U.S. Trade Representative – ‘Section 301′ Countries…

Respectfully, but nevertheless, to my amazement, most discussions I have with business leaders…regarding the inevitability of theft – misappropriation of their company’s intellectual property and/or proprietary (trade secret) intangible assets before, during, or after consummating an international trade transaction, especially with a country designated by the USTR (U.S. Trade Representative) as a Section 301, have been variously dismissive and nonchalant to my counsel. https://ustr.gov/issue-areas/intellectual-property/Special 301

Section 301 of the U.S. Trade Act of 1974 was designed to…address revelations and complaints (investigations) of unfair foreign trade practices that adversely affect U.S. trade and investment in both goods and services (and the proprietary – licensed intellectual and structural capital underlying either…) 

  • Incidentally, I have visited the offices of the USTR in Washington, D.C. on multiple occasions and had discussions with key staffers, beginning in the mid-1990’s

For example, the President, in consultation with the USTR, is obliged, in accordance with the Act, to…determine whether particular-alleged (unfair foreign trade practices practices) are…

Special 301 Reports are issued annually, and have been since 1989, by the…Office of the U.S. Trade Representative, the purpose of which is to identify Priority Foreign Countries which have been judged to have ‘inadequate intellectual property laws’. The countries, so designated as Section 301’s, may be subject to certain sanctions if non-compliant, and  

  • Should the President determine that a response/action to the Special 301 Report Investigation is necessary…the law (the U.S. Trade Act of 1974) permits appropriate – feasible action to be taken (within the President’s scope of authority) to eliminate (curtail, deter) the adverse practice(s).

Broadly, the U.S. Trade Act of 1974, was, and remains…intended to…

  • promote the development of an open, nondiscriminatory, and fair world economic system,
  • stimulate fair and free competition between the U.S. and foreign nations, and
  • foster the economic growth of, and full employment in, the U.S. purposes.

Having been variously involved in the study and application of safeguards and exploitation of businesses proprietary intangible assets…since the early 1990’s, I respectfully doubt each of these matters, i.e., intellectual property risk, etc., routinely appear as action items on c-suite dashboards, for various reasons.

Probably, more so with business leadership who are (culturally, personally)…

  • advocate a strong entrepreneurial spirit, i.e., go fast, go hard, go global which variously influences them to be (more) receptive to seeking opportunities – engaging in trade with China and other countries (players), some of which appear on the USTR’s Section 301 lists.
  • which are known to – are suspected of (in advance) engaging in and/or are the beneficiaries and purveyors of stolen – misappropriated intellectual properties and proprietary intangible assets.

For obvious reasons, sustaining sufficient ‘relationship capital and company reputation’ to…engage in international trade and supply chains at will is necessary for U.S. business insofar as margins and sustainability, among other business requisites in today’s go fast, go hard, go global business operating environment. But, speaking publicly regarding adverse trade – business experience(s) with countries, particularly those designated as Section 301’s, i.e., China, remains challenging.

Throughout the now 15+ years of companies, businesses, startups, etc., which assume they are, sometimes for inexplicable reasons, obliged to engage in the go fast, go hard, go global business operating environment…

  • a still large percentage of U.S. business leaders remain inclined to convey a sense of dismissiveness toward risk related to their proprietary intangible assets and IP,
  • or otherwise do not express particular discomfort, when certain levels of risk to either set of assets is probable, or worse, an inevitability to an international business transaction with a country designated as a Section 301.

Of course, I consider such ‘risky’ inclinations to be, at best, imprudent.

Following numerous discussions with business leaders who publicly advocate playing nice…not infrequently, at the behest of their business company’s stakeholders, I presume they are experiencing some satisfaction with the status quo and leaderships’ presumptive penchant for going fast, going hard, and going global.

While most companies and businesses’ intellectual properties and categories of intangible assets consistently and collaboratively contribute to…business value and serve as sources of revenue, competitiveness, sustainability, and (product, service) attractivity; my experiences suggest these assets are frequently misconceived as being renewable resources which can be replicated, replaced, regenerated, re-exploited and/or acquired elsewhere, when – if needed. Hardly a business operational reality which I am familiar!

