[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
INTELLECTUAL PROPERTY AND STRATEGIC
COMPETITION WITH CHINA: PART I
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, INTELLECTUAL
PROPERTY, AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
WEDNESDAY, MARCH 8, 2023
__________
Serial No. 118-6
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
51-492 WASHINGTON : 2023
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COMMITTEE ON THE JUDICIARY
JIM JORDAN, Ohio, Chair
DARRELL ISSA, California JERROLD NADLER, New York, Ranking
KEN BUCK, Colorado Member
MATT GAETZ, Florida ZOE LOFGREN, California
MIKE JOHNSON, Louisiana SHEILA JACKSON LEE, Texas
ANDY BIGGS, Arizona STEVE COHEN, Tennessee
TOM McCLINTOCK, California HENRY C. ``HANK'' JOHNSON, Jr.,
TOM TIFFANY, Wisconsin Georgia
THOMAS MASSIE, Kentucky ADAM SCHIFF, California
CHIP ROY, Texas DAVID N. CICILLINE, Rhode Island
DAN BISHOP, North Carolina ERIC SWALWELL, California
VICTORIA SPARTZ, Indiana TED LIEU, California
SCOTT FITZGERALD, Wisconsin PRAMILA JAYAPAL, Washington
CLIFF BENTZ, Oregon J. LUIS CORREA, California
BEN CLINE, Virginia MARY GAY SCANLON, Pennsylvania
LANCE GOODEN, Texas JOE NEGUSE, Colorado
JEFF VAN DREW, New Jersey LUCY McBATH, Georgia
TROY NEHLS, Texas MADELEINE DEAN, Pennsylvania
BARRY MOORE, Alabama VERONICA ESCOBAR, Texas
KEVIN KILEY, California DEBORAH ROSS, North Carolina
HARRIET HAGEMAN, Wyoming CORI BUSH, Missouri
NATHANIEL MORAN, Texas GLENN IVEY, Maryland
LAUREL LEE, Florida
WESLEY HUNT, Texas
RUSSELL FRY, South Carolina
------
SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND
THE INTERNET
DARRELL ISSA, California, Chair
THOMAS MASSIE, Kentucky HENRY C. ``HANK'' JOHNSON, Jr.,
SCOTT FITZGERALD, Wisconsin Georgia, Ranking Member
CLIFF BENTZ, Oregon TED LIEU, California
BEN CLINE, Virginia JOE NEGUSE, Colorado
LANCE GOODEN, Texas DEBORAH ROSS, North Carolina
KEVIN KILEY, California ADAM SCHIFF, California
NATHANIEL MORAN, Texas ZOE LOFGREN, California
LAUREL LEE, Florida MADELEINE DEAN, Pennsylvania
RUSSELL FRY, South Carolina GLENN IVEY, Maryland
CHRISTOPHER HIXON, Majority Staff Director
AMY RUTKIN, Minority Staff Director & Chief of Staff
C O N T E N T S
----------
Wednesday, March 8, 2023
Page
OPENING STATEMENTS
The Honorable Darrell Issa, Chair of the Subcommittee on Courts,
Intellectual Property, and the Internet from the State of
California..................................................... 1
The Honorable Henry C. ``Hank'' Johnson, Ranking Member of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of Georgia...................................... 3
The Honorable Jerrold Nadler, Ranking Member of the Committee on
the Judiciary from the State of New York....................... 5
WITNESSES
The Honorable William Evanina, Founder and CEO, Evanina Goup, LLC
Oral Testimony................................................. 7
Prepared Testimony............................................. 9
Jamieson Greer, Partner of International Trade, King & Spalding
LLP
Oral Testimony................................................. 20
Prepared Testimony............................................. 22
Mark Cohen, Distinguished Senior Fellow and Director, Asia IP
Project, Berkeley Center for Law and Technology
Oral Testimony................................................. 39
Prepared Testimony............................................. 41
Charles Duan, Policy Fellow and Adjunct Professor, Program on
Information Justice and Intellectual Property, American
University Washington College of Law; Member, Patent Public
Advisory Committee, U.S. Patent and Trademark Office
Oral Testimony................................................. 56
Prepared Testimony............................................. 58
LETTERS, STATEMENTS, ETC. SUBMITTED FOR THE HEARING
All materials submitted by the Subcommittee on Courts,
Intellectual Property, and the Internet, for the record are
listed below................................................... 103
An article entitled, ``TikTok Pays Artists `Almost Nothing' in
Music Royalties--And the Industry is Losing Patience,''
November 7, 2022, Billboard, submitted by the Honorable Deborah
Ross, a Member of the Subcommittee on Courts, Intellectual
Property, and the Internet from the State of North Carolina
APPENDIX
Materials submitted by the Honorable Darrell Issa, Chair of the
Subcommittee on Courts, Intellectual Property, and the Internet
from the State of California, for the record
A letter from Act | The App Association, March 9, 2023
A letter from James T. Jensen, Endowed Professor, S.J.
Quinney College of Law, Salt Lake City, Utah, University
of Utah, March 11, 2023
A letter from the National Association of Manufacturers,
March 10, 2023
A letter from the American Apparel & Footwear Association,
March 24, 2023
A letter from Alex Moss, Executive Director, Public Interest
Patent Law Institute, March 24, 2023
QUESTIONS AND RESPONSES FOR THE RECORD
Questions for the Honorable William Evanina, submitted by the
Honorable Darrell Issa, Chair of the Subcommittee on Courts,
Intellectual Property, and the Internet from the State of
California, for the record
INTELLECTUAL PROPERTY AND STRATEGIC COMPETITION WITH CHINA: PART I
----------
Wednesday, March 8, 2023
House of Representatives
Subcommittee on Courts, Intellectual Property, and
the Internet
Committee on the Judiciary
Washington, DC
The Committee met, pursuant to notice, at 10:02 a.m., in
room 2141, Rayburn House Office Building, Hon. Darrell Issa
[Chair of the Subcommittee] presiding.
Members present: Representatives Issa, Fitzgerald, Cline,
Gooden, Kiley, Lee, Fry, Johnson of Georgia, Nadler, Ross, and
Schiff.
Mr. Issa. [Presiding.] The Subcommittee will come to order.
Without objection, the Chair is authorized to declare a
recess at any time.
I want to welcome everyone to today's hearing, the first
hearing of the Intellectual Property Subcommittee of Judiciary.
Intellectual Property and Strategic Competition with China was
chosen to be our first hearing--chosen not because we have
exclusive jurisdiction over China, but because it was
incredibly important that we look at what is now the third-
largest applicant for patents and an organization that has a
strategic plan.
As we will hear from our witnesses today, America, the
heartland of innovation, is, in fact, fertile ground for
China's investment in our patents. America's national security
is at risk because of China's government's quest to achieve
superiority using both internal and externally gotten
technology. They will use both legal and illegal means to gain
technology that they take to China and often use to create
secondary patents--meaning steal the technology from here;
patent back here again; sue, then, here.
Our witnesses represent a broad group of experts in the
area, and I believe they will both educate us and, to a certain
extent, scare many of us.
The fact is we understand that China is one of our largest
trading partners. China is, arguably, our peer in total GDP and
has a growth rate that is likely to exceed ours in the coming
years. Normally, that would be a good thing. Ever since Nixon
went to China, we have believed that engagement with China and
the growth of private enterprise and wealth of the Chinese
people would, in fact, moderate the behavior of the Chinese
Communist Party.
As we will hear from our witnesses today, not on the
dealing of the Chinese Party, but on the dealing of the
government relative to their desire to take from America and
Europe technology for Chinese global advantage. What is the
price tag of that? To the U.S. economy, it represents anywhere
from a low of $250 billion to estimates that reach or exceed
$600 billion a year. That is more than the GDP of many aspiring
countries. It is more than any one corporation would ever dream
of making in a year, and it might, in fact, below in our
estimations.
Entities funded by the government are also flooding the
Patent and Trademark Office with dubious patent applications.
In fact, not only are they dubious, but they often end up in
the hands of nonpracticing entities who specialize in suing
firms--meaning they get the patents that are pretty useless,
except to sell to trolls. They sell them to trolls.
Many companies are involved in this, but I will mention
today, Huawei. I will mention them because, in addition to
being one of the largest stealers of technology, including 5G
technology, they also represent a national threat to any
country that puts their products in, so much so that the United
States has chosen to ban their products. We ban their products;
we do not ban the revenue they receive, both directly and
indirectly, from dubious patents that are filed against U.S.
companies.
To make matters worse, they don't just do it in Article III
courts; they use our ITC as though they were a domestic
producer to sue, and often stop, an American company from
producing a product that they, the American company, invented.
It should not be surprising, then, that the fastest-growing
foreign country of origin for U.S. patents is China. It went
from fourth in 2018 to second in 2022, exceeding Japan and our
other allies.
As troubling as that sounds, it could be worse. The World
Trade Organization, the WTO, with support of the Biden
Administration, adopted a waiver that permitted China and other
nations to disregard IP rights on COVID vaccines held by
American companies. That is, essentially, a transfer of
technology to China and other countries, and I would mention
China and India as the two major beneficiaries.
What is more troubling is the desire to make this a regular
practice of, essentially, after someone has invested millions
or billions, to simply set aside their patent rights. When
patent rights are set aside, there are two sets of damage that
can occur.
The first set is the obvious, that your foreign markets
disappear because the technology is available, and instead of
buying your product or licensing your patent, they simply
produce the competing product. What makes matters worse is this
technique also can create the seed for companies that otherwise
would never be able to catch up to catch up or even pass us,
and essentially, put the U.S. innovator out of business by
flooding the market with products that are the fruit of a
patent not paid for, but given away.
Many of these things would appear at times to be partisan
issues, and certainly, the fact that President Biden has made
this decisionmakes it seem partisan. Let there be no doubt,
many Presidents of both parties have wanted to look on the
world stage as though they cared more about the rest of the
world than they cared about American ingenuity being properly
awarded, as the Constitution requires.
So, although I make this point, and I will be introducing
or have introduced the No Free TRIPS Act, I want to make it
clear: We expect this to be, and continue to be, on this
President and those that follow a bipartisan issue--one in
which Members who are about domestic intellectual property
production will side with making it stronger, and those who
care about a global view may choose to be on the other side. I
don't believe that will come out on partisans' lines as much as
it will come on ideological lines. Many of my best partners
over my 24 years in Congress--23, going on 24--have, in fact,
been Members on that side of the dais, and I expect that to
continue to be.
Unfortunately, China has learned to capitalize on
developments of certain U.S. States, in addition to that.
Today, we will touch, to a certain extent, on noncompete
agreements. I expect this will not be the only time. My home
State of California has effectively made noncompete illegal.
As a result, anyone who takes a job in California has a
free ticket to go from California with any technology they have
gained, including trade secrets, and simply go to another
country with it and sell it. There are countless examples of
that, including Qualcomm, Intel, Google, and Apple, who have
been the victims of technology developed/trade secrets
developed simply going to another country. Again, if they go to
China, they often end up in patents that are the fruit of that
otherwise unknown or developing technology.
Simple noncompete agreements that simply invalidate a year
or two after someone leaves from being able to patent something
that they learned about in their first company have been
invalidated in California. There is an effort to make that
national.
