Geithner Talks Tough on China IP (for some reason)

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The Obama administration is under fire from everyone these days, and no one seems to like the job that Treasury Secretary Tim Geithner has done over the past two years. Moreover, the administration is not about to move against China in an area where Geithner actually has some authority (e.g. currency).

Timmy must be one frustrated individual these days. In that context, I suppose I shouldn’t be surprised that he has engaged in some gratuitous China bashing, perhaps to build up some populist credibility and, more importantly, to send a message to the U.S. corporate community that he feels their pain.

Geithner is no stranger to harsh words about China, although he doesn’t usually venture into the area of intellectual property. A quick glance at the statements he made yesterday suggest that he should probably leave the topic out of his repertoire. It’s not that his comments were full of factual inaccuracies or anything. I just found them mostly irrelevant, not to mention misleading.

Let’s take a look at two comments from Geither (taken from Reuters):

“They <China> have made possible systematic stealing of intellectual property of American companies and have not been very aggressive to put in place the basic protections for property rights that every serious economy needs over time,” Geithner told a forum in Washington.

However one may criticize the remaining problems with China’s intellectual property enforcement system, which are many and significant, this language “systematic stealing,” is quite inflammatory, albeit in a subtle manner.

Geithner’s language is rather sneaky. Is IP infringement stealing? Yes, it is a form of property theft, so using the term “stealing” is certainly appropriate, given the proper context. What about “systematic?” Sorry to go full lawyer on this, but that term denotes a method or plan. Who in this discussion would be in a position to implement a plan? None other than the government of China.

Therefore, when you put this language together, Geithner is saying that China has an intentional plan to steal intellectual property rights. That’s quite a sweeping statement. And yes, I note his use of the qualifier “made possible,” which one could say relates to a lack of enforcement. But even if Geithner is not saying that the government itself is the one doing the stealing, it’s still a damning indictment.

Is he right? Only partially, which is why I find his language misleading.

One could certainly make the case that China has intentionally gone after foreign IP in certain industrial sectors, often key areas like energy, environmental technology and automobiles. There is a case to be made there for a “systematic” approach.

But what about the “stealing” part? Although there have been cases where infringement has occurred and foreign IP has been invalidated, this does not rise to the level of an overall plan of outright theft, or if you prefer, a plan to allow outright theft.

However, perhaps Geithner is just referring to forced technology transfer, including the popular hot button issue, China’s “indigenous innovation” policy?

We’re seeing China continue to be very, very aggressive in a strategy they started several decades ago, which goes like this: you want to sell to our country, we want you to come produce here … if you want to come produce here, you need to transfer your technology to us[.]

Okay, so maybe Geithner is not accusing China of wholesale IP theft. Rather, he is saying that China’s technology transfer policy is functionally equivalent to systematic stealing. So is this claim fair?

No, still misleading. It’s true that China’s tech transfer posture is aggressive, and it’s accurate to say that market access has been conditional on such tech transfers. But this ignores a few very important qualifiers. First, such conditionality only effects a few market sectors (I listed a few above). For the vast majority of U.S. investors in China, no one is forcing them to do anything with their IP.

Second, the only bona fide systematic program one could point to is the indigenous innovation program, which was altered after protests from foreign governments and a series of Sino-U.S. bilateral negotiations. This happened a while ago, so if Geithner’s comments are a reference to that policy, he’s a bit out of date.

Third, although conditional tech transfer is anti-competitive and arguably unfair, it’s not stealing. Companies like GM or GE are not being forced to do anything. The choice whether to bring IP onshore may be a difficult one given market realities, but China is not (for the most part) illegally appropriating IP and giving it to a domestic firms.

In short, I find Geithner’s comments to be way over the top. He smoothly takes what are admittedly widespread problems with IP in this country (i.e. theft is common) and implies intent on behalf of government policy makers (i.e. systematic programs). What we’re left with is the suggestion that Beijing has an ongoing plan to rip off the IP rights of foreigners. Sorry, but that’s going way too far rhetorically.

9 responses on “Geithner Talks Tough on China IP (for some reason)

  1. slim

    Geithner is a choppy, halting public speaker, prone to run-on sentences that end up failing grammatically, but really how many soundbites stand up to this level of lawyerly nitpicking?

    China does not have a Ministry of Stealing Every Idea That Isn’t Nailed Down And Using Extortion to get Everything Else, but it has fostered an atmosphere and culture that serves that end. Bootleg Apple stores, bootleg bullet trains, mock Nobel Peace prizes (I jest on this one)… that is off the charts!

    Perhaps “wholesale” or “rampant” or “widespread” would have been better than “systematic”?

    1. Stan Post author

      I only nitpick out of deep respect . . . and also because he’s the freakin’ Secretary of the Treasury and should be held to a very high standard. Think about how the Secretary of State’s words are parsed or, and this is the ultimate, Bernanke?

      At the end of the day, though, I mostly just nitpick to make a point.

        1. Stan Post author

          Can’t go that far with you. Most of the clients I’ve had over the years whose IP has been ripped off focus more on the infringer (i.e. the thief) than the system, which works fairly well in many instances.

  2. pug_ster

    The US wants China to play their tune in terms how countries respect IP’s. Patent trolls are out of controll in the US yet the law passed recently does little to stop this. Recently a company called LVL Patent Group sued almost every telecom companies out there because they believe they have patents on how smartphones work. Companies like LVL would not exist in China.

    1. S.K. Cheung

      Either you respect IP, or you don’t. Apple and Samsung are currently doing this dance the world over. Some companies are being bought and sold as much for their patent portfolios as for how their business profitability contributes to the buyer. So if you respect IP, then you have to accept that owners of IP will go after those who infringe upon it. Clearly, CHina is not one of those people. Maybe China will start to care more when Chinese people start generating more of their own IP.

    2. slim

      Patent squatting is not unknown in China. But I’m guessing that for now that is small ball compared to the systematic … err, endemic, wholesale … infringement.

  3. Anon

    Geithner/Treasury does this all the time. He doesn’t want to talk currency policy, financial regulation, or anything else in his own portfolio, since that would only betray his department’s overwhelming impotence in US-China relations. So, he ventures into the repertoires of other more capable departments (Commerce, USTR, etc.) in a befuddling attempt to change the subject.

    On the IP front, I still think you’re far too sympathetic toward China’s IP policies, especially for an American IP lawyer. The “few” industries that you place in the “systematic” category happen to be multi-billion dollar global industries with some of the most valuable, sophisticated, and often dual-use technologies known to man–essentially any industry in which the government feels a sense of strategic significance. Sort of hard to portray them as a negligible side-story to global commerce, even if they don’t occupy the a huge percentage of the everyday IP cases in China… Nonetheless, I totally agree that “theft” isn’t the right way to characterize it, and for the same reasons that you set out.

  4. ThomasR

    I have to agree with slim, “systematic” was a poor word choice, but it seems to me that he meant it merely in the sense of endemic or widespread. On the other hand, you’re correct that he should be held to a higher standard because he is the SecTreas, and I would argue that the best way to do that would be to criticize his actual mistake (i.e. poor wording and generalization), rather than criticizing what his statements can be (mis?)construed to mean.