This is a complex topic, but the Trump administration is on the wrong side on this one. After all, the U.S. circumvented the WTO during the trade dispute instead of relying on its mechanisms to settle its dispute as any other WTO member would have done. As for the legality of technology transfer, there's no clear-cut rule on how countries should do this, but countries are allowed to require companies to transfer their technology as shown in the bolded part in the quote below.
As a member of WTO, China’s intellectual property law and policy must be in conformity with the requirements in the TRIPS Agreement and
the provisions of the international treaties that it incorporates.
China is also bound vis-à-vis the parties of other intellectual
property treaties it has signed. In accordance with the terms of its
accession Protocol to the WTO, China has the same obligations under
the TRIPS Agreement as other developing countries. The Accession
Protocol requires China to bring its intellectual property laws and
provisions into conformity with the TRIPS Agreement but, with one
exception, does not require China to go beyond the obligations imposed
by those provisions. Thus, the merit of US claims on the basis of
which China has been placed in Priority Watch List must be tested on
the anvil of China’s WTO obligations regarding the TRIPS Agreement. A
preliminary review of the USTR arguments in the light of such
obligations suggests the following:
First, there is no obligation on any WTO member under the TRIPS Agreement to enact a specific law for the protection of trade secrets.
Article 39.2 of the TRIPS Agreement recognizes the right of natural or
legal persons to protect information lawfully under their control from
being disclosed to third parties without their consent, but does not
prescribe how WTO members should implement such protection. Many WTO
members do not have a specific trade secret law, but they generally
protect it in the framework of unfair competition rules. China has the
flexibility under the TRIPS Agreement to determine how to protect
trade secrets and is not required to enact a specific trade secret
law.
Second, the TRIPS Agreement requires WTO members to provide right holders with effective procedures and mechanisms for enforcing their
rights, including measures to prevent infringements and remedies which
constitute a deterrent to further infringements. However, the specific
nature of these procedures and remedies are not specified. Indeed, WTO
members have no obligation to create special regimes for the
enforcement of IP that is separate from the general enforcement regime
they have. Nonetheless, China has gone further and established
specialized intellectual property tribunals in various provinces.
Moreover, the primary obligation for enforcing IP rights is on the
right holder and not the State. Thus, the US allegation regarding lack
of decisive action to curb counterfeit goods or bad faith registration
of trademarks is untenable because the onus of taking decisive action
against such acts falls on the right holders. The fundamental question
is whether the procedures available to right holders to initiate such
enforcement action are effective. A 2009 WTO panel ruling on a dispute
be-tween the US and China (China –Measures Affecting the Protection
and Enforcement of Intellectual Property Rights)did not find the IP
enforcement regime in China relating to customs measures and criminal
liability thresh-olds to be in contravention of the obligations under
the TRIPS Agreement.
Third, there is no specific TRIPS obligation on WTO members with regard to addressing counterfeiting and piracy online. The WIPO
Copyright Treaty (WCT), to which China is a Contracting Party,
requires the application of measures necessary for the enforcement of
copyright in the digital domain, but also clarifies that such measures
need not be distinct from the general legal system of the Contracting
Party. The additional standards of protection introduced by the WCT
are not mandatory under the TRIPS Agreement. Moreover, the US has not
alleged that China’s IP enforcement regime relating to copyright in
the digital domain is not consistent with the WCT.
Fourth, contrary to US assertion, it is legitimate under the TRIPS Agreement for any country to use com-petition law and policy to
advance industrial policy goals. There are no binding international
rules limiting the policy space to design national disciplines on
com-petition law. Hence, countries are free to design their
competition laws in accordance with their domestic interests and
needs, taking their level of development into account, subject only to
the limitations arising from the territorial applicability of such
laws.
Fifth, the requirement in Chinese law for any person participating in a standardization process to disclose all essential patents related
to technical standards is not unique. Even in standard setting
organizations in developed countries such as the American National
Standards Institute (ANSI), European Telecommunications Standards
Institute (ETSI) and Organization for the Advancement of Structured
Information Standards (OASIS), the disclosure requirement is a common
means to enable their technical committees to arrive at a fully
informed decision about the particular technical specification and the
estimated licensing costs. Such a requirement is not banned by the
TRIPS Agreement, and is key to avoid anti-competitive practices
resulting from opportunistic conduct of patent owners. In fact, in the
US and other countries competition authorities and courts have taken
measures to protect the public interests against the abuse of standard
essential patents, including by refusal of injunctive relief.
Sixth, Chinese patent examination guidelines have been amended to permit pharmaceutical patent applicants to file supplementary
experimental data after filing their patent applications, but the
applicant must satisfy the examiner that the technical effect of the
supplementary data is capable of being derived from the original
disclosure. The US contends that Chinese patent examiners have not
applied the new guidelines to all examination questions to which
supplementary data is germane. However, the Chinese guidelines only
specifically apply to the admission of supplementary data in relation
to sufficiency of disclosure objections raised by examiners. It is a
matter of policy for China to determine whether supplementary data
should also be admitted for other examination questions such as
inventive step and novelty. This policy is fully within the space left
by the TRIPS Agreement to WTO members to articulate patent
examinations procedures.
Seventh, the US objects to the strict definition of a “new drug” that would be eligible for regulatory data protection under Chinese
law. China accepted in the WTO ac-cession process a TRIPS-plus
obligation regarding test data for pharmaceutical products, through a
commitment to introduce a form of “data exclusivity” that is not
required under article 39.3 of the TRIPS Agreement. How-ever, this
commitment did not include any limitation regarding the way in which
certain concepts, such as when a drug is to be deemed “new”, could be
applied. Hence, it is a policy choice that China can legitimately make
under the WTO rules. Data exclusivity has been imposed by the United
States and the European Union to partners in several free trade
agreements, but the latter also generally enjoy some flexibility to
mitigate the negative impact of such a TRIPS-plus protection in
relation to access to medicines.It is also worth noting that new draft
rules aimed at enhancing test data protection were released in China
for public comment in April 2018.
Eighth, the USTR report merely alleges without any substantiation that major amendments in China’s copy-right law have not been carried
out. No analysis is given in the USTR report regarding specific
provisions in China’s copyright law that are regarded by the US as
inconsistent with TRIPS obligations.
Ninth, pursuant to an instruction from the US President, USTR conducted an investigation which found that Chinese acts, policies or
practices, such as foreign owner-ship restrictions and administrative
review and licensing processes to require US companies to transfer
technology, restrictions in technology regulations on terms of
licensing technologies, facilitation of investment in and acquisition
of US companies and their IP over cutting-edge technologies by Chinese
companies, and intrusions into computer networks of US companies to
access sensitive commercial information and trade secrets, to be
unreasonable, burdensome and discriminatory towards US commerce. Thus,
the USTR has raised tariffs on certain products of Chinese origin and
has initiated dispute settlement proceedings at the WTO against
China’s alleged discriminatory licensing requirements. While these
issues, to the extent covered by the WTO rules, will have to be
settled through the WTO dispute settlement procedures, the unilateral
imposition of increased tariffs on products of Chinese origin by the
US without a resolution through the established WTO dispute settlement
procedures, is in clear contravention to the WTO rules.Importantly,
neither TRIPS nor the TRIMS Agreement forbid or otherwise regulate
technology transfer performance requirements, particularly commitments
of technology transfer that companies may be required and accept to
make as one of the conditions for approval of a foreign direct
investment.
Tenth, requirements in Chinese law to disclose ICT-related intellectual property on grounds of cybersecurity are not subject to
the TRIPS disciplines; in any case, they would fall within the
security exception that is available under that Agreement.
