US CHINA TRADE WAR–DEFAULT DANGERS, TRANS PACIFIC PARTNERSHIP IN JEOPARDY, TRADE, CUSTOMS ANTITRUST AND SECURITIES

US Capital Pennsylvania Avenue After the Snow Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER

Dear Friends,

There have been some major developments in litigation, including dangers of default judgments, trade, Solar Cells, Chinese Antidumping, patents, US/Chinese antitrust, and securities areas.

January was a very important month for US Trade Policy because of the problems with the Trade Promotion Authority/Fast Track Trade Bill and the Trans Pacific Partnership (“TPP”) and Trans- Atlantic (“TA”) Trade Agreements in Congress.  Literally there have been day to day developments culminating with President Obama’s January 28th State of the Union address followed by the January 29th decision of Senate Majority leader Harry Reid to oppose the Trade Promotion Authority (“TPA”) Bill and the TPP and TA Negotiations.

As described below, Senator Reid’s decision to not allow the TPA bill to be introduced in the Senate may be the day free trade died.  If Senator Reid’s decision becomes final, this will have a dramatic impact on all trade relations, including trade relations with China, as the United States becomes more and more protectionist.

US LITIGATION AGAINST CHINESE COMPANIES—DANGERS OF DEFAULT

Recently through a Chinese law firm a Chinese company approached us because they were facing a US trademark case brought by a competitor in the United States.  The company’s question, why respond?  We are a Chinese company and you cannot catch us and make us pay damages in the United States.

We pointed out that the trademark case in question is a tough case for the Plaintiffs to prove because the trademarks in question are not registered marks and are common law marks.  If the Chinese company fights the case, it would have a good chance of winning the case.  But if the Chinese company defaults, it loses the right to contest the merits of the case.

In antidumping and countervailing duty cases, Chinese companies with US import operations have also told us, “Don’t worry.  We will never pay antidumping and countervailing duties; they cannot catch us in China.”  The times, however, are changing.

In many US cases against Chinese companies in Federal District Court, Plaintiffs are asking for damages, an injunction and punitive damages.  If the Chinese company wants to sell its products in the United States again, it has to fight.  If it does not fight, when the Chinese company sells its products in the United States, those products, including all inventory and accounts receivable, can be attached to satisfy the judgment.

Moreover, when a default judgment is for money damages, the US company is seeking to collect actual damages, interest from the date of the judgment or before, statutory damages, possibly punitive damages and attorney’s fees, which eventually will total millions of dollars.  If the Chinese company has a strong legal argument against the US Plaintiff, when it defaults, the Chinese company loses the right to make those legal arguments.

Moreover, this is no longer the 1990s or even early 2,000s.  Over the last two decades, Chinese companies have grown up and have bank accounts and assets/money and subsidiaries all over the world.  But that means it is easier for US judgment holders to collect money on their default judgments against Chinese companies.

If the Chinese company continues to do business in the US in the face of a default judgment, Plaintiffs can attach the company’s assets.  U.S. Marshalls can show up at a U.S. trade show and take all the company’s trade show materials to satisfy the judgment.  US Marshalls can go to warehouses where the company stores its products and take them.  US plaintiffs can go after the Chinese company’s accounts receivable.  The US Plaintiffs and their US lawyers can attach or garnish the Chinese company’s bank accounts–in the U.S., Hong Kong, the EC, Taiwan and countries all over the World where US judgments are enforceable and also now in China itself.

If the Chinese company banks with a Chinese bank that has a branch in the U.S., such as New York, Plaintiffs will garnish that branch bank and go after the China company’s  assets/bank accounts located in any of the bank’s other branches, wherever located, including China.

In 2010 a US inventor sued Chinese tire companies in Shandong Province for patent infringement and unfair competition in a Federal District Court in Virginia.  The Chinese companies did not fight the case and the Federal District Court entered a default judgment for $26 million.

In September 2013, in the attached complaint TIRES COLLECTION CASE the US law firm and inventor sued the Chinese Industrial and Commercial Bank Branch in New York City, saying give the US Plaintiffs the records and assets of these companies in China to satisfy the US $26 million judgment.  If the Chinese bank branch refuses to pay, the Bank could face fines of $100,000 a day, as an example.

Under the Single Entity Doctrine, US Federal Courts have held that if the Court has jurisdiction over the Chinese bank branch, it has jurisdiction over the bank worldwide.  If a Chinese company has any bank accounts in Chinese banks, such as the Bank of China or the Industrial and Commerce Bank, those banks have branches in New York City and the Chinese company can be attacked through its bank.  We are presently representing a Chinese Bank in a similar case and have 30 lawyers working full time on the case in Guangzhou on discovery.

The point is that Chinese companies can run, but they cannot hide.  If a Chinese company defaults in US litigation, it can be attacked in the US, Hong Kong, Taiwan, EC, Canada and many other countries, and now China through Chinese bank branches in the US.  So when a Chinese company defaults in US litigation, it puts the entire company at risk.

On the other hand, if the Chinese company decides to fight the case and hire a US lawyer, it may be able to pay a small amount of money as compensation or simply change its product or trade dress slightly and settle the entire case.  In many cases, if the Chinese company fights, it may be able to win the entire case and in certain situations get money from the US company bringing the case.

Ignoring US litigation is like picking up the sesame and losing the watermelon.  If the Chinese company does business in the United States and intends to continue to do business in the United States, trying to avoid service or defaulting after service may materially damage its business.  It will certainly materially damage its ability to do business in the United States.  The costs of default may be significant and far greater than that which would be necessary to defend against the US lawsuit.

TRADE

TRADE NEGOTIATIONS—TPP AND BALI/DOHA ROUND

As mentioned in my past newsletter, in the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA) negotiations with the EC.  Experts have estimated that TPP and TA Agreements could increase global business by several trillion dollars, if they can be concluded and implemented. These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

This is particularly a problem because the protectionism is coming from the Democratic side of the aisle.  Democratic Senators and Congressmen are supported by labor unions.  Although companies see the substantial increase in business from the TPP and TA Trade Agreements, unions only see a loss of US manufacturing jobs.  To date, President Obama cannot get one Democratic Congressman to support Trade Promotion Authority (“TPA”) in Congress.  Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats during the mid-term elections as soft on trade.

This rising protectionism in Congress directly threatens the TPP and all future trade deals with China and many other countries.

TPP NEGOTIATIONS MAY END AS SENATOR MAJORITY LEADER HARRY REID REFUSES TO LET THE TPA BILL GET TO THE SENATE FLOOR

As the Doha Round chances went up, the chance of TPP and TA Agreements fell down and may have fallen down completely.  As mentioned in my last post, USTR and US government officials were predicting that the TPP negotiations would conclude at the end of the year with an Agreement.  That is not going to happen.  The Congressional problems regarding the TPP have grown larger and larger and, in fact, may now be insurmountable.

Although the TPP does not include China, China is the elephant in the room and so its presence is very much in the mind of all the negotiators and the political powers in the United States.  The public reaction to TPP and the TPA, which is needed to conclude the TPP agreement, in part, is a reaction to trade with China and is a reflection of public and political attitudes in the United States to trade with China.

In January the TPP and Trans-Atlantic Agreements have created high drama on Capitol Hill as there have been literally day to day developments.

TRADE PROMOTION AUTHORITY (“TPA”)

On January 9, 2014, Senator Max Baucus, Democrat, Senator Orrin Hatch, Republican, of the Senate Finance Committee and Representative Dave Camp, Republican, Chairman of the House Ways and Means Committee, introduced the attached Bipartisan Congressional Trade Priorities Act of 2014. HOUSE FAST TRACK BILL The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

Under the US Constitution, Congress, not the President has the power to regulate trade with foreign countries.  Article 1, Section 8, Clause 3, of the Constitution empowers Congress “to regulate Commerce with foreign nations”  Thus to negotiate a trade agreement, the Congress gives the Executive Branch, the Administration/The President and United States Trade Representative (“USTR”), the Power to negotiate trade deals.

Because trade deals are negotiated with the foreign countries, the only way to make the system work is that under the TPA law when the Trade Agreement is negotiated, the Congress will agree to have an up or down vote on the entire Agreement and no amendments to the Agreement that has already been negotiated will be allowed.

In introducing the new Trade Priorities Act, Senator Baucus stated that “This is our opportunity to tell the Administration – and our trading partners – what Congress’ negotiating priorities are.  TPA legislation is critical to a successful trade agenda. It is critical to boosting U.S. exports and creating jobs. And it’s critical to fueling America’s growing economy.”

According to Senator Hatch, “Every President since FDR has sought trade promotion authority from Congress because of the job-creating benefits of trade. Renewing TPA will help advance a robust trade agenda that will help American businesses, workers, farmers and ranchers by giving them greater access to overseas markets.”

The TPA Bill set out a clear directive on currency manipulation, provided greater transparency and gave Congress greater oversight of the Administration’s trade negotiations.

Both Senators Baucus and Hatch and Congressman Camp called TPA a “vital tool” as the U.S. continues TPP negotiations as well as free trade TA agreement talks with the European Union (EU).   The National Association of Manufacturers and the National Retail Federation quickly got behind the proposal and urged Congress to quickly pass it

As mentioned in past posts, however, the Administration considers the TPP negotiations to be secret and has not released any official negotiating texts.  Thus opposition is growing in Congress.  In November 2013, a group of over 170 lawmakers in the House sent letters to the President saying they opposed fast-track authority because modern trade agreements affect so many policies under Congress’ purview, and it should have much larger role in shaping the terms of the Agreements.

Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, stated that he was developing alternative legislation

On January 10th, it was reported that with opposition growing in Congress and the upcoming midterm elections, President Obama was going to have to mount a very serious lobbying effort to move the TPA legislation through Congress.  The proposed TPA legislation has drawn strong opposition from labor unions, including the AFL-CIO, which vowed to “actively work to block its passage,” and also environmental groups like the Sierra Club and consumer advocacy groups like Public Citizen.  Many Congressmen and Senators, especially on the Republican side of the aisle, stated that moving the TPA bill through Congress would require a strong lobbying effort on the part of the Obama administration, possibly even including remarks about TPA in the 2014 State of the Union address.

Prospects for a fast-track bill moving forward in 2014 are further complicated by the Congressional elections in November.  The TPA Bill is a test of the administration’s influence and clout on Capitol Hill and right now the Administration’s clout on Capitol Hill is very weak.  The TPA fight is a fight over a number of different issues and the extent to which Congress can influence the negotiating process.

Typically multi-national corporations strongly back free-trade agreements. The Chamber of Commerce, which sometimes spends more than $100 million lobbying a year, and the Business Roundtable, were quick to put out statements supporting the legislation. Also weighing in was a coalition called Trade Benefits America, which includes companies ranging from General Electric Corp. to Wal-Mart Stores Inc.

On January 15th it was reported that President Obama could not find one Democratic Congressman in the House of Representatives to co-sponsor the TPA bill. Meanwhile, the bill’s main Democratic backer in the Senate, Finance Committee Chairman Max Baucus, is retiring from the Senate and on his way out to be Ambassador to China, and key senior Democratic Senators on the committee, including Senator Wyden, its incoming chairman, say they either don’t support the bill or want to change it.

Democratic Reps. George Miller of California, Louise Slaughter of New York and Rosa DeLauro of Connecticut said of the proposed TPA Bill: “Our constituents did not send us to Washington to ship their jobs overseas, and Congress will not be a rubber stamp for another flawed trade deal that will hang the middle class out to dry.”

The free-trade push joins a growing list of policies Obama has championed that are unpopular with Democrats.  Both Republican and Democratic Members complained that the Obama administration’s outreach on trade has been disorganized.

Another Democratic complaint is that the negotiations for both trade deals are confidential and too far along for Congress to play a meaningful role in their outcome. Five influential Senate Democrats told U.S. Trade Representative Michael Froman that they won’t support the trade promotion authority bill without assurances that Congress can hold U.S. trade negotiators “more accountable” during the talks, rather than after a deal is finished and lawmakers can only cast up-or-down votes.

For Republicans, Democrats used pro-trade votes to blast GOP presidential candidate Mitt Romney and House Republicans in the Midwest states and elsewhere as supporters of outsourcing jobs.  According to one GOP leader in the House, given Obama’s political problems within his own party, House Republicans are insisting that Democrats deliver at least 50 votes in support of the bill, including at least one from the party’s leadership, before they’ll bring it to the floor.

On January 16, 2013, the Senate Finance Committee held a hearing on the TPA Bill and the TPP and TA negotiations, but USTR refused to send a witness.  Many industry witnesses did appear, however.  See http://www.finance.senate.gov/hearings/hearing/?id=bd99ab08-5056-a032-523f-27ddae65e3d0 for a video of the hearing.  The failure of USTR to show up at the hearing illustrated the difficulty ahead for the TPP.

