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As the U.S.-China technology competition intensifies, Chinese participation in the U.S. intellectual property (IP) system is under increasing scrutiny. Ongoing actions by the U.S. Patent and Trademark Office (USPTO) indicate a growing skepticism of Chinese activity, while recently proposed bills such as the Prohibiting Adversarial Patents Act would go even further by prohibiting Chinese entities deemed national security threats from owning U.S. patents.
Supporters of these proposals raise legitimate concerns. China has a long history of IP theft, treats technology as an instrument of geopolitical competition, and has built a formidable domestic innovation ecosystem supported by state industrial policy. Proponents argue that firms designated as national security threats should not be permitted to use U.S. patents to generate licensing revenue, assert infringement claims against U.S. companies, or otherwise leverage the U.S. legal system to advance their commercial interests. The United States already restricts China’s access to advanced technologies, investment opportunities, and other strategic assets. From this perspective, limiting access to U.S. patent rights is simply another defensive measure.
Yet IP protections have historically occupied a different place in U.S. policy. Although the United States confiscated or licensed enemy-owned patents during the world wars under wartime authorities, it has refrained from conditioning patent rights on nationality in the decades since. As modern export controls, investment restrictions, and other economic security measures have expanded, policymakers have intentionally sought to preserve the nondiscrimination that underpins the international IP system, even when adversaries have not reciprocated.
This is based on rational self-interest. The United States benefits from an international IP framework that enables firms to protect inventions across borders. The ability of U.S. firms to securely commercialize their innovations around the world has helped the United States build the world’s largest IP trade surplus, while foreign IP—including technical expertise, know-how, and commercial relationships—is increasingly needed by the United States to compete at the frontier in many critical technologies. Restricting Chinese participation may impose costs on Beijing, but it also risks weakening one of the United States’ own sources of competitive strength.
Evaluating such proposals requires considering not only their direct consequences, but also their indirect and systemic effects. The direct consequences are relatively straightforward: Restricting Chinese participation in the U.S. IP system would likely impose costs on Chinese firms while providing some benefits to their U.S. competitors. The indirect and systemic consequences are more complex. U.S. firms may face retaliation, governments and firms may adapt, and, over time, the international IP system itself could erode.
The central question to consider is not whether restrictions would hurt China—they probably would. It is whether those gains would outweigh the costs of weakening the international IP system, and, in turn, the U.S. innovation ecosystem that benefits from it.
The most immediate effects of restricting Chinese participation in the U.S. IP system would be felt by the firms who would lose their IP rights. Chinese companies benefit from U.S. IP rights because they provide access to the world’s largest and most commercially important technology market by helping firms protect products from imitation, support licensing agreements, and attract investment. For this reason, Chinese companies have increasingly relied on U.S. IP rights as they expand into advanced industries and global markets—over the last two decades, the USPTO has granted Chinese entities over 220,000 patents. Limiting access to these protections would make it more difficult for Chinese firms to commercialize technologies in the United States, which could reduce their ability to compete globally in certain sectors.
The effects could be particularly significant for Chinese technology firms that have built large U.S. patent portfolios. Companies such as Huawei and ZTE hold thousands of U.S. patents and generate substantial licensing revenue. Restricting their ability to obtain, enforce, or benefit from U.S. patents could weaken their market position and reduce the value of prior investments in research and development (R&D).
Chinese firms could also lose access to adjudicative mechanisms within the U.S. IP system that they currently use to advance their commercial interests. One prominent example is the Patent Trial and Appeal Board (PTAB), which allows parties to challenge the validity of existing patents with considerable success—the PTAB invalidates over 80 percent of the patents it reviews. Chinese firms such as ByteDance and state-owned enterprises such as TCL Technology leverage PTAB proceedings to contest the patent rights of U.S. firms, thereby strengthening their own market position. Losing access to the PTAB and other venues would therefore weaken the market position of designated entities by limiting their ability to challenge competing patents and participate fully in the U.S. IP system.
