    Mr. Cohen. Yes.
    Mr. Issa. Last question. I started with you, Mr. Cohen, and 
I want to follow up one more time. We, the United States, lead 
the way toward most-favored Nations and then WTO assert--
ascension for China in the hopes that they would, after 
receiving it, then comply better with what they were not 
complying with ahead of time. And we talked about antitrust 
laws getting mixed with other noncompetitive or foreign 
competition, just waiting.
    What kind of a grade would you give China on how well we 
achieve that goal by giving them WTO in hopes that they would 
live up to a standard you're supposed to have before you become 
a WTO member?
    Mr. Cohen. That standard was to have a rules-based trading 
system, a transparency, independent courts, at least that, I 
think, were the aspirations. That is still very much a work in 
progress.
    Mr. Issa. Okay.
    Professor, as a Case Western graduate like my brother, who 
did get admitted, last question for the whole panel, for you, 
you see China and you have some serious doubts, and you were 
very outspoken in that. Is it fair to say, though, that 
disengagement would in fact, by definition, allow them to keep 
doing what they're doing? Engagement with some of the caveats 
that you presented here today is ultimately the answer for how 
we have our largest trading partner do better.
    Mr. Horton. I think the Chairman's comments today have been 
quite astute. We have no choice but to engage the country that 
has approximately 18 to 20 percent of the world's population. 
China is not going to go away any time, it's going to 
increasingly influence what's happening throughout Asia and the 
world. And we should not be afraid of engaging with China.
    We have a very strong, fundamentally sound democracy and 
economy. We have nothing to fear from strongly engaging the 
Chinese, and over time, perhaps head being them toward the 
course of democracy. You know, we remember when communist 
China--or communist Russia broke up. How did that happen, over 
night? No, I think it was decades of public pressure and subtle 
pressures and just the people there seeing that there's a 
better way of life. And the Chinese are traveling all over the 
country. You can look here in this hearing today, they're here 
by the dozens. And they see that United States open ideal of 
democracy and freedom of speech, freedom of religion. These are 
wonderful guideposts for the future. And let's hope that, over 
the coming decades, the Chinese will slowly begin to realize 
that and move closer to a democracy.
    Mr. Issa. Thank you.
    In closing, I guess I'll own up to the fact that I made my 
first trip to Hong Kong as a buyer in 1982 and made several 
hundred trips before I retired to come to Congress. I have 
great respect for the Chinese people. I had great respect for 
the Hong Kong business model and the governance that they 
managed to turn into a world standard of best practices. I 
appreciate the fact that the Chinese think of things in 10,000 
years. We think of things in our couple hundred years. And 
apparently, that's one of the reasons they're in less of a 
hurry than we are to achieve the goals. And I don't say that to 
be pejorative. I have great respect for where China has come so 
far.
    But this concludes our hearing for today. I want to thank 
all of our witnesses. You were all incredibly good. I want to 
particularly thank the Chamber for representing so many 
companies who, by definition, would prefer to have the Chamber 
speak on their behalf than to speak individually.
    Without objection, all Members will have 5 legislative days 
to submit additional written questions for the witnesses and 
additional materials for the record.
    And with that, we stand adjourned.
    [Whereupon, at 5:25 p.m., the Subcommittee was adjourned.]

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