Let there be no doubt; we support the idea that people
should be able to leave a job and go to another job. No
noncompete should bar somebody from being able to continue to
operate with the knowledge and training that they came in with.
There is a huge difference between a salesman going from one
company to another and a salesman leaving with the price list,
the customer list, and all the data, and simply moving over to
another company and saying, ``I come with the information that
I took from my company.''
That is easy for people to understand. It is more
complicated, often, to understand when you have intellectual
property or the knowledge that is in a nascent way, but
extremely valuable.
So, as you can see, today's hearing, the first of many, is
necessary because this, not just by China, but our intellectual
property is under attack; our system is under attack. This
Committee is absolutely committed to both give it airing, so
the public understands it, and do legislation to protect the
American inventor.
With that, it is my pleasure to introduce my new Ranking
Member from Georgia, Mr. Johnson, who I have worked with in the
past on this Committee, and I look forward to working with on
these and other subjects. The gentleman is recognized.
Mr. Johnson of Georgia. Thank you, Mr. Chair, and it is a
pleasure to be the Ranking Member on the Committee that you are
the Chair of the Subcommittee. I want to commend you for your
bipartisanship as we approach the bipartisan issues of this
Subcommittee.
I share the grave concerns of my colleagues about the
Chinese government's theft of the intellectual property of our
Nation's innovators. We know that the scale of China's IP theft
is enormous. We know that it hurts our inventors' ability to
compete and succeed, and we know that we need to improve our
laws and policies to not only protect America's intellectual
property from the Chinese government, but also to mitigate the
damage already done.
The solutions to the problems resulting from the Chinese
government's concerted and systematic IP theft will, no doubt,
be complex. For this reason, I am glad to hear from our panel
of witnesses today, who I understand are leading experts on the
relationship between China's IP theft and our national security
and economy.
Thank you for testifying and for sharing your knowledge on
this important topic, and I plan to take to heart your
testimony and suggestions for how we in Congress can ensure the
continued success of our Nation's innovators.
In particular, I hope to hear from the witnesses on how we
in Congress can do more to protect the intellectual property of
our Nation's small businesses. Small businesses are the
backbone of America's economy. They create most of our
country's net new jobs. They drive our economy and our
responsible for a substantial portion of our gross domestic
product.
Small businesses also drive innovation in our country. They
are more likely to develop and bring new and disruptive
technologies to market than large businesses. In my view, small
businesses need strong intellectual property rights to protect
their innovations. This helps not only the small businesses,
but America's economy as well. Small businesses that apply for
patents and other types of intellectual property protections
are more likely to grow quickly, hire engineers and scientists,
and succeed than those businesses that do not engage in
intellectual property protection.
As we learned in the last Congress, however, small
businesses are struggling to protect their intellectual
property. Any patent that is valuable has become subject to
repeated attacks at the Patent Trial and Appeal Board, often by
actors who have no substantial monetary or public interest in
the underlying technology. Their game is to drive small
businesses into bankruptcy, as few small businesses have the
financial backing to survive repeated attacks on their
intellectual property rights.
We already know that Chinese companies steal U.S.
technology and sell it back to us. I hesitate to think what
will happen when actors backed by unlimited resources of the
Chinese government will go after these small businesses at the
PTAB.
I want to make clear that, to maintain our Nation's
innovative superiority, we don't need to rely on prejudices and
hate. Our country has seen an alarming rise in physical
assaults, civil rights violations, and other general harassment
of Asian Americans--for no reason other than being Asian. I
want to be clear that we are talking about a concerted effort
by the Chinese government, not the Chinese Americans and not
others with Asian heritage, to steal U.S. intellectual
property.
We are in an innovation war with China, but we don't win
that war by giving up our values and giving into hate. In my
view, we win by strengthening our intellectual property laws
and policies and by placing our American inventors, regardless
of race, ethnicity, or national origin, in the best position to
out-innovate the Chinese government.
So, I call on each and every one of us in this
Subcommittee, from both sides of the aisle, to work together
toward solutions. We must get to work right away. There is no
time to waste.
With that, Mr. Chairman, I yield back.
Mr. Issa. I thank the gentleman.
It is now my great pleasure to recognize the Ranking Member
of the Full Committee, my long-time partner on this
Subcommittee, for his opening statement, Mr. Nadler of New
York.
Mr. Nadler. Well, thank you very much, Mr. Chair.
Mr. Chair, a little over 20 years ago, the free world
undertook an experiment and allowed the People's Republic of
China to become part of the World Trade Organization--granting
that nation permanent access to some of the most important
markets in the world. Among other changes, this concession
meant that China and Chinese companies had permanent access to
our patent and trademark systems on the same terms as our own
nationals.
I voted against China's entry into the WTO because I had
serious concerns about the impact that globalization would have
on American workers--a concern that, unfortunately, has largely
been borne out. I was also skeptical that many of the promised
benefits of free and open trade with China, such as democratic
liberalization and improved human rights for its people, would
come to pass. Sadly, this concern, too, has largely been
vindicated.
Today, we see a government in China that has become
increasingly authoritarian, using a vast array of technology to
track its citizens and subjecting many of its people, most
notably, the Uyghur population, to shocking human rights
abuses.
On the economic front, China's entry into the free-market
system has failed to encourage the PRC to obey the rules and
customs that govern the international economic order. Rather,
it has simply enabled the Chinese government to manipulate
those rules to its advantage.
For example, the requirement that in certain high-tech
sectors U.S. companies work with their Chinese counterpart has
become one of many vehicles that the PRC has used to force
technology transfer to their nation. This sometimes means
requiring U.S. companies to disclose key aspects of their
technology to obtain licenses to operate within the PRC, among
others.
Unfortunately, there are also many documented instances of
the PRC using outright illegal means to access U.S. technology,
including cyber espionage and trade secret theft. In sum, while
the PRC was welcomed into the free market system, it has failed
to honor many of the hallmarks of good global citizenship. This
is a serious challenge to a system that has historically relied
in large part on assumptions that the players will act in good
faith.
With the announcement of a series of national policies
aimed at making China the technological leader in all important
emerging areas of innovation, we cannot afford to be blind to
the illicit and questionable means that the PRC is using to
leapfrog the rest of the world.
Their actions create an uneven playing field for other
nations, their people and their companies, compounded by
research showing that China's patent system and courts do not
always treat foreigners equally.
This is certainly a broad topic worthy of our
Subcommittee's extended attention. While we are primarily
focusing on trade secrets and patents today, I would be remiss
if I failed to mention that on the copyright front piracy in
China also continues to do damage to the U.S. economy and to
hurt the American creative community. I hope that we will be
able to explore this and other topics, such as competition in
the artificial intelligence space and cryptocurrency, in the
future.
I want to express, however, that our need to have a serious
conversation about the behavior of the Chinese government
should in no way be interpreted to call into question the
patriotism and the substantial contributions of our many
citizens of Asian descent. We have seen all too often how the
lack of nuance in our rhetoric can turn into suspicion and
violence against some of our own people. Not only is this
morally wrong, but it also tears apart our national fabric,
which plays right into the hands of our adversaries.
It is through the united front and the full empowerment of
our tremendous human capital that we in the United States have
been the world leader in innovation for so long. We must
embrace and expand on that great advantage of ours, in addition
to doing the careful legal work of this Subcommittee to ensure
that our intellectual property laws and policies meet this
moment of global competition.
I thank the witnesses for their participation in today's
important hearing and I look forward to their testimony.
With that, Mr. Chair, I yield back.
Mr. Issa. I thank the gentleman.
I now have the pleasure to introduce today's witnesses.
Mr. William Evanina is the founder and CEO of Evanina
Group. He has served in the Federal Government for 31 years,
including the Director of the U.S. National Counterintelligence
and Security Center; Chief of the Central Intelligence Agency's
Counter Espionage Group, and Assistant Special Agent in Charge
of the FBI's Washington Field Office, where he led operations
in both Counterintelligence and Counterterrorism Divisions.
Mr. Jamieson Greer is a partner of an international trade
team of King & Spalding, where his practice covers trade
remedies, trade policies and negotiations, trade agreement
enforcement, export and import compliance--exactly what we are
talking about now--and CFIUS matters. He previously served as
Chief of Staff to the U.S. Trade Representative under the
previous administration.
Mr. Mark Cohen is a Distinguished Senior Fellow and
Director of the Asian IP Project at the Berkeley Center for Law
and Technology. He previously served as Senior Counsel to the
U.S. Patent and Trademark Office and its first representative
of the USPTO in China.
Mr. Charles Duan is a policy fellow and adjunct professor
in the Program on Information Justice and Intellectual Property
at American University College of Law. He serves as a member of
the Patent Public Advisory Committee of the USPTO.
We want to welcome our witnesses and thank them for
appearing today.
We will begin by swearing in, as is the rule of the
Committee.
Would you please rise and raise your right hand?
Do you solemnly swear or affirm, under penalty of perjury,
that the testimony you are about to give will be true and
correct to the best of your knowledge, information, and belief?
Please say aye if you do.
Please be seated.
Let the record show that all witnesses answered in the
affirmative.
Then, I am supposed to say, ``Thank you. Be seated,'' but I
am rusty at this.
Please know that, although your testimony is limited to
five minutess, all your written statements, opening statements,
any additional information you want to submit within five days
after this hearing, will be placed in the record. So, feel free
to abbreviate.
You are all pretty good at looking at clocks. Please try to
stay right on that five minutess or as close as possible.
With that, we start with Mr. Evanina.
STATEMENT OF THE HONORABLE WILLIAM EVANINA
Mr. Evanina. Chair, Ranking Chair, Members of the
Subcommittee, it is a humbling pleasure to be here with you
today.
As the Chair referenced, I spent over 31 years in the U.S.
Government with the FBI, CIA, and as the first Senate-confirmed
Director of the National Counterintelligence and Security
Center. However, I am here today as the CEO of my own company,
where I spend most of my time dealing with CEOs, boards of
directors, and executives fighting the economic war we're
currently in with the Communist Party of China. That certainly
starts at the very beginning with the protection of their
intellectual property, trade secrets, and business rules.
Economic security is national security. There could be no
doubt to that. Our economic prosperity and security of such
thrives on a prosperous economy which provides for the best
national security, military security, and military apparatus
the world has ever seen.
However, let's be clear and honest. Our economic global
supremacy, stability, and long-term vitality is not only at
risk, but, clearly, in the crosshairs of Xi Jinping and his
Communist China regime.
So, how does China steal intellectual property? The
Communist Party of China uses intelligence services, science
and technology investments, academic collaboration, research
partnerships, joint ventures, front companies, mergers and
acquisitions, and outright theft, insider threats, and cyber
intrusions. This whole-of-society approach utilized by the
Communist Party of China sets the comprehensive and strategic
framework for how China implements their grand strategy.
It is currently estimated, as the Chair referenced, the
economic loss from the theft of intellectual property and trade
secrets just from the Communist Party of China, and just from
what we know via prosecutions, is between $400-$600 billion per
year. To make it more relevant and personal, that equates to
about $4,000-$6,000 per American family of four after taxes.
The economic cost of intellectual property theft is real.
China's ability to holistically obtain intellectual
property and trade secrets via legal, illegal, and
sophisticated hybrid methods is like nothing we have ever
witnessed. Actually, it is said by many to be the largest theft
of intellectual property in the history of the world, and that
just happened in the past decade.