At the hearing in the attached statement LARRY COHEN TESTIMONY TPP DIFFICULTY Labor Leader Larry Cohen, President of the Communications Workers of America, a union, spoke against the TPP, stating:

 

“Free trade agreements have been devastating for our balance of trade. In 1993, the year before the North American Free Trade Agreement (“NAFTA”), our trade deficit in goods was -$132 billion or -1.9 percent of our GDP. By 2012, our trade deficit ballooned to -$741 billion or -4.6 percent of our GDP. The growth of our trade deficit to such levels has been a strong drag on our economy and especially in terms of jobs and wages.

And specific trade deals have been most at fault for the increased trade deficit. Here are three examples. In 1993, the U.S. had a trade surplus in goods with Mexico of $1.66 billion. By 1995, just one year after NAFTA, this had changed to a $15.8 billion deficit and by 2012 the deficit with Mexico had increased even further to $62 billion.

Allowing China into the WTO also has been disastrous. The U.S. had a trade deficit in goods with China of $83 billion in 2001 when China was admitted to the WTO. This deficit has ballooned to $315 billion in 2012. And for a most recent example, in just one year after the U.S.-Korea trade agreement took effect, our trade deficit in goods with South Korea increased by $5.5 billion or 46%.

Last year, our federal budget deficit was more than $680 billion. But our trade deficit in goods for 2012 was $741 billion. While a lot of attention in Congress and in Washington, DC has focused on the federal deficit, little attention has been focused on our trade deficit and its negative impact on our economy, jobs and wages. If we had trade deals that actually led to balanced trade, our economy would generate more than 3 million more jobs. Unfortunately, our current model for free trade agreements increases our trade deficits and reduces our employment. . . .

In the economy as a whole, average real weekly take home pay for a U.S. worker today is $637 compared to where it was 40 years ago at $731 a week — $100 less.  . . .

Trade agreements have become the new tool in the arsenal for the unfettered corporate attack on collective bargaining rights. With trade agreements, threats to offshore work and actually offshoring the work in highly unionized industries has increased. The result — the share of the private sector workforce protected by a collective bargaining agreement has declined from a high of 35.7 percent to just 6.6 percent today. This is another direct link cited by most economists as a factor in the rising inequality in our country today.  . . .

In telecommunications, we have seen the virtual elimination of telecom manufacturing equipment in the US, the elimination of a U.S. national company, and hundreds of thousands of lost jobs in that supply chain.  . . .

Many groups representing U.S. consumers are especially concerned with how trade agreements can be used to degrade our food safety protections. Allowing for Fast Track consideration of TPP would further jeopardize the safety of the food consumed in the U.S. Seafood standards in particular could be challenged through the TPP. The FDA has detained hundreds of seafood exports from TPP countries because they were contaminated. For example in Fiscal Year 2012, the FDA detained 206 imported seafood products from Vietnam alone because of concerns including salmonella, e-coli, methyl mercury, filth and residues from drugs that are banned in the U.S.  Currently the FDA is only able to inspect between 1-2 percent of our food imports.  The TPP, by greatly expanding our food imports (especially seafood) would result in an even lower percentage of inspections.  . . . .

Trade agreements are no longer just about tariffs and quotas – they are about the food we eat, the air we breathe, the jobs we hold. Congress needs to have an enhanced and enforceable role in this new era when massive trade agreements can cover so many policy issues. We cannot abdicate the legislative and policy formation process to the USTR and non-elected representatives. Or, we would argue that trade policy should commence with the Congress adopting policy priorities and the countries with whom we will negotiate. It’s clear that this is not what has happened.  . . .

For example, we are concerned that Vietnam has been chosen as a trade partner. In Vietnam which has a population of 90 million people, the minimum wage is $0.28 per hour and the average wage is $0.75 an hour. There is no right to free association or expression. Our own Department of Labor has placed garments made in Vietnam on the federal “Do Not Procure” list for documented use of forced child labor in apparel production.  Vietnam’s extremely low wages, non-existent workers’ rights, and extensive roster of human rights violations will only further exacerbate the already strong downward pressure on U.S. wages.  We should not enter into trade agreements with countries with such records. . . .

Shouldn’t this proposition of including countries with such abysmal records like Vietnams be debated? Shouldn’t the U.S. Congress determine if that approach is appropriate? Shouldn’t the US Trade Representative further consult with Congress as negotiations progress?  . . . .”

 

For more details, see also video on CWA website http://action.cwa-union.org/c/1372/p/dia/action3/common/public/?action_KEY=7357

Yet at the same time, Senator Portman of Ohio, who was formerly USTR under President Bush, noted at the Senate Finance hearing that in terms of exports, in ranking of countries the US rates just above Ethiopia and that 40% of US exports were to countries that had signed trade agreements with the US.

After the hearing, Republicans, including House Speaker Boehner, and free trade Democrats urged President Obama to get more involved saying that the President has to become personally involved in pushing the TPA or the new Bill will simply not pass Congress.  As mentioned, in the House, President Obama faces the problem that not one Democratic Congressman is willing to co-sponsor a TPA Bill.

On January 16th, there were also reports that Congressional Democrats were very upset about the draft environmental provisions of the TPP that had been leaked by Wikileaks.  The draft environmental chapter of the TPP agreement and a report by negotiators from the 12 countries involved in the talks, show that the pact would fall short in enforcing the higher environmental standards of other recent U.S. trade deals. Those pacts threaten sanctions against trading partners that violate international agreements to protect endangered species, prevent overfishing and regulate chemicals that deplete the ozone layer.

Immediately, Sen. Bob Casey (D-Pa.), a member of the Senate Finance Committee, which oversees Trade, stated ““It’s of grave concern. It’s as if our negotiators, decade after decade, have to walk into the door and … say, ‘Yes, we have concerns about leveling the playing field on labor and environment protections,’ but by the end of it, we say, don’t worry about it.”

Although the United States is pushing for robust environmental provisions, apparently the 11 other countries are all opposed to more strict environmental standards.  The inability of the U.S. to secure its key environmental demands made it even more difficult for the TPA bill.

According to Rep. Rosa DeLauro (D-Conn.),” As more information about the Trans-Pacific Partnership being negotiated in secret is revealed, the more the public can see how clearly this potential agreement, which is unprecedented in scope, would not only lead to the outsourcing of jobs, but also harm American consumers and the environment.”   All of this did little to help Obama persuade liberal Democrats on the TPA Bill

On January 17, 2013, it was reported that progressive advocacy groups were ramping up efforts to oppose the TPP and TPA legislation urging their members to push their representatives in Congress to fight the trade policies.

The progressive-leaning Democracy for America sent an email to its members saying they should call their local congressional representatives and urge them to vote down a proposal that would grant trade promotion, or “fast-track,” authority to the Obama administration.

On Monday, January 27th, 550 labor, environmental and consumer advocacy groups, including the United Autoworkers, which provided President Obama critical support on previous trade pacts, such as the South Korea FTA, sent a letter to Congress urging them to reject the fast-track bill.

The email campaign comes two days after a dozen Senators, comprised of 11 Democrats and Sen. Bernie Sanders, an independent from Vermont, wrote to Senate Majority Leader Harry Reid, D-Nev., expressing “deep concern” over the chance that trade promotion authority would be renewed.

JANUARY 28 — STATE OF THE UNION

In response to the Republicans call in Congress for the Administration to do more regarding the TPA bill, President Obama responded in his State of the Union pushing the TPA bill and TPP and the TA Agreements.  President Obama stated:

“We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA”.  Look China and Europe aren’t standing on the sidelines.  Neither should we.”

What was very interesting about this point is that in contrast to almost every other point made in the State of the Union, when President Obama spoke about Trade, the Republicans cheered, but the Democrats in President Obama’s own party were silent.

JANUARY 29TH—THE DAY FREE TRADE MAY HAVE DIED

But the next day, Senator Harry Reid, the Senate Majority Leader, the head Democrat in the Senate, came out against TPA, stating:

“Everyone knows how I feel about this.  Senator Baucus knows.  Senator Wyden knows.  The White House knows.  Everyone would be well-advised to not push this right now.”

As Majority Leader, Senator Harry Reid controls the bills that are allowed on the Senate Floor.  With Senator Harry Reid’s opposition, the TPA bill is dead in the Congress, which means that the President’s trade agenda and his push for these agreements are also dead.  In an ironic point, this situation will probably only change if the Republicans take over the Senate in 2014.

The lawmakers opposed to the TPA Bill argue that in light of the top secret nature of the negotiations, multiparty trade deals go far beyond the scope of the smaller, typically single-nation trade accords that were done in the past.  These new multinational deals affect larger portions of the U.S. and global economies and touch on many policies under Congressional jurisdiction.  Congress, therefore, should have a greater say on trade deals beyond the ability to accept or reject them.

On January 29, 2014, David Bonior, a former Michigan Congressman, who voted for NAFTA, in an article entitled Obama’s Free-Trade Conundrum stated:

 

“But Mr. Obama’s desire for fast-track authority on the T.P.P. and other agreements clashes with another priority in his speech: reducing income inequality.

This month is the 20th anniversary of the North American Free Trade Agreement, which significantly eliminated tariffs and other trade barriers across the continent and has been used as a model for the T.P.P.  Anyone looking for evidence on what this new agreement will do to income inequality in America needs to consider Nafta’s 20-year record. . . .

The result is downward pressure on middle-class wages as manufacturing workers are forced to compete with imports made by poorly paid workers abroad. . . .The shift in employment from high-paying manufacturing jobs to low paying service jobs has contributed to overall wage stagnation. The average American wage has grown less than 1 percent annually in real terms since Nafta, even as productivity grew three times faster. . . .

The Nafta data poses a significant challenge for President Obama. As he said on Tuesday, he wants to battle the plague of income inequality and he wants to expand the Nafta model with T.P.P.  But he cannot have it both ways.”

 

In response to Senator Reid’s statement, it was reported that Sen. John Cornyn  (R., Texas.) stated “You can kiss any new trade deals goodbye. . . I think the majority leader’s focus is on the November elections and he doesn’t want to expose his vulnerable members to controversial votes.”

The latest developments come amid growing skepticism in Japan about the U.S.’s commitment to free trade. “It’s up to the resolve of the U.S. government,” Japan’s economy minister, Akira Amari, told reporters in Tokyo. “If the president comes to the negotiating table with a strong enough determination to wrap it up by spring, other countries will follow suit.”

Sen. Chuck Schumer (D., N.Y.) stated “I think there’s a lot of dubiousness in our caucus to fast track, given that every time we sign a free-trade agreement it seems other countries violate the rules and we don’t”.

Unions opposing the trade deals were happy with the outcome.   According to Larry Cohen, head of the Communications Workers of America, “For those of us who want to have a progressive trade agenda, it means that we’re encouraged.”

On January 30th, House Speaker John Boehner spoke out against President Obama suggesting that he needs to push Senate Majority Leader Harry Reid to get the TPA bill through Congress.

On February 3rd, President Obama met with Senate Majority Leader Harry Reid but the President did not bring up the trade issue and made no effort at the meeting to change Senator Reid’s mind on the TPA bill.

On February 4th, it was reported that StopFastTrack.com, a new coalition opposed to the TPA bill and the TPP and TA Trade Agreements is building grassroots support, gathering more than a half a million signatures and making tens of thousands of calls to Senators and Congressmen lawmakers to argue against trade legislation in Congress.

According to the report, unions, environmental groups, and political organizations—working under the umbrella site —have nearly 600,000 supporters  and made more than 40,000 phone calls to Congress, opposing the trade measures.

Another political organization, Democracy for America, has obtained 125,000 electronic signatures on a petition requesting that Nancy Pelosi, top House Democrat, follow Senator Reid’s lead and stop the TPA bill in the House.

Many trade experts believe that Senate Majority Leader Harry Reid’s decision not to bring the TPA bill to the Senate Floor casts substantial doubt over the negotiations for the TPP and the TA deals.  Most commentators are stating that all these Agreements are at risk right now.

White House press secretary Jay Carney stated on Wednesday, January 29th,

“Leader Reid has always been clear on his position on this particular issue.  As the President said in the State of the Union address, he will continue to work to enact bipartisan trade promotion authority to protect our workers and environment and to open markets to new goods stamped ‘Made in the U.S.A.’ And we will not cede this important opportunity for American workers and businesses to our competitors.”

Harry Reid’s decision could be a critical tipping point in US trade policy as the US becomes more and more protectionist.  It took a President Bill Clinton with his tremendous political ability to persuade Democratic Senators and Congressmen “to do the right thing” on NAFTA and enact it into law.  But President Obama is not Bill Clinton.

