U.S. Trade Representative Releases 2021 Special 301 Report

McDonnell Boehnen Hulbert & Berghoff LLP

McDonnell Boehnen Hulbert & Berghoff LLP

Or maybe not.  On April 30th, Ambassador Katherine Tai, U.S. Trade Representative (USTR), issued the 2021 Special 301 Report.  In a press release, the USTR stated that "[i]ntellectual property rights incentivize our creators, manufacturers, and innovators to invent new products and technologies."  The press release notes that the review period underlying the Report took place during the COVID-19 pandemic, "the largest global health crisis in more than a century."  Consistent with recent decisions (including support for the proposed WTO IP waiver; see "Biden Administration Supports Waiver of IP Protection for COVID-19 Vaccines"), Ambassador Tai's press release asserts that:

The top priority of the United States is saving lives and ending the pandemic in the United States and around the world.  As affirmed in the Doha Declaration on the TRIPS Agreement and Public Health, the United States, while recognizing the role of intellectual property (IP) protection in the development of new medicines, respects a trading partner's right to protect public health and, in particular, to promote access to medicines for all.

The press release also highlights recent successes (IP rights protections and amended laws in China) and setbacks (citing "the European Union's aggressive promotion of its exclusionary geographical indications policies"), as well as providing a preview of the results set forth in the Report.

According to the Executive Summary of the Report, "[a] priority of this Administration is to craft trade policy in service of America's workers, including those in innovation-driven export industries."  In sharp contrast with Reports issued during the prior administration, here the Summary asserts exhortation that:

The Report informs the public and our trading partners and seeks to be a positive catalyst for change.  In addition, given the importance of innovation and IP in developing the advances necessary for fighting the ongoing COVID-19 crisis, this Administration is committed to trade policies that seek to save lives in this pandemic and ensure preparedness for the next one.  USTR looks forward to working closely with the governments of the trading partners that are identified in this year's Report to address both emerging and continuing concerns, and to build on the positive results that many of these governments have achieved.

The Report is promulgated pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994).  The Trade Representative is required under the Act to "identify those countries that deny adequate and effective protection for IPR or deny fair and equitable market access for persons that rely on intellectual property protection."  The Trade Representative has implemented these provisions by creating a "Priority Watch List" and "Watch List."  Placing a country on the Priority Watch List or Watch List is used to indicate that the country exhibits "particular problems . . . with respect to IPR protection, enforcement, or market access for persons relying on intellectual property."  These watch lists are reserved for countries having "the most onerous or egregious acts, policies, or practices and whose acts, policies, or practices have the greatest adverse impact (actual or potential) on the relevant U.S. products."

The Report also notes the USTR's continued efforts to enhance public engagement.  These efforts were limited to written submissions due to the COVID pandemic and the responses posted online (www.regulations.gov, docket number USTR-2020-0041).  The Report notes that the USTR received submissions from 50 non-government stakeholders and 22 foreign governments.

The USTR reviewed "more than 100" of this country's trading partners and identified nine countries on a "Priority Watch List" (decreased by one from last year) and another 23 countries on the "Watch List" (the same number as last year), all relating to deficiencies in intellectual property protection in these countries.  The Priority Watch List in the 2020 Report includes Argentina, Chile, China, India, Indonesia, Russia, Saudi Arabia, Ukraine, and Venezuela (Algeria being removed from the list this year).  Countries on this list "present the most significant concerns this year regarding insufficient IP protection or enforcement or actions that otherwise limited market access for persons relying on intellectual property protection."  On the Watch List this year are Algeria, Barbados, Bolivia, Brazil, Canada, Colombia, Dominican Republic, Ecuador, Egypt, Guatemala, Kuwait, Lebanon, Mexico, Pakistan, Paraguay, Peru, Romania, Thailand, Trinidad & Tobago, Turkey, Turkmenistan, Uzbekistan, and Vietnam (the United Arab Emirates being removed from the list this year and Algeria shifting from the Priority Watch List to the Watch List).

