Giachino (00:05.0010 - 00:25.0040)
Welcome to IP Protection Matters. I'm your host, Renee Giachino.
Today, we are joined by Patrick Kilbride, a Policy Fellow at the Center for American Principles. Patrick joins me today to discuss the recently released 2026 Special 301 Report. Patrick, welcome back to IP Protection Matters. It's great to have you join me.
Kilbride (00:25.0219 - 00:26.0989)
Thanks, Renee. Great to be back with you.
Giachino (00:27.0510 - 00:55.0369)
So the Office of the United States Trade Representative, USTR as they're commonly referred to, released its 2026 Special 301 Report, which highlights foreign government policies that unfairly limit American innovation. Can you give us a little bit of history on this project, this report, [and] how long it's been around? Why is it called 301? Why is it special?
Kilbride (00:55.0729 - 03:21.0509)
The Special 301 Report is an outgrowth of the Trade Act of 1974. The US Congress mandated the US Trade Representative's Office - and there actually wasn't a so-called Office of the US Trade Representative at the time. We had a special trade representative and of course that's evolved as we've seen a proliferation of global treaties that are now overseen at the cabinet level by the Office of the USTR. The mandate was to have a strategy to identify and address the biggest challenges to US innovation and creativity worldwide. We saw that because of the growth of global trade. Congress looked around the curve a little bit and saw that we were going to have more international treaties like the World Trade Organization that followed in 1995 along with the North American Free Trade Agreement and then a proliferation of bilateral agreements. They said we really need to focus on this intellectual property issue.
That really was quite prophetic. At the time in 1974, about 10% of our economy - and I'm using sort of corporate market cap as a proxy for the broader economy - but about 10% was in intangible assets and 90% in traditional physical plant and equipment. Since then we've seen that ratio flip-flop where today 90% of corporate market value is in intangible assets, including formally recognized intellectual property rights, and 10% in plant, equipment and other physical assets.
So the importance of protecting these assets for US technological leadership and US competitiveness was really an important thing for the Congress to do. USTR carries out this mandate by producing the Special 301 Report each year and then developing the bilateral strategic plans that go along with implementing that.
Giachino (03:21.0910 - 03:32.0940)
Patrick, as long as you've been following it, how much do you think it changes from year to year? I guess in other words, is there anything new and exciting this year?
Kilbride (03:33.0800 - 05:18.0160)
It's a great question because usually the answer is no, right? You see the same thing again and again. It had become a bit of an exercise, but that really changed a lot in recent years.
First of all, the first big change was that in the Biden Administration, they really in some ways deemphasized intellectual property protection, especially for sensitive industries like pharmaceuticals. Of course it was in the context of the COVID pandemic, but they really sort of walked back what had been a long-term, bipartisan policy of the United States to speak out strongly against expropriation of US intellectual property rights by foreign governments. So that was a huge change.
Then the Trump administration came in January 2024 and immediately walked that back. So we've seen a return to that stronger position. But not only that, for the first time in keeping with broader White House policies, you've seen the Special 301 Report draw a red line on foreign price controls and foreign rate setting for US intellectual property. Acknowledging for the first time explicitly that when governments come in and control prices, that they're effectively nullifying the intellectual property rights of American innovators, creators and standard setters.
That's a huge problem for the United States because that activity is the root of our global economic and technological leadership.
Giachino (05:18.0700 - 05:43.0799)
What impact do you think this report possibly could have on these price controls that we are seeing, particularly as they come out of other countries? I guess another way to ask that is why would these other countries want to comply with our requests to address some of these concerns and could it result in a win-win for global IP protection?
Kilbride (05:43.0920 - 08:01.0609)
I think you're asking exactly the right question. Why would they want to? The answer is because it is a win-win. ... The reason we have intellectual property laws in the first place is because they generate positive economic outcomes.
We talked about the shifts from a physically dominated economy. And physical production still matters a lot - that's a big theme in our economic policy debate today and I don't want to deemphasize that at all, but you've seen the shift to the knowledge assets driving and steering those physical assets.
So what happens is we need to be able to demonstrate and show the rest of the world how it's worked in the US. That our intellectual property laws and rights and protections really form a type of infrastructure for knowledge assets the same way that our roads and bridges and the regulatory framework have for a long time provided the infrastructure for the movement of physical goods.