So, what intellectual property does China steal? Well,
everything. China's priorities for obtaining U.S.-based
intellectual property, trade secrets, ideation, and technology
is pursuant to the publicly available Made in China 2025 plan.
It is clear, concise, and at the same time, strategic and
comprehensive.
Just to name a few, aerospace, deep sea technology,
biotechnology, information technology, manufacturing, clean
energy, electric battery technology, and DNA genomics--just a
few.
Any CEO, board of directors in any of these critical
industries must be acutely aware of the threat posed to them.
They must work efficiently and aggressively with their security
teams, legal counsels, and outsiders to identify risk-based
mitigations to this threat. This needs to occur yesterday.
The proverbial salt in the wound of intellectual property
theft is when the Communist Party of China steals our thoughts,
ideas, patents, and technology, and then, manufactures that
same technology inside China, and then, turns around and sells
it back to American companies, States, and localities.
We need to look no further than the American Supercomputer
Corporation just for a glimpse of the long-term pain and impact
of intellectual property theft and espionage. Additionally, one
must factor in all the manufacturing plants which are not built
in the United States and the tens of thousands of jobs which
are not created because China, via its theft, beat the United
States to the global market and sold that same U.S.-created
product, idea, and patent at a significant reduction in real
costs.
Just this past November, Xu Yanjun was sentenced to 20
years in Federal prison for targeting American aviation
companies--recruited employees to travel to China and solicited
the proprietary information/intellectual property on behalf of
the government of the PRC. He's a highly trained intelligence
officer, Deputy Director of China's Ministry of State Security.
Coincidentally, next month, China will roll out the first
flight of the COMAC airliner. It is 95 percent stolen of
intellectual property from the United States and around the
world. Its clear intention in this effort is both to compete
and, eventually, overtake Boeing and Airbus.
So, why does this all matter? Because continuing to combat
this threat begins at Subcommittees and hearings like this
where the American public and Members get to understand the
significance of the threat we face every day of the Communist
Party of China and why it matters.
I thank the Subcommittee for your attention and look
forward to your questions.
[The prepared statement of the Honorable Evanina follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Issa. Thank you.
Mr. Greer?
STATEMENT OF JAMIESON GREER
Mr. Greer. Good morning, Chair, Ranking Members, Members
and staff.
You should know before beginning that I'm appearing in my
personal capacity and none of my comments today can be
attributed to any current or former employer or client,
although I hope that many of them agree with me.
I'm heartened to hear the consensus between the Chair and
the Ranking Member on these important issues. Mr. Nadler, I'm
right there with you on China's entry into the World Trade
Organization.
I'm grateful for the opportunity to appear before this
Subcommittee to address one of the most important issues for
our U.S. economic and national security; that is, our strategic
competition with the People's Republic of China and the role of
IP in that competition.
As a former officer in the U.S. Armed Forces, former Chief
of Staff in the Office of the U.S. Trade Representative, and a
practicing international trade attorney in the private sector,
I view these issues through both an economic and a national
security lens. I've heard directly, and hear directly, from
U.S. businesses and workers on how the Chinese approach to IP
has injured their economic prospects, those of U.S. businesses.
I've worked to develop and implement U.S. policies to counter
these harmful practices, and I've been part of U.S. teams
tasked with negotiating with Chinese officials on these
critical issues. These experiences all underscore for me the
seriousness of this challenge and the continuing and urgent
need to take strong action.
It's difficult to overstate the importance of IP for the
U.S. economy and workers. The U.S. Patent and Trademark Office
found that IP-intensive industries account for 41 percent of
domestic outcome and 44 percent of U.S. jobs. That was a 2019
study.
U.S. military superiority and accelerating Chinese military
capability are driven by IP-intensive technology. U.S.
innovation must be defended, including through negotiation of
concessions by China to protect IP rights and, where
necessary--and this is increasingly important--very strong
enforcement of trade agreements and rules to obtain compliance.
The optimal policy prescriptives for dealing with China's
approach to IP are tied to how one views the overall challenge
posed by China. I'm concerned, as you all are, that China has
used its access to Western technology to try to become a
hegemon and to eliminate key Western industries and our
economic strength. Those who don't share this assessment will
have a different view of the appropriate policy response, but
we need to make sure we have all the facts before us. So, this
hearing is very helpful.
I won't go into detail on the ways that China steals
technology. Mr. Evanina has done that, and I think we will
discuss it in more detail. We've also heard about the harm
Chair Issa talked about, upwards of $600 billion in cost to
U.S. industry every year.
It's important to me that we all understand the historical
context of this issue, which, unfortunately, is not new. The
administrations of George H. W. Bush and Bill Clinton each made
efforts to negotiate improved IP rights and enforcement in
China in 1989, 1992, 1995, and 1996. Each of these efforts
resulted in small agreements with commitment by China to
change. They didn't change, and unfortunately, there was no
enforcement following that.
As Mr. Nadler pointed out, despite all that, China was--the
red carpet was rolled out for China to enter the World Trade
Organization and became part--also, as part of that, the
Agreement on Trade-related Aspects of Intellectual Property,
TRIPS.
Then, we saw, under the Bush Administrations and Obama
Administrations, a series of dialogs where China, once again,
agreed to make changes. In fact, you can see that, if you look
from 2010-2016, there are 10 occasions, some including Xi
Jinping himself, where China agreed that they were going to
make changes on IP. Again, promises are great; discourse can be
helpful, but there was no enforcement.
Fast forward, then, to 2017, when President Trump directed
my former boss, Bob Leitheiser, to investigate China's
practices under Section 301 of the Tariff Act of 1930, and most
importantly, to take action, if warranted. The Section 301
investigation, which I have the report right here in my hand--I
hope some of you have it, too--it found that China was harming
the U.S. economy through its practices.
We can talk about all these different things, like I said,
but some of the most beneficial outcomes of the Section 301
investigation have been:
First, imposing tariffs on high-tech items from China to
prevent our dependence on China for such items that are often
produced from stolen IP. Think here electric vehicles,
robotics, aerospace items, like Mr. Evanina was discussing.
Second, is we did obtain commitments from China to improve
its IP system, particularly for trade secrets, and to eliminate
forced technology transfer. Now, we're not naive in thinking
that China can sign a piece of paper and we would get them to
change, but that's why the tariffs were kept in place--to
maintain leverage.
The Biden Administration in the past has stated that they
embrace the Phase One deal that came out of this investigation,
including the tariffs. Although the Chinese have made some
changes consistent with their Phase One agreement obligations,
stakeholders agree that these efforts, although welcome, are
insufficient.
So, where do we go from here? I'm happy to talk throughout
the hearing today about how we can use existing tools to combat
IP theft by China and how we might develop new tools as well.
There are a number of tools at hand, but the underlying use
of any of these tools, you have to have the political will
across parties and administrations, and importantly, in the
U.S. business community. Absent the sustained will, it will be
increasingly difficult to protect the U.S. economy and American
workers from the negative impact of China's policies and
practices on IP.
Thank you.
[The prepared statement of Mr. Greer follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Issa. Thank you, Mr. Greer.
We now go to Mr. Cohen for five minutess.
STATEMENT OF MARK COHEN
Mr. Cohen. Thank you very much, Mr. Chair and Ranking
Member, and Members of the Committee. It's my honor to testify
before you today.
I'd like to use my five minutes to begin by answering a
question that I am asked every day, and I suspect many of you
are, too. The question is: Does China protect IP? The response
is yes and no. The answer lies in what we know; what we do not
know, and what is hidden from us.
Imagine three stacks of paper before me on this table.
Stack one is favorable to China. It contains empirical
analysis of China's IP system. It contains reports of American
companies, business surveys, and scholars who often praise the
efficiency, low cost, and fairness of China's IP system.
Although the opinions in this stack are contrary to the
prevailing positions within the Beltway, there's actually a
great deal of information in that stack.
Stack two, equally large, commands your attention with the
stories of IP stolen by China. I won't repeat them because
we've already heard quite a bit, and I'm sure we'll be hearing
more about these stories. Typically, the case stories are
anonymized because the victims also fear retaliation.
These two stacks describe one legal system. It functions
very well until it doesn't. Chinese politics intervenes in an
important, but a minority of high-value disputes in China's
legal system. Many of these cases concern technology, and, yes,
many of them concern Americans.
There is also a third stack on the table. It contains
invisible records of the many cases and controversies which
have never been published and about which we know very little.
This stack includes cases where the CCP secretly intervened to
compel a decision adverse to a party. It includes cases where
there was national technology policy involved against an
American company, perhaps antitrust, patents, or trade secrets.
It also includes cases of lost business opportunities. There
are numerous other invisible disputes. To fully understand this
third stack, however, we would require greater transparency
from China, and we have not gotten that.
Sadly, the Phase One agreement did nothing to resolve this
problem. For example, it imposed no obligations on China to
publish its trade secret cases; to make court dockets more
available to the public, or to improve transparency of the
administrative patent linkage decisions. These deficiencies
haunt us today, as they have for the past two decades.
These three stacks tell us three complementary messages.
Foreigners win IP cases in China. Foreigners are often victims
of China's IP policies. The third, we still do not fully
comprehend how foreigners are being treated in China.
Although these conclusions are treated by China--are
compelled by China's lack of transparency, I believe that there
are, nonetheless, tools that we can use to help us be better
informed and make better strategic decisions. It's time for
Americans, for the United States, to leverage the full range of
data that we have on patents, on scientific publications, on
manufacturing investments, industrial policy, Customs
intelligence, et cetera, to better assess our competitiveness
and China's strategic goals.
We might reconsider instituting the Office of Technology
Assessment, which conducted many trailblazing technology
assessment practices here in this body for U.S. Government and
industry. We need to develop future-oriented technology
assessments in key technological areas of concern.
I've seen these reports from China in great detail where
they've enumerated how they would deal with U.S. technological
threats. We need to do the same.
For law enforcement, that means we should be expending our
efforts based on risk assessments that target key technologies,
not on targeting ethnic groups.
We should also consider reinstituting DS362, the WTO case
from almost 15 years ago that sought to compel greater
transparency for the Chinese IP system.
The good news in all of this is that China is in many
respects a planned economy and many plans are published. So, it
is really not too difficult to determine where China is
targeting its efforts.
I'd like to close for a moment by referring back to a
statement by the Chair about the Federal Trade Commission
proposed rule to ban noncompete agreements. I agree completely
with your assessment. In fact, I believe that California would
be well-advised to suspend its ban on noncompete agreements
when there is an international context. Right now, we have seen
tremendous losses in California, and from the United States
generally, when this poaching of U.S. employees or those
disclosures of confidential information, in violation of NDAs
or confidentiality agreements.
China's own statistics prove that noncompete agreements are
much easier to enforce than bringing a trade secret case. The
chance of winning a trade secret case in China today is about
30 percent; whereas, the chance of winning a case based on a
noncompete agreement is anywhere from 66-90 percent. So, we're
actually impairing the ability of our own companies to enforce
their rights in China. Privately ordered noncompete agreements
are critical to prevent loss of trade secrets. I am happy to
provide more data to the Subcommittee on this topic.
Once again, thank you for inviting me to speak with you
today.