The Report contains two Sections (on "Developments in Intellectual Property Rights Protection and Enforcement" and "Country Reports") and two Annexes on particular issues (the statutory bases of the Report, and government technical assistance and capacity building efforts).

The Report cites (and emphasizes) significant progress in several U.S. trading partners, including:

• The United Arab Emirates, which was removed from the Watch List as a consequence of "resolving concerns with IP protection of pharmaceutical products by issuing Decree 321 that, among other things, provides protection against unfair commercial use, as well as unauthorized disclosure, of test or other data generated to obtain marketing approval" as well as addressing "long-standing IP enforcement concerns" in Dubai involving the movement of counterfeit goods;

• Algeria, which moved from the Priority Watch List to the Watch List as a result of "steps the government has taken to engage and cooperate with stakeholders, improve enforcement efforts, and reduce IP-related market access barriers";

• Brazil, while still being placed on the Watch List showed improvement in IP protection for cooperating with the U.S. DOJ as well as Homeland Security and their UK counterparts in "seiz[ing] the domain names of multiple commercial websites engaged in the illegal reproduction and distribution of copyrighted works";

• Taiwan, for amending its trade secret law that resulted in imposition of a $3.4 million fine and 5-6 year prison sentence for stealing trade secrets related to semiconductor technology;

• Peru, for enforcing actions against entities involved in pirating music and film from local websites showing U.S. stakeholder-owned copyrighted works;

• Ukraine, which "continued to take positive steps in 2020 toward a transparent, fair, and predictable system for the collective management of royalties."

Also noted in this section of the Report were member states participating in the 1991 Act of the International Union for the Protection of New Varieties of Plants Convention, with Saint Vincent and the Grenadines acceding to the treaty in 2020, and the WIPO Internet Treaties (the World Intellectual Property Organization (WIPO) Performances and Phonograms Treaty and the WIPO Copyright Treaty), with Afghanistan, Comoros, San Marino, and Vanuatu acceding to these treaties in 2020.

Another Section of the Report involves "illustrative best practices" by U.S. trading partners.  These include "cooperation and coordination among national government agencies involved in IP issues is an example of effective IP enforcement," citing Thailand, India, Saudi Arabia, Brail, and Indonesia for these efforts; "specialized IP enforcement units," including those in Brazil, Malaysia, and India; "IP awareness and educational campaigns" in Spain, India, Thailand, and Vietnam; and "active participation of government officials in technical assistance and capacity building" in Singapore, Romania, Taiwan, Algeria, India, and Cambodia.  Micro-, small- and medium-sized enterprises (MSMEs) were particularly noted as "contribut[ing] widely to innovation, trade, growth, investment, and competition" and thus the Report applauds efforts in Hing Kong, the UK, Canada, and Mexico to support these businesses.

Cooperation rather than confrontation is a running theme in this report, where the USTR sets forth its plan for improving trade relations and protection of U.S. stakeholders IP, including efforts to:

• Engage with U.S. stakeholders, the U.S. Congress, and other interested parties to ensure that the U.S. Government's position is informed by the full range of views on the pertinent issues;

• Conduct extensive discussions with individual trading partners regarding their respective IP regimes;

• Encourage trading partners to engage fully, and with the greatest degree of transparency, with the full range of stakeholders on IP matters;

• Develop an action plan with benchmarks for each country that has been on the Priority Watch List for at least one year to encourage progress on high-priority IP concerns; and

• Identify, where possible, appropriate ways in which the U.S. Government can be of assistance.

And to reinforce the tone, the USTR states the US "will conduct these discussions in a manner that both advances the policy goals of the United States and respects the importance of meaningful policy dialogue with U.S. trading partners."