When foreign countries want to be a part of the innovation ecosystem, they want to have a bigger role in creating solutions, not just being on the receiving end of those solutions, the way to do that is to invest in a stronger intellectual property policy framework. To put the protections in place that allow entrepreneurs and corporations in their own countries to engage, and for the US entrepreneurs and organizations to engage with those markets in a real partnership.
That only happens effectively when IP rights are protected because that's what enables the mobilization of assets. It enables the exchange of assets between different partners, which is really the root of the economy - transactions.
Giachino (08:02.0309 - 08:36.0195)
So this report, which by the way listeners who want to find it and read it, I encourage you to do so. It might put you to sleep a little bit, but it's well worth the read. You can find it at USTR.gov.
It seems that a major focus, Patrick, this year in the report highlights some unreasonable pricing and reimbursement policies in foreign countries, some of which I was surprised to see include high income countries that are just not paying their fair share, as we talked about. Who do you see as the biggest offenders?
Kilbride (08:36.0434 - 11:03.0479)
It was interesting to note that for the first time ever, the European Union (EU) was included in the Special 301 Report for 2026 on the Watch List, which was a real shot across the bow in terms of what the White House intends to do in bilateral trade arrangements with these countries. You've already seen that the White House has not been shy about using tariff leverage to try to gain market access for US companies.
That's true certainly in the pharmaceutical space as well, where foreign governments have systemically lowered the price that our pharmaceutical innovators can receive in those markets far below the value of the innovation in terms of the health benefits it delivers, so the health benefits that those countries enjoy. US patients and US economic actors have been unilaterally subsidizing the innovation of the biopharmaceutical industry to a very large extent.
So by identifying this foreign practice in the Special 301 Report, USTR and the White House have signaled clearly that foreign price controls in pharmaceuticals, as well as sort of rate setting policies that affect a wide range of U.S. technological products, that we're not going to put up with it anymore. That we're going to use all of the trade policy tools available to address those practices where they see them.
They were identified not only on an umbrella level, but you can see in the report in specific countries what exactly they've done. And some of them are just sort of blatant in terms of the claw backs that the countries demand. So they'll give a pharmaceutical innovator a low price for their innovative medicine to begin with. Then based on revenues that the company earns, they'll demand a percentage back. It really looks and is quite a bit of a shakedown.
Giachino (11:03.0979 - 12:32.0659)
So in this report, staying in biopharmaceutical arena, it specifically addresses USTR's engagement in the past year as it relates to pharmaceutical and medical device innovation and market access. There is no doubt about the importance of the most basic intellectual property protections driving discovery, bringing new treatments and cures to patients, not just in the United States but around the world.
Yet we continue to see these biopharmaceutical innovators in the United States face, as we've talked about, a wide array of damaging government pricing policies abroad. As you've mentioned, they deny fair market value, they deny access to innovative medicines, they allow these foreign countries to benefit from our development without paying their fair share.
Do you think this report goes far enough to address those concerns? This report comes from the USTR, which is part of the executive branch. You referenced that back in the 70s or maybe the late 80s, Congress mandated through the Trade Act that we specifically address this.
Is it going to take more than just a report like this? Is it going to take potentially multi-levels of both branches of government to get involved or maybe a multi-nation IP leadership effort?
Kilbride (12:33.0080 - 15:54.0580)
You put your finger on it, Renee, and part of what makes this 2026 Special 301 Report so significant is that it is not just a report, right? You can only do so much by publishing a name and shame list of countries that have unfair intellectual property practices, which is what the United States did for many years in response to its statutory mandate.
What you've seen more recently though is that the USTR is fulfilling not just the letter but the spirit of the of the Trade Act in this respect, which is identifying at a very specific level what the challenges are and then developing plans to go after them, whether on a bilateral or a multilateral basis. So you've seen bilaterally that there's been an effort to negotiate bilateral trade agreements. Now they're calling them agreements on reciprocal trade or ARTS, and those have been very targeted at exactly the practices that we're discussing in terms of price controls and rate setting.