[The prepared statement of Mr. Cohen follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Issa. Thank you, Mr. Cohen.
We now go to Mr. Duan for five minutess. The gentleman is
recognized.
STATEMENT OF CHARLES DUAN
Mr. Duan. Good morning, Chair Issa, Ranking Member Johnson,
and Members of the Subcommittee. Thank you for inviting me to
testify today on this important topic.
Similar to Mr. Greer, the views I'll express in this
testimony are my own, not those of any affiliated organizations
or institutions.
Intellectual property is the infrastructure that underpins
and shapes American innovation. As with any other
infrastructure, its reliability and trustworthiness are
critical to national security at a time when technological
progress defines Americans' leader--American leadership around
the globe.
My colleagues have discussed the defensive role of
intellectual property, protecting against China's IP theft. I'd
like to focus on a different aspect that, Mr. Chair, you've
alluded to quite a bit in your discussion--an offensive role in
which China and other competitor nations might exploit our IP
system by obtaining and asserting U.S. patents in ways that
unfairly harm American innovators.
My written testimony reviews a number of ways that China
could and does offensively exploit American patents, but here
I'd like to focus on one example that I found. Two years ago,
the holdover patent on an autonomous vacuum cleaner demanded
that Amazon remove a product listing of an allegedly infringing
competitor. Under its patent-neutral evaluation rules, Amazon
notified the seller. The seller almost immediately brought suit
against the patent holder, charging that the patent had been
wrongly granted and that it should be invalidated.
So far, this sounds like a typical story of a patent
dispute, and indeed, it involves an American startup and a
massive Chinese conglomerate. In this case, though, the patent
holder was a billion-dollar company, Xiaomi Electronics, and
its subsidiary, Beijing Roborock. The alleged infringer was a
company based out in Washington State. In other words, you had
a major Chinese firm asserting a U.S. patent against a U.S.
business.
Now, we want to be clear. There's nothing wrong with a
Chinese company obtaining, holding, or even asserting a U.S.
patent. It would violate our international obligations to say
otherwise. Discriminating against patent holders based on
nationality would only encourage other nations to do the same,
or even worse, to engage in a tit-for-tat sort of competition.
Additionally, I'd like to thank Mr. Ranking Member for
mentioning the concerns about discriminating based on ethnic
origins. I think that that's an important point that I want to
carry through this hearing.
My point here, though, is simply this: Patents defend
Americans from foreign IP theft, but that's not all they do.
As, Mr. Chair and Mr. Ranking Member, you mentioned, trade
secrets can often be the better tool for the sort of defensive
job protecting us from IP theft because of the territorial
limits of patents.
The more concerning role, in my mind, of U.S. patents is
the sort of offensive use--companies like Huawei, as you
mentioned, Mr. Chair, asserting them in the United States
against small businesses and American innovators. Already, we
know that over 50 percent of U.S. patents go to foreign, go to
foreign applicants. China is poised soon to be the top filer of
U.S. patent applicants over--likely to overtake Japan in just a
couple of years, and particularly, is focusing on sensitive
fields like 5G and artificial intelligence. If U.S. patents can
be obtained too easily, or can be asserted unfairly, then China
could strategically use them to hamper American innovators and
slow down our technological progress.
How do we respond to this potential offensive use of
patents? Well, just as trusted computing systems protect us
from cybersecurity threats, we need a trustworthy patent
system, one that protects American entrepreneurs from abusive
patent assertion from China and elsewhere. We need to dedicate
resources to patent examiners to ensure that patents are
correctly reviewed. We need processes to validate the
correctness of patents after the fact, knowing that patent
examination is not perfect.
We need to champion fairness in the adjudication process.
Courts in China and elsewhere, even in the United States--Mr.
Chair, you mentioned the International Trade Commission--there
is a race to the bottom of unfairly tilting the playing field
in order to attract lucrative patent cases. We need to be a
global leader on forum fairness, to put a stop to Chinese anti-
suit injunctions and other judicial manipulation.
Finally, we need to engage the whole-of-government on
technological leadership. IP rights are an important component,
but not the only component, of that. Especially for dynamic
fields like artificial intelligence, policy tools such as STEM
education, high-skilled immigration, research funding, and
diversity initiatives can have tremendous impact beyond what
patent law alone can achieve.
I thank the Subcommittee for its attention to this issue
and look forward to your questions.
[The prepared statement of Mr. Duan follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Issa. Thank you.
I will forego my questioning for now and go to Mr.
Fitzgerald.
Mr. Fitzgerald. Thank you, Mr. Chair.
Mr. Evanina, shortly after the Olympics, Summer Olympics,
in 2008, I was able to travel to Beijing for 10 days, and I
remember how shocking it was to see how the city had been
cleaned up and Westernized for all those traveling for the
Olympics.
It, also, was a period of time in which I think many
American corporations were not only being lured to do business
in China, but, certainly, were more than willing to do that. I
wanted to preface kind of a question for you along those lines.
So, because the Chinese government has historically
required foreign companies seeking to do business in China to
establish the joint ventures with Chinese-based companies,
particularly, in industries such as oil and gas exploration,
medicine, insurance, and radio and TV items, and now, the
National Bureau of Economic Research found in 2015 alone
foreign companies set up slightly more than 6,000 new joint
ventures in China. It accounted for almost $28 billion in
foreign direct investment. Then, the same study also found
that, as soon as three years after inception of these joint
ventures--we all kind of know what is going on--the Chinese
firms in that same industry not only exceed the technology that
was brought to them by American corporations, but, then, also
increase the productivity related to that entire industry.
So, my question to you is, sometimes I think we are our own
worst enemies in this area, in that we continue to allow
corporations to enter in these joint ventures. They, at the end
of the day, come away with millions of dollars in new revenue
and productivity, but are we kind of chasing our own tail in
this regard? I am wondering if you could respond to that.
Mr. Evanina. Congressman, thanks for the question.
A bit complicated response, but, simple in terms of the
thought process. I think a couple of things are true with your
statement.
First, we don't play by the same rules as the Communist
Party of China. We have the greatest capitalist society country
the world has ever seen, which results in businesses and
industries wanting to invest globally to have a significant
return on investment. That has been true for two decades with
anything you invest in with the Communist Party of China or
companies that are within that, that country. So, that is true.
So, it's hard to say to a capitalist society business entity,
``Don't invest in China,'' because of ``X,'' because we are a
capitalist society.
For the first time ever, I will proffer to the Subcommittee
that we are in a space right now where our global supremacy,
our capitalist mindset is clearly superseding and overlapping
with our national security and national interests. I think it's
going to be a crosshairs where we have to now look at what's
the obligation of a financial industry, of a corporate, or
startup to say,
Listen, your investment in the Communist Party of China is fair
from a capitalist perspective, but it's rife with security
issues for you and the Nation. Let's look at your issues and
your next quarter earnings versus the national interest and
national security.
I think that's a really tough conversation to have, but we're
going to have to have that.
Mr. Fitzgerald. I will just followup with, just as of this
week, I have had colleagues in Congress say we need to set a
path for many American corporations to wean themselves off
this. I think that the only clear path of doing that is
probably legislation at some point.
So, I am wondering, any thoughts on should we go that far,
and if we do go that far, what the fallout might be?
Mr. Evanina. Yes, that's a great legislative question, a
policy question about that intersection between Congress and
the private sector with respect to capitalism.
I will say that I believe, with the impending Taiwan
situation and what happened in Hong Kong, and the course around
with the Communist Party of China, that eventually investors in
China will start to feel the pain, and I think they will start
to begin to not be able to withdraw their money from
investments. I think the Communist Party of China will start to
force us to feel the pain of that investment. I think that will
change the course of American investment in China.
Mr. Fitzgerald. Thank you very much. I yield back.
Mr. Issa. I thank the gentleman.
We now recognize the Ranking Member of the Subcommittee for
his questions.
Mr. Johnson of Georgia. Thank you, Mr. Chair.
Mr. Cohen, you testified that U.S. policies and laws
weakening our patent system in key areas, such as patent-
eligible subject matter, and the availability of injunctive
relief, have given China an opportunity to surpass us in
innovation. Can you explain in more detail how China has
exploited our weakened patent system?
Mr. Cohen. Yes. Thank you for your question.
So, to someone who observes IP development on both sides of
the Pacific, it was interesting to me to see that at the same
time as cases like Myriad and Bilski were decided by the U.S.
Supreme Court, China amended its examination guidelines to
permit the very same subject matter, ineligible patents, to be
granted in China.
Now, this was probably due in some small measure to the
U.S. Supreme Court decisions and an opportunity perceived by
the Chinese patent office, as well as China's own economic
growth, that it was becoming very successful in thin tech, in
genomic discoveries, and medical diagnostics, and related
areas. So, there's a bit of self-interest here, as well as a
bit of a competitive edge.
Studies that have been done by Adam Mossoff at George
Mason, Dave Kappos, and others, have shown that in many cases
patents that were ineligible in the U.S. were eligible in China
and the European Union, and many other countries. That's one
aspect.
The other aspect is eBay. Now, in China, injunctions are,
basically, automatically granted if there's a finding of
infringement. This is really critical to China because damages
are low. So, having an enforcement injunction means that you
actually have a useful remedy in China's huge market where so
many goods are manufactured and sold.
So, that becomes an attractive position for China to play
in attracting global litigation. I should say that part of this
is not--it's by no means secret that China wants to be a center
for global innovation. So, it wants to attract these cutting-
edge industries. We've seen it with companies like Alibaba and
Baidu and Tencent, and others.
It also wants to be a center for international IP
litigation. How that evolves is a bit unclear, but they do have
a cadre of over 2,000 IP judges--2,000. Not only that, but many
of these judges and IP officials have since been promoted to
higher levels within the Chinese government. I think we have
yet to appoint a Federal Circuit judge to the U.S. Supreme
Court. China has had at least two IP judges appointed to--as
justices of their supreme court. We've seen other promotions
within the Chinese bureaucracy.
Xi Jinping--
Mr. Johnson of Georgia. Well, let me stop you right there.
Mr. Cohen. Yes, sure.
Mr. Johnson of Georgia. Let me ask you this question. In
your view, how would making injunctions easier to obtain make
U.S. corporations more competitive with China?
Mr. Cohen. Well, it makes China a more attractive place to
litigate. Obviously, injunctions for--that are abusively
asserted will not advance U.S. innovation, but the availability
of injunctive relief for those who practice inventions, this is
a significant advantage. There's no doubt in China that
injunction available if there is a finding of infringement.
Mr. Johnson of Georgia. Thank you.
I would like to ask anyone who cares to respond: I am
particularly interested in the ability of small businesses in
advanced areas of technology to be able to grow and thrive. I
believe this is one of our greatest sources of competitive
strength against China. What challenges do you think that our
small businesses face when they try to enter the Chinese market
with respect to intellectual property rights that big
businesses might not? Are there remedies that Congress should
consider in response?
Mr. Cohen. I can tell you that, statistically, if I may
answer, small businesses have a very low utilization rate of
the Chinese IP system; that is, small foreign businesses. So,
you're looking at less than 1 percent of the patent
applications, for example, and probably a very small cohort of
the litigation as well.
Mr. Johnson of Georgia. Why is that?