Multilateral and bilateral initiatives are discussed.  Perhaps significantly the primary multilateral initiative called out in the Report is the WTO, with regard to which the Report states that "[i]n the past year, the United States co-sponsored discussions in the TRIPS Council on the positive and mutually reinforcing relationship between the protection of IP, innovation, and business development."  Bilateral agreements mentioned in the Report include various Trade and Investment Framework Agreements (TIFAs) between the U.S. and several ("more than 50") trading partners, discussing specifically such arrangements with Pakistan, Argentina, Nepal, Central Asia countries, and Fiji.  The United States-Mexico-Canada Agreement, updating and revising NAFTA, is one such trilateral agreement which the Report states "secur[ed] strong improvements in the protection and enforcement of IP."  The UK's exit from the European Union is recited as providing "new opportunities for the United States to expand and deepen our existing relationship with the UK," which include strengthening IP protection and continuing efforts begun in the last administration to "review . . . the status and objectives of the United States-UK Free Trade Agreement (FTA) to inform our next steps with the UK."  Agreements with the EU was also not neglected, as were negotiations started in July 2020 to negotiate a trade agreement with Kenya.

Turning to specific issues of concern, trademark counterfeiting is said to harm "consumers, legitimate producers and governments."  The problem is one with global scale, "and involved the production, transshipment, and sale of a vast array of fake goods . . . including semiconductors and other electronics, chemicals, medicines, automotive and aircraft parts, food and beverages, household consumer products, personal care products, apparel and footwear, toys, and sporting goods."  Many of these goods rise in China, whereas India is called out as a source of counterfeit medicines and Turkey for counterfeit apparel and foodstuffs.  Such goods are transshipped according to the Report through hubs in Hong Kong, Turkey and the UAE and sold in markets in Brazil, Nigeria, and Paraguay.

Counterfeit pharmaceuticals are of particular concern, having "important consequences for consumer health and safety [that are] exacerbated by the rapid growth of illegitimate online sales . . . [and] contributes to the proliferation of substandard, unsafe medicines that do not conform to established quality standards."  Most of these goods confiscated by the U.S. were transshipped through China, Hong Kong, India, Canada, and the Dominican Republic and arose from China, India, the Philippines, Vietnam, Indonesia, and Pakistan (according to a report by OECD/EUIPO).  Counterfeit oncology drugs are produced by Bangladesh and Myanmar according to industry sources and "significant quantities of[counterfeit]  COVID-19 testing kits, personal protective equipment (PPE) such as N-95 and equivalent masks, and sanitizers, detergents, and disinfectants" were sourced from China and Vietnam.  These problems are exacerbated by use of legitimate delivery services and online pharmacy sites, particularly those involved in consumer-to-consumer sales, according to the Report.  The remedy again is cooperation, cajolery, and consultation:

The United States continues to urge trading partners to undertake more effective criminal and border enforcement against the manufacture, import, export, transit, and distribution of counterfeit goods.  The United States engages with its trading partners through bilateral consultations, trade agreements, and international organizations to help ensure that penalties, such as significant monetary fines and meaningful sentences of imprisonment, are available and applied to deter counterfeiting.  In addition, trading partners should ensure that competent authorities seize and destroy counterfeit goods, as well as the materials and implements used for their production, thereby removing them from the channels of commerce.  Permitting counterfeit goods and enabling materials to re-enter the channels of commerce after an enforcement action waste resources and compromise the global enforcement effort.

The Report does not ignore enforcement, but identifies countries (Columbia, Indonesia, and Turkey) and practices that fall short of adequate efforts.

