The United States Response to Emerging Technological Powers

Abstract

Over the past 10 to 15 years the world economy has been transformed by rapid development in a number of the larger developing countries, such as Brazil, China, India, Indonesia and South Africa. This transformation in some developing countries has brought with it profound changes. Increasing technical capacity in the emerging economy countries has placed pressure on wages in developed countries and hastened their shift from goods-based to service-based economies. Competition for natural resources has become more intense as demand for them has risen. Financial markets have become increasingly interconnected, seemingly heightening risks. It is generally a time of stress in the global economy.

In such an environment, it is not surprising that national governments are inclined to pursue “protective” or defensive technology agendas. Technology is perceived as an “asset”. That asset is protected in two basic ways: (1) by physical and technical defenses, such as plant security guards and anti- cyber- attack software; and (2) by intellectual property legal barriers, such as patents.

Over the coming decade it seems doubtful that the main preoccupation of IP policymakers in the United States will be over technology leakage to Chinese, Indian or Brazilian enterprises. Rather the concern will likely be how US companies can maintain competitive advantage in the technology arena.

Predictably, there will be two tracks of effort to maintain US competitive advantage in high technology products. The first will be “offensive” in terms of investing in innovation. Here the possibilities have been fairly well defined.

In defensive terms, can and should patents be used as a means to deter Chinese, Indian, Brazilian and other emerging market enterprises from increasingly penetrating the lucrative US consumer market, or other foreign markets? In the late 1980s, US companies turned to Section 337 of the Trade Act of 1930 in efforts to forestall Japanese high-tech entry into the US market. Those efforts may have borne some fruit at the margins, but did little to affect the overall balance of trade. What they mainly did was to instruct Japanese companies regarding how to “game” the US economic system, resulting in quite sophisticated IP strategies followed by Japanese companies.Today, at least in theory, US- based enterprises can limit import penetration of high technology products based on patents because US-based enterprises (and European and Japanese enterprises) are the preponderant owners of US patents.

Chinese enterprises have increased their patent filings in the United States, but not yet in very large numbers. However, it seems likely this will change as a reflection of the rapid increase in patenting within China, and use of the Patent Cooperation Treaty system. This raises the possibility that during the course of the next decade Chinese enterprises will begin to pursue infringement claims against companies based in the United States and against imports from rivals from other countries (and their own).

How will the United States react? Will China be just another Japan doing business in the United States? Or, will Chinese enterprises be portrayed by policymakers as a threat to US economic and/or national security interests? Part of the answer will depend on the extent to which China successfully transitions away from government ownership and/or control of industry. If US policymakers perceive Chinese inroads into the US market as part of a government program, the reaction is more likely to be hostile. If Chinese enterprises are legitimately private sector, this would seem to present less of a target for hostility because it would not be perceived as bolstering a foreign government with potential to affect national security interests.

Keywords: patents, China, Section 337, PCT, innovation, TPP, TRIPS, cyber-security, competition

JEL Classification: F02, F15, I18, K32, K33, O14, O31, O32, O33, O34, O38