Mr. Cohen. Some of it is lack of knowledge. Some of it is
that small businesses may be focused on the U.S. market, and
they may be unaware that their products are being infringed,
counterfeited. Their information may have been stolen in the
Chinese market. So, there's that as well.
Barriers to entry, such as high legal costs, where they
don't know how to secure the proper advice. The USPTO has a
great outreach program, the China Road Show, where we do reach
out to small businesses. This really was a core part of my
function when I was attache, and I know this has been expanded
over the years as one tool that we have. I think it is a
continuing problem, frankly, that small businesses have
difficulties enforcing their IP rights in China, and
frequently, don't even take the basic steps of securing the
right to begin with.
Mr. Johnson of Georgia. Thank you.
Mr. Evanina. May I just add on to the great points just
heard, amplify a little bit of the defensive perspective? I see
small businesses and startups with a significant inability to
protect what they're doing at any cost. So, because they are
mission-oriented and trying to drive a wedge into the new
industry they're trying to develop, they don't spend a lot of
money on robust security, CSOs, general counsels, people good
at advising them at the form of the patent process. So, that,
what makes them most vulnerable, their inability to protect
that from ideation through manufacturing, provides an
unbelievable vulnerability to attack from the Communist Party
of China, which prevents them from getting that foothold in the
marketplace.
Mr. Johnson of Georgia. Thank you, and I yield back. I
thank the Chair for his indulgence.
Mr. Issa. I thank the Ranking Member for his thoughtful
questions.
We now go to the gentleman from Virginia, Mr. Cline.
Mr. Cline. Thank you, Mr. Chair. I want to thank you for
holding this hearing and I'm glad to see it is Part I, and
there will be many more to follow.
When it comes to intellectual property, the Communist Party
of China has been eating our lunch for many years across both
parties' administrations. I wrote down, ``They're eating our
lunch.'' Now, I think it needs to be changed to ``They've been
stealing our lunch money and parading it in front of us.''
We are in the Biden Administration. So, let's talk about
the Biden Administration. Their own policies are further
gifting the CCP with more ways to steal IP from American
innovators and companies--three ways, in particular: Ending the
DOJ's China Initiative; supporting the WTO's TRIPS waiver, and
the FTC's recent proposed rule regarding noncompete agreements.
First, I want to go to Mr. Evanina and let's talk about the
China Initiative. Last year, the Biden Administration shut down
this initiative begun during the Trump Administration. The
national security program focused on prosecuting IP theft by
Chinese government agents.
In the weeks leading up to this decision, Director Wray
called China ``the biggest threat to U.S. security.'' Would you
agree with that assessment, and can you talk about the national
security implications for the United States if China continues
to achieve its goals to move into the aerospace,
pharmaceutical, and information technology spheres?
Mr. Evanina. Congressman, thanks for that question.
I would proffer by saying there is no extent to hyperbole
when it comes to the Communist Party of China. ``Eating our
lunch'' is probably minimizing the risk and the theft. I concur
with Director Wray and anyone else who talks about the reality
and the facts behind what we see here.
To address your China Initiative issue, my information is
that this was a decision to change the name of the initiative,
right? So, from what I understand, the cases continue. There
are still over a thousand Chinese cases of economic espionage,
theft of trade secrets and intellectual property, that continue
today. That was probably a political decision to satisfy
constituents and get rid of the word, the name ``Chinese.'' The
issue continues to bear fruit.
I do think that this is a whole-of-society approach to
defending what we're seeing every day, and it's going to take
Congress and the entire country to help mitigate the threat.
Mr. Cline. Thank you.
Mr. Cohen, let's talk about Chair Lina Khan's announced
rule that would prohibit noncompete agreements nationally,
coming on the heels of California weakening or eliminating the
enforceability of noncompete agreements, which China has, as we
know, capitalized on.
In your article ``The FTC's War Against U.S. Technology
Competition with China,'' you wrote about the relationship
between noncompetes and trade secret protection. Can you talk
about that? Can you talk about instances where California's
refusal to enforce noncompetes has affected trade secret
protection?
Mr. Cohen. Yes, thank you very much for your question. To
get to the second part of your question first, I draw your
attention to a case involving Gerald Yin from formerly at
Applied Materials.
He went to establish his own company in Shanghai with about
30 other Applied Materials employees to engage in semiconductor
manufacturing equipment.
Mr. Yin, I believe, according to the Wall Street Journal
article, was placed on the Entity List by the Department of
Commerce last October. This isn't a critical technology. It's
directly competitive with our own companies and it would enable
China to produce leading-edge semiconductor equipment.
I have no problems domestically with noncompete agreements,
if that's what the country wants to do. I have a problem with
facilitating poaching of U.S. employees by foreign companies
overseas and this could actually create a great risk for the
CHIPS Act. We're going to see several large fabs built in
States which enforce noncompete agreements, not in California,
regrettably.
If you can imagine TSMC sending a whole team of its best
employees to Arizona to build a state-of-the-art fab, a Chinese
company comes along and says, I'd like to bring out a team of
30 of your best employees to China and there's nothing to stop
that if noncompete agreements are invalidated.
So, there's an important deterrent effect. The other thing
is that trade secret litigation is usually after the fact,
after the stuff is stolen. It's rarely granted as a
preliminary--a matter of a preliminary injunction.
So, you're basically in a position where whatever remedy
you got may be inadequate to address the loss and that's part
of the reason noncompete agreements are the most effective, to
your first question, because by being able to prosecute a
noncompete agreement you don't have to prove that there's a
trade secret.
You just have to prove that there was a violation of the
obligation to not work for a competitor. This also mitigates
the risk of secondary loss, which happens in a trade secret
case when you reveal your confidential information to a court
or to an administrative agency.
You don't want to have that happen and that's one of the
reasons that some companies don't want to bring trade secret
cases because they're afraid there will be a secondary loss.
So, a noncompete agreement is easier to enforce. It's
cheaper. It mitigates the possibility of secondary loss, and as
I mentioned earlier, the chances of success if you were to
bring the case, for example, in China, and I believe in most
other countries in the world, which permit noncompete
agreements, are much higher than if you were to litigate a
trade secret case, and less expensive.
Mr. Issa. I thank the gentleman. We now go to the Ranking
Member of the Full Committee, Mr. Nadler, for five minutess.
Mr. Nadler. Thank you, Mr. Chair.
Mr. Cohen, there are a lot of reasons why some of us favor
noncompete agreements. What would you--but I understand the
concern about China? What would you think about it if we were
to pass a noncompete--national noncompete agreements, but say
that it doesn't apply to Chinese companies?
Mr. Cohen. I think a--and my conflicts of law teacher would
say you would have a renvoi provision. That is, that you would
let it be governed by foreign law.
China has its own restrictions on noncompete agreements,
and I think if you left it up to companies to draft noncompete
agreements that comply with foreign law that would be a
solution of it to addressing the problem of poaching of trade
secrets by foreign companies of U.S. technology. So, that could
apply to any country in the world. It doesn't necessarily need
to only apply--
Mr. Nadler. So, you think it's a good idea?
Mr. Cohen. I think that's a good idea. I think actually
that would be a good provision for California to add on to its
existing ban on noncompete agreements, that a noncompete
agreement would be enforceable in an international context.
Frankly, before the FTC came up with that proposal I was trying
to develop some momentum to amend the California law.
Mr. Nadler. Thank you.
Mr. Duan's written testimony makes the point of noting the
low quality of Chinese-owned patents where Mr. Cohen's
testimony cites research suggesting that China is currently the
world leader compared to the United States in 37 out of 44
advanced areas of technology.
I find it difficult to reconcile these two statements. In
particular, I'm concerned that we are unwittingly blinding
ourselves to appreciating how serious our competition with
China already is.
Mr. Cohen and Mr. Duan, would you like to comment on this?
First, Mr. Cohen.
Mr. Cohen. Well, I think we have blinded ourselves for over
20 years in not dealing with the technological threats that
China presents and if we had time, I could go through my own
horror stories as a U.S. Government official where I have tried
to get American agencies to recognize that trade secret
protection is enormously important.
Technology licensing is enormously important. Patent
protection, plant variety protection, all the technological
areas of intellectual property need to be front and center.
China always had a goal of regaining its historic
industrial revolution era supremacy in technology. This is
nothing new. What is sad is that we did not recognize China's
emerging competitive edge in so many areas, legitimate through
legitimate practices and less legitimate practices of the type
we have just heard from.
I think this really calls for a rethink in the U.S.
Government not only of what went wrong but more importantly how
we can come up with better strategic decisions that are based
on facts that anticipate existing and likely future challenges.
Mr. Nadler. Thank you.
Mr. Duan?
Mr. Duan. Yes. I think the first part of answering that
question is distinguishing between patents and innovation,
right.
It's possible to file a patent application on a very simple
technology, one that doesn't really push the boundaries and
what we have seen from a lot of Chinese patent applications and
patents is that because of the subsidies that China has
provided, because of the quotas that China has used, China has
encouraged the filing of a lot of patent applications, but
often ones that are of these sorts of low quality.
The pay patents that China offers that require less
examination, provide less protection, and don't really
demonstrate sort of innovative capacity that a full-fledged
U.S. patent would provide.
Now, that's not to say that those patents are useless. In
fact, we have examples from American law history in which a
flood of low-quality patents ended up getting into the hands of
entities that were often shady and we couldn't figure out what
was going on with them becoming tools in which companies could
assert them against small startups, against small businesses,
preventing Main Street restaurants from putting menus--from
putting electronic menu displays, upset things like that.
So, that's where I would be concerned that even though
there are lots of low quality patents they might turn into
these problematic tools.
Mr. Nadler. Thank you.
Mr. Cohen, a basic premise of the treaties governing IP to
which the U.S. and China belong, the TRIPS agreement, is that
foreign entities will have the same access to patenting and
court enforcement of those patents as nationals.
According to your testimony, however, it seems that U.S.
companies as well as other non-Chinese companies are not
availing themselves of the Chinese court system to enforce the
patents much at all.
In other words, it seems that we are de facto not getting
the benefit of the bargain anticipated in the agreement. Do you
agree with this and if so, how would you recommend we consider
responding?
Mr. Cohen. Well, I agree with the statement, and I think
this points to a problem that is little talked about, which is
low utilization of the Chinese IP system by foreigners.
Now, this may be because some foreigners are frustrated.
They have a lack of confidence of the system. When you try to
take the low utilization rate and also compare it to the high
success rate it's a dilemma that's very hard to resolve.
In some areas, like software piracy, Microsoft, for
example, according to published data has had 100 percent
success rate in litigating software piracy cases, as have most
of the other large software companies.
In patent litigation numerous studies show that foreigners
win at a higher rate than Chinese litigants in patent
infringement cases, that they are more likely to get higher
damages and that they're more likely also to get injunctive
relief.
So, in one case, actually, the Beijing High Court for one
year the success rate at that important court for foreigners
litigating IP cases of all types was 100 percent.
So, how do we explain the low utilization? I think part of
it is also attributable to the fact that many foreign companies
view IP litigation as not so much a legal act, but a political
act.
There's a cost. They're going to have to lobby the Chinese
government. They may have to lobby the U.S. Government. There
may be a public relations cost. When they put all those things
together, they end up backing away from the Chinese IP system.
