By Michelle Quinn
Apple is expected to unveil its latest iPhone on Wednesday, but the talk on Capitol Hill isn't about Cupertino -- it's about China.
Lawmakers of both parties have long complained that China's tech companies aren't playing by the rules of fair trade.
The latest example is Goophone, a Chinese company that makes a device that looks and feels a lot like the iPhone 5, which Apple is expected to unveil Wednesday.
Some in Washington have seized on Goophone as the quintessential example of what is wrong with international enforcement of American intellectual property rights, the perils of a global supply chain and the barriers U.S. companies face when trying to access the Chinese market.
"China is in a whale of a fight if they think they can steal the iPhone," Rep. Jason Chaffetz (R-Utah), an iPhone user, told POLITICO. "This should be a warning to those seeking to manufacture in China to save a buck."
Congress has held three hearings to address Chinese violations of intellectual property rights in recent months, and a key lawmaker said he would push for the issue to be raised during the U.S.-China Joint Commission on Commerce and Trade meeting later this year between top commerce officials in both countries. Meanwhile, the U.S. Trade Representative has been in discussions with Chinese officials over patent issues like those associated with Goophone, and both parties have agreed to "deepen" the dialogue.
As for sales of the Goophone, there is little Washington can do to prevent them right now short of igniting a trade war. However, lawmakers and regulators are narrowing their focal point to China's growing use of patents -- and insisting that those patents need to be of better "quality."
China became the world's top filer for patents last year, surpassing both the United States and Japan as it seeks to become known for not only manufacturing products but also designing them, according to a Thomson Reuters research report.
While Chinese companies are racing to accumulate patents, and the Chinese government seeks to improve its record on intellectual property, international property experts have criticized the quality of many of those patents as "junk." These patents can be used by so-called patent trolls, who squat on the patents and wait to sue those who allegedly infringe.
"The manipulation of the patent system in China is an issue of growing concern and leading to a much more difficult business environment for American companies trying to do business there," said Rep. Bob Goodlatte (R-Va.), chairman of the House Judiciary Committee's international property subcommittee. "It is important to increase pressure on the Chinese government to recognize the importance of intellectual property protections," he said.
A spokesman for the USTR said the agency is "working to address" the issue "by ensuring that issues of patent quality are prominent in ongoing IP-related discussions between the U.S. and Chinese governments."
But the Obama administration's focus on working with Chinese regulators has frustrated some GOP congressional leaders.
"When people in China and other countries steal our intellectual property, it not only drains money out of our economy, it destroys jobs and slows the pace of innovation," said Rep. Cathy McMorris Rodgers (R-Wash.). "This new phenomenon of "patent trolls' is just the latest example of what happens when the U.S. government looks the other way while America's job creators are robbed of their hard-earned money. When you don't stop bad behavior, you get more of it."
Some Democrats say the frustration is misdirected.
"The administration has made it a priority to prevent these unfair Chinese business practices and ensure that they do not impede American innovation and economic growth," said Rep. Doris Matsui (D-Calif.). "Meanwhile, we must continue to adopt policies that ensure U.S. patents, and our innovators are protected from copyright infringement."
"We know China will use any means necessary to gain an unfair edge against American innovators and manufacturers, which is why a multipronged trade enforcement effort is required," Sen. Sherrod Brown (D-Ohio) said.
U.S. firms bear some responsibility, too. "Because a lot of U.S. companies discount Chinese intellectual property, they haven't aggressively filed for Chinese patents," said Colleen Chien, a law professor at Santa Clara University. "This practice has left them vulnerable, beaten in the race to the patent office by local patent speculators."
Goophone, a little-known electronics firm that has supposedly copied Samsung products, vowed to block the iPhone 5 from the Chinese market with its patents for an iPhone lookalike, the Goophone I5, GizChina, a consumer electronics blog, reports. In a video announcing the product, a spokesperson says that "iPhone patents worldwide raised a big stick and has been the fault of global indignation."
A representative of Goophone could not be reached.
Apple representatives did not return calls for this article.
With its threats against Apple, Goophone may simply be seeking publicity for its device in the days before Apple unveils its latest smartphone. It has been dubbed the "Frankenstein phone" because despite its apparent iPhone imitation, it uses Google's Android as its operating system. Or it could be using patents to win a financial windfall before Apple's iPhone 5 can begin selling in China.
The case has some precedent. Apple recently paid $60 million to Proview, a firm that claimed to own the iPad trademark in China.
Some see the Goophone announcement as commentary on the global patent war over the smartphone and Apple's aggressiveness when it comes to defending its intellectual property. Last month, a jury in San Jose, Calif., awarded Apple more than $1 billion in its case against Samsung, which plans to appeal while Apple seeks to block Samsung products from the U.S. market.
The actions by Goophone are indicative of the kind of problems arising from a worldwide scramble by technology firms and others to grab international property rights, said Robin Feldman, a law professor at the University of California, Hastings and author of "Rethinking Patent Law." In China, the avenues for recourse are not the same as those in the U.S., she said.
"In the U.S., this type of behavior would trigger claims of misappropriation of trade secrets," she said. "China has a trade secret law, but since it doesn't have a discovery system, it's much more difficult to bring a trade secrets case."
Patent trolls are an issue in the U.S. In August, Reps. Peter DeFazio (D-Ore.) and Chaffetz introduced the SHIELD Act to make those who sue pay litigation costs of a defendant in high technology cases.
"Chinese companies are no less litigious than the American ones," said Ben Qiu, an attorney at Cooley in Shanghai. "More than 90 percent of IP infringement cases on the courts' docket in China are between local companies. If patent trolls become a serious headache, the local companies would be hit at least equally hard."
At hearings on the Hill recently, congressional leaders have quizzed trade officials about what is being done to protect U.S. firms doing business in China when it comes to intellectual property and patents. Goodlatte said his office was monitoring the Goophone issue and would push for patent and trade to be part of the discussion when the U.S.-China Joint Commission on Commerce and Trade meets later this year.