At the same time, some U.S. firms would likely benefit from restrictions on Chinese patent ownership. In effect, such restrictions would function as a nontariff barrier to competition, making it more difficult for Chinese firms to compete in the U.S. market while strengthening the position of domestic competitors. Restrictions could also marginally reduce legal challenges against U.S.-owned patents, while decreasing the volume of applications reviewed by the USPTO—a nontrivial outcome given that the USPTO is currently working through a significant patent backlog, taking on average 29 months to issue final decisions on patent applications.
While these costs and benefits are unlikely to be transformative, they offer a clear illustration of why these proposals have attracted support among some policymakers. Some Chinese firms would lose valuable legal protections and commercial opportunities, while some U.S. firms would gain competitive advantages. The murkier picture is what comes next.
When faced with geopolitical challenges, firms and governments adapt. Policies intended to impose costs on competitors rarely leave behavior unchanged. Instead, they alter incentives and often produce responses that partially offset the original policy’s intended effects. This makes indirect consequences more difficult to predict, but also more critical to think through.
One potential consequence is that restrictions could reinforce China’s ongoing push for technological self-sufficiency. Beijing has long sought to reduce dependence on foreign technology, but external restrictions could strengthen the political and economic incentives behind that effort. U.S. export controls, for example, likely intensified China’s efforts to develop indigenous alternatives in sectors such as semiconductors while aligning firms, researchers, and policymakers around the goal of reducing reliance on U.S. technology. Restrictions on patent ownership could produce a similar dynamic: Rather than simply weakening Chinese firms, they might encourage greater investment in domestic innovation, alternative commercialization pathways, and legal institutions less dependent on the United States.
Restrictions could also invite retaliation. China has repeatedly demonstrated a willingness to respond to foreign economic pressure with measures of its own, including export controls, regulatory investigations, and other forms of economic coercion. There is little reason to think that restrictions on Chinese IP ownership would be treated differently. China has already responded sharply to recent U.S. actions signaling increased skepticism toward Chinese participation in the U.S. IP system, stating that it “will take necessary measures to firmly safeguard the legitimate rights and interests” of Chinese firms.
Such retaliation could take many forms. U.S. firms could face reprisals within China’s IP system or become targets of broader legal, regulatory, or commercial measures. Because China has historically employed a wide range of tools in response to perceived economic pressure, the precise form of any retaliation is difficult to predict—a source of uncertainty that itself could discourage long-term investment and commercial activity.
These risks are relevant because many U.S. firms continue to derive value from the Chinese market and the Chinese IP system. U.S. companies file roughly 40,000 patent applications in China each year to protect products, secure licensing opportunities, and support commercial operations. Restrictions on Chinese participation in the U.S. IP system could therefore impose costs on U.S. companies that rely on reciprocal protections abroad.
This does not mean foreign IP systems have always treated U.S. firms fairly. China's own record includes uneven enforcement, local protectionism, and other practices that have disadvantaged foreign innovators. Nevertheless, U.S. firms continue to rely on foreign IP rights because even imperfect protections provide substantial commercial value compared with having no protections at all.
These indirect consequences complicate the logic of IP restrictions. Measures that impose direct costs on Chinese firms may simultaneously encourage adaptation within China’s innovation ecosystem and expose U.S. firms to reprisal. As a result, the medium-term impact of such policies may differ substantially from their immediate effects.
The most consequential effects of restricting Chinese participation in the U.S. IP system may stem from how such restrictions alter the institutions, expectations, and incentives that underpin the United States’ broader innovation ecosystem.
The value of IP rights depends heavily on credibility. Firms invest in R&D because they expect IP rights to be predictable, enforceable, and insulated from political considerations. The United States helped build the international IP system on the principles of reciprocity and nondiscrimination. Restricting IP ownership on the basis of national origin would represent a significant departure from those principles. Even if initially limited to a small group of Chinese entities, it would signal that access to U.S. IP rights may depend not only on the novelty of an invention or compliance with the law, but also on geopolitical alignment.