Online and broadcast piracy are also discussed, the Report noting that while "[t]he increased availability of broadband Internet connections around the world, combined with increasingly accessible and sophisticated mobile technology, has been a boon to the U.S. economy and trade," "technological developments have also made the Internet an extremely efficient vehicle for disseminating pirated content, thus competing unfairly with legitimate e-commerce and distribution services that copyright holders and online platforms use to deliver licensed content."  Sources of counterfeit optical disks mentioned in the Report include China, India, Mexico, and Pakistan, with Argentina, Canada, Chile, China, Colombia, the Dominican Republic, India, Mexico, the Netherlands, Romania, Russia, Switzerland, Thailand, Ukraine, and Vietnam being identified as "hav[ing] high levels of online piracy and lack effective enforcement" estimated as costing the U.S. economy "at least $29.2 billion and as much as $71 billion in lost revenue each year."  A particular form of copyright piracy (particularly of music), termed "streamripping," is practiced (or ineffectively prevented) in Canada, Mexico, the Netherlands, Sweden, and Switzerland.  Technology including illicit Internet Protocol Television (IPTV) services that "unlawfully retransmit telecommunications signals and channels containing copyrighted content through dedicated web portals and third-party applications that run on ISDs or legitimate devices" was used at high levels in Argentina, Brazil, Chile, China, Guatemala, Hong Kong, Indonesia, Iraq, Mexico, Saudi Arabia, Singapore, Switzerland, Taiwan, Thailand, Ukraine, and Vietnam.  China, according to the Report, with Iraq being identified as being a source of satellite receivers having "preloaded" pirate IPTV applications.  Also noted were the use of camcorders to produce expropriated contend, in Russia, India, and China, with impediments to counteracting such illicit activities found in Argentina, Brazil, Ecuador, India, Peru, and Russia (which don't effectively criminalize such activities).  The significance of the problem was synopsized in the Report as follows:

In addition to the distribution of copies of newly released movies resulting from unauthorized camcording, other examples of online piracy that damage legitimate trade are found in virtually every country listed in the Report and include: the unauthorized retransmission of live sports programming online; the unauthorized cloning of cloud-based entertainment software, through reverse engineering or hacking, onto servers that allow users to play pirated content online, including pirated online games; and online distribution of software and devices that allow for the circumvention of TPMs, including game copiers and mod chips that allow users to play pirated games on physical consoles.  Piracy facilitated by online services presents unique enforcement challenges for right holders in countries where copyright laws have not been able to adapt or keep pace with these innovations in piracy.

Difficulties in trade secret protection has its own subsection of the Report.  The problems of adequately protecting trade secrets have arisen "in a wide variety of industry sectors, including Information Communications Technology (ICT), services, pharmaceuticals and medical devices, environmental technologies, and other manufacturing sectors, rely on the ability to protect and enforce their trade secrets and rights in proprietary information" and include theft of "business plans, internal market analyses, manufacturing methods, customer lists, and recipes" that "are often among a company's core business assets," according to the Report.  The Report states that trade secret protection (or lack of it) is a particular problem in Russia, China, and India.  Certain U.S. trade partners have made successful efforts in 2020 (including the EU and Taiwan, as well as aspects of the trade deal struck between the U.S. and China last year; see "U.S. and China Approve Trade Agreement: Part 1"), the Report calls for action by international organizations such as the OECD and APEC.

Another subsection of the Report involved "forced" technology transfer, indigenous innovation, and preferences for indigenous IP.  These include the following activities, many of which involved governmental action:

• Requiring the transfer of technology as a condition for obtaining investment and regulatory approvals or otherwise securing access to a market or as a condition for allowing a company to continue to do business in the market;

• Directing state-owned enterprises in innovative sectors to seek non-commercial terms from their foreign business partners, including with respect to the acquisition and use or licensing of IP;

• Providing national firms with an unfair competitive advantage by failing to effectively enforce, or discouraging the enforcement of, U.S.-owned IP, including patents, trademarks, trade secrets, and copyright;

• Failing to take meaningful measures to prevent or to deter cyber intrusions and other unauthorized activities;

• Requiring use of, or providing preferences to, products or services that contain locally developed or owned IP, including with respect to government procurement;

• Manipulating the standards development process to create unfair advantages for national firms, including with respect to participation by foreign firms and the terms on which IP is licensed; and

• Requiring the submission of unnecessary or excessive confidential business information for regulatory approval purposes and failing to protect such information appropriately.

