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July 6, 2010

Heidi Schmidt

Interesting that the perception of China's supposed lack of intellectual property rights is more of a barrier than the actual degree of regulation. Perhaps an awareness campaign advising foreign business owners of the new and improving regulatory framework is needed-although China would have to be careful not to turn it into propaganda. Allowing foreign business owners to make suggestions could create a hybridization of home-grown Chinese and international business regulations that would allow both groups to feel well represented.

July 7, 2010

Jordan Brown, UCLA, Silver Contributor (33)

Although I am thoroughly unqualified to judge whether your experiences reflect a general reality, I dig the article and I like the message. It seems that many problems in commerce, diplomacy and life in general could be solved with the idea reflected by your conclusion.

"Before complaining to their respective Chambers of Commerce, Western businessmen would be well-advised to work within the existing system."

July 7, 2010

Kaz (NYU Global Affairs)

I believe you raise an important point since many foreign investors are pessimistic about the Chinese market. However, it is difficult to state whether the 14.3% filing rate is relatively low or not without knowing the trend the last several years. China for example, joined WTO in 2001 and foreign investors were initially optimistic about the improvement in legitimacy. However, this optimism was dampened as the Chinese government was reluctant to impose regulations on IPR infringements. So is the 14.3% rate relatively high or low? If the rate was a decline then it might be relatively low. On the other hand, if it rose from 7% it might indicate a new trend.

The Chinese government has also made its intentions clear about nurturing its domestic industries. This might explain foreign investors' pessimism about the future. Patents filed by domestic firms might be favored compared to those filed by foreign counterparts. It is hard to draw conclusions without further research but this pessimism is at least based on a grain of truth.

Even if there is a misconception about China's business environment this is partially the responsibility of the Chinese government. Business sentiments are dependent on previous experience and the government has not responded well to foreign firms’ needs. The government penalizes a few cases to entice foreign investors but there is no consistency.

As China is forced to comply with global standards as a member of WTO this issue will become clearer. This is an interesting topic and we should all pay close attention. China is already a force to be reckoned with and will become more so in the next 10 years. Let us watch how this unfolds and debate again in the future.

July 8, 2010

Member deleted

Heidi, Jordan and Kaz,

Thank you all for your comments. Heidi- I agree with you that China needs to focus its attention on changing these perceptions. Regarding an awareness campaign, the Chinese government is in the midst of trying to do just that. For example, in 2009, they established an English-language online portal at http://www.chinaipr.gov.cn/. This portal provides insight into new legislation, provides directions on how to file for IP protection in China, and sets forth relevant news, including cases. Notably missing though is any explicit language targeting the foreign business community that would help to quell their concerns about IP enforcement. Additionally, there is insufficient promotion of the major cases, such as Neoplan and Strix, which demonstrate that foreign businesses can prevail over domestic businesses and receive judgments far in excess of the low average judgment figures they complain of. Doing research on these cases and several others was not easy and involved piecing together a series of articles. The Chinese could benefit from holding these cases (and other representative cases) up as examples and keeping them in one central place on their website.

Another significant campaign effort to change perceptions currently being undertaken is related to the World Expo which is being held in Shanghai from May through October of this year. The Chinese government has devoted a substantial amount of resources to this project to demonstrate to the business community and the world at large that it is serious about IP enforcement. To do this, the Chinese government has implemented new legislation to protect the Expo’s logo (Haibao), and has even established a specialized system of courts in the Pudong District tasked with civil and criminal cases involving IP theft. Administrative agencies have conducted raids, and just yesterday, it was announced that a total of 60 suspects have been arrested for IP-related crimes in connection with the Shanghai Expo. It remains to be seen if these and similar efforts will have any effect in the coming years on global perceptions of China’s IP system.

Jordan- thank you for your comment- I think it’s worthwhile to consider the fact that Chambers of Commerce promote a particular interest and are beholden to a particular body of members. The information they set forth is not necessarily always evenhanded.