I have to point out one other thing, which is that
litigation, whether successful or a failure in China, is a
critical source of information for the kinds of discussions
we're having today.
If you cannot sue the Chinese government or a State-owned
enterprise, for example, for IP infringement, that is important
information for us to know as we think about the proper policy
going forward.
Mr. Nadler. Thank you. My time is well expired, and I yield
back.
Mr. Issa. I thank the Ranking Member.
With that we go to the gentleman from Texas, Mr. Gooden.
Mr. Gooden. Thank you, Mr. Chair, and thank you, Mr.
Evanina. I want to mention what we had just talked about with
my colleague from Virginia about the China Initiative and
remind people that in 2018 the Department of Justice
established the China Initiative aimed at securing our critical
infrastructure against foreign threats, specifically the CCP,
and prosecuting bad actors engaged in theft of intellectual
property.
Despite its overwhelming success, the Biden Administration
suspended this program and I wanted to point out that yesterday
I introduced a bill to reestablish this program and counter the
CCP's economic warfare and corporate espionage.
Would you consider the CCP initiative started under
President Trump a success?
Mr. Evanina. Unequivocally, and I think regardless of what
you call it, the ideation that the U.S. Government will begin
the process of looking at the Communist Party of China and
their effective and nefarious practices toward IP theft,
economic espionage, no matter what you call that, I think it's
the obligation of U.S. Government and Congress to defeat it.
Mr. Gooden. I would agree with you and thank you. I want to
also move on and ask what recommendations does the U.S.
National Counterintelligence and Security Center have for
strengthening trade policy tools to address IP theft by China?
Mr. Evanina. Well, at the time, sir, and I left in 2021, I
think robust education is the beginning of it all and I would
proffer that Members of this Subcommittee and Members of other
Committees go back to their home districts and have dialogs
with their Governors and their economic development
corporations in their chambers of commerce to identify--to show
the tools and techniques, the Communist Party's investment in
their localities, and what that economic espionage and
intellectual property theft looks like early before it happens
because once the FBI comes to town and investigates the data
and intelligence the intellectual property is already gone and
I think that's where we have to get left of boom and start to
educate our business leaders and local investment operators on
how to protect it and see it first.
Mr. Gooden. Thank you.
Mr. Greer, during your time what trade policy measures were
being used to address this issue of intellectual property theft
and do you think these measures have deteriorated? Are we in a
better spot or worse off?
Mr. Greer. Thank you, Congressman. So, as I referred to in
my initial testimony, we use Section 301 to investigate these
practices by the Chinese. There are a lot of different things
you can do to address this.
Typically, what other administrations have done is they've
just had negotiations where they talk. They have a dialog with
the Chinese where they talk and try to get some kind of a
concession. What was always absent was enforcement and Section
301 was really focused on enforcement.
So, in addition to gathering all the information, having a
very open comment process where any stakeholder could come in
and talk to USTR and share its views, also do it on a
confidential basis, which took care of some of the challenges
that our businesses face, we were able to understand, quantify
the problem, bring it to the Chinese, tell them about it, give
them an opportunity to remedy it, and then when they didn't
take an enforcement step.
We chose to use tariffs. We chose to put tariffs on IP
intensive items. Is it effective? I want to use the example of
electric vehicles. At the time we were not importing many
electrical vehicles from China. It is a sector where China
wanted to steal technology, where they did, where they forced
JVs.
We put a 25 percent tariff on electric vehicles. Today
there is news out there that China has become a major exporter
of electrical vehicles which they weren't at the time, but they
are not to the United States.
Imports of electric vehicles to the United States only 3.6
percent of those imports are from China because of that 25
percent tariff.
There are other things you can do with Section 301. Doesn't
have to be a tariff. You can limit services. You can limit
other kinds of access to the U.S. market. There are tools that
we can use to enforce, and we need to have the political will
to do it.
Mr. Gooden. Thank you. I yield back, Mr. Chair.
Mr. Issa. I thank the gentleman.
We now go to the gentlelady from North Carolina, Ms. Ross,
for five minutess.
Ms. Ross. Thank you very much, Mr. Chair, and thank you to
the witnesses for sharing your expertise with us.
My district in North Carolina's Research Triangle is home
to many innovators and creatives. Regardless of the size of
their enterprises or the nature of their work, these innovators
from independent singer/songwriters to investors in R&D share a
common concern--Chinese infringement on the creative work into
which they've poured their time, their money, and their dreams.
China has long relied on counterfeit goods to gain leverage
over U.S. companies. However, China has recently turned to
acquiring IP to leapfrog our Nation in technological
innovation.
Unfortunately, uncertainty in our own IP system has not
helped us maintain our edge. We have seen patent eligibility
shift over the past 15 years, in part due to U.S. Supreme Court
decisions, and while it's important to keep bad patents from
clogging our IP system and hindering legitimate innovation, one
analysis found that nearly 1,700 patent applications that were
rejected in the United States were approved by both the EU,
China, other countries, not ours.
This disparity in patent eligibility threatens to drive
innovation out of our country and into systems with broader
criteria. It's not only investors in R&D who are threatened by
China's growing interest in U.S. IP.
As TikTok has recently risen in popularity, independent
musicians sometimes find their music picking up listeners and
even going viral on that app. However, the royalties on TikTok
are hundreds of times lower than what other streaming services
offer, leaving musicians under compensated.
I'd like to submit an article by Elias Light in Billboard
magazine entitled, ``TikTok pays artists almost nothing in
music royalties and the industry is losing patience,'' into the
record, Mr. Chair.
Mr. Issa. Without objection, so ordered.
Ms. Ross. So, my first question is for Mr. Greer. Apart
from what we have been hearing today and what we might do with
China on the legal end, shouldn't we also hold stores,
retailers, and the distributors of counterfeit goods in this
country accountable? What about the companies that sell
products built from IP theft?
Mr. Greer. Congresswoman, thank you for that question.
Yes, I agree with that. When we talk about enforcement as
being something that the Chinese understand and that the
Chinese can react to, of course, we should be enforcing our own
IP laws here in the United States.
We have heard about Section 337, which is really about
imports coming in. To the extent you have violations here in
our country and maybe it's a subsidiary of a Chinese
headquartered company that's doing it right here, why wouldn't
you enforce that? I think that's exactly the right approach.
Ms. Ross. Thank you.
Mr. Cohen, is it true that China's patent system is more
aligned to how our patent system worked decades ago and is
China making their own patent laws stronger as they become more
of an innovator nation?
Mr. Cohen. Great question. The Chinese patent system is
basically modeled on the German system at its outset, and I
think over the past 10-20 years has been a profound influence
of the United States.
There was a tremendous reluctance in the 1980's for China
to have a patent system. There was a sense that no individual
in a socialist economy should have a private property right
innovation and originally the patent system was largely
catering to foreign interests.
China discovered that patents, when they were acquired by
foreigners in China, were the opening door, if you will, to
foreign investment.
So, their motives to have a patent system were actually
intended very clearly to attract foreign investment, to attract
foreign technology. That was really what they were trying to do
at the outset.
The system has become stronger and more sophisticated. I
mentioned the 2,000 IP judges. The growth of the patent office
has been phenomenal. I mean, China's total patent applications
are several multiples of the United States at this time.
They do a tremendous outreach effort, and they do a lot of
support to their own companies in areas that are highly
competitive with the United States.
For example, in Research Triangle Park you have a thriving
biotech industry and I've heard Chinese patent commissioners
and deputy commissioners talk about what they have to do for
their generic companies so that they can compete better with
innovative companies.
China has a nontransparent and opaque administrative
enforcement system which has about 50,000-50,000 patent
infringement cases per year. It heard about 24 patent linkage
cases in the past year or so. That was under the phase one
agreement system of linking marketing rights with
noninfringement of patents.
Those cases are nontransparent. We do not know what is
happening in those cases, and the 50,000 or so administrative
cases suffered from the same problem. So, the system is getting
stronger. It's also much more tightly geared to larger Chinese
companies.
Xi Jinping gave an important speech about two years ago
where he said he wanted to improve the quality of Chinese
patents and we have seen a big increase in at least the filings
by large companies, withdrawal of subsidies, which were a big
distortion.
Overall, this seems to be having an effect of migrating a
system that at one time was fairly tightly tied to small
businesses in China to one that is really dealing more closely
with State-owned enterprises and large Chinese private
companies.
This, to me, is a looming, legitimate competitive threat.
It could also have its illegitimate side, but it is a looming
threat as China becomes more sophisticated.
You also see judges issuing more sophisticated and lengthy
opinions, engaged in the kind of anti-suit injunctions that my
colleague just spoke about, picking up on sophisticated tools
that if applied to foreign companies could be very harmful.
Ms. Ross. Thank you for your indulgence, Mr. Chair. I yield
back.
Mr. Issa. I thank the gentlelady.
We now go to the gentleman from California, Mr. Kiley.
Mr. Kiley. Thank you, Mr. Chair.
Mr. Evanina, I wanted to take a moment to reiterate a few
aspects of your testimony. You say that Xi Jinping's goal is to
be the geopolitical, military, and economic leader in the
world.
You say that Xi, along with the Chinese Ministry of State
Security, People's Liberation Army, and the United Front Work
Department drive a comprehensive and whole of country approach
to their efforts to invest, leverage, infiltrate, influence,
and steal from every corner of the U.S.
This is a generational battle for Xi and the CCP. It drives
their every decision. You go on to say that this is an extra
existential threat to America and that the strategy of the
Chinese Communist Party begins with U.S. intellectual property
and trade secrets theft.
We also have statistics in the record today about how,
according to the Department of Justice, approximately 80
percent of all economic espionage cases prosecuted by DOJ
involve theft of trade secrets by the Chinese government or its
instrumentalities or agents and approximately 60 percent of all
trade secret misappropriation cases brought in the U.S. have a
nexus to China,
Now, the Biden Administration about a year ago decided to
end the China Initiative. This is a headline February 23, 2022,
from NPR, ``The Justice Department is ending its controversial
China Initiative,'' and the head of the National Security
Division was Assistant Attorney General Matthew Olsen, who
said,
While I remain focused on the evolving significant threat that
the government of China poses, I have concluded that this
initiative is not the right approach.
Instead, the article goes on, he said the current threat
landscape demands a broader approach and Olsen also added that
this is,
I do believe that the China Initiative was driven by genuine
national security concerns, but I'm also mindful that the
department must maintain the trust of the people whom we serve.
So, you say this was simply a change in nomenclature as
opposed to a substantive change in the initiative. What effect
do you think the comments of the Assistant Attorney General and
the decision to say we're ending this program have in terms of
the message we're sending to the rest of the world about how
much we tolerate intellectual property theft from China?
Mr. Evanina. Congressman, thanks for the question. I'm not
sure about the intent of the narrative of the Department of
Justice statement on their impact of the China Initiative, but
I can tell you the initiative has not ended. They may have
changed it, but I think right now more than ever you're going
to see an uptick in cases and investigations.
Also, despite that effort, the American companies are
reporting nefarious activity more now than they ever did and I
would say that to your numbers I think we have to also remember
on data theft is an issue here with the Communist Party of
China and that was also inclusive of the initiative.
We're looking at 80 percent of all Americans have had all
their data stolen by the Communist Party of China. The other 20
percent just some of their data.
