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China might be moving toward curbing forced technology transfers

On Behalf of | Apr 24, 2019 | Intellectual Property

Recent proposals for a change in Chinese trade law have U.S. and European businesses feeling cautiously optimistic this week. Current law in China allows regulators to force foreign companies into giving up the rights to their technology in exchange for entry into the Chinese market. However, new legislation may put an end to the practice – if regulators enforce it.



China’s history of forced technology transfers


Forced technology transfers have been at the heart of trade and intellectual property disputes between the U.S. and China for some time now. Companies in the U.S. and around the world had to hand over their valuable intellectual property to Chinese firms, which many saw as coercive intellectual property theft.  


For many multi-national companies, the Chinese market is too large a prospect to pass up. So, they might agree to give up sensitive technology. The problem is, the Chinese companies holding that intellectual property are apt to become competitors.


In some cases, U.S. companies voluntarily transfer their tech to help ensure product quality. But, loopholes in Chinese law allowed for forced transactions of this type.


New legislation proposed by the Chinese government


Reports of a new law drafted in China show a move toward ending forced technology transfers. A version of a rule introduced in December, the legislation prohibits forced technology transfers through administrative measures. Trade representatives view the proposal as a step forward in negotiations.


But, what remains to be seen is whether the law, if passed, would be enforced. We’ll be following these developments as they progress. If the Chinese government implements this rule along with measures to give it some teeth, U.S. businesses may be looking at a whole new future in China.