Telecoms companies on both sides of the Trump trade war are fearful of how the US president’s next move will affect IP in China and the US.
In a surprise move last week, President Donald Trump announced at the G20 summit in Japan that he would lift sanctions on Chinese telecoms company Huawei. He said that US companies would be allowed to conduct business with the Chinese 5G industry giant in what was seen an olive branch in the on-going trade war with China.
But Reuters reported this week that an email had been sent to the enforcement staff of the US Commerce Department’s Bureau of Industry and Security advising all to flag requests by US companies requesting licences from Huawei with the “presumption of denial”; a term used for blacklisted businesses.
With the continuing uncertainty surrounding this matter and that fact that Huawei is the biggest 5G patent holder, companies in the 5G space tell Patent Strategy they are uncertain of what will come next and how they should react.
“I am not surprised any longer by any related activities, but I also don’t understand each side’s intention or relationship,” says a source close to the matter. “However I am absolutely sure nobody in the US government and administration active in this war game understands what is done and by whom for which reasons.”
Oliver Pfaffenzeller, principal IP counsel for Siemens, adds that if Huawei is banned from conducting business in the US, the company will increase its licencing fees as a way to make up for lost revenue in countries where it is losing business.
“Huawei is the leading company with 5G technology. If the company does not get the business it would still file this IP and be more aggressive to get licence fees from European and US companies,” he says.
The chief IP officer tells Patent Strategy that it remains to be seen with Trump’s next tweet how much he will try to stunt Huawei. But if Huawei cannot further foster its business growth, he adds, it will definitely turn more and more to its solid IPR position.
Trump has targeted Huawei on grounds of national security, arguing that the Chinese company cannot be trusted to build a 5G network in the US. The president’s unpredictable moves towards China have left some in the telecoms industry wondering what to expect next.
The European chief IP officer sees the president’s economic sinophobia as a projection of an isolationist worldview that can have lasting impacts on global trade. According to Bloomberg, Huawei has charted a loss of 40 million mobile phone sales this year because of Trump’s blacklisting and Apple has cut its first quarter sales forecast in China.
“The trade war is based on no grounds. What you see in the US right now is like with McCarthyism with a communist witch-hunt. You have some groups in America, when they have something on their mind, they are ruthless without any evidence to implement their idea, and they believe this is in their best interest,” he says
Part of Trump’s America First ideology is viewing all geo-politics in zero-sum terms. In a knee-jerk reaction to the Chinese-US trade deficit, in May the president slapped a 25% tariff on $200 billion of Chinese exports. Three days later the Chinese retaliated with new tariffs on $60 billion of US imports.
“The longer this trade war continues the more likely foreign companies will pull out because nobody wants to deal with a 25% tariff,” says the senior vice-president of IP at a Silicon valley-based telecoms company. “If this trade war ends quickly it isn’t a big deal, but if it carries on there could be long term consequences.”
An unfortunate pattern at the end of any war is that those who fought it forget why it all even began. The European chief IP officer says: “This trade war is just a hunch, and Huawei is too successful for the US, and you cannot expect a country like China to just undergo such madness.
“The impact of the tweets will be that the people in China will make sure they are much more independent of the US.”
Come out stronger
Sources say one positive effect of Trump’s trade war, should it continue to escalate, could be a strengthening of the Chinese IP system. Pfaffenzeller at Siemens cites the recent changes to China’s Anti-Unfair Competition Law, which targets trade secret theft as a sign that China is willing to make concessions.
“The changes to trade secrets was something we suggested back in 2017 and now is appears they are listening to foreign ideas and requests where they did not listen two years back,” he says. “That is interesting and this is not something that was directly on the table and would not have come up with anything in such detail in their talks.”
He says that the Chinese government might offer stronger concessions and develop its IP infrastructure faster to appease the West and avoid an expensive trade war.
The most important change made in the recent law is the shift in burden of proof from plaintiff to defendant. With increased fines for infringement and an easier path to prosecution, Western companies could now conduct business in a more IP friendly environment.
“There is already a strong idea that they want to improve their IP system so any concessions that make their system better and more perfect is not something that hurts them,” says Pfaffenzeller.
But in this respect, the trade war could prove to be a double-edged sword. While China is strengthening its IP system, Western businesses fear Chinese courts might start ruling against them in retaliation.
“The problem is the Chinese can amend whatever law they want, but their judges are party members,” says the European chief IP officer. “China is not a democracy, the judges do what the party tells them, especially when they judge on foreign companies.
“Do we fear retribution from China? The Chinese IP courts do what the party says, it’s as simple as that.”
Pfaffenzeller cautiously echoes this concern, citing an atmospheric shift in IP rulings against Western companies: “When the trade war started at the very beginning it created a climate which was not favourable for foreigners in China and in the world of IP judges and courts.
“Shortly after the trade war started, there were decisions against US companies that were doubtful and this was something that had not happened in a long time; to make decisions that were biased.”
Fall out
Sources say a little more diplomacy from the American side could go a long way, and warn that, like with any skirmish, it is important to understand your opponent. With Trump raising tariffs and China becoming more industrially isolated, both sides stand to lose in the long term.
“This is a lose-lose situation,” says Pfaffenzeller. “Western countries could get a lot more out of China if the war was fought in an intelligent way. If you understood the other side better and tailored the requests to what you could achieve and then it would be good.”
With the global economy entwined in various supply chains, the longer the trade war continues, the deeper it cuts into Chinese manufacturing. Western companies fearing steep tariffs in China are already relocating to other Asian countries such as Vietnam and South Korea.
How China and the US conduct themselves in the next trade war battles is anyone’s guess.