DOHA ROUND-BALI

As mentioned in the last newsletter, much to the surprise of many Government officials and companies, in December the WTO round in Bali resulted in all the WTO countries agreeing to Trade Facilitation Agreement to modernize customs procedures, as well as provisions on agriculture and economic development.  If there had been no Agreement in Bali, it could very well have meant the end of the multilateral effort to lower trade barriers through negotiations.

On January 7, 2014 WTO Director-General Roberto Azevedo stated:

“Just six weeks ago, the fate of the multilateral trading system hung in the balance. Today, we can talk with confidence about how we can continue to develop and strengthen the system for the future.”

According to Azevedo, the Bali Trade Facilitation Agreement could possibly add as much as $1 trillion to the world’s economy each year.

The question now is what happens in the future.  Most experts believe that the WTO members will in the short term pursue agreements that affect only certain sectors or include only some countries.  Thus, there will probably be sector-by-sector trade negotiations at the WTO.

Agreements affecting trade of environmental goods and services might be one of the likely near-term targets.  But the Trade Facilitation Agreement still must be implemented as the details have to be ironed out, including Customs procedures in developing countries and other issues.  Implementation also means the Agreement must go through Congress and without TPA, it will be difficult for Bali Agreement to get through Congress.

Azevedo himself realizes the problems stating, “The task of strengthening the multilateral system and moving towards delivering on the[Doha Development Agenda] will be difficult, but it is not impossible.”

SOLAR PRODUCTS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN–QUANTITY AND VALUE QUESTIONNAIRE DUE FEBRUARY 13TH AT COMMERCE

Commerce has issued a quantity and value questionnaire in the new Solar Products/Modules/Panels antidumping case/initial investigation against China.  The deadline for the response to the Quantity and Value Questionnaire is February 13, 2014.

Attached are the quantity and value questionnaire and the fact sheet that was issued by Commerce. factsheet-multiple-solar-products-initiation-012313   prc-qv-solar-products-012714

The quantity and value questionnaire requires the Chinese exporter to report all sales during the period April 1, 2013 to September 30, 2013.  Specifically, Commerce is requiring the Chinese exporter to report the total number of modules, panels or laminates during that period, the total number of megawatts, the terms of sale and the total value of sales.

A Chinese exporter/producer must submit a response to this quantity and value questionnaire by February 13th.  If not, it will receive the highest dumping rate of 165%.

SOLAR CELLS REVIEW INVESTIGATION

To further complicate the Solar case, on February 3rd Commerce published in the attached Federal Register notice initiating the first Solar Cells review investigation.  This case will cover imports of Chinese solar cells during the review period.

So to be clear, the Solar Cells Review Investigation covers Chinese solar cells.  The Solar Products new investigation covers imports of Chinese modules and panels with Taiwan and other solar cells in them.

For the first Solar Cells Review Investigation, attached are the notice, in which many Chinese companies are named, and the Quantity and Value questionnaire.  Solar Cells AD CVD Initiation Notice 1st Review (2) SOLAR CELLS REVIEW QV Chinese companies named in the Solar Cells Review investigation need to file the QV questionnaire response on February 19th .   Chinese companies also need to file separate rate applications or certifications on or before April 4, 2014 at Commerce in first review investigation to keep their separate rate from the Solar Cells initial investigation.  Failure to file these documents meand that imports of Chinese solar cells will be assessed a rate of 250%.

Solar Trade problems with China are getting complicated.

SOLAR PRODUCTS INITIAL INVESTIGATION

As mentioned in my last post, on December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan.

On January 23rd, the Commerce Department initiated the Solar Products cases against China and Taiwan, but it made some changes.  The Scope of the Merchandise, the specific products covered by the new antidumping and countervailing duty investigations, are described in the attached notice and petition:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

See the injury petition in my last post on this blog.

In the subsequent Commerce Department initiation notice, which is attached, however, in contrast to the petition, solar consumer products are specifically excluded:

“Also excluded from the scope of this investigation are crystalline silicon photovoltaic cells, not exceeding 10,000mm2 in surface area, that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion shall be the total combined surface area of all cells that are integrated into the consumer good.”

Initiation Notice – Certain Crystalline Silicon Photovoltaic Products 1-24-14

In addition, Commerce reduced the All Others/Facts available rate in the China case from 298% to 165%, but raised the antidumping rate for Taiwan to 75.68% from 39%.  The trade volume is large.  According to Commerce, imports of the subject merchandise from China and Taiwan were valued at $2.1 billion and $513.5 million, respectively.

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days, when the Commerce Department’s preliminary determinations are due on May 30, 2014 (CVD) and July 29, 2014 (AD).  Commerce Department investigations almost always are extended out to the full time.

Chinese companies also must submit their response to the quantity and value questionnaire by February 13th and be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 22nd, the day after the Government was closed, the ITC held a preliminary conference.  The Commission’s preliminary injury determination is due February 14th.

Meanwhile, many trade lawyers have come to the same conclusion that when the scope in the past case and the present case are combined, the only way for US importers to escape liability is to have the underlying solar cells, modules and panels all made outside of China and Taiwan.  In effect, the entire chain of production would have to occur outside of China and Taiwan, which will have the effect of driving up the cost of business for major segments of the U.S. solar industry that need solar components, such as utility-scale solar project developers, rooftop solar companies and public utilities.

The Solar Energy Industries Association (SEIA) has announced that it is opposed to the case, calling it an “escalation” of the U.S.-China solar trade conflict.  Experts also stated that the duties could cripple the end user portion of the solar Industry, which is far larger than the domestic production industry.  As the SEIA stated, “From past experiences, we have learned that a conflict within one segment of the solar industry ripples across the entire solar supply chain.”

The market pressure driving solar prices downward is not caused by dumping, but the industry’s efforts to achieve so-called grid parity, where the price for solar power is comparable to that for traditional-source power.  But prices for US oil and natural gas are falling fast.  With falling costs for traditional forms of energy, it is very difficult for solar energy to be competitive.

The effect of this case, however, will be to drive up the costs of solar products,

Although the SEIA and some members of Congress have called for a settlement of the solar trade dispute, Solar World has expressed skepticism about such a deal, making it more difficult to conclude a government to government deal settling the case.  As mentioned in a prior post, there is no public interest standard in US antidumping and countervailing duty law, as compared to EC, Canada and China.  Also End Users have no standing in US antidumping and countervailing duty cases.  Thus it is difficult for the US Government to pressure Solar World to drop its case.

Meanwhile, as indicated below, the Chinese government has retaliated by finalizing antidumping and countervailing duties on imports of polysilicon from the US, shutting all US produced polysilicon, close to $2 billion, out of China.  Since last year U.S. polysilicon exporters have faced preliminary CVD duties in China of 6.5 percent, and AD duties of 53.3 to 57 percent and those duties are now final.

On January 26th, MOFCOM announced that it was delaying these duties for the moment and on January 30th called for negotiations over the Solar Cells/Products Antidumping and Countervailing duty cases stating:

 

“The two parties should follow the trend and make efforts to promote cooperation proceeding from the overall interests of clean energy development, so as to ensure the steady development, rather than restricting competition and cooperation by frequently taking trade remedy measures. It is proved that, that U.S. initiated investigations and levy high anti-dumping and countervailing duties in 2011 not only failed to change the situation of poor operation and lacking of competitiveness of its domestic industries, resulting in significant negative impacts on downstream industries including the assembly industry and services sector, but also triggered a worldwide chain reaction of trade disputes on PV products, which caused chaos in the whole industry.  . . .”

 

See attached statement MOFCOM STATEMENT

CURTAIN WALL UNITS ARE COVERED BY THE ALUMINUM EXTRUSIONS CASE

On January 30, 2014, in Shenyang Yuanda Aluminum Industry Engineering Co. v. United States, Judge Eaton in the Court of International Trade affirmed the Commerce Department’s determination that Curtain Wall Units, the sides of buildings, are with the scope of the AD and CVD orders on aluminum extrusions from China.  The Court stated in part;

“Because curtain wall units are “parts for” a finished curtain wall, the court’s primary holding is that curtain wall units and other parts of curtain wall systems fall within the scope of the Orders.”

See the attached decision.  SHENYANG YUANDA

As a result of the Court’s and the Commerce Department’s determination, the sides of buildings from China are now covered by US antidumping and countervailing duty orders with duties as high as over 100 to 300% for certain imports.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA

WIRE ROD

On January 31, 2014, a new antidumping and countervailing duty case was filed against carbon steel wire rod from China.  See notice below.

Docket No: 3000

Document Type: 701 & 731 Petition

Filed By: Kathleen Cannon

Firm/Org: Kelley Drye & Warren LLP

Behalf Of: ArceloMittal USA LLC, Charter Steel, Evraz Rocky Mountain Steel, Gerdau Ameristeel US Inc., and Keystone Consolidated Industries Inc, and Nucor Corporation.

Date Received: January 31, 2014

Confidential: Yes

Commodity: Carbon and Certain Alloy Steel Wire Rod

Country: People’s Republic of China

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of countervailing and antidumping duties on Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China.

Status: 701-TA-512 & 731-TA-1248

ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS

In February Chinese producers and exporters, US importers and US producers have the opportunity to request an antidumping and/or countervailing duty review investigation of certain outstanding AD and CVD orders by filing a review request at Commerce by the last day of February for the following cases against China :

Period of review ————————————————————————              Antidumping Duty Proceedings

The People’s Republic of China:

Certain Preserved Mushrooms, A-570-851………..     2/1/13-1/31/14

Folding Metal Tables and Chairs \2\, A-570-868…     6/1/12-11/5/12

Frozen Warmwater Shrimp, A-570-893……………     2/1/13-1/31/14

Heavy Forged Hand Tools, With or Without Handles,     2/1/13-1/31/14      A-570-803…………………………………

Small Diameter Graphite Electrodes, A-570-929….     2/1/13-1/31/14

Uncovered Innerspring Units, A-570-928………..     2/1/13-1/31/14

Utility Scale Wind Towers, A-570-981………….    2/13/13-1/31/13

Countervailing Duty Proceedings

The People’s Republic of China:

Utility Scale Wind      2/13/13-12/31/13  Towers, C-570-982.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

As mentioned in prior posts, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.

On September 18, 2013, ten US Importers agreed to form the Import Alliance for America. The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

We will be targeting two major issues—Working for market economy treatment for China in 2016 as provided in the US China WTO Agreement and working against retroactive liability for US importers. The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases.

The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

In forthcoming posts we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

CHINESE ANTIDUMPING CASE

POLYSILICON

On January 20, 2014, China issued final antidumping and countervailing duties against solar-grade polysilicon imported from the U.S.  Under the Chinese polysilicon antidumping duty order, US companies face dumping rates ranging from 53% to 57%.  On the Countervailing Duty side, US companies face rates from 0 to 2.1%.

On January 26, 2014, MOFCOM announced that given “the special market conditions” it has decided not to carry out antidumping and anti-subsidy measures for the moment.  Apparently, MOFCOM is hoping for a negotiated suspension agreement in the new Solar Products case.

FDA—FOOD PROBLEMS

CHINESE CHICKEN

On December 19, 2013, fourteen Congressmen circulated a letter in Congress asking their Congressional colleagues to ensure Chinese-processed chicken is kept out of the school lunch and other child nutrition programs. The letter also states that chicken slaughtered in China should be banned from the US market.  The letter states:

“It is because we are deeply concerned about the safety of the food served to the American people, especially our children, that we write to express our serious apprehension about the Food Safety and Inspection Service (FSIS) recent decision to allow China to process chicken raised in the United States, as well as Canada and Chile, to then export to the United States. Furthermore, we believe FSIS is likely to eventually allow China to export its own raw poultry to the United States.”

CHINA CHICKEN PROBLEM CONG LETTER

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

On December 5th, the Washington State Government reported that on December 3rd the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Washington, Oregon, and northern California. China reported a shipment of geoduck clams tested high in paralytic shellfish poison (PSP) and arsenic.  See my past post on this blog for more on this fight and the attached announcement.

The ban has already devastated shellfish growers in Washington, Alaska, Oregon and Northern California.  It also affects clams, oysters and other shellfish from U.S. waters.

China is the world’s largest importer of geoducks (pronounced “gooey duck”), with more than half of all the harvest from Washington, British Columbia and Alaska getting shipped to China. With China cut off, there are few places for the harvest to go.

Test results showed that, on average, arsenic was present in the geoduck bodies at a level of 0.327 parts per million (ppm), which falls below China’s legal limit of 0.5 ppm. Arsenic in the actual meat of the geoducks registered at 0.063 ppm, eight times lower than the limit.

On January 9th it was reported that Laboratory tests on Washington State’s exports of geoduck clams, found no evidence of unsafe or excessive levels of arsenic.  Although the test results have been sent to China, to date they have not yet received a response, and the ban remains in place.

