Sore Losers in a 30 Year Game

On August 14, 2017, U.S. President Donald Trump released a document he neither read nor understood.  In the Presidential Memorandum for the United States Trade Representative, he recited the tired echoes of the 34^th U.S. Secretary of Commerce Donald Louis Evans about Chinese “unfair” “violations” of intellectual property rights.  In the memorandum, he asserted that China “potentially threaten United States firms by undermining their ability to compete fairly in the global market.”  The saber-rattling of the past few weeks has spooked markets and generated yet another media-fueled volatility that is a tempest in a teapot.

In July 1987, the Office of Technology Assessment of the U.S. Congress issued a report Technology Transfer to China.  Director John H. Gibbons, acting on behalf of the House Committee on Energy and Commerce and the Senate Committee on Banking, Housing and Urban Affairs, sought to conduct an objective review of the role U.S. technology could play in the transformation and modernization of China’s economic and social order.  In its preamble, the justification for technology transfer to China was based on the assumption that either U.S. or Soviet technology was going to support broader political and strategic implications on the future of China and the U.S. needed to use its technology as an agency for closer ties.  From GE’s first contract with the Chinese government for locomotive sales in 1976 until the time of the report, the company itself saw that the transfer of technology served its economic interests in securing contracts that had been going to German, French, Romanian, and Soviet suppliers.  The same could be said about AMC (which ironically was sold to the French the same year as this report), IBM, Wang Computers, and other early market entrants into China.

The media and markets are missing what the Trump Administration wishes to deny.

     

• Most intellectual property in the United States does NOT represent invention and is not associated with any product or service.  Most intellectual property is either subtle modifications of existing patents in attempt to “ever-green” market protections in violation of the law, outright plagiarism of competitors’ patents, or “defensive” patents procured for litigation avoidance or cross-licensing conflict resolution.

• China bought most of the technology (and associated intellectual property) from the companies that are alleging “unfair” practices.  When part of a sale includes know-how and intellectual property, alleging it to be stolen is not fair – it’s pathetic.

• The United States Patent and Trademark Office has had evidence for over a decade that over half of its patents, when challenged in court, are invalidated in part or in whole.  Yet no fundamental quality reform has been implemented.  As a result, when China independently reviews unenforceable intellectual property claims and elects to commercialize goods or services derived or enabled by disclosures in wrongfully granted patents, they’re not stealing.  They’re shrewd. 

It’s time for investors, markets, and the media to grow up.  We made a number of assumptions in the 70s and 80s about the China we wished to influence.  In many ways we succeeded.  We simply failed to appreciate that China wouldn’t stay “poor” and “incapable” of being a competitor.  That’s on us, not on them.