New Chinese Government Oversight of Pharma and Semiconductors

On 1 January China’s new national-level intellectual property (IP) protection policy went into effect, giving local governments more autonomy for IP management and administration, as well as delineating central government responsibilities for IP protection. Along with broader possible implications for foreign firms, the policy highlights the pharma and semiconductor sectors that Chinese enterprises seek to eventually dominate. The new policy reveals some of the Chinese government’s IP goals and priorities, which include increased control over foreign IP:

• Guard against external transfers of Chinese IP during the security review of mergers and acquisitions of Chinese enterprises by foreign investors
• Provide oversight of drug patents, integrated circuit layout designs, and software copyrights 
• Manage foreign-related IP matters at the national level 
• Negotiate foreign-related IP rights
• Establish a national response mechanism for foreign-related IP disputes
• Coordinate disputes that have national or regional impacts
• Study and promote the formulation of international rules for data IP protection
• Deepen IP cooperation with countries and regions associated with the Belt and Road Initiative 

Observers believe that the Chinese government recognizes the importance of IP rights and the significance of IP protection in fostering healthy competition and attracting foreign direct investment. In this vein, China wants to improve its IP management, better align IP protection with international standards, optimize resource allocation, and bolster its global competitiveness. To this end, the new IP policy, though formative, aims to:

• establish industry standards for data IP protection; 
• build a national IP protection system; 
• improve domestic patent and trademark examination, collaboration, and review systems;
• establish standards and mechanisms for national-level IP protection supervision and performance evaluations; and
• build IP talent teams and raise public awareness of IP laws. 

Pamir assesses that this new policy does not address long-standing issues of concern to Western companies, such as technology transfers, trade secrets, counterfeiting, patents, bad-faith trademarks, and online piracy. Pamir recommends that US businesses engage directly with relevant Chinese and US government agencies to help shape emerging standards stipulated by the new policy. Those operating in China should develop and update IP protection strategies to manage violations, especially in industrial sectors where the Chinese government attaches strategic priority.