The problem, however, arises from US export forms for the geoduck shipment.  The form does not allow for more specificity in identifying the source from which the shellfish were harvested.  While the problem shipments of shellfish came from isolated areas in Washington and Alaska, “Area 67″ encompasses all the coastal regions from Northern California through Alaska’s Pacific Coast. As a result, Chinese authorities were forced to ban shellfish from all of Area 67.

National shellfish programs provide forms that set forth specific shippers and harvest locations, which allow the governmental authorities to easily trace shipments back to specific shippers and harvest locations. If there’s a contamination problem domestically, shellfish growers can easily isolate the problem instead of shutting down the entire industry.

The World Health Organization is said to be considering setting safe levels for
inorganic arsenic in food in the .2-.3 ppm range in 2014. The Washington geoduck claims that tested high for inorganic arsenic in China, however, were harvested from a tract of land managed by the Department of Natural Resources that has since been closed. The tract is within the shadow of a copper smelter that was operated near Tacoma for 100 years.   According to Marian Abbett, manager of the Tacoma smelter clean up for the Washington Department of Ecology, “Well we know that arsenic levels are elevated in the surface soils in that area.  Soil samples from the surrounding land show levels of arsenic between 40 and 200 ppm, though that number does not directly equate to levels of arsenic that will end up in the water, or in shellfish.”

The area was closed to all shellfish harvest until 2007, when the Puyallup Tribe petitioned state agencies to reopen the tract for geoduck harvest. At that time the Department of Health conducted tests on geoduck in the area and found levels of .05 ppm. That’s an order of magnitude below the amount found by the Chinese in October of 2013 and well within the safety parameters set by the Chinese.

However, state agencies have not tested for inorganic arsenic or other metals in shellfish from the area since it was reopened in 2007.

Arsenic is a carcinogen that has also been associated with long-term respiratory effects, disruption of immune system function, cardiovascular effects, diabetes and neurodevelopmental problems in kids.

“There’s no safe level, but at some point you’ve crossed the threshold to being really dangerous and we don’t quite know where that threshold is at this point,” Cottingham said.

But the ban is having a real effect on fishermen in Washington State.  Ninety percent of the geoduck harvested in Washington is sold to China and Hong Kong.

The clams can fetch up to $150 per pound in China, but today the Suquamish tribe is losing $20,000 each day that the ban is in place, but the impacts of the ban are being felt well beyond the reservation. John Jones, another Suquamish diver, stated, “My brothers are from Port Gamble and they’re out of work.  They shut down diving everywhere, not just for us but for the state.”

Although British Columbia in Canada is not affected, the Chinese ban impacts all shellfish throughout Puget Sound, Alaska, Oregon and Northern California.  The shellfish industry in Washington is worth $270 million annually, and China is the biggest market for exports.

This is the broadest shellfish ban China has ever put in place, but it’s not the first time China has banned a major import from the U.S.  Beef imports from the U.S. have been banned for the past ten years. More recently, China rejected about half a million tons of U.S. corn because it contained a genetically modified strain.

Chinese officials have been slow to reveal details of their shellfish testing methods. That’s prompted some to raise concerns about political motivations behind the shellfish ban.

Although there is a possibility that the Chinese are retaliating for past problems with food imports in the US, there is strong evidence that the Chinese have a legitimate problem.  The contaminated geoduck clams were harvested near the former site of a copper smelter in Tacoma, which had leached arsenic into the surrounding area.

Again Chinese problems with US shellfish must be kept in context.  As indicated above, US Congressmen want to ban all chicken processed in China.  Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

Trade is a two way street and what goes around comes around.

PATENT/IP AND 337 CASES

INTERDIGITAL SETTLES 337 PATENT CASE WITH HUAWEI

On January 2, 2014, InterDigital Communications Inc. and Huawei Technologies filed a confidential settlement of their 337 patent case over 3G and 4G wireless devices.  Huawei’s antitrust strategy seems to have worked.

CHINESE COMPANY LOOSES 337 RESINS TRADE SECRET CASE

On January 15, 2014, in Certain Rubber Resins and Processes for Manufacturing Same, Investigation No. 337-TA-849, the U.S. International Trade Commission (“ITC”) determined that there was a violation of section 337, 19 USC 1337, because a Chinese chemical maker and other companies had stolen trade secrets covering the recipe for rubber resins held by New York company, Sl Group Inc.  The Commission issued a limited exclusion order for 10-years excluding infringing imports of the Chinese resins into the United States from Sino Legend (Zhangjiagang) Chemical Co. Ltd. and the other named respondent companies in the case.

According to the 337 complaint, although SL Group had closely guarded the formula and the equipment used to create the resin, the manager of Sl Group’s Shanghai chemical plant defected to Sino Legend in 2007 and took the design with him.

The ITC’s ruling is directly contrary to the ruling of a Chinese court, which reached the opposite conclusion and found that there was no misappropriation.  After acquiring the trade secret, Sino Legend has been able to take over about 70% of the Chinese market for the rubber resins in question, which are used in tire production.

In response to the ruling, Sino Legend has stated that the Commission’s ruling will not substantially affect its business because the ITC’s ruling will allow its customers to use all Sino Legend resins in any of their non-U.S. production facilities, and then import those products into the U.S. without restriction.

DUPONT TRADE SECRETS CASE — TITANIUM DIOXIDE

In an ongoing criminal trial in California this month, prosecutors described how an ex-DuPont engineer and two conspirators stole DuPont trade secrets regarding a specific process to produce very high quality titanium dioxide, and sold the designs to Chinese state owned companies earning $28 million.

Chinese-American Walter Liew and his wife, Christina, founded multiple companies in Northern California and hired as a consultant ex-DuPont engineer Robert Maegerle, who knew the process of safely producing massive amounts of titanium dioxide.  Maegerle allegedly shared what he learned building plants for DuPont with the Liews, who used the information to negotiate contracts with Chinese companies, including Pangang Group Co., to build titanium-dioxide-making factories in China. However, both Maegerle and Walter Liew knew Dupont had patented that information and it was confidential.

Titanium dioxide is a white pigment used in everything from iPhone cases to toothpaste.  But it is hot, dirty and dangerous and DuPont figured out a way to make the product commercially viable.  According to the prosecutor, that process is what the Chinese companies wanted.

Maegerle is charged with trade-secrets theft, conspiracy and obstruction of justice.  Christina Liew faces charges of economic espionage, trade-secret theft, and tampering with witnesses and evidence in a separate trial.

Lawyers for the defendants argued that they did not copy DuPont’s factory plans verbatim, but used them as the basis to design around and develop their own production techniques for producing titanium dioxide.

Later in the trial, however, a government expert testified that Dupont fiercely guarded its trade secrets for making high-quality titanium dioxide and that the trade secrets made Dupont the envy of the industry.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI, ZTE, AND OTHER COMPANIES

On December 31, 2013, Laserdynamics filed a patent case against Haier. HAIER PATENT CASE

On January 7, 2014, Bluebonnet Telecommunications filed patent cases against ZTE and Huawei. BLUEBONNETZTE HUAWEI BLUEBONNET

On January 7, 2014, Toyo Tire and Rubber filed a patent case against South China Tire and Rubber Co. TOYO TIRE CASE

On January 10, 2014, Personal Audio filed a patent case against Huawei and ZTE. PERSONAL AUDIO HUAWEI ZTE

On January 10, 2014, Thomas & Betts filed a trademark, unfair competition, case against Zhejiang Shengyu City Fengfan Electrical Fittings Co. TRADEMARK WRENCH ZHEJIANG

On January 13, 2014, Laerdahl Medical filed a patent case against Shanghai Honglian Medical Instrument Development Co. SHANGHAI MEDICAL

On January 13, 2014, ICON Health and Fitness filed a trademark case against Zhongshan Camry Electronics Co. ZHONGSHAN TRADEMARK

On January 14, 2014, Kee Action Sports filed a patent case against Shyang Huei Industrial Co., a Taiwan company. TAIWAN SUN

On January 14, 2014 Toyo Tire and Rubber filed a patent case against Hong Kong Tri-Ace Tire Co and Doublestar Dong Feng Tyre Co. TOYO DONG FENG

On January 16, 2014, Touchscreen Gestures filed patent cases against Huawei and ZTE. TOUCHSCREEN ZTE TOUCHSCREEN HUAWEI

On January 29, 2014, Standard Fiber filed a trade secret case against Shanghai Tianan Home Co, Teetex, LLC, and Anwen “Alvin” Li. SHANGHAI TRADE SECRET

Complaints are posted above.

ANTITRUST

VITAMIN C CASE

As mentioned in my last post, the Vitamin C antitrust case against Chinese Vitamin C companies is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  In addition, the judgment has increased by $4 million, specifically $4,093,163.35, to $158 million, specifically $158,203,163.35, to pay the Plaintiffs’ legal fees. FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment and has also switched US law firms and hired new counsel.

JUSTICE IS GETTING TOUGHER ON INTERNATIONAL CARTELS DEMANDING JAIL TIME FOR FOREIGN EXECUTIVES

There are reports that in 2013 and now 2014 the Justice Department has ramped up its enforcement in international cartels/price fixing antitrust cases looking for more prison sentences for foreign executives involved in these cartels.

On January 30th, Bill Baer, the Assistant Attorney General for the Antitrust Division gave the attached speech to the New York State Bar Association in which he described in detail international antitrust enforcement, including increased enforcement of antitrust cases against international cartels, and the DOJ’s increased cooperation with Chinese antitrust authorities.  BILL BAER DOJ STATEMENT ANTITRUST ENFORCEMENT The Assistant Attorney General stated:

 

“With those preliminary observations in mind, let me focus on the progress antitrust enforcement has made these last five years. President Obama promised during his first campaign that his administration would vigorously enforce the antitrust laws.  He pledged to “step up review of merger activity,” “take aggressive action to curb the growth of international cartels,” and ‘ensure that the benefits of competition are fully realized by consumers.’

“I think the record shows the Antitrust Division has followed through on the President’s pledge. Criminal enforcement provides an excellent starting point. We continue to vigorously pursue and prosecute international and domestic cartels. Since January 2009, we have filed 339 criminal cases, a more than 60 percent increase over the prior five years. We secured $4.2 billion in criminal fines in that period. . . .

Effective cartel enforcement requires holding accountable both corporations and the senior executives who orchestrate their unlawful conduct. We have charged 109 corporations with criminal antitrust violations since 2009. We have ensured that those corporations have paid appropriate—and stiff—criminal fines, and those 109 corporations together have paid the highest five-year fine total in division history. The division also charged 311 individuals with antitrust crimes during the past five years.

Experience teaches that the threat of prison time is the most effective deterrent against criminal antitrust violations. We seek sentences commensurate with the economic harm caused by the perpetrators. The statistics show that the courts are embracing the effort to hold company executives accountable for their bad behavior. The average prison sentence in our cases has increased from 20 months in the period 2000-09 to 25 months during the years 2010-2013. Of course, we can never know for certain the full deterrent effect of our enforcement efforts. But we do know that self-reporting under our leniency program remains at high levels and that, increasingly, non-U.S. companies are reporting anticompetitive behavior. They are responding to the fact we are prosecuting off-shore conduct with a U.S. impact. In recent years the number of foreign nationals sentenced to U.S. incarceration has increased threefold. The message should be clear: the division will vigorously and successfully prosecute international cartel behavior that harms U.S. consumers regardless of where that conduct takes place. . . .

The division has brought criminal cases in a range of industries over the past several years. One of our most significant ongoing investigations involves the auto parts industry. We are prosecuting price fixing and bid rigging involving a number of parts that were installed in cars sold in the U.S., including wire harnesses, instrument panel clusters, and seatbelts.  . . .

To date, we have charged 24 companies and 26 executives with participating in multiple international conspiracies, and those numbers are sure to grow as the investigation continues.   These charges have resulted in $1.8 billion in criminal fines, including the third-largest criminal antitrust fine ever.   Of the 26 executives charged so far, 20 have been sentenced to serve time in U.S. prisons or have entered into plea agreements requiring significant sentences.

During the past several years, the division also prosecuted international price-fixing conspiracies involving liquid crystal display panels. These conspiracies hurt U.S. consumers by dramatically inflating prices for computer monitors, notebook computers, and televisions, among other products. In 2012, the division secured convictions of Taiwan-based AU Optronics, its subsidiary, AU Optronics Corp. America, and three former top executives for their participation in such a conspiracy.   The trial against AU Optronics was the first time the division proceeded under the alternative fine statute, 18 U.S.C. § 1571, which allows for fines up to two times the gain or loss resulting from the conduct. The division proved beyond a reasonable doubt to the jury that the combined gains to the participants in the conspiracy were $500 million or more and that the defendants’ conduct accordingly merited a fine exceeding the Sherman Act’s $100 million maximum.   . . .

There is more to come.  . . . There can be little doubt that the division vigorously prosecutes wrongdoers. . . .