China and Indonesia are recognized for such practices.

As in other years, geographical indications (i.e., country or region of origin limitations primarily for wine and foodstuffs) are discussed, specifically in the EU.  This is particularly troubling for trademarks, the Report stating that "[t]he EU GI agenda remains highly concerning, because it significantly undermines the scope of trademarks held by U.S. producers and imposes barriers on market access for U.S.-made goods that rely on the use of common names, such as parmesan or feta."  These practices are particularly troublesome for MSMEs, according to the Report, because their trademarks are "among the most effective ways for producers and companies . . . to create value, to promote their goods and services, and to protect their brands."  Also a specific concern for the U.S. is that these GI practices produce a trade barrier to U.S. goods in the EU, particularly when GI protection is given to "common names" for a product (Havarti and danbo cheese being given as examples).  The effects of these practices are exacerbated by the "significant deficit in food and agricultural trade" between the US and the EU (with Europe exporting $1 billion in cheese to the U.S. versus $5.5 million of U.S. cheese being imported by the EU).  While having little luck dissuading the EU from continuing and expanding its GI practices, the Report cites several bilateral agreements (with Argentina, Australia, Brazil, Canada, Chile, China, Ecuador, Indonesia, Japan, Kenya, Korea, Mexico, Morocco, New Zealand, Paraguay, the Philippines, Singapore, Tunisia, Ukraine, Uruguay, Vietnam, and others) that have a number of provisions aimed at curtailing some of the deleterious effects of GI protection.

With regard to pharmaceuticals and medical devices and market access for U.S. products, the Report contends that "[t]he COVID-19 pandemic has highlighted the importance of pharmaceutical, medical device, and other health-related innovation, as well as a lack of widespread, equitable distribution of these innovations," including the need for fighting the current as well as future pandemics.  The Report cites tariffs and other taxes levied by countries including Brazil, India, and Pakistan, as well as "unreasonable regulatory approval delays and non-transparent reimbursement policies" that "discourage the development and marketing of new drugs and other medical products."  The Report recites successful efforts in Canada, Mexico, Chine, the UAE, Korea, Japan, and Indonesia to address issues of transparency and fairness in this sector.  On the other hand, the Report also notes that stakeholders have "expressed concerns" about practices in Australia, Canada, China, Japan, Korea, New Zealand, and Turkey, "on issues related to pharmaceutical innovation and market access."

Trademark issues are noted in the Report for China, India, Malaysia, the Philippines, Panama, Russia, Iraq South Africa, Kuwait, Oman, and the UAE with regard to "bad faith" trademark applications, slow opposition and cancellation proceedings, and delays in processing trademark applications.  Mandatory recordation requirements that impose "unnecessary administrative and financial burdens on trademark owners and create difficulty in the enforcement and maintenance of trademark rights" are asserted for Brazil, Ecuador, Egypt, and Spain.  Specific examples of trademark issues, including "unauthorized domain name registration and trademark uses in some country code top-level domain names," and copyright royalty collection issues have arisen in India and the UAE.

Software concerns included in the Report involve government use of unlicensed software (costing $46 billion globally in 2018 according to The Software Alliance).  This issue is particularly noted in Argentina, China, Guatemala, Indonesia, Pakistan, Paraguay, Romania, Thailand, Turkey, Turkmenistan, Ukraine, Uzbekistan, and Vietnam but the Report states that "[t]he United States continues to work with other governments to address government use of unlicensed software, particularly in countries that are modernizing their software systems or where there are infringement concerns."