Kaz- good to hear from you. The data available suggests that the overall filing rate for all types of patents by foreign businesses is on the decline. According to the time-series data from the SIPO website, from January through May of 2010, 560,211 patent applications were filed in total, of which 510,446 (91.1%) were from domestic sources, whereas 49,765 (8.9%) were from foreign sources. In previous years, the percentage of foreign patent applications with respect to the total has fluctuated between 10 and 15 percent. (e.g., 10.1 percent in 2009, 13.4 percent in 2008, and 15 percent in 2007). By comparison, in the US, the percentage of foreign patent applications hovers around 50% (http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm).

Regarding the possibility of Chinese bias toward domestic industries, I can only base my response based on what I was told by the attorney I met with at the Shanghai Patent and Trademark Office. He advised me that Western companies have an even easier time winning such cases in court than do Chinese companies. That is not to say that there are not examples of cases where Chinese companies have won far greater judgments for IP theft than the judgments won by foreigners that I referenced. I agree with you that there is a need for greater consistency on the part of the Chinese government and the Chinese courts. On this point, the lawyer in Shanghai was quick to point out that China’s IP system is not perfect- it is a work in progress. Given the fact that the first Chinese patent law was devised only in 1984, China’s IP system has come a long way in a relatively short amount of time.

This will be an interesting issue for us all to follow in the months and years ahead.

July 9, 2010

Kaz (NYU Global Affairs)

I found an interesting article on the internet today about increasing labor costs in coastal cities in China. Yesterday, we discussed about improving legitimacy in China. According to the article, labor laws were passed in 2008, increasing overall wages and awareness among Chinese workers. This means there is increased transparency so workers have a better understanding of their rights.

However, you also stated foreign companies have a better chance of winning in courts on IPR-related issues compared to their Chinese counterparts. This is encouraging but it is also expensive. Many companies prefer to settle conflicts outside of courts. The article briefly touched on how companies in the science industry are exiting China and one reason is increasing costs. I can only speculate since the article does not elaborate further but is it possible that legal battles are relatively expensive because the system including mediation is still in its infancy? This might be discouraging foreign companies from filing cases in China.

The article said some companies are relocating to the U.S or other emerging markets. This mass exit will definitely provide the government with plenty of incentives to improve its rule of law. Cheap labor is no longer adequate for multinational companies (MNCs) to relocate to China. We will see what happens…..

July 10, 2010

Member deleted

Dear Brian, thank you for your article! It's a very well done report on recent IPR developments in China.

Let me throw one big issue into the circle of discussion: The IPR system and laws are not the problem. The big problem is the way these somehow, somewhere existing guidelines are carried out. There surely are improvements, but, in general in China as well as in the case of IPR, laws do not fulfil the same duties and are not even close to have the same position as in western countries.

Cases are often not carried out in front of a court, often in common discussions and solved by a compromise. Laws are not the basis for these compromises. If a case is carried out in front of a court, the way Chinese courts work drive foreigners crazy. And if brought to an end, the result is way too often "in dubio pro sino". And again, I agree that there are improvements, but it is far away from what we would conclude seeing Chinese law papers and interpreting them from our understanding of laws.

The formal status is also what was presented to you by officials and business leaders (especially Shanghai Patent & Trademark Law Office and high leaders even of foreign companies in China). They mostly won't complain, rather present it as developed as western rule of law using endless stacks of paper to support their view. And add the standard notion "still some issues that need to be solved". But a significant share of the laws are, in my opinion, at the moment not even worth the paper that it is written on. And what in Shanghai or Beijing might be law, in Chongqing or Kunming it is not. I have a distinctively different understanding of national law though.

Official numbers, official statements and written law can help you, but can not be the basis for understanding the rule of law in China. That's just my impression and personal opinion about the development of the rule of law in China and I am looking forward to your critical comments.