Then you've seen the willingness to use the leverage that the White House has through its tariff authority. There's Section 301 of the trade law [that] allows for sanctions. It's actually unrelated to the Special 301 Report, although they both have their origin in the Trade Act. But Special 301 sanctions are a particularly powerful tool to target specific abuses, and you've seen a willingness to do that at a level that we've rarely seen in the past.
Now, more broadly, I think it's absolutely critical that in addition to these bilateral efforts, that the United States extends its leadership at the multilateral level because there are some extremely important and consequential policy debates happening, whether it's in the United Nations, at the World Intellectual Property Organization or World Health Organization, or at the World Trade Organization, which is independent of the United Nations.
Other countries are shaping the environment in which our intellectual property creators have to work and do business, and various times the US has stepped forward as a leader or stepped back. I think now there's a moment when the United States has a chance to lead again, and it's going to be absolutely critical that they do that if we're going to continue to be the world's technological leader, if the American AI stack is going to shape the environment for the expansion of artificial intelligence tools around the world, and if US norms, values, and standards are going to be the ones that create the infrastructure for the next industrial revolution.
Giachino (15:54.0950 - 16:12.0340)
Patrick, you mentioned the American AI stack, and I occasionally hear or read how intellectual property is the critical linchpin for exporting the American AI stack. Can you back up at a real basic level, what is meant by the American AI stack?
Kilbride (16:12.0919 - 18:30.0859)
Sure. The American AI stack is the combination of technologies that enable artificial intelligence platforms, all of the different models that we're hearing about, to work. It begins with, at the most basic level, the hardware and software in telecommunications that enable digital systems to communicate. It includes the tools that allow us to transfer digital information and data from one center, one server to another. Those may be within the United States or they may be in different countries. It's ultimately about all of the hardware and software that encompass then the models themselves, these frontier AI models, the chips, and so forth.
So when we talk about intellectual property rights related to the AI stack, one of the major concerns we have is the potential for abuse. In a global environment that values and respects intellectual property, we can be more forthcoming in making those tools and those components of the American AI stack available, especially to allied trading partners. [We can] have a more robust export where intellectual property rights are more limited or are often disrespected, then it becomes harder to do that.
What you would like to have is a very surgical approach to export controls where you can identify, at a very specific level, the sort of dual use or highly sensitive items that you want to restrict then be very open with the rest of the stack. In an environment where intellectual property rights is disrespected, it becomes much harder to be surgical that way. So then you see the use of export controls as a blunt instrument that really holds us back.
Giachino (18:31.0469 - 18:55.0750)
So let's go back to the report itself. The 2026 Special 301 list actually categorizes countries into different categories - Priority Foreign Country, Priority Watch List, Watch List. You already mentioned that one of the surprises perhaps in this year's report is that the EU has been added to the Watch List for the first time. Any other surprises to you?
Kilbride (18:56.0709 - 20:44.0329)
Less of a surprise, but you see Vietnam being named a Priority Foreign Country, which is the sort of the most severe designation under the Special 301 Report, which means that there's a systemic problem with intellectual property infringement or theft in that country. I think you do see that across the board. Intellectual property theft has become an industry in Vietnam, and so that's what that addresses.
Then, notably, given that the U.S.-Mexico-Canada agreement negotiated by President Trump in his first term is up for review on July 1, 2026, and that talks are ongoing, what you've seen is Canada is on the Watch List along with the European Union. Perhaps most notably Mexico, its designation was changed from a Priority Watch List to Watch List, reflecting what USTR sees as some progress in its talks with the Mexican government related to that USMCA review.
So a positive development there and perhaps a signal that the USMCA review could result in some real trilateral cooperation that would maybe allow North America to fill a position that it probably hasn't in the past as well as it should, which is to be that sort of cooperative center for norm setting and standard setting on intellectual property and see a much more cooperative framework emerge from that agreement.
Giachino (20:44.0680 - 21:13.0339)
You're listening to IP Protection Matters. Our guest is Patrick Kilbride, a Policy Fellow at the Center for American Principles. You can follow the Center for American Principles by going to centerforamericanprinciples.org.
On your home page, it indicates that the Center for American Principles is dedicated to fighting for personal liberties, free markets, and a strong national security. Let's address that third one. What does this report mean in your opinion for national security?
