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US Uses Old Law to Curb Intellectual Piracy

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HONG KONG, China – Some United States companies straining under competition from China have adopted a new tactic, using an obscure provision in a 75-year-old trade law to press claims of intellectual property theft against mainland exporters. Analysts say Chinese manufacturers will have to find a way to deal with such challenges as they move […]

HONG KONG, China – Some United States companies straining under competition from China have adopted a new tactic, using an obscure provision in a 75-year-old trade law to press claims of intellectual property theft against mainland exporters.

Analysts say Chinese manufacturers will have to find a way to deal with such challenges as they move up the value chain with more sophisticated products.

Seldom invoked before now, Section 337 of the US Tariff Act of 1930 allows companies that claim their intellectual property rights have been violated to apply to the US International Trade Commission (ITC) for an order that can go as far as to block Chinese goods at customs.

Trade experts say the numerous patents held by many American firms now amount to a kind of “non-tariff trade barrier.”

Not every intellectual property complaint against China is upheld, of course, but even the news that a company is under investigation can scare off potential customers concerned about security of supply.

Section 337 orders the ban of sale in the US of goods that are found to infringe on the intellectual property laws which protect US-registered patents.

The ITC may, after a brief investigation of a complaint, mete out swift relief – through an “exclusion order” instructing the US Customs Service to prevent offending articles from entering the United States, a “cease and desist order” prohibiting sale of such articles already in the country, or both.

A company hit with or threatened by an order will almost certainly lose business as customers begin to doubt its ability to fill orders.

“An exclusion order, together with a cease and desist order against a Chinese business can effectively prevent it from future access to the US market,” said Simon Luk, a lawyer at Heller Ehrman White & McAuliffe.

As Chinese manufacturers produce more sophisticated goods with a higher intellectual property content, the number of Section 337 complaints against them has mushroomed.

Beijing law firm DeHeng reckons that over the next 10 years, Section 337 proceedings will become a bigger headache for mainland exporters than anti-dumping measures, which at worst result in the imposition of duties but do not bar imports or sales.

Chinese firms now are the most frequent target of competitors that invoke the provision.(source: The Standard)

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