July 10, 2010

Member deleted

Kaz and Christian-

Thank you both for your comments. Kaz- in my pre-departure research, I found that the expense of bringing an IP case to court is commonly cited as a reason why foreign corporations are reluctant to use the Chinese court system. There appeared to be at least three reasons for this. First, unlike in the US, there is no discovery procedure, meaning that the parties to a lawsuit are under no obligation to provide each other with pertinent evidence. As a practical matter, the plaintiff is therefore forced to use other means to collect evidence- for instance, by hiring private investigators. Second, the Chinese courts appear to maintain a higher threshold for the admittance of evidence than what we would be accustomed to in the United States. There has traditionally been a heavy reliance on notarized, original copies of all evidence that is submitted to the courts. In fact, in the Neoplan case referenced above, the plaintiff had to go so far so as to purchase an infringing bus (still though, at a cost of less than 10% of the final judgment). A third issue refers to one that appeared to permeate the legal system- that is, corruption. It is often suggested that the party that emerges victorious in a lawsuit is the one which offers the judge the largest bribe.

I questioned both of the attorneys I met with specifically on the expense of bringing an IP case to court. In Beijing, I was advised that on the average, companies are billed about $400 USD per hour for IP-related legal work. Additionally, I was told that for about $2,000, the firm will file the complaints necessary on behalf of an IP-rights holder to induce the appropriate administrative agencies to conduct raids in up to 11 Chinese cities. Infringing products will then be confiscated, and violators will be subject to imprisonment for up to 7 years. In Shanghai, I wasn’t given an exact figure, but was advised that the hourly rate is similar to that which would be billed in the US. Regarding the absence of a discovery procedure, I was told that this actually serves to reduce the total time it takes to prepare a case for court and serves to limit the total expense to the client. Speaking from my personal experience as a paralegal in New York, most of the day-to-day legal work we do involves time-consuming discovery (i.e. bills of particulars, interrogatories, demands for discovery and inspection, etc.). Regarding the issue of the evidentiary requirements, it was suggested that the Chinese courts have been backing off this to a certain extent, and have become increasingly willing to consider copies rather than originals of documentary evidence. Finally, neither firm admitted to encountering any issues related to corruption in IP disputes. In Shanghai, the law firm noted that corruption, when and if it occurs, does so well outside of the major cities. The judges see themselves in a position of prestige and are not so willing to encourage a culture of corruption or accept bribes as doing so would put them at risk of losing their posts.

Christian- your point is well taken. My class met with Dan Guttman, a lawyer and professor of law at Peking University and Tsinghua University. Mr. Guttman lectured us on the historical and philosophical development of the Chinese legal system, and pointed out the differences in that heritage in comparison to that of the United States. After the group discussion, he noted that many law students from the West come over to China and fall into the trap of attempting to understand the intellectual property system in China by way of comparing and contrasting the written law with that of their home country. He noted that this is essentially a meaningless endeavor as the strictures of the law in China are not held to the same regard as they are in the West. In the Chinese system, personal relationships often regarded as being above the law. It is for this reason that the focus of my research was not on a textual analysis of the written law, but on the actual results as reported by case decisions, and informed through the experiences of legal practitioners and the business community.

As to your point about settlements being reached outside of court, I am not familiar with the extent to which this is carried out. However, what I will say is that lawsuits are being filed, and for the most part, it is not foreigners who are filing them. Regarding the operations of the Chinese courts "driving foreigners crazy," my point is that foreigners who expect to do business in China must leave their preconceptions behind and learn how to operate in the foreign legal system. They cannot expect to arrive in China and confront a legal culture similar or even remotely similar to their own.

As to regional differences in enforcement, we met as a class with Jason Inch, a business consultant in Shanghai who made a similar point. He noted that while there have been some notable improvements in enforcement in the major cities, some of the courts in the more rural areas are trailing behind. At the law firm in Shanghai, I was given three responses. First, the majority of the cases have come to the major population centers, such as Beijing and Shanghai. In these cities, IP cases are heard by specialized tribunals dedicated to IP. As a result, courts in these areas have more experience and expertise in adjudicating IP disputes. Second, the court system is designed in such a way so that patent cases are automatically adjudicated in the first instance in the Intermediate Level People’s Courts (or in the IP division thereof), which are located in the capital city of each province. Therefore, these cases are never actually heard outside of the cities. Third, jurisdictional rules in China function so as to permit litigants to bring a case either at the place of infringement or at the defendant’s domicile. This may permit a plaintiff a certain degree of leeway in choosing the forum. For example, in a 2008 case brought by Motorola in response to the infringement of a design patent on a two-way radio in Guangdong province, the company and its legal team were able to take advantage of the experience of the Beijing courts, and bring the case there, permitting them to avoid the potential for local protectionism in the courts of Guangzhou. (http://www.finnegan.com/resources/articles/articlesdetail.aspx?news...).