As in prior years, the Report sets forth subsections on IP and the environment (stating that "[s]trong IP protection and enforcement are essential to promoting investment in innovation in the environmental sector" which "not only promotes economic growth and supports jobs, but also is critical to responding to environmental challenges) and IP and health.  This latter discussion is focused (perhaps inevitably) on the COVID pandemic.  Here, the "top priority" is "saving lives and ending the pandemic in the United States and around the world" (rather than protecting IP as it is throughout the other sections of the Report).  With a nod to the international consequences of the prior administration, the Report states that "[a]s part of rebuilding U.S. alliances, the United States is exploring every avenue to coordinate with the global community and is evaluating the efficacy of proposals in multilateral fora, including the WTO, by their true potential to save lives, end this pandemic, and respond to the next one."

This section also includes an extensive discussion of the provisions of the TRIPS agreement, the Doha Declaration, and Article 31 TRIPS regarding compulsory licenses.  The USTR through this Report states that the U.S. "strongly supports the WTO General Council Decision on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health" (which permits member states to issue compulsory licenses to export pharmaceuticals to countries who cannot produce these drugs themselves).  Also included in the Report is a section devoted to implementation of the TRIPS Agreement with regard to the requirement for "certain minimum standards of IP protection and enforcement."

Finally, the Report notes that the U.S. "continues to monitor the resolution of concerns and disputes announced in previous Reports" and "will use all available means to resolve concerns, including bilateral dialogue and enforcement tools such as those provided under U.S. law, the WTO, and other dispute settlement procedures, as appropriate."

Section II of the Report is a detailed, country-by-country discussion for each country on the Priority Watch List and the Watch List, relating to the activities (or lack thereof) of each country that results in placement of that country on these lists.

As it has for the past several years (and across otherwise very different Administrations), the U.S. Trade Representative Special 301 Report provides insights into both the concerns of U.S. IP rights holders and the Administration's intentions to work with other countries to increase protection for IP rights of U.S. IP rights holders.  While enunciating U.S. interests and policies consistent with earlier Reports, this Report is notable for the lack of specific and detailed discussions of individual countries' deficiencies with regard to respecting IP rights, particularly U.S. stakeholders' IP rights.  It lacks some of the more broad-brush accusations or assertions against our trade partners, and uses more conciliatory language espousing cooperation rather than confrontation.  And it is very different in tone from earlier Reports wherein the complaints, and even the language enunciating these complaints, has remained dispiritingly the same, suggesting that despite pronouncements of small victories efforts to reduce unfair trade practices globally have fallen far short.  Consistent with other actions, real and symbolic, made by the Biden Administration, the USTR through this Report seems to be offering something of an olive branch to our trade partners.  The stick hasn't been particularly effective in promoting IP-respecting behavior in the past; perhaps the carrot(s) contained in this Report will have more success.

For additional information regarding this and other related topics, please see:

• "U.S. Trade Representative Releases 2020 Special 301 Report," May 10, 2020
• "U.S. Trade Representative Releases 2019 Special 301 Report," April 29, 2019
• "U.S. Trade Representative Releases 2018 Special 301 Report," April 29, 2018
• "U.S. Trade Representative Issues 2017 Special 301 Report," May 4, 2017
• "U.S. Trade Representative Issues 2016 Special 301 Report," May 19, 2016
• "U.S. Trade Representative Issues 2015 Special 301 Report," April 30, 2015
• "U.S. Trade Representative Issues 2014 Special 301 Report," May 19, 2014
• "U.S. Trade Representative Issues 2013 Special 301 Report," May 30, 2013
• "U.S. Trade Representative Issues 2012 Special 301 Report," May 1, 2012
• "U.S. Trade Representative Releases Special 301 Report on Global IPR," May 4, 2011
• "U.S. Trade Representative Releases Special 301 Report on Global IPR," May 19, 2010
• "New Administration, Same Result: U.S. Trade Representative's Section 301 Report," May 6, 2009
• "Congressmen Criticize U.S. Trade Representative over Special 301 Report," July 1, 2008
• "U.S. Continues Efforts to Protect Patent Rights Abroad," April 29, 2008

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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