To those whose business decisions which could be reasonably presumed to be influenced – shaped by the go fast, go hard, go global mantra, often convey dismissiveness, if not outright passivity regarding the multitudes of risks related to sustaining the necessary contributory role, value, and competitiveness of its intangible assets.

Should this (my) presumption hold relevance…it’s important for business leaders to recognize that developing new business relationship capital and creating alternative manufacturing – supply chains is costly, time consuming, and an aggressively competitive undertaking.

Thus, safeguarding and monitoring incoming intangible assets at the commencement of an international transaction – project is…in my judgement, far preferable – superior to the inevitable scrambling, business leadership often finds itself trying to replicate comparable assets after the initial assets’ value and competitiveness have been irreversibly undermined and depleted as a consequence of theft, misappropriation, or undermining.

Of course, my perspectives on these increasingly critical business intangible asset matters…are consistently and variouusly addressed in 700+ published posts published at my ‘Business Intangible Asset Blog’ which was commenced in May 2006.    

More specifically my views on such matters, are…depending on which proprietary intangible assets and intellectual properties are in play and at risk of misappropriation – theft, etc., at anyone of a number of points before, during, or after a transaction has been consummated.

However, being familiar with the current state of play, I am not overly confident most transaction management team negotiators…

  • anticipate – expect (in advance) that such risks pose a particular-probability of materializing, so,
  • my counsel is to advocate for conducting a thorough pre and post transaction due diligence,
  • specific to the intellectual properties and intangible assets in play,
  • in advance of entertaining the other party’s proposal and commencing negotiations, and
  • ensure the company is practicing ‘best practice’ organizational resilience relative to an array of potential – probable risks which, if-when they materialize,
    • some risks will-can materialize immediately, while others can-will surface at the most inopportune time post transaction consummation, and
  • can – will, adversely affect the sustainability, value, revenue generation capability and competitiveness of all or specific intangible assets.

Frankly, I have long considered there are other important – relevant questions that warrant action as U.S. businesses engage in international trade…particularly transaction – project specific alliances, etc., in which the U.S. company is obliged to…

  • share, trade, or transfer (time specific) issued intellectual properties and/or other forms of proprietary intangible assets, always necessary to the transactions’ near and long term success.

In these circumstances, which, by the way, are variously routine and should…at minimum, be thoroughly examined in both pre and post transaction ‘due diligence’ contexts; it is here I pose a question which I believe is very relevant, that is, if pursued; is it probable – possible…

  • there are correlations to the go hard, go fast, go global lead – managed companies, and their…
  • vulnerability to – probability of experiencing materialized risks to their intangible assets which are in play?

Through my lens, conducting effective pre and post transaction due diligence…which is specific to the intangible assets and intellectual properties in play, as described – advocated in this blog…

  • can mitigate both risks to and probable losses of ‘the contributory role and value’ of lucrative, proprietary, and competitive advantage intangible assets developed and held by the U.S. company!

To influence U.S. business leadership to consider and execute pre – post transaction due diligence…specific to their intangible assets in play it’s prudent for business leadership to be mindful that today, and for the foreseeable future…

  • it is a globally universal economic fact that 80+% of most company’s value, sources of revenue, competitive advantage, and sustainability lie in – emerge directly from intangible assets they have developed and/or accrued.

So, for any business leader engaged in international  trade…to assume their company’s intangible assets, proprietary or otherwise, and intellectual properties will somehow be exempt from transaction risk, is, at best, imprudent or potentially, a violation of a leaders’ fiduciary responsibilities ala Stone v. Ritter 911 A.2d 362 (Del. Supr. 2006

Michael D. Moberly  St. Louis May 15, 2019 [email protected] the ‘Business Intangible Asset Blog’ since May 2006, 650+ published (long form) blog posts, ‘where one’s attention span, business realities, intangible assets, and solutions converge’.

Readers are invited to explore other posts, video, position papers, and books at https://kpstrat.com/blog


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