Regarding the point made about official statistics, it would certainly be a mistake to rely wholeheartedly on statistics reported from any one source, especially those coming from sources within the Chinese government. However, we are not talking about data which can be easily manipulated such as GDP statistics or employment data. We are talking about straightforward numbers- the specific number of IP applications and lawsuits filed by foreigners. Even if the numbers as reported are skewed, the American Chamber of Commerce certainly did not suggest that the business community as a whole is putting in much of an effort to enforce its IPR rights.

Finally, the statement that there are “still some issues that need to be solved” is made by proponents of the view I am espousing because no one can claim that the Chinese system is perfect, or even close to it. I am certainly not trying to make the claim that the Chinese system is on par with that of Europe or the United States. Overall, the degree of protection afforded to IP rights-holders in the West far exceeds that offered in China, especially when it comes to the availability of remedies and the consistency in the application of the law. However, my point is that despite its flaws, Western companies are giving insufficient credence to the system that exists.

July 13, 2010

Lauren Tucker, Atlantic Community, Gold Contributor (78)

Today's Top Press Commentary gives a different perspective on the IP issue in China:

http://www.atlantic-community.org/index/items/view/Intellectual_Pro...

I would be interested in hearing your thoughts on this, Brian.

July 14, 2010

Member deleted

Lauren-

Thank you so much for the article recommendation. Below are my reactions.

First, the fact that four out of five software applications running on PCs in China have been stolen instead of paid for does not come as much of a surprise to me. During our short stay in China, my class had the opportunity to witness first-hand the extent to which pirated goods are made available to the average consumer. For instance, upon our visit to the Silk Market in Beijing, one could not help but stumble upon row after row and floor after floor of pirated goods ranging from Movado watches to knockoff clothing with trademarked logos, various music CDs and software programs available at a price of pennies to the dollar, and even iPods, iPhones and iPads. It is not hard to come to the conclusion that IP theft remains rampant in China.

When meeting with the law firms, I had the opportunity to question them specifically on why IP theft, such as that I witnessed at the Silk Market, remains so prevalent if there appear to be obvious ways of remedying the problem. In Shanghai, I was told that the problem is not that the government is refusing to enforce its policies- rather, the issue stems from a fundamental difference in the legal culture between China and the West. In China, neither the police nor other governmental agencies see IP enforcement on its face to be directly in the public interest. Getting these agencies to act requires the intellectual property rights-holder to file a formal complaint with the appropriate departments. This requires the IP-rights holder to vigorously defend his or her rights, not only through through the courts but through having the wherewithal to identify where his rights are being infringed and to expeditiously utilize the complaint procedures available.

Regarding the second issue raised by the article surrounding the indigenous innovation policy, my understanding of that policy is that it is designed primarily to promote the growth of Chinese innovation, and the key issue has been one of the preference given to Chinese innovators in government procurement contracts. It is also my understanding that while the indigenous innovation policy may require a foreigner to partner with a local subsidiary for the maintenance of its IP rights in China, this does not necessarily mean that a foreign company will be required to transfer its technology to a totally unrelated business entity in order to maintain its IPR in China. Therefore, the notion that the Chinese are somehow “stealing” foreign IP seems a bit extreme. It’s important to note here, as with the Chambers of Commerce, we are talking about an article written by the President and Chief Executive of the Business Software Alliance- an interest group seeking to promote a particular perspective for the advantage of a particular group of members.

July 14, 2010

Christopher J. Paun, BIGSSS / Universität Bremen, (4)

Brian,