Corrected: Some U.S. businesses urge caution in China intellectual property trade push

(The story in paragraph six corrects attribution for "the greatest transfer of wealth in history" to "a former U.S. official," not Richard Ellings.)

WASHINGTON (Reuters) - U.S. businesses and trade groups are split over how forcefully to crack down on China over intellectual property theft, with some arguing the country is making progress on its own in enforcing protections and urging the Trump administration to use negotiation instead of punishment.

Testimony at an International Trade Commission hearing on Tuesday showed the complexity of an issue that some groups say has cost the U.S. hundreds of billions of dollars in technology and millions of jobs lost to China, something the administration of President Donald Trump has said it will challenge.

They charge that Chinese firms have stolen ideas and software or forced firms to turn over intellectual property as part of the price of doing business with the world's fastest- growing major economy.

The Trump administration has launched a so-called Section 301 investigation into China's alleged misappropriation of intellectual property, and the president could impose tariffs or import restrictions to protect U.S. firms from what the administration deems unfair trade practices.

China "cheats across the board," said Richard Ellings, testifying on behalf of the Commission on the Theft of American Intellectual Property, a private group set up five years ago to monitor China's handling of trademarks, patents and other forms of intellectual property.

"Just agreeing to manufacture in the country opens yourself" to theft or forced technology transfer, Ellings said, noting that a former U.S. official called Chinese cyber theft of intellectual property "the greatest transfer of wealth in history." Ellings said it requires a U.S. response based on "strength and leverage."

However, Erin Ennis, senior vice president of the U.S. China Business Council, a trade group of 200 companies that do business in China, said that surveys of its members found that just a third had been asked to transfer technology and that there was "a minority ... who are forced to transfer technology and are not compensated."

"The administration has the opportunity to lead like-minded countries," to encourage China to address remaining problems rather than taking unilateral steps that could risk growing trade between the countries, she said.

Others noted the recent creation on a pilot basis of three special intellectual property courts in China as a sign of progress.

"That's a positive step," said Scott Partridge, head of the American Bar Association's intellectual property section.

Representatives of several Chinese commercial groups said at the hearing that the country should be given credit for the steady progress it has made in building an IP enforcement system from scratch as it joined the world economy.

Section 301 investigations are broad in scope, and have not been used much in recent years. The panel conducting the probe will submit a recommendation to the Office of the U.S. Trade Representative.

Allegations that Chinese firms routinely ignore patent and copyright protections have been widespread, and have been amplified in recent years by the country's plans to compete in the manufacture of semiconductors, the largest commercial aircraft, and other sophisticated goods where the United States holds an advantage.

(Reporting by Howard Schneider; Editing by David Chance and Andrea Ricci)