Kilbride (21:13.0579 - 23:00.0000)
National security has a lot of different facets. One that we're particularly concerned with is its relationship to economic security and technological leadership. I think we believe that America's innovative capacity is particularly related to our economic strength, our technological leadership, and our global competitiveness. When the United States domestically has robust, reliable, and predictable intellectual property rights, we do better on each of those objectives.
When the rest of the world has higher intellectual property norms, we also do better because of our leadership role in producing innovative and creative outputs. So it's very much in the interest of the United States to see intellectual property norms enhanced around the world, never more than today with the advent of this groundbreaking artificial intelligence technology that has the potential of completely rewriting some of the rules.
So it's especially important right now that we are setting the terms, setting the baseline at the place where we can have the most solid foundation, I think the Special 301 Report has been an important part of sending those signals to the rest of the world from the United States about where we're drawing those lines and where we're building that foundation.
Giachino (23:00.0560 - 23:58.0660)
I was surprised, I guess not surprised, but it was remarkable to me that in the report it estimated that 63 million American jobs directly or indirectly rely on intellectual property-intensive industries. I know that, for example, last year my organization and many others submitted comments to the USTR relating to a Section 301 investigation of China's acts, their policies, and their practices in targeting, in this instance, the semiconductor industry.
We know that the President had a recent visit to China and that China has probably led this list of malfeasance. Do you think we're going to see any change as it may relate to what is happening in that arena in terms of counterfeiting and not paying its fair share and everything related particularly to this Special 301 Report?
Kilbride (23:58.0660 - 26:14.0670)
One of the things that we've seen over a number of years is that at some level China recognizes the importance of intellectual property protection to its own economy and its own ability to foster innovation and creativity. So you've seen China borrow the mechanics of that system from the United States and other Western countries and really replicate some of those specific legal mechanisms that provide the legal protections our innovators and creators need. So that's a positive.
On the other hand, I think we've continued to see a willingness to override those protections when it suited China's interest or strategy. I don't think that's going to change. What that means is maybe 99 times out of 100, many companies can do business in China in your run-of-the-mill, everyday industries and have a reasonable degree of protection.
But if you're in one of these sensitive, critical industries - you talked about semiconductors - I think there's a lot less certainty in that market. There are clearly limits on what any report or even as we've seen coming out of the recent visit, what entirely can be done. I think we have to have a very clear, realistic view of the challenges.
So for instance, I think that the Administration's response to this challenge has been to reshore and hopefully to engage in near shoring and front shoring in many of these critical industries with a view towards reducing our reliance on China, or our reliance on sources that may be less secure over time. That's been a very important part of our trade policy and of course it is directly related to what's being done in this Special 301 Report.
Giachino (26:15.0099 - 26:21.0219)
Patrick, you may have just answered my final question, but I'll ask it nonetheless. Do you have any parting thoughts?
Kilbride (26:22.0030 - 28:03.0319)
First, I want to say thank you, Renee. At the Center for American Principles, we value the work being done by the Center for Individual Freedom. We love the IP Protection Matters podcast and appreciate this partnership.
What I'll say first and foremost is it is really important that we understand, and this is a lesson from the COVID pandemic, that you can't separate intellectual property creation from the physical production of outputs. That it's not okay to simply say we're going to design it here and make it there. We have to have the capabilities to produce resources like critical minerals, like semiconductors, like sensitive pharmaceutical products in the United States or in cooperation with trusted partners.
That said, open markets is a value that we hold very dearly, and we know that all of us benefit economically, that the world is richer, that America is richer when markets are open. So our goal should be to reduce the barriers to market openness systemically over time while using those surgical trade tools to address the very specific concerns that can't be just left to the market. I think the Special 301 Report is now taking a bigger place in the prosecution of that type of strategy.
Giachino (28:03.0560 - 28:38.0430)
I’ll be excited to see how it all plays out. Hopefully, as you said earlier, it's not just going to be a report, but maybe it contains enough action items for us to see some movement certainly to continue to protect intellectual property both here and abroad.
Our guest has been Patrick Kilbride, Policy Fellow at the Center for American Principles. To listen to this podcast or any others that we've done, please go to IPprotectionmatters.org. Patrick, thank you so much for your time today. We greatly appreciate it.
Kilbride (28:38.0430 - 28:39.0119)
Thank you, Renee.