During the Obama administration U.S. enforcers have broken new ground in relations with China and India. In the past few years, the division and the FTC have entered into Memoranda of Understanding (MOU) with the Chinese and Indian enforcement agencies.  These MOUs have led to annual bi-lateral meetings between the U.S. antitrust enforcement agencies and agencies from these nations.  Indeed, earlier this month, I attended with Chairwoman Ramirez a bi-lateral meeting with the Chinese authorities in Beijing. We see candid engagement with the Chinese and Indian agencies as important, and we look forward to increased cooperation in the coming years.

Cooperation also plays an important role in our international criminal cartel investigations. Working with competition enforcers in non-U.S. jurisdictions, we share information where we are able; and we can plan coordinated raids around the world, reducing the opportunity for key evidence to go missing or be destroyed. . . .”

 

When foreign corporate executives are found to be guilty of engaging in a cartel to set prices, this is considered a crime of moral turpitude and the foreign executive is barred from entering the US for a minimum of 15 years.  Under a memorandum of understanding between Justice and Immigration and Naturalization Services (“INS”), now Immigration and Customs Enforcement (“ICE”), if the foreign executive pleads guilty and cooperates with authorities, that executive can be exempted from the 15 year exclusion and continue to enter the US.  Antitrust criminal defense attorneys have argued that this exemption is unfair because it places unfair pressure on the foreign executive to forgo their right to trial.

On January 24, 2014, in response to questions from Congress on this issue, Assistant Attorney General Baer stated in the attached response:

 

“In general, moral turpitude has been held to be conduct that is inherently dishonest and contrary to accepted rules of morality and the duties owed between persons or to society in general. Tax fraud, mail fraud, securities fraud, and theft offenses, for example, have been held to be crimes of moral turpitude. Similarly, price-fixing, bid-rigging, and market allocation agreements among companies that hold themselves out to the public as competitors are inherently deceptive and defraud consumers who expect the benefits of competition. Thus, the division’s Memorandum of Understanding (“MOU”) with INS states that INS, now the Department of Homeland Security as successor to INS, considers criminal antitrust offenses to be crimes involving moral turpitude, which may subject an alien defendant to exclusion or deportation.

However, an alien defendant who is convicted of an antitrust offense at trial retains the ability to contest his removability from the United States.

In today’s global marketplace, many culpable executives involved in international cartels affecting U.S. consumers and commerce are foreign nationals. They may live and work outside the U.S., but their cartel conduct affects billions of dollars of U.S. commerce yearly and takes money out of consumers’ pockets. The MOU was drafted in order to allow the Antitrust Division to secure jurisdiction over and cooperation of these foreign nationals in the division’s investigations and prosecutions of international cartels and to hold these foreign nationals accountable for antitrust crimes, just as domestic defendants are held accountable.

The cooperation of defendants receiving immigration relief under the MOU is critical to the division’s ability to investigate and prosecute international cartel activity. A foreign defendant’s willingness to cooperate with the division provides the basis for the waiver of inadmissibility under the MOU, and fulfilling the continuing cooperation requirements with the division is a condition of a defendant’s retention of the waiver. Having cooperating witnesses from multiple companies is essential to fully investigate cartels and to hold responsible individuals at each corporate conspirator accountable.

Moreover, having defendants who have pleaded guilty is important at Antitrust Division trials. Extending the MOU waiver to noncooperating defendants would undermine the incentives provided by the MOU and be unjust to those foreign nationals who are willing to accept responsibility for their criminal conduct, submit to U.S. jurisdiction, cooperate with the division, and serve time in U.S. prison. It would also be unworkable to require pleading foreign defendants to continue their cooperation to maintain the waiver while at the same time giving the MOU waiver to non-pleading defendants who have not accepted responsibility and fully cooperated with the division.”

BAER STATEMENTS TO CONGRESS

CHINA ANTITRUST CASES

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from the NDRC.  China’s National Development and Reform Commission (NDRC) is becoming an increasingly aggressive regulator and is focusing on information technology providers, especially companies that license patent technology for mobile devices and networks.

Apparently, the NDRC is trying to lower domestic costs as China rolls out its faster 4G mobile networks this year.  US -based Qualcomm is scheduled to obtain the vast majority of licensing fees for the chip sets used by handsets in China, the world’s biggest smartphone market in the World.

Under the Chinese antimonopoly law, the NDRC can impose fines of between 1 and 10 percent of a company’s revenues for the previous year.  Qualcomm reportedly earned $12.3 billion in China for its fiscal year ended September 29, or nearly half of its global sales.

Qualcomm is no stranger to substantial fines.  In 2009, South Korea’s Fair Trade Commission fined the company 273 billion won ($252 million), the highest Korean penalty ever against a single company, for abusing its dominant position in CDMA modem chips which were then used in handsets manufactured in Korea.

SECURITIES

SEC DROPS CHINESE AUDIT CASE AGAINST DELOITTE

On January 27th the SEC told the Federal Court that it was dropping its case against Deloitte for failure to turn over audit documents of a Chinese technology company.  The SEC stated that Deloitte was supplying the audit papers to the China Securities Regulatory Commission, which, in turn, was supplying the records to the SEC.

The dismissal of the case, however, will not affect a separate SEC action against the Chinese offices of the Big Four accounting firms for refusing to reveal client documents to the SEC.  An SEC administrative law judge recently ruled that the China based offices are barred from auditing companies that do business in the U.S.

JURY CLEARS CHINESE INVESTMENT ADVISOR SIMING YANG

On January 13th, a jury in the Federal District Court found Chinese investment adviser Siming Yang not guilty on insider trading claims brought by the U.S. Securities and Exchange Commission (“SEC”), but did find Yang guilty for other violations, including making false disclosures to the regulator.

FOREIGN CORRUPT PRACTICE ACT–CORRUPTION ISSUES IN CHINA FOR FOREIGN COMPANIES

On February 4th, Carl Hinze in Dorsey’s Shanghai office published the attached article “Doing business in and with China: Battling a corruption culture by building a compliance culture”.

HINZE ARTICLE FCPA

COMPLAINTS

On January 10, 2014, Deborah Donoghue filed the attached securities case against Secure alert, Short Swing Profits, which are all owned by Sapinda Asia and Lars Windhorst, a Hong Kong Company, for short swing profits. SAPINDA HK

If you have any questions about these cases or about the US trade, customs, 337, patent, US/China antitrust or securities law in general, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–REAGAN PREDICTED IT, TRADE, CUSTOMS, 337/PATENTS, US CHINA ANTITRUST, AND SECURITIES

Washington Monument After the Snow Washington DCJanuary 3, 2014

“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN , JUNE 28, 1986

Dear Friends,

There have been some major developments in the trade, Customs, patents, US/Chinese antitrust, and securities areas.

In looking at the first posts I wrote on my blog, they were relatively short, but with the US litigation against Chinese companies in the US and the Chinese litigation against US companies growing, the Posts will grow even larger.

As mentioned before, the US China Trade War is expanding into many different areas.  Trade and Customs were simply the first areas of attack.

PRESIDENT RONALD REAGAN PREDICTED TRADE WAR WITH CHINA

My intention was to upload this post to my blog by the end of December.  Unfortunately, did not make it, but while on Christmas break I was at the Ronald Reagan Center in Santa Barbara, California.

In October 1980, I joined the US International Trade Commission (“ITC”) as a staff attorney in the Office of General Counsel and later in the Chief Counsel’s office in the Commerce Department.  During that entire time, Ronald Reagan was President.  During that period, the ITC was also the most free trade Commission in its history as Reagan appointed Commissioner after Commissioner with strong free trade ideologies, such as Susan Liebeler, Anne Brunsdale, and Robert Cass.  From my observation, Ronald Reagan was the most free trade president in my lifetime.  Congress, however, does not like free traders.

While at the Santa Barbara Center, I listened to the attached speech by President Ronald Reagan on international trade and was amazed because he predicted with absolute accuracy the present state of trade relations with China.  REAGAN IT SPEECH  On June 28, 1986 from his California Ranch, President Reagan stated as follows:

 

“Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a  nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake.

That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flimflammery in American politics.

But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth. You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start.

We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Well, since World War II, the nations of the world showed they learned at least part of their lesson. They organized the General Agreement on Tariffs and Trade, or GATT, to promote free trade. It hasn’t all been easy going, however. Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it’s been very important for the United States to respond effectively, and our administration hasn’t hesitated to act quickly and decisively.

And in September, with more GATT talks coining up once again, it’s going to be very important for the United States to make clear our commitment that unfair foreign competition cannot be allowed to put American workers in businesses at an unfair disadvantage. But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it’s not funny. It’s tragic. Protectionism becomes destructionism; it costs jobs.”

 

Several thoughts come to mind when reading this speech.  When President Reagan speaks of a “protected industry” that  “is so listless and its competitive instincts so atrophied that it can’t stand up to the competition”, think the US Steel Industry, which has had antidumping and countervailing duty orders in place against steel imports for more than 40 years.  Is Bethlehem Steel alive today?  No, the orders did not work.

Second, President Reagan mentions the Smoot-Hawley Tariff Act.  The real name of that law is the Tariff Act of 1930, and where are the US antidumping and countervailing duty laws to be found—The Tariff Act of 1930.  Yes, many parts of the Smoot Hawley Tariff Act are alive today.

Finally President Reagan truly predicted the Trade War with China, including the Chinese reaction to the Solar Cells antidumping and countervailing duty cases and the other trade cases against China.  The Solar Cells cases against China has led to the Polysilicon antidumping and countervailing duty cases against the US, wiping out $2 billion in US exports to China.  The Section 421 Tires case described below led to Chinese antidumping and countervailing duty cases against automobiles and chicken from the US.

The Trade War with China truly has become a pie fight in the old Hollywood comedies– “Everything and everybody just gets messier and messier,” but the sad part is that it costs jobs.

TRADE

SOLAR CELLS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN

On December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan with alleged antidumping rates of 298%.

The antidumping and countervailing duty petition covers crystalline silicon photovoltaic products, including solar cells, modules and panels,  from China and Taiwan.  The specific products covered by the new antidumping and countervailing duty investigations are:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

“Also excluded from the scope of this investigation are any products covered by the existing antidumping and countervailing duty orders on crystalline silicon photovoltaic cells, whether or not assembled into modules, from the People’s Republic of China- case numbers A-570-979 and C-570-980.”

Attached is a copy of the injury petition.  AD CVD CASE SOLAR WORLD TAIWAN AND CHINA

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days.  Chinese companies also must be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 3, 2014, the US International Trade Commission issued the attached notice regarding the preliminary injury investigation in the new Solar Cells, Modules and Panels case against China and Taiwan.  USITC Solar Panels PRELIMNARY NOTICE  The ITC’s preliminary conference is scheduled for January 21st in Washington DC.

If anyone is interested in participating in the case at the ITC or the Commerce Department, please feel free to contact me.

FIRST SOLAR CELLS CASE–REVIEW REQUESTS

In the first Solar Cells case, the first annual review investigations have just started up, which will determine the actual liability of US importers for antidumping and countervailing duties on their imports.  On December 31, 2013, Solar World and the other US solar cell producers filed the attached letters requesting that the Chinese companies named in the letters be included in the review investigations. AD SolarWorld Review Request-12-31-13 SolarWorld CVD Review Request-12-31-13

If you are a Chinese producer/exporter and you are named in the letter, you must partcipate in the review investigation or you will lose your 24% antidumping rate and your new rate will be 250%.  If you are an importer of solar cells during the specific review periods and your Chinese suppliers are named in these letters, you must make sure that they participate in the review investigations.  If your suppliers do not participate, the antidumping rate will go from 24% to 250% and you the importer will be retroactively liable for the difference plus interest.

TRADE NEGOTIATIONS—BALI/DOHA ROUND AND TPP

In the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) negotiations.  Both negotiations could have a major impact on China trade.

Attached is an article that I have written together with a Canadian trade and customs lawyer about the impact of the TPP from both the US and Canadian point of view.FINAL ARTICLE TPP US CHINA

DOHA ROUND-BALI

From China’s point of view, the WTO negotiations in the Doha Round are extremely important.  The only way that China can deter many trade actions is to work within the multilateral framework to reduce trade barriers to Chinese products.

Multilateral WTO negotiations are even more important for China because of the ongoing TPP negotiations, which at this moment do not include China.  As indicated in my attached article on the TPP, the US and other countries see the TPP negotiations as one way to offset China’s rise in the trade area.

But multilateral and bilateral trade negotiations are by their nature a give and take.  All countries in the negotiations have to be willing to reduce some of their own trade barriers to persuade other countries to lower their trade barriers.  No country wins or loses on all issues.  By their nature, trade negotiations involve tradeoffs.

So the WTO and TPP trade negotiations are going to be of continued interest to Chinese companies and US importers.

