Brian Harker froze when he opened the emailed photo from his sales representative. The image, he said, showed Harker’s Grip-Tite sockets for sale on the shelves of a Tractor Supply store, something Harker had never authorized.

There was only one way Harker could fathom that his product was for sale at Tractor Supply without his knowledge: A Chinese company had gone around him. Harker is an American tool inventor based in South Bend, Ind. In 2013, he signed a deal with Chinese manufacturing giant Hangzhou GreatStar Industrial to make tools based on his designs, but GreatStar was not allowed to sell the products without Harker’s permission.

Harker thought he a had devised a foolproof method to keep an eye on GreatStar by having one key part necessary to manufacture Grip-Tite wrenches and sockets made in India. Harker had to approve shipment of the part to China.

AD
AD

But when he saw the picture of his tool for sale at Tractor Supply, a U.S. farm supply retailer, he realized the plan had not worked. Harker sued GreatStar and the case was settled in 2017. Details of the settlement were not publicly disclosed, a common practice in patent infringement cases. GreatStar denies wrongdoing.

President Trump insists China must strengthen its intellectual property protections, but Chinese leaders have been reluctant to go as far as Trump wants, a major sticking point in the 19-month trade fight between the world’s two biggest economies. The White House claims the “phase one” agreement reached this month includes Chinese concessions on IP, but no details have been released and Chinese officials have not confirmed anything related to IP.

As Trump’s frustration grows that China won’t change many of its laws and practices, senior White House officials are looking at ways beyond tariffs to use U.S. laws to pressure China on IP.

Peter Navarro, a top Trump adviser who has spent much of his career calling for an aggressive crackdown on trade with China, has looked at blacklisting Chinese companies that steal American IP from doing business in the United States, according to three people familiar with the matter who spoke on the condition of anonymity.

Navarro’s team has explored the possibility of blacklisting Chinese companies that violate numerous U.S. copyright and patent laws by placing them on the Commerce Department’s “entity list,” according to the people familiar with the matter, who requested anonymity because they are not authorized to speak publicly.

AD
AD

Getting on the list makes it difficult to operate in the United States without obtaining a special license. The entity list mainly includes companies that pose a military or terrorist threat to the United States, but the Trump administration has frequently argued that economic security is part of national security.

In a brief interview, Navarro called it “fake news” that he was working on an executive order to blacklist more Chinese companies, but people familiar with the plan have seen versions of it in writing.

“This is not historically the way the entity list has been used. It’s a major expansion of its mandate,” said Eric Altbach, a former deputy assistant U.S. Trade Representative focused on China. “It would put the U.S. government in the position of having to make an assessment of IP claims without a particularly clear process to do it.”

AD
AD

Intellectual property theft by China costs the U.S. economy up to $600 billion a year, according to a report last year by the U.S. Trade Representative. That figure includes everything from knockoff movies to cybertheft and China’s longtime requirement that U.S. firms partner with Chinese ones, a practice that often requires handing over business secrets to the Chinese. China introduced a new foreign investment law in March to give overseas firms more rights starting in 2020, but concerns remain about whether China will hold to its promises.

For many American inventors such as Harker, blacklisting Chinese companies would be welcome news because it would make it difficult for U.S. retailers to buy from these Chinese firms, but others fear that it would open Pandora’s box, taking the entity list from a tool to protect U.S. national security to one that could be abused without clear guidelines.

“Everybody wants to put companies on the entity list now. This is Pandora’s box. In my opinion, this is hopelessly stupid,” said Mark Cohen, director of the Berkeley Center for Law and Technology. “When did Peter Navarro become a federal judge?”

AD
AD

In the United States, most patent infringement cases are settled with no one admitting wrongdoing, making it difficult to assess if a firm is a repeat violator or not.

Harker would like to see a three-strikes rule in place where a foreign company that has been sued for patent infringement three times by three different U.S. companies in a span of three years would be put on the entity list. By that definition, GreatStar might qualify. The Washington Post found three separate patent infringement cases against the company since 2017 and confirmed with parties involved that all were settled with one resulting in a permanent injunction.

“I am not advocating you can never buy from China or Italy or wherever, but you should not buy from people who blatantly steal,” said Harker, who has shared his story with the White House. “Right now, the leverage is truly in a Chinese company’s court. It’s ten times more expense to defend a patent than infringe on it."

AD
AD

Groups like the Information Technology and Innovation Foundation, a think tank, have called for the United States and its allies to at least publish a bad actors list to publicly call out Chinese firms and individuals, even if the list doesn’t have the legal ramifications of being on Commerce’s entity list.

A GreatStar spokeswoman denied any wrongdoing.

“Over the past decade, GreatStar has been named as a defendant in only a handful of suits concerning patents or licensing, an especially small number considering the tens of thousands of products the company has developed and sold in that period,” said April Mills, a U.S. operations manager for GreatStar. “Importantly, none of these cases against GreatStar or its clients resulted in a court finding of any wrongdoing.”

AD

Bringing a patent infringement case is costly, and few companies will do it unless millions of dollars are a stake, said Jerold Schneider, who has worked on more than 200 IP cases, including one against GreatStar. He can see the appeal of having the federal government do more to go after Chinese firms since that takes the cost burden off the back of American companies. But he says the government would need to create a clear definition of what it takes to get a company on the blacklist.

AD

“The mere fact a company has been sued 10 times doesn’t tell you anything,” Schneider said.

While Harker did bring a lawsuit against GreatStar, what helped him the most was that Tractor Supply swiftly pulled the item from its shelves after Harker explained his story, including sharing an email where GreatStar told him the product would be shipped to a British retailer, not an American one.

AD

Harker says most retailers are not as helpful. When big retailers purchase items from Chinese suppliers, the contract often includes a line that takes all responsibility off the retailer for knowing who holds the patent.

Tractor Supply declined to comment for this story.

Related:

AD
AD