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 government involvement in standards-setting processes, and include a requirement that SSOs obtain government approval for patent claims. Such government involvement could be exercised in a way that affects private party transactions and could raise concerns under certain circumstances.

In January 2010, the China National Institute of Standardization (CNIS) solicited public comments on its notice entitled, "Disposal Rules for the Inclusion of Patents in National Standards." The "Disposal Rules" are the supporting documents for SAC's Provisional Regulations. In October 2010, CNIS finished the second draft of the Provisional Regulations, "Special Procedure on Standards Making—Inclusion of Patents in National Standards," and submitted them to SAC for review.

U.S. companies have expressed serious concerns regarding these proposals. The United States will continue to monitor how China treats intellectual property through its SSOs, including in connection with the development and finalization of CESI's rules, as well as the development of SAC's revised Provisional Regulations. In addition, the United States will discuss these issues with China in the JCCT IPR Working Group, where both sides have agreed to discuss related issues with participants from all relevant Chinese and U.S. agencies.

Chinese government agencies, including at national, provincial, and local levels, frequently release documents, including regulations, rules and regulatory documents (e.g., opinions, notices, circulars) that seek to promote China's development as into an innovative, IP-intensive economy. The United States recognizes the critical role of innovation in development and in improving living standards in the United States and China. However, the United States has also expressed concerns to China regarding its innovation-related policies and other industrial policies that discriminate against or otherwise disadvantage U.S. exports or U.S. investors and their investments. Chinese regulations, rules and other regulatory documents frequently call for technology transfer, and in certain cases, condition, or propose to condition, eligibility for government benefits or preferences on intellectual property being owned or developed in China, or being licensed, in some cases exclusively, to a Chinese party. Such arrangements may not ordinarily be commercially optimal but for the conditions or incentives established by the government. Government intervention in the commercial decisions of enterprises regarding intellectual property ownership, development, registration or licensing is not consistent with international practice, and may raise concerns relative to China's WTO obligations. The United States encourages China to abandon policies and practices that involve the government in enterprises' licensing and other contractual arrangements.

Indigenous Innovation and Product Accreditation for Government Procurement Preferences

In late 2009, three Chinese agencies -- the Ministry of Science and Technology (MOST), the Ministry of Finance (MOF) and the National Development and Reform Commission (NDRC) -- announced a National Indigenous Innovation Product Accreditation System, that would, among other things, condition government procurement preferences on certain criteria, including several specifically relating to intellectual property. For example: (1) An applicant's products would need to have "Chinese intellectual property and proprietary brands;" (2) An applicant would need to be a Chinese enterprise, institution or citizen owning such intellectual property lawfully; (3) An applicant's use, handling and secondary development of such intellectual property would need to be totally independent of overseas organizations or individuals; and (4) An applicant would be required to own the trademark of eligible products, and the trademark's original place of registration would need to be in China, and also be independent of overseas brands.