WTO NEGOTIATIONS-BALI

As mentioned in a past post, the United States Trade Representative (“USTR”) pointed to the coming World Trade Organization (“WTO”) multilateral negotiations in Bali on trade facilitation measures, which would streamline customs procedures, as being very important as well as the proposed Trans-Pacific Partnership with 11 other Pacific Rim countries, which were “posed to close”.

On November 27, 2013, however, there were reports that the WTO multilateral negotiations in Bali had broken down, in part over the Trade Facilitation report.  But those statements were premature.

On December 6, 2013, WTO members announced that a Trade Facilitation Agreement had been struck by the member countries.  This would be the first WTO-wide agreement in the organization’s nearly two decade history.  Round-the-clock negotiations at the conference led to the so-called Bali package -the first membership-wide agreement since the WTO was created in 1995.  The Bali Package includes measures on trade facilitation, intended to streamline customs and other procedures that affect the shipment of goods across borders, as well as provisions on agriculture and economic development.

“For the first time in our history: the WTO has truly delivered.” WTO Director-General Roberto Azevedo said in a December 5th statement. “I challenged you all, here in Bali, to show the political will we needed to take us across the finish line. You did that. And I thank you for it.”

The WTO was able to overcome objections from Cuba, Venezuela, Bolivia and Nicaragua because it did not address a U.S. embargo against Cuba, which has been in place for more than 50 years, and other trade embargoes.  The agreement was to add an additional sentence in Bali deal’s text that upheld the “principle of non-discrimination in goods in transit.”

India also raised concerns over part of the package’s agriculture section that dealt with agricultural subsidy programs that some developing countries offer to promote “food security” and combat hunger.

Those concerns, however, appeared to have been largely addressed in the draft text circulated December 3rd, which contained an interim agreement, under which WTO members would refrain from lodging disputes against developing countries that stockpile crops as part of a food security program, as long as the subsidies do not distort trade.

The Peterson Institute for International Economics said an ambitious agreement on trade facilitation could add $960 billion to the world economy.  But the symbolism is more important.  The Bali Agreement is very important for both developed and developing countries.  Many of the FTA agreements, such as the ongoing TPP agreements, could hurt the developing countries the most.  The movement of both the TPP and the Trans- Atlantic Agreement puts more pressure on the WTO countries to reach a deal.

The importance of the Bali Agreement is that it means the WTO can still be an effective forum for truly multilateral trade negotiations.  If no deal had been reached in Bali, this could have led to the collapse of the WTO as a multilateral forum to negotiate reductions of trade barriers.

In a speech in Bali, WTO Director-General Roberto Azevedo stated, “What’s at stake is the cause of multilateralism itself”

TPP NEGOTIATIONS RUN INTO HEADWINDS

The USTR and US government officials were predicting that the Trans Pacific Partnership (“TPP”) negotiations would conclude at the end of the year with an Agreement.  That was simply too optimistic.  Secret negotiations are going to generate controversey.

On December 10th, the Trade Ministers for the 12 countries negotiating the TPP announced in Singapore “substantial progress” in the talks, but there would be no deal by the end of the year.  In a joint statement, the Ministers indicated that they had engaged in productive discussions, identifying potential solutions to a number of outstanding obstacles, but more meetings would be held in 2014.

Rep. Sander Levin, D-Mich., the top Democrat on the Ways and Means Committee of U.S. House of Representatives, indicated that critical work lay ahead, especially the continued closure of Japan’s market to U.S. cars and agricultural products, the implementation of enforceable labor and environmental rules, and strict rules on currency manipulation and state-owned enterprises.

South Korea has indicated interest in the talks, but it is unlikely that any other country would join the agreement while the talks are still ongoing.  Presently, the TPP negotiations include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The two most important countries for the US, however, are Japan and possibly Vietnam.  Japan is important because of decades long problems involving automobiles and agriculture products, and Vietnam because as a non-market economy Communist country, it could be a forerunner to China.

 On December 10th Ways and Means Committee Chairman Dave Camp (R-MI) stated that there had been significant progress in the Singapore Round and countries will continue their work in January.

“The headway achieved so far on TPP is positive, but more work remains. There are longstanding issues that need to be resolved, like access for U.S. automakers and farmers, and we should take the time to get this agreement right. I look forward to consulting with Ambassador Froman when he returns on the next steps. Concluding these negotiations, as well as other trade agreements, will require Congressional passage of Trade Promotion Authority legislation. Given the considerable bipartisan and bicameral progress that has been made on that front, I expect we will be in a position to do so early next year if we have the Administration’s active participation.”

In addition, Congressional leaders announced that they had come to agreement on providing the Administration Trade Promotion Authority or Fast Track Authority.

But the TPP then ran into headwinds.

AGRICULTURE

On December 19, 2013, American Farm Bureau Federation, American Meat Institute, American Soybean Association, International Dairy Foods Association, National Association of Wheat Growers, National Cattlemen’s Beef Association, National Chicken Council, National Corn Growers Association, National Milk Producers Federation, National Oilseed Processors Association, National Pork Producers Council, National Turkey Federation, North American Meat Association, U.S. Dairy Export Council, U.S. Grains Council, U.S. Wheat Associates, USA Rice Federation announced that they would oppose the TPP if a final version did not require Japan to eliminate tariffs on virtually all US agricultural exports.

In the attached letter AG LETTER TO USTR to U.S. Trade Representative Michael Froman, the seventeen agriculture industry groups stated:

“Dear Mr. Ambassador:

We are writing to express our concern with the state of play of the Trans-Pacific Partnership (TPP) negotiations. Each of our organizations has expressed in the past strong support for a comprehensive, high-standard TPP agreement. However, we have watched with growing alarm the unwillingness of Japanese negotiators to present a comprehensive offer on agricultural products, and we now believe this situation is threatening to undermine the negotiations.

In previous negotiations, the United States has demanded and received from developing country trading partners full and comprehensive liberalization in the agricultural sector. Yet in the TPP negotiations, Japan – a rich, developed country – is demanding special treatment for its agricultural sector. We consider an agreement that includes such special treatment for Japan to be unacceptable.

If Japan is allowed to claim exceptions for sensitive products, other TPP partners will inevitably demand the right to do the same. This could quickly lead to the unraveling of the agreement, as other parties pull their offers on sensitive products, or their concessions on sensitive issues, off the table.

However, even if it were possible to prevent the agreement among current parties from unraveling, granting exceptions to Japan, or any other party, would have far-reaching consequences. As the TPP expands to include other countries in the Asia-Pacific region, we can expect other countries with sensitivities in the agricultural sector, such as China, to make similar demands. Moreover, a weak agreement with Japan would inevitably have significant negative implications for our ability to reach an acceptable agreement with the EU in the Transatlantic Trade and Investment Partnership negotiations.

U.S. agriculture has always supported trade agreements and Trade Promotion Authority as the most effective means of eliminating tariff and non-tariff barriers and expanding global trade. However, the market access package you negotiate with Japan has the potential to impact billions in future exports and hundreds of thousands of jobs.

In conclusion, TPP must include comprehensive liberalization in the agricultural sector by all participating countries. If Japan continues to insist on unreasonable protections to a range of agricultural categories, we ask you to consider concluding TPP without Japan. It will ultimately be difficult for our organizations to support a TPP agreement with Japan that does not include comprehensive trade liberalization for all agricultural sectors.”

This is an extremely important development because US agriculture is the primary force pushing for Free Trade Agreements.  If the farmers do not support the TPP, there will be no agreement.

UNIONS

On December 9th, The International Association of Machinists and Aerospace Workers (“IAM”), which represents around 700,000 current and former industrial workers, announced that the TPP would be a job killer, leading to a massive loss of American jobs.  The IAM argued that past trade deals did not create jobs and has lead to a “death sentence” for American workers.

The IAM stated that it is strongly opposed to the revival of “fast-track” authorities that expired in 2007 and “If TPP is implemented, U.S. manufacturing may well find itself on the endangered species list.”

DRUGS AND IP

On December 11, 2013, potential provisions in the TPP on drug patent protections and the length of copyright terms came under fire with Democratic lawmakers, library associations and consumer groups voicing concern over proposals that are currently on the table.

Several Democratic Congressmen urged USTR to reconsider its reported proposals for handling pharmaceutical patents in the TPP. CONG LETTER A number of libraries, digital rights and consumer groups argued against a copyright protection for a term of 70 years after the creator of a particular work dies.

Representative Henry Waxman, D-Calif and Senator Orrin Hatch, R-Utah sent separate letters arguing for and against the proposal of a 12-year market exclusivity period for biologics – drugs developed through biologic processes that can be used to treat diseases like cancer and rheumatoid arthritis.  Waxman argues for 7 years and Hatch is arguing for 12 years.

As Representative Waxman states in the attached letter Waxman TPP Drug IP Letter:

“The United States only recently established its biosimilars pathway when it enacted the Patient Protection and Affordable Care Act (PPACA) (Pub. L. No. 111-148) and the consequences of PPACA’s mandated twelve years of biologics exclusivity are not yet known.

Proposing twelve years of exclusivity in the context of TPP negotiations would conflict with stated Administration policy, as reflected in President Obama’s FY 2014 budget proposal, recommending that the exclusivity period for biologics be reduced to seven years. Were the TPP ultimately to contain a twelve year biologics exclusivity provision, it would impede the ability of Congress to achieve the President’s proposed seven year change because doing so would run afoul of U.S. trade obligations.

As we have discussed before, it is also critical that USTR ensure that developing countries are not left behind in this agreement. The United States must ensure that the TPP does not result in generic medicines becoming available in TPP developing countries later than in the United States. In addition, the patent flexibilities available to developing nations in the Doha Declaration on Public Health should not be denied or weakened in the agreement.”

SECTION 421 SPECIAL SAFEGUARD PROVISION AGAINST CHINA EXPIRED ON DECEMBER 11, 2013

On December 11, 2013, Section 421 of the Trade Act of 1974, a special safeguard law against China, expired as a result of provisions in the US China WTO Agreement.  The safeguard allowed the President to impose higher tariffs and other trade relief if the US International Trade Commission (“ITC”) determined that increased imports from China caused or threatened material injury to a US industry.

Although there were several affirmative ITC Section 421 determinations during the Bush Administration, President Bush refused to provide relief.  The provision resulted in trade restrictions only once, when President Obama approved an ITC determination that the importation of Chinese rubber tires was injuring U.S. tire manufacturers.

Many US tire producers, however, were opposed to the Section 421 case, but the Unions were very much in favor of the relief, which President Obama issued to counter criticism in an election year that he was not tough enough on China.

President Obama’s decision to impose relief in the Tires case, however, resulted in the Chinese government bringing antidumping and countervailing duty cases against the United States on automobiles and chicken.  The Chicken AD and CVD orders in China continue to block approximately $1 billion in the US exports of chicken to China.

SILICA BRICKS

On December 12, 2013, in another surprising decision, the ITC in 6-0 unanimous determination reached a negative injury determination in the antidumping case on silica bricks from China.  ITC NEGATIVE SILICA BRICKS The ITC negative determination followed a Commerce Department affirmative determination issuing Chinese companies antidumping rates ranging from 63.81 to 73.1% on imports of silica bricks.

JANUARY REVIEW INVESTIGATIONS

On January 2, 2014, the Commerce Department issued its monthly notice stating that Chinese companies and US importers that want review investigations in the following investigations should file such a request by the end of the month.  The specific antidumping and countervailing duty investigations at issue are:

Antidumping Investitgations

On THE PEOPLE’S REPUBLIC OF CHINA:
Crepe Paper Products, A-570-895………………    1/1/13-12/31/13
Ferrovanadium, A-570-873…………………….    1/1/13-12/31/13
Folding Gift Boxes, A-570-866………………..    1/1/13-12/31/13
Potassium Permanganate, A-570-001………………..    1/1/13-12/31/13
Wooden Bedroom Furniture, A-570-890………………    1/1/13-12/31/13

Countervailing Duty Proceedings

THE PEOPLE’S REPUBLIC OF CHINA:
Certain Oil Country Tubular Goods, C-570-944…..    1/1/13-12/31/13
Circular Welded Carbon Quality Steel Line Pipe, C-   1/1/13-12/31/13
570-936…………………………………..

SHELLFISH

On December 5th, the Washington State Government reported that on December 3 the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Canada, Washington, Oregon, and northern California.  WASHINGTON SHELLFISH ANNOUNCE

China reported a shipment of geoducks tested high in paralytic shellfish poison (PSP) and arsenic.

The Washington Government has stated that it is working with the U.S. Food and Drug Administration, the National Oceanic and Atmospheric Administration, and its state partners gathering facts, tracing the geoducks to the original harvest area, and closely reviewing its PSP test data.