So, when you include intellectual property and data theft,
it's unequivocal existential threat the Communist Party of
China poses against the United States.
Mr. Kiley. Thanks very much.
Mr. Cohen, you quote a study in your testimony about how
China's global lead extends to 37 out of 44 technologies right
now when it comes to innovation in a number of crucial
technology fields, and you also discuss how we need to have a
better understanding on how the declining scope of patent
eligible subject matter has affected U.S. competitiveness with
other countries, including China.
So, it seems there's a few aspects of the problem we have
been talking about. There's the Chinese theft--the theft of
U.S. intellectual property by the Chinese Communist Party and
its agents.
There is the growing capacity of China to produce its own
intellectual property, and then there's perhaps in some ways
our declining capacity in the United States to keep pace.
So, I just wanted to give you a moment to discuss the
extent to which that third facet of the problem is something
that we could address and what are some concrete steps to do
so.
Mr. Cohen. Great question again. Thank you for that. This
question relates to declining STEM education in the United
States, reliance on foreign talented students coming here
rather than our own people to be educated in STEM related
disciplines.
Also, in terms of competitiveness with China I think the
lack of Chinese-educated scientists, Chinese language-educated
scientists and diplomats, also contribute to a lack of deep
understanding of the Chinese competitive threat, if you will.
I'm always amazed when we talk about Chinese industrial
policy that people always refer back to Made in China 2025.
It's now 2023. Two years from now that's gone. Along the way we
have had hundreds, perhaps thousands of five-year industrial
policies out of China at a national level, a local level, a
ministerial level, at a trade association level, and actually
it's a rich trove of information, if you will, that could be
used to determine the kinds of competitive threats that the
U.S. Government and U.S. industry should consider when it
invests and when it makes strategic decisions about American
competitiveness.
So, we really need both sides of the equation. We need more
scientists and engineers, more scientific talent, to be
attractive to other countries so that citizens come here to
study, to work, and to buildup new enterprises, and we also
need better technology management and better understanding of
the competitive threats to manage our relationship with China.
Mr. Issa. I thank the gentleman. The gentleman's time has
expired.
We now go to the other gentleman from California, Mr.
Schiff.
Mr. Schiff. We have a lot of gentlemen from California on
this Subcommittee. That's a good thing.
Mr. Issa. Must be something about California's position in
IP that drives us all here.
Mr. Schiff. There is indeed and, as the Chair knows, I've
had a long history on this issue because I represent so many
people in the creative industries and formed a bipartisan
bicameral caucus to combat intellectual property theft.
Mr. Cohen, one frustration I've had deep frustration with
the administration is we still don't have an intellectual
property enforcement coordinator. Why is this taking so long?
Why is this a problem? I don't understand the delay.
Mr. Cohen. I wish I had the answer. I feel like we
desperately need that IPEC role in place, I think the IPEC
plays a critical role in coordinating the alphabet soup of U.S.
Government agencies involved in intellectual property.
I think the average American is unaware of how extensive
that alphabet soup is. It's the USPTO, DOJ, DHS, USTR, and the
Copyright Office. It's any number of agencies that have an
interest in intellectual property protection and enforcement
and, of course, its relations with State and local governments
as well.
To make that system work we need a coordinator in the White
House. I would also like to see, frankly, a deputy PTO director
in charge of international affairs because I think it's very
hard to be running an office of 10,000-plus people and to
consider the international implications of the issues that
we're talking about today.
Mr. Schiff. Do we see the impact of not having these
positions filled or is it a separate problem that in agreements
like the Indo-Pacific Economic Framework there aren't stronger
IP provisions?
Mr. Cohen. Well, I think this administration has taken a
light approach to intellectual property, particularly in an
international context. The free trade agreements are texts that
are being discussed, have very little of IP in them.
If you contrast that to the RCEP agreement that China
shepherded through, it's the largest free trade agreement in
the world right now. It has about 30 percent of global trade
under its roof.
There is an IP provision. There's an IP chapter in there.
It's IP light but it's also a broad agreement. So, I don't know
why the U.S. cannot be promoting intellectual property, which,
at the end of the day, it is good for the companies that we're
negotiating with as well.
Of course, it's critical for industries that have a high
degree of vulnerability in the digital environment like motion
pictures, music, and software.
Mr. Schiff. Just to followup on a couple of questions my
colleagues asked about nondisclosure agreements, about China's
abuse of the patent system, surreptitious funding of patent
trolls, does it make sense to approach it not in a country
specific basis--that is, single out you can have noncompete
clauses vis-a-vis China?
Does it make more sense to try to identify those who are
abusing the patent system or who are stealing intellectual
property and have a standard where if you're a vexatious
litigant as a foreign country or some metric by which we can
provide greater protection rather than singling out a
particular country?
Mr. Cohen. I'm concerned that if we start singling out
particular countries, we weaken the framework that this country
has invested in for so many years regarding most favored nation
treatment in the TRIPS agreement and in Berne and Paris and
other treaties that are basically the bedrock of the
international system.
I think we should be singling out practices, not
individuals, certainly, and not countries if we can. We have
had successful, if you will, application of export controls
against Fujian Jinhua, which was accused of stealing trade
secrets from Micron.
That was about three or four years back, and, of course,
there's been recent legislation in Congress to sanction foreign
persons who steal U.S. intellectual property.
So, there are alternative mechanisms through export
controls, in particular, visa denials and the like, that can be
used if a system is completely intractable. I'm a little
concerned about the legislation passed last December because I
think we need to make a showing that you cannot protect your
trade secrets in a given country, let's say China, and
therefore we have to impose an export control measure denying
access to U.S. capital and the like.
Mr. Schiff. Let me see if I can sneak in one last question
here before the clock runs out on me.
China puts the limits, for example, on the screens that
American films can exhibit on, et cetera. We have no limit on
Chinese films exhibited here.
How do we better use our market strength to command fair
treatment in other countries like China without giving them all
the benefits to operate domestically and having none of those
advantages when we operate there?
Mr. Cohen. The 34 screen--the 34 film quota has been a
thorn in the side of Hollywood for quite a long time and one
answer--it's not a complete answer by any means--
Mr. Issa. A short one would be appreciated.
Mr. Cohen. Yes. OK. Is the vacuum filled by piracy, so we
have to do something about the piratical content that's out
there to drive legitimate content, and beyond that this is
something where China is within its rights to deny market
access under its TRIPS and WTO accession. So, our biggest tool
right now is IP related.
Mr. Schiff. Thank you, Mr. Chair.
Mr. Issa. Thank you. We now go to the gentlelady from
Florida for five minutess.
Ms. Lee. Thank you, Mr. Chair, for holding today's hearing
on this critical issue. These witnesses make clear the CCP is
engaged in an insidious and expansive campaign to target U.S.
economic interests and our national security through litigation
and exploitation of U.S. policy.
The CCP is capitalizing on weak noncompete laws in states
like California, filing excessive invalid patents and
committing criminal espionage. In my home district, Chinese
nationals and a Navy officer were indicted for attempting to
steal a Navy vessel and take it to China.
Had they succeeded this one act would have provided the CCP
with valuable information about our technology, our military,
and our strategic defenses.
It is an example of the significance of this type of
investigation and this type of work by our Federal law
enforcement partners. The United States must do more to defend
our country, to respect invention, and to encourage innovation.
We must protect research data and intellectual property
from theft, misuse, and infringement, and where we see unlawful
conduct, we must commit ourselves to swift and strong
enforcement.
I thank our witnesses for their presence and their
testimony today, which helps us shine a light on this threat to
our economic strength and our national security. With that, Mr.
Evanina, I would like to return to your testimony and the
discussion related to the China Initiative that you were
offering earlier and, specifically, I would like to visit the
subject of our institutions of higher learning and our
universities.
Would you please speak to--we know that China has been
attempting now very aggressively to infiltrate some of our
universities, to steal intellectual property there, and to
benefit from the innovation and research that is occurring on
American university campuses. Would you please speak to what
the China Initiative was doing in that regard and what we need
to be doing, going forward, to protect those institutions?
Mr. Evanina. Thanks for the question, Congresswoman.
I think we look at the question you pose in academic
institutions. It's the bedrock for what makes America the best
country ever and part of that is the collaborative mind set and
ideology for a university setting.
Also, provides the most vulnerability for specifically to
the Communist Party of China to penetrate that not only with
students, with professors, with deans, to be able to take that
early access ideation all the way up to the patent perspective
in a free and open environment.
I've had the opportunity to speak to over 140 university
presidents the last five years about this issue. It's a dire
issue, but it's really complicated in facts and I think, from
my perspective, when the FBI or law enforcement comes on the
campus to investigate it's too late. The information is already
gone.
I think we have to do two things here. We have to look at
that ideation process and have a compliance structure that's
not only put in place by academics but also supervising
governed from a compliance perspective either by the States or
U.S. Congress.
Second, for those Chinese students who come here every year
to study, which is well over 3,000 per year, we're only really
worried about a handful of postgraduate STEM programs.
I think if we as United States and the Congress gave every
single student who came from China a cell phone, a mobile phone
they could use that provides some independence from the
Communist Party regime I think that'll go a long way with not
only winning the hearts and minds of those students but also
putting a perspective of compliance in place at the university.
Ms. Lee. A moment ago you mentioned a particular concern
about data theft. Tell me how data theft plays into the overall
threat we're facing from this adversary.
Mr. Evanina. Sure. Well, I think data is the new global
commodity and I think the Chinese Communist Party got to that
fact way before we did, and I think if we look back over the
last five to seven years at the amount of data theft that
occurred from cyber breaches insiders it really connotates the
direction for which Xi Jinping wants to not only drive their AI
but they're targeting American citizens, global citizens around
the world.
You can only have the best AI and quantum computing if you
have the most data to run it against and that's been part of
the strategic plan for the Communist Party of China is to
acquire the global repository of data through theft and
otherwise.
Ms. Lee. Then, Mr. Cohen, a followup question for you. A
moment ago, you referenced the lack of transparency in the
Chinese court system, and I know you made reference also to at
times the failure to report decisions and how that can be an
important aspect of us understanding the nature of the threat
that we face in the arena of the courts.
Would you please elaborate on that lack of transparency and
why it is important to protect American interests?
Mr. Cohen. I feel like I should be back at school teaching.
This is a long lecture in my Chinese IP class.
About 2014, China started making its court decisions
available online, probably the biggest development in rule of
law internationally of the past decade.
I checked a few days ago. There were 1.4 billion visits to
that web page, 131 million documents on that site. So, there's
a lot of content there.
We have lit the proverbial candle in the dark room in terms
of knowing something of how Chinese courts work, how IP
decisions are made.
It's hardly fully illuminated and what is not illuminated
are the cases that are hidden from us and these cases are not
published for a variety of reasons. Many of them are small or
inconsequential.
Many contain confidential information, particularly the
trade secret cases, and China doesn't publish cases having
confidential information. That's part of the reason we know so
little about the trade secret environment in China.
In fact, of the published cases, about 600 of them over the
past several years, only five of them involve foreigners. Five.
Were there more than that? Possibly. It's an extremely
small cohort to make a decision.
So, encouraging full transparency, and the court system, by
the way, is light years ahead of the administrative system,
which has a docket nearly as big.