Once the United States begins conditioning patent rights on nationality, it sets a strong precedent that other nations can do the same. China could invoke a similar rationale to restrict U.S. IP owners, while other countries might begin tying IP protections to national security, industrial policy, or diplomatic disputes. And, once started, this dynamic cannot be easily reversed. Over time, exceptions could multiply, reciprocity could weaken, and firms could face a more fragmented international environment in which the value of IP depends on the nationality of its owner.
Because U.S. firms are the world’s largest users and beneficiaries of foreign IP protections, they would have the most to lose from such a shift. U.S. firms rely on foreign IP rights to protect, commercialize, and license their technologies around the world, generating the revenue needed to scale their businesses and finance future R&D. More broadly, the U.S. innovation ecosystem benefits when U.S. firms can collaborate, manufacture, and sell technologies overseas under predictable legal protections. Weakening those protections would make international partnerships more difficult and reduce the flow of capital, technology, and expertise that supports U.S. innovation.
Further, an open international IP system shapes the willingness of foreign firms to invest and build partnerships in the United States. The U.S. innovation ecosystem depends not only on domestic talent, research, and suppliers, but also on foreign capital, technical expertise, and commercial relationships. When a foreign company chooses to patent a technology in the United States, the benefits can extend well beyond the patent owner. Investment may bring new facilities, supplier relationships, licensing partnerships, and collaboration with U.S. universities and firms. U.S. workers and domestic companies can also gain exposure to new production methods, technical expertise, and other tacit knowledge that can only be acquired firsthand.
This is particularly critical today because the United States does not possess the leading technology or industrial capability in every strategically important sector. In areas such as semiconductor manufacturing, batteries, shipbuilding, and robotics, leading firms and production expertise are located abroad—including, in some cases, in China. Rebuilding U.S. industrial capacity will therefore require attracting companies with advanced technologies to invest, manufacture, form partnerships, train workers, and transfer production know-how in the United States.
Reliable IP protection is one part of the environment that makes those investments possible. Firms are more likely to bring valuable technology into the United States when they are confident that they can protect it, license it, and earn a return on the investments required to deploy it. Conversely, policies suggesting that IP ownership may be withdrawn or denied on geopolitical grounds could make firms more cautious about commercializing their technologies in the United States. The immediate target may be a narrow class of Chinese entities, but the broader signal would be visible to foreign innovators more generally: U.S. IP rights are becoming less insulated from political risk.
The systemic risk, therefore, has two dimensions. First, conditioning IP rights on nationality could weaken the norms of reciprocity and nondiscrimination that allow U.S. firms to protect and monetize their innovations globally. Second, it could make the United States a less attractive place for foreign firms to invest and commercialize technology, reducing the inflow of capital and expertise needed to develop strategic industries. These effects would likely emerge gradually and would be difficult to measure against the more visible costs imposed on individual Chinese firms. But, over time, they could erode the United States’ innovation ecosystem.
Proposals to restrict Chinese ownership of U.S. IP are understandable. China has a long history of IP theft and increasingly views technology through a geopolitical lens. Restricting Chinese participation in the U.S. IP system would likely impose real costs on certain Chinese firms while providing tangible benefits to some U.S. competitors.
But policymakers should also consider what comes next. China will adapt and respond. And if the United States begins conditioning participation in its IP system on nationality, it risks weakening the international IP framework that has long served U.S. interests while making itself a less attractive destination for foreign firms to commercialize technology, invest, and share production know-how. The challenge posed by China’s rise is real, but responding by weakening institutions that have historically supported U.S. innovation risks sacrificing a long-term strategic advantage for more immediate tactical gains.
The United States cannot compete successfully with China by abandoning its own strengths. The U.S. innovation system became the world’s most dynamic because it attracted talent, capital, ideas, and investment from around the world. The most effective response to China’s rise is not to weaken the foundations of the U.S. innovation system in order to impose costs on a competitor. It is to strengthen those foundations so that the United States remains the world’s most attractive place to innovate.
Chris Borges is fellow and senior program manager in the Economic Security and Technology Department at the Center for Strategic and International Studies in Washington, D.C.