On December 20th, Washington State and tribal officials closed a 135-acre geoduck-harvesting area outside Federal Way Washington until they could fully investigate the toxicity levels that caused China to ban shellfish imported from the West Coast.

Washington State officials learned that arsenic was the toxin Chinese authorities detected in a shipment of geoduck clams to China from Washington’s Poverty Bay.

That shipment, along with one from Ketchikan, Alaska, led China on Dec. 3 to ban all imports of shellfish harvested in Washington, Alaska, Oregon and Northern California.

The Washington Department of Health traced the shipment back to 385 pounds of geoduck harvested in October by the Puyallup Tribe in Poverty Bay on what the Department of Natural Resources calls the Redondo Tract.

“There are no federal safety standards at all for arsenic in shellfish because it is not something that is typically an issue,” said Tim Church, the health department’s director of communications. “With the tests that we’ve done in the past, we’ve never found levels of arsenic that would be a concern for eating shellfish.”

China has not said when it will lift the ban on West Coast shellfish.

The Chinese government’s decision to ban all shellfish harvested from Northern California to Alaska would appear to be excessive, but that decision must be taken in context.

Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

Trade is a two way street and what goes around comes around.

CHINESE TEXTILE MANUFACTURER MOVES TO—SOUTH CAROLINA

In a bright spot, it has been reported that a Chinese yarn maker has decided it can make more money setting up shop in the US in South Carolina.  Keer Group Co., a yarn spinning factory in Hangzhou, China, has moved to South Carolina.

A number of Asian textile manufacturers have decided to set up production in the U.S. to save money as salaries, energy and other costs rise at home. Keer has invested $218 million to build a factory in Lancaster County, not far from Charlotte, N.C. The new plant will pay half as much as Mr. Zhu does for electricity in China and get local government support, he says.  Keer expects to create at least 500 jobs.

In another benefit, Keer can ship yarn to manufacturers in Central America, which, unlike companies in China, can send finished clothes duty-free to the U.S.

In September, JN Fibers Inc. of China agreed to build a $45 million plant in South Carolina that turns plastic bottles into polyester fibers used to stuff pillows and furniture. That investment is expected to create 318 jobs.

Keer stated costs for industrial land in Hangzhou have increased because China’s textile industry is plagued by overcapacity, which has squeezed profits, and local governments are reluctant to sell land to producers.

The local government in South Carolina, which has 8.1% unemployment, has set an annual fixed fee in lieu of taxes that Keer will pay for 30 years. Sixty percent of that annual fee will be returned to the company each year until it has paid off a $7.7 million bond that the county issued to help buy the land.

MAKING OF A T-SHIRT

The reality of interdependence in our Trade World is illustrated by the attached video from the Colbert Report, which traces the production of a T-shirt sold in the United States from the cotton produced in the US to cloth produced in Indonesia to the T-shirt produced in Bangledesh. http://www.colbertnation.com/the-colbert-report-videos/431141/december-10-2013/alex-blumberg

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.

On September 18, 2013, ten US Importers agreed to form the Import Alliance for America. The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

We will be targeting two major issues—Working for market economy treatment for China in 2016 and working against retroactive liability for US importers. The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

CHINESE ANTIDUMPING CASE

CHICKEN

In response to a WTO determination, on December 27, 2013, MOFCOM announced that it would reinvestigate the antidumping and countervailing duties on chicken from the US, specifically against white-feather broiler chicken products from the U.S.

CUSTOMS

INSURANCE COMPANY LIABLE FOR NEW SHIPPER ANTIDUMPING DUTIES IN CRAWFISH CASE

In an antidumping new shipper review investigation on Crawfish from China, a US importer, New Phoenix, posted eight single-transaction bonds issued by Great American to cover seven entries of crawfish tailmeat, with a value of $1,219,458 for each bond or a total of $6,097,290 in liability.  When the importer could not pay, the US Customs Service sued the insurance company for the amount of the bonds plus interest.

In attached decision, the Court of Appeals for the Federal Circuit orders Great American to pay the $6 million plus postjudgment interest.  INSURANCE COMPANIES OWE AD DUTIES

RHINO HORN

On December 19, 2013, the US Justice Department announced that Zhifei Li, the owner of an antique business in China, had pled guilty to being the organizer of an illegal wildlife smuggling conspiracy in which 30 rhinoceros horns and numerous objects made from rhino horn and elephant ivory worth more than $4.5 million were smuggled from the United States to China.  See attached Justice Department notice.  RHINO HORN

Li was arrested in Florida in January 2013 on federal charges brought under seal in New Jersey.  Shortly after arriving in the country, he pled guilty to a total of 11 counts: one count of conspiracy to smuggle and violate the Lacey Act; seven counts of smuggling; one count of illegal wildlife trafficking in violation of the Lacey Act; and two counts of making false wildlife documents.

Li was arrested as part of “Operation Crash” – a nationwide effort led by the USFWS and the Justice Department to investigate and prosecute those involved in the black market trade of rhinoceros horns and other protected species.

Acting Assistant Attorney General Dreher for the Justice Department’s Environment and Natural Resources Division stated:

The take-down of the Li smuggling ring is an important development in our effort to enforce wildlife protection laws. Rhino horn can sell for more than gold and is just as rare, but rhino horn and elephant ivory are more than mere commodities. Each illegally traded horn or tusk represents a dead animal, poaching, bribery, smuggling and organized crime. The Justice Department will continue to vigorously enforce the law designed to protect wildlife. This is a continuing investigation.

In pleading guilty, Li admitted that he sold 30 smuggled, raw rhinoceros horns worth approximately $3 million –approximately $17,500 per pound – to factories in China where raw rhinoceros horns are carved into fake antiques known as Zuo Jiu (which means “to make it as old” in Mandarin).  In China, there is a centuries-old tradition of drinking from an intricately carved “libation cup” made from a rhinoceros horn. Owning or drinking from such a cup is believed by some to bring good health, and true antiques are highly prized by collectors. The escalating value of such items has resulted in an increased demand for rhinoceros horn that has helped fuel a thriving black market, including recently carved fake antiques.

PATENT/IP AND 337 CASES

NO 337 VIOLATION IF IMPORTED PRODUCT ON ENTRY DOES NOT INFRINGE THE PATENT

On December 13, 2013, the Court of Appeals for the Federal Circuit (CAFC) in the attached Suprema, Inc. and Mentalix Inc. vs. ITC held that an exclusion order based on a violation of § 337(a)(1)(B)(i) may not be predicated on a theory of induced infringement where no direct infringement occurs until post-importation.  CAFC Slip Opinion 12-1170 SUPREMA INC – CROSS MATCH v ITC

The patents at issue concern fingerprint machines.  The Suprema fingerprint machines had multiple uses, but after the fingerprint machines were imported into the United States, software from Mentalix was applied to the Suprema fingerprint machines, resulting in infringement of patents held by a US company.  The ITC found that Suprema and Mentalix had violated section 337 based on an induced infringement theory and issued an exclusion order.

The CAFC determined not so fast.  Section 337 is also a trade statute, and the Commission’s authority in section 337 cases is based on its jurisdiction over the imported products.  According to the CAFC, however, the imported products have to infringe the patent at the time the products are imported into the US, especially where the imported product has multiple uses and the only infringing use happens after the product is imported into the US.

As the CAFC stated in its opinion:

“The Commission’s mandate to deal with matters of patent infringement under § 337(a)(1)(B)(i) is thus premised on the “importation,” “sale for importation,” or “sale within the United States after importation” of “articles that . . . infringe.” . . . Thus, the Commission’s authority extends to “articles that . . . infringe a valid and enforceable United States patent.” The focus is on the infringing nature of the articles at the time of importation, not on the intent of the parties with respect to the imported goods.  . . .

Given the nature of the conduct proscribed in § 271(b) and the nature of the authority granted to the Commission in § 337, we hold that the statutory grant of authority in § 337 cannot extend to the conduct proscribed in § 271(b) where the acts of underlying direct infringement occur post-importation. Section 337(a)(1)(B)(i) grants the Commission authority to deal with the “importation,” “sale for importation,” or “sale within the United States after importation” of “articles that . . . infringe a valid and enforceable U.S patent.” The patent laws essentially define articles that infringe in § 271(a) and (c), and those provisions’ standards for infringement (aside from the “United States” requirements, of course) must be met at or before importation in order for the articles to be infringing when imported. Section 271(b) makes unlawful certain conduct (inducing infringement) that becomes tied to an article only through the underlying direct infringement. Prior to the commission of any direct infringement, for purposes of inducement of infringement, there are no “articles that . . . infringe”—a prerequisite to the Commission’s exercise of authority based on § 337(a)(1)(B)(i).

Consequently, we hold that the Commission lacked the authority to enter an exclusion order directed to Suprema’s scanners premised on Suprema’s purported induced infringement of the method claimed in the ’344 patent.”

The key point is that section 337 is not just an intellectual property statute; it is also a trade statute.  Section 337, just like the antidumping and countervailing duty law, regulates imports, and thus the CAFC is stating that since 337 is a trade statute, the product must be infringing at the time of importation.  If the infringement happens after importation, that can be a real problem for the US patent holder in a 337 case.

337 CASE RESULTS IN ANTITRUST RETALIATION IN CHINA

As indicated below, Interdigital has filed a section 337 case against Huawei.  Huawei retaliated by filing an antitrust case in China under Chinese law.  The Chinese government’s antitrust authority, NDRC, is now threatening jail time to Interdigital executives.

What is worse is that on December 20th, in the attached decision the ITC rejected Interdigital’s complaint and found no violation of section 337 so Interdigital lost the section 337 case, but is stuck with a Chinese antitrust case.  ITC NOTICE INTERDIGITAL  Sometimes you bite off more than you can chew.

NEW 337 CASES AGAINST CHINESE COMPANIES

On December 11, 2013, Tyco filed a new 337 case against imports of certain surveillance systems.  One of the respondents is Ningbo Signatronic Technologies, Ltd., China.

The ITC notice is set forth below:

Docket No: 2990

Document Type: 337 Complaint

Filed By: Brian R. Nester, Sidley Austin LLP

Behalf Of: Tyco Fire & Security Gmbh (TFSG), Sensormatic Electronic, LLC

(Sensormatic) and Tyco Integrated Security, LLC (TIS)

Date Received: December 11, 2013

Commodity: Acousto-Magnetic Electronic Article Surveillance Systems

Description: Letter to James R. Holbein, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Acousto-Magnetic Electronic Article Surveillance Systems, Components Thereof, and Products containing same. The proposed respondents are: Ningbo Signatronic Technologies, Ltd., China; All-Tag Security Americas, Inc., Boca Raton, Florida; All-Tag Security Hong Kong Co., Ltd., Hong Kong; All-Tag Europe SPRL; Brussels; All-Tag Security UK Ltd., United Kingdom; Best Security Industries, Delray Beach, FL; and Signatronic Corporation, Boca Raton, FL.

 

On December 18th, Pragmatus filed a section 337 case against ZTE on Wireless Devices.  The notice is below:

Docket No: 2992

Document Type:337 Complaint

Filed By:Anthony Grillo

Firm/Org:Marino and Grillo LLC

Behalf Of:Pragmatus Mobile, LLC

Date Received:December 18, 2013

Commodity:Wireless Devices, including Mobile Phones and Tablets II

Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Wireless Devices, Including Mobile Phones and Tablets II. The proposed respondents are Nokia Corporation (Nokia Oyj), Finland; Nokia, Inc., Sunnyvale, CA; Samsung Electronics Co., Ltd, Korea; Samsung Electronics America, Inc., Ridgefield Park, NJ; Samsung Telecommunications America, L.L.C., richardson, TX; Sony Corporation, Tokyo; Sony Mobile Communications AB, Sweden; Sony Mobile Communications (USA), Inc., Atlanta, GA; ZTE Corporation, China; and ZTE (USA) Inc., Richardson TX.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI, ZTE, AND OTHER COMPANIES

On December 2, 2013, Chanel filed a major trademark suit against a number of John Doe Unknown companies that were infringing its trademarks.  CHANEL TMK CHINA In the Complaint Chanel states:

“Defendants are partnerships or unincorporated business associations, which operate through domain names registered with registrars in multiple countries, commercial internet e-stores via the third party marketplace website C2Coffer.com, and commercial Internet auction store via the third party marketplace website iOffer.com, and are comprised of individuals and/or business entities of unknown makeup, all of whom, upon information and belief, reside in the People’s Republic of China or other foreign jurisdictions with lax trademark enforcement systems.”