China had 600,000 civil IP cases last year--that is a huge
number--and about 12,000 criminal cases. The lack of insight
into how those cases function haunts us in so many ways.
Are we treated fairly? Are the courts handling things,
technical matters, in an appropriate manner? How much bias is
there? What about anti-suit injunctions or other remedies that
China issues? I mentioned a company called--
Mr. Issa. Mr. Cohen, I'm going to have to ask you to put
the rest in for the record.
Mr. Cohen. OK. In any event, this is a critical issue to
understanding the environment. Thank you.
Mr. Issa. Thank you. This is the reason this is the first
of several hearings on this subject. With that we go to the
gentleman from South Carolina, Mr. Fry.
Mr. Fry. Thank you, Mr. Chair. I really appreciate you
having this hearing today. To the panel, thank you for being
here.
The Chinese government has a core mission to achieve
technological parity--we have talked about that today--and
eventual superiority over the U.S.
To this end, Chinese entities backed by the Chinese
government are acquiring massive amounts of patents, IP rights,
and trademarks that prove to be obstacles and potential threats
to our own citizens and industries.
In 2015, the Chinese government announced, as we talked
today, it's Made in China Initiative, which identified key
technological areas and industries China intends to target.
This includes, of course, aerospace, next-generation
information technology, advanced rail systems, and biotech.
Professor Cohen, as China moves into the next phase in its
development after it's Made in China 2025 Initiative, what do
you anticipate the Chinese government will do in its strategic
plan to target the U.S. in terms of our IP and technology?
Mr. Cohen. Well, China is very much aware that we're in a
competitive situation, our two countries, and I think we're
going to see increasingly--increasing targeting of industries
that China views as critical to its own national economic
development or security and particularly in areas where the
U.S. is denying access.
I think semiconductors is probably foremost among them, and
we could see in the constitution of the party politburo and
other leading organizations where we have a higher cohort of
STEM-educated party members as well as a higher cohort of
semiconductor-oriented STEM educated officials.
So, it's very clear that this is way up there. I think
biotech is some of the other areas we mentioned, particularly,
in security applications involving AI--and anything involving
national defense, including national defense patenting.
Mr. Fry. Thank you.
Finally this. Mr. Evanina and Professor Cohen, considering
recent government findings regarding the risks of technology
commercialized by Huawei and TikTok, what do you think are the
dangers posed by Chinese technology being incorporated into
international technical standards like 5G, 6G, Wi-Fi, et
cetera?
We'll start with you, Mr. Evanina.
Mr. Evanina. Thank you, Congressman. I think the threats
are significant and U.S. Government, intelligence apparatuses
and law enforcement need to do a much more effective job of
educating the American public of why that matters, for
instance, the current war on TikTok--the issue, the
conversation, and the dialog.
It is not a political issue. This is a data driven issue,
the nefarious not only capabilities but intent of the Communist
Party to get into that software and they have access to your
entire phone.
We just do not educate well enough what the threat is. With
Huawei, while we got--again, the Chinese Communist Party
strategically more than a decade ago saw vulnerability and our
ability--inability to communicate, especially to the rural
markets from telecommunications and they took advantage of that
and those systems they put in place had also intelligence
apparatuses combined to a legitimate business perspective.
So, I think when you look at how sophisticated they are
with utilizing legitimate business enterprises as intelligence
apparatus, we just need to educate more effectively what that
looks like and make an educated consumer, whether it be a
State, locality, or business person, what the risks are.
Mr. Fry. Thank you.
Professor Cohen?
Mr. Cohen. Yes. I think social media and apps on your phone
are one risk. I think IoT, in particular, is another huge risk
that this country has to deal with where our data will go back
to the provider of the equipment, who in most cases is going to
be based in China.
So, this is really a matter of evaluating the back door
risks that are posed and I think we need to do better job of
that task.
Thank you.
Mr. Fry. Thank you. Mr. Chair, I yield back.
Mr. Issa. I thank the gentleman, and you know? That means
it's my turn. I yield myself a little bit of time here.
We'll start with Professor Duan. Now, Huawei cannot produce
products inside the United States, but they are second only to
IBM for the most patents applied for every year or received.
Would you give us a contrast of the quality of that amazing
quantity and where some of those end up?
Mr. Duan. Yes, so there are a couple of things that are
going on here. The first is that there is a strategy across
China and particularly with companies like Huawei to obtain
large quantities of patents.
Now, one way to get a lot of patents is to just file as
many things as you can and see what sticks to the wall and so
we have had a number of studies looking primarily at China's
international portfolio that have identified serious quality
concerns with the patents that China is seeking.
Mr. Issa. Is that because when you're a large company that
applies for a lot you tend to have a team of lawyers that are
just really good at squeezing through patents by whatever means
you need to have them survive?
Mr. Duan. It's that and it's also just a volume game,
right. The more that you can file, the more words that you can
put down onto the page, the more chances you have of getting
through.
That's not to say that China is just sort of--or that
Huawei is just filing sort of across the board. They're
focusing on particular strategic areas, and we just had a
conversation about technical standards and in communications.
China and Huawei particularly are leading in filing of
applications that are required by the 5G and other technical
standards. They've also taken other measures to be dominant in
those standards-setting processes.
What that means is that those patents now must be used by
any device that implements those technologies such as 5G. These
are not ordinary patents anymore where somebody can say, OK, so
we're worried about this patent--we'll figure out a way to work
around them.
They are necessary to work with the infrastructure. That
gives China have substantial leg up in enforcement when it
comes to those sorts of technologies.
So, the way that companies have tried to deal with or the
way that these standards organizations--
Mr. Issa. Even my time can be limited.
Let me just sort of narrow the scope here. My understanding
is Huawei also licenses out their patents, in many cases
patents they are not using in the United States--license them
out to venture organizations. Can you opine on that if you
know?
Mr. Duan. They do, and I think that I've seen a fair amount
of evidence of transfers of patents, especially these sorts of
standard essential patents to a variety of different entities.
Now, one problem is that, as Mr. Cohen alluded to, we don't
know a lot about what's going on. We don't have the sort of
transparency measures that let us know what happens to the
finances of patents or patent litigation.
I think that one thing we can really try to build out is
building out that transparency in patent ownership and patent
litigation so we can see to the extent that Chinese-owned
patents or that Chinese entities are controlling patent
litigation. I think that's going to be an important point.
Mr. Issa. Thank you.
Mr. Cohen, we have given you a lot of questions on trade
secrets. It's fair to say that companies like Lam and Advanced
Materials are global leaders, two of them.
Even when they have trade secrets, even when they produce
unique product, their customers sometimes have trade secrets
beyond that. Taiwan semiconductors makes chips using their
equipment that other people using their equipment currently
cannot.
Just briefly, Taiwan's noncompete and secrecy laws, as
contrasted with us, are theirs tighter than California?
Mr. Cohen. Taiwan, like mainland China, permits noncompete
agreements. As with many other European countries they're
limited in duration, and you have to provide some form of
reasonable compensation for the duration. So that limits the
application of noncompete agreements to highly skilled
compensated employees where it's really important.
Mr. Issa. It's fair to say that we cannot compete against
those countries if they have that kind of noncompete that are
essentially protecting their trade secrets and their
developments, and we don't?
Mr. Cohen. That's correct
Mr. Issa. OK. Mr. Greer, one of the questions that I have
for today, oddly enough, is the TRIPS waiver that the President
did related to COVID-19.
One, would you and your old boss have recommended any sort
of a waiver and if so, would you have limited the waiver to--
not to the patents themselves but to production of the product,
meaning you can produce the product but you cannot have, if you
will, access to the technology, going forward?
Mr. Greer. Well, sir, the waiver was first requested in
2020 and was presented to Ambassador Leitheiser, who declined
to endorse that.
Mr. Issa. So, that part of the answer is yes?
Mr. Greer. That's right. So that's that. The TRIPS
agreement already has space in it and was amended once already
to provide clarity on what we call compulsory licensing, right.
If you have a situation where voluntary licensing just doesn't
work out, you can't come to terms, it provides for compulsory
licensing.
So, this idea that you're going to have some additional
TRIPS waiver is not only duplicative to some degree of what's
in the TRIPS agreement, but also undermines international IP
rights, going forward, at a time when the WTO is already on
thin ice.
Mr. Issa. Now, one quick question for law, and anyone can
answer but, Mr. Greer, you might be the best, under
international law if we refuse to supply a lifesaving product,
including a vaccine, to a country they have an absolute right
to source it themselves or to essentially invalidate the patent
and produce it. Isn't that correct?
Mr. Greer. That's exactly right. World Trade Organization
agreements they have exclusions for public health and safety.
TRIPS agreement itself has a provision where if you can't come
to terms in getting what you need Article 31, 31(b) allows you
to do that kind of thing.
Mr. Issa. So, there was no denial?
Mr. Greer. Exactly right, yes.
Mr. Issa. OK. I'm going to take the liberty of just one
quick followup question, and Mr. Evanina, you've been very
quiet for a little while.
We have touched on but we haven't fully explored the
current events that we see--balloons floating over our country,
provocative acts--because it's outside our jurisdiction.
When we look at what the FBI director and others have said
about the amount of theft being done and its effect, today we
kept repeating the $600 billion as though money was the
problem.
From a standpoint of the global conflict and the ability
not to economically compete but militarily, would you close out
this hearing with the--if you will, your view on what that
means around the United States from a standpoint of our
security with that much intellectual property being stolen
every year, not in dollars but in risk to the American people?
Mr. Evanina. Thank you, Chair. That's going to be a long
answer, but I'll keep it brief.
Mr. Issa. You're going to have to be a little short because
a lot of people want to leave here.
Mr. Evanina. Yes.
Mr. Issa. You're the closer.
Mr. Evanina. I think this hearing on intellectual property,
a very minute aspect of the threat posed by the Communist Party
of China.
I think your question of the threat to the homeland starts
there but also looks at the surveillance and penetration of our
critical infrastructure--our gas, natural oil pipelines,
electrical grids, ports, and maritime facilities.
The preamble to any kind of future conflict, the Chinese
Communist Party has spent a decade preparing for that
battlefield for us not only in the corporate perspective, but a
military perspective. It starts with energy, power, and
financial services.
So, I think when we look at what the Chinese Communist
Party looks at us is able to preconflict during conflict,
prepare the battlefield, so we cannot act in that battlefield
and that starts with critical infrastructure.
Mr. Issa. Thank you. As much as I would like a second round
I'm going to have to ask all of you, would you be willing to
take questions for the record?
Since I have all yeses, all questions submitted will be
left open for five days and a reasonable amount of time for the
answers so we can have a complete record.
As I said in the introduction, this is the first. It is
clear that we only touched on many of the areas we have to work
on.
I will say that when we look at intellectual property, I
deliberately closed out on the national security risk because I
believe that this Committee has an obligation to look at IP
protection, including those that might affect trade secrets and
the like as being part of our national security and for that
reason, I wanted to close on that.
I appreciate everyone's indulgence, and we stand adjourned.
[Whereupon, at 11:54 a.m., the Committee was adjourned.]
All materials submitted for the record by Members of the
Select Subcommittee on the Weaponization of the Federal
Government can be found at: https://docs.house.gov/Committee/
Calendar/ByEvent.aspx?EventID=115441.
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