00:00We now go to the gentleman from Wisconsin, Mr. Fitzgerald, for his questioning.
00:03Thank you, Chairman.
00:04Professor Kuh, the United States maintains a number of sanctions, export controls,
00:09or other measures to prevent certain individuals or entities affiliated with an adversarial nation
00:16from gaining access to strategic technologies that are preventing equipment produced by such persons
00:23from being utilized in sensitive U.S. industries.
00:27A lot of times the sanctions include restrictions on certain property rights, and generally, however,
00:35these do not apply to a sanctioned entity's patent portfolio, meaning a sanctioned entity can continue
00:42to license its patents to U.S.-based companies or assert them in court.
00:50Some see the circumvention of sanctions and the subsidization of the activities
00:57of a sanctioned entity.
01:01So let me ask you, why have IP rights generally been excluded from other property rights restrictions
01:07under U.S. sanctions, and how could adversarial nations like China, which I know we've been talking about,
01:15take advantage of that loophole to the detriment of the U.S. innovation,
01:19or obviously the other thing discussed is our national security?
01:23This is a complicated question.
01:26I agree with you that it's a strange thing.
01:28Obviously, it depends on how we design our sanctions regime, which this body, Congress, has designed,
01:34but also which is implemented by the Commerce Department.
01:37You could have sanctions that are much stricter and that are completely across the board,
01:43which in some cases would prevent, you know, even intellectual property licensing from occurring.
01:48I think that what's going on here is that people have, the Commerce Department or other entities,
01:55essentially try to make compromises to account for different interests, right?
01:59The licensing is very valuable, right?
02:01It's very valuable for U.S. companies in many cases.
02:05To lose that revenue is a substantial and significant cost.
02:08So I think there's no legal reason why we cannot impose such rules across the board.
02:14I think it's more of a practical problem of balancing the different economic and political interests that we have here in the United States.
02:23Ms. De La Breuer, you've written extensively on China's military-civil fusion, I guess you'd call it.
02:31And China has utilized companies like Huawei and ZTE to advance its Made in China 2025 initiative or plan, I guess you'd call it.
02:43So Huawei held over 3,300 active U.S. patents in 2024, which is unbelievable to me.
02:51And it's generating the company hundreds of millions of dollars in annual licensing revenue.
02:55So when we allow some of these state-sponsored companies like Huawei to profit off the U.S. patent system,
03:03either through licensing agreements or injunctions, I mean, obviously we're subsidizing the continued kind of theft of American intellectual property
03:13and certainly helping to advance China's industrial agenda.
03:17What should Congress do about this, if anything, considering the limiting and licensing of asserting the U.S. patents while on certain national security-related sanctions lists?
03:31I think one big challenge about fighting back against China's military-civil fusion strategy and general tech offensive
03:38is that we haven't, as a system, quite caught up to how advanced Beijing is.
03:45And therefore, the leverage it acquires and the risks of not only China stealing technology,
03:50but also the U.S. becoming increasingly dependent on Chinese technology.
03:54And the way that that, alongside, say, U.S. investment into the Chinese tech program
03:59and more concrete U.S. tech partnerships with China, end up fueling our adversary.
04:04And because we haven't recognized that, as a system, we haven't imposed restrictions on things like tech licensing
04:12from Chinese entities that are very real threats.
04:16And one potential avenue that the U.S. could take is that where we, through FIAC restrictions, for example,
04:23impose barriers on U.S. tech partnerships with China,
04:26those could also cover tech licensing, patent partnerships, and other IP agreements
04:32beyond simply formal joint ventures, formal export of technology, et cetera.
04:40So right now I'm chairing the subcommittee on antitrust,
04:44and we've been investigating kind of this cartel-like behavior
04:48in a number of U.S. industries where there's collusion.
04:51However, with foreign companies, you know, you can have an American corporation
04:56working with someone in China, and it kind of falls into a different category.
05:00I was wondering if you had any thoughts on that.
05:02Well, China's entire industrial, and we'll call it private sector, but it's not a private sector,
05:08is a cartel, because fundamentally Beijing and the Chinese Communist Party control that
05:12through incentive shaping and through direct directives, for lack of a better word.
05:18And that means that we should think of Chinese companies, including their outposts in the United States,
05:24as being arms of the Chinese system and colluding.
05:28Thank you, Chairman. I'm out of time. I yield back.
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