On December 3, 2013, Concinnnitas and George W. Hindman filed patent cases against Huawei Device USA Inc. and ZTE. CONCINNATIS HUAWEI CONCINNATIS ZTE

On December 11, 2013, in addition to the 337 case Tyco sued Ningbo for patent infringement in Federal District court.  NINGBO PATENT

On December 12, 2013, US company Harmonic Drive LLC filed a trademark case against NAC Harmonic Drive, Inc., Harmonic Drive Canada and Beijing CTKM Harmonic Drive Co.  HARMONIC DRIVE

On December 18, 2013 Content Guard Holdings, Inc., filed a patent case against Huawei Device USA and other companies. CONTENT GUARD HUAWEI

On December 17, 2013, Microsoft sued Sichuan Changhong Electric Co., Ltd. for software piracy. MICROSOFT STOLEN SOFTWARE

ANTITRUST

VITAMIN C CASE

As mentioned, the Vitamin C case is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against by Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  VITAMIN C FINAL JUDGMENT

On December 30, 2013, the Judge amended the order to add an additional $4,093,163.35 to pay the legal fees of the lawyers bringing the case against the Chinese companies.  See the attached documents.  ATTORNEYS FEES VITAMIN C FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment.

Boies Schiller, the Plaintiffs’ lawyer, also announced on December 11th that it was paying associate bonuses that were as high as $300,000, with the average distribution across the litigation firm’s 133 associates at $85,000.

It pays to sue Chinese companies.

CHINA ANTITRUST CASES

As mentioned in the last post, Qualcomm, a US mobile chip maker, announced that it is the target of an antitrust investigation led by the National Development and Reform Commission (“NDRC”), China’s top economic planning body and antitrust authority.  Also Cisco announced that Chinese companies are reducing their purchases of Cisco equipment in response to the N.S.A. disclosures and the recent US Congressional activity aimed at curtailing purchases of equipment from Huawei and other Chinese companies.

There are three Chinese government entities entrusted with investigating and enforcing the Chinese Anti-Monopoly Law, which was passed in 2007: the State Administration for Industry and Commerce, the Ministry of Commerce, and the NDRC.  The fact that the antitrust investigation is coming from the NDRC, which is in charge of price supervision and inspection, suggests that the government’s objective is to make 4G service more affordable before its introduction next year.

This year, the commission led an inquiry into six foreign dairy companies, including Mead Johnson Nutrition and Groupe Danone, after allegations that they broke anti-monopoly rules and fixed prices.  The investigation resulted in a fine of $109 million, a record for anti-monopoly violations in China.

Now China is using antitrust cases to counterattack 337 patent cases.

INTERDIGITAL—CHINA BRINGS ANTITRUST CASES IN RESPONSE TO 337 CASE

In July 2011, Interdigital filed a section 337 patent case at the US International Trade Commission (“ITC”) against Huawei.  In response, on December 5, 2011, Huawei filed two complaints before the Shenzhen Intermediate People’s Court (the Shenzhen Court) in China, alleging that, by filing the section 337 case and engaging in certain patent practices, InterDigital had (1) abused its dominant market position, contrary to the Anti-Monopoly Law of the People’s Republic of China (AML), and (2) as an owner of several Standard Essential Patents (“SEP”) for 2G, 3G and 4G telecommunications technologies, it had failed to negotiate a fair, reasonable and non-discriminatory license for those patents.

On February 4, 2013, the Shenzhen Court ruled that InterDigital had abused its dominant market position and thus violated the Chinese Anti-Monopoly Law by  tying its standard essential patents with non-standard essential patents during licensing negotiations and seeking injunctive relief against Huawei before the US Federal Court and in the section 337 case before the US ITC while still in negotiations with Huawei to force Huawei to accept unreasonable licensing terms, including excessive royalties.

InterDigital’s requirement that Huawei pay significantly (sometimes even 100 times) higher royalty rates than those required of Apple, Samsung and other companies for the same set of patents, even while Huawei’s global sales were much less than Apple and Samsung, appeared to the Courts to be prima facie evidence of discriminatory treatment. In addition, the Courts noted that InterDigital had also required Huawei to license back all of its global patents on a royalty-free basis (as of 31 December 2010, Huawei owned 31,869 Chinese patents, 8,892 PCT international patent applications and 8,279 overseas patents). To the Court, this appeared contrary to fair or reasonable principles.

The Shenzhen Court ordered InterDigital to cease its unlawful practices and pay Huawei $3.2 million in damages.

On October 28, 2013, there were reports that that the Guangdong Higher People’s Court affirmed most of the rulings of the Shenzhen Court, including the $3.2 million award in damages.

 Unfortunately, the decisions of both the Shenzhen Court and the Guangdong Higher People’s Court have not been publicly disclosed, possibly because of trade secret issues. Thus the following observations are based on media reports and an article by a Chinese attorney.

Apparently, the Chinese Court determined that the owner of a Standard Essentials Patent has a 100 per cent market share in the technology licensing market for that SEP and, therefore, a monopoly, no matter how the market is defined.   If the holder of the Standard Essentials Patent tries to extract supra competitive royalties from industry participants, that is abuse of monopoly power.  In addition, apparently, the Chinese courts determined that by seeking injunctive relief at the ITC under 337 against Huawei, a willing licensee, the conduct constituted an abuse of the Chinese Anti-Monopoly Law.

Both the EC Competition Commission and the FTC have been concerned about the use of standard essential patents to exclude competition.

It should also be noted that the Chinese courts were also concerned that InterDigital’s principal business is patent licensing and that it does not manufacture any product. As a result, Huawei was in a weak bargaining position during licensing negotiations because cross-licensing would not be available, and InterDigital could make use of this advantage to extract more favorable contract terms from Huawei. The Shenzhen Court apparently found that InterDigital had tried to exploit this advantage, by insisting on unreasonably high royalties and requesting Huawei to license back its patents on a royalty-free basis.

There are reports that Qiu Yongqing, a senior judge at the Guangdong Higher People’s Court presiding over the case, is reported to have stated that Huawei “used antitrust law as a weapon to counterattack” monopolization by multinationals in the technology sector, and that other Chinese companies should learn from Huawei.

On December 16, 2013, the dispute between Interdigital and Huawei escalated. In a letter to the NDRC, Interdigital’s CEO announced that it would not send executives to a December 18th meeting with Chinese authorities over China’s monopoly investigation due to threats of possible imprisonment of Interdigital executives, which allegedly included U.S. counsel accompanying the firm to the meeting.

In a statement, CEO William Merritt said:

“To this date, we have cooperated fully with the NDRC’s investigation of our company, and continue to believe that we have done absolutely nothing wrong . . .  However, we are simply unable to comply with any investigation that is accompanied by a threat to the safety of our executives.”

Interdigital’s letter indicated also that the NDRC had informed it that its probe was sparked by InterDigital’s suit in the U.S. International Trade Commission against Chinese firms.

Meanwhile, there are reports out of China that the NDRC will recruit at least 170 new employees for the antitrust law enforcement team to battle price fixing.  The NDRC said its antitrust probes focus on six industries – aerospace, daily chemicals, automobiles, telecommunications, pharmaceuticals and home appliances.

Thus if a US Company brings a 337 IP case at the ITC against Chinese companies, it should be prepared for a possible antitrust case in China.

What goes around, comes around. 

SECURITIES

Attached is a description of Dorsey’s litigation team to handle for Chinese companies US Securities and Exchange Commission (“SEC”) and Class Actions Securities cases.  DORSEY SECURITIES LITIGATION TEAM

CHINESE AUDIT DOCUMENTS TURNED OVER TO SEC

On December 13, 2013, it was reported that Chinese governmental authorities have turned over more audit documents to U.S. regulators regarding U.S.-traded Chinese companies as part of a sweeping U.S. probe of accounting fraud by Chinese companies publicly traded in the US.

Audit documents regarding at least six Chinese companies trading on U.S. exchanges now have been either turned over to U.S. regulators or are “in the pipeline” to be furnished to the Securities and Exchange Commission (“SEC”).

The fight for the audit document resulted from SEC efforts to probe a wave of accounting and disclosure problems at more than 100 U.S.-traded Chinese companies that surfaced starting in 2011. U.S. investors lost billions of dollars when the companies’ stocks plunged once the problems were disclosed. The SEC has filed more than a dozen lawsuits against some of these Chinese companies and their executives and has won settlements in some cases.

But the investigations have been impeded because China-based audit firms, including Chinese affiliates of the Big Four, have refused to hand over audit documents to the SEC out of fear that providing the documents would violate China’s strict state-secrecy rules, which could land their auditors in jail.

Ultimately, that dispute led to the agreement earlier this year, which addressed the audit firms’ concerns by having them give the documents to Chinese regulators, who then would provide them to the U.S.

SERVING CHINESE COMPANIES IN SECURITIES AND OTHER US LITIGATION BY J. JACKSON, DORSEY LITIGATION PARTNER

SERVICE ISSUES IN US LITIGATION AGAINST CHINESE COMPANIES

By

J. Jackson, Partner and Chairman of Dorsey’s China Litigation Practice

Attached is a copy of the opinion in Bravetti v. Liu (D.N.J. December 11, 2013), SERVICE CHINESE RESPONDENTS Bavetti v Liu  which may be of interest to Chinese companies.  In Bravetti, Plaintiffs proceeding derivatively on behalf of American Oriental Bioengineering, Inc. sued current and former officer and directors, each of whom is a resident of the PRC.  The matter came before the Court, Magistrate Judge Bongiovanni, on Plaintiffs’ motion to allow service on the individual defendants by personally serving the U.S. counsel for the company, American Oriental.  Defendants opposed the motion, arguing that the Hague Convention provides the exclusive means for service of process on PRC’s residents and that service on U.S. counsel for the company did not comport with due process.  The Court rejected Defendants’ arguments and allowed service to proceed by personal service on U.S. counsel for the company.

Plaintiffs brought their motion under Rule 4(f)(3) of the Federal Rules of Civil Procedure, which provides,

“(f) Serving an Individual in a Foreign Country. Unless federal law provides otherwise, an individual—other than a minor, an incompetent person, or a person whose waiver has been filed—may be served at a place not within any judicial district of the United States:

*    *     *

(3) by other means not prohibited by international agreement, as the court orders.”

The Court allowed the requested service using the following analysis:  It began by acknowledging, “Courts may direct service when ‘the particularities and necessities of a given case require alternative service of process.’  See Rio Properties, Inc. v. Rio Int’l Interlink, 284 F.3d 1007 at 1016 (9th Cir. 2002).”

The Court further held that alternative service of process was not prohibited by the Hague Convention.  The Court noted that the Hague Convention does not apply “’where the address of the person to be served is not known.’”  Hague Convention, Art. 1.  Here, service was difficult under the Hague Convention, because the residences of the Defendants in the PRC was not known.  Further, the Court found that the Hague Convention does not apply because Plaintiff’s proposed method of service does not require the transmittal of documents abroad.  Under Khachatryan v. Toyota Motor Sales, U.S.A., Inc., 578 F.Supp.2d 1224, 1228 (C.D. Cal. 2008), the Hague Convention did not apply where Khachatryan served Toyota Japan under California law in a manner which did not require the transmittal of documents abroad.  Here, the proposed method to serve Loeb & Loeb in the United States does not require the transmittal of documents abroad.  Thus, the Hague convention does not apply.

The Court last addressed Defendants’ Due Process argument, finding that service on the Company’s U.S. counsel is “reasonably calculated, under the circumstances, to apprise interested parties of the pendency of the action and afford them the opportunity to present their objections.”  Mullane v. Central Hanover Bank &Trust Co., 339 U.S. 306, 314 (1950).  In finding service on the company’s counsel appropriate here, the Court relied on opinions from the United States District Court for the Central District of California, including Brown v. China Integrated Energy, Inc., 285 F.R.D. 560, 566 (C.D. Cal. 2012) (citations omitted) and Rose v. Deer Consumer Products, Inc., 2011 WL 6951969, at *2 (C.D. Cal 2011), both of which allowed service on U.S. registered agents or counsel for individuals residing in the PRC.

Bravetti’s holding should not be limited to Securities derivative litigation.  Whenever a plaintiff finds itself faced with service on PRC residents who, either individually, by agency, or through direct or indirect counsel have a presence in the U.S., that plaintiff will be encouraged to proceed under Civil Procedure Rule 4(f)(3) and seek permission to allow service on their agents, their counsel, or the agents or counsel of the companies on which they serve.

Chinese companies need to keep these issues in mind when they participate in US litigation.

SEC ENFORCEMENT ACTIONS

Tom Gorman, a partner in our Washington DC office, who was originally with US Securities and Exchange Commission’s (“SEC”) enforcement division, was quoted in the attached article about how the SEC has increased its enforcement capability after the Bernie Madoff case.  GORMAN SEC

COMPLAINTS

On December 2, 2013, the attached class action securities case was filed by John Hsieh against NQ Mobile and various individuals.  HSIEH NQ MOBILE

If you have any questions about these cases or about the Solar Cells case, US trade, customs, 337, patent, US/China antitrust or securities law in general, please feel free to contact me.

Best regards,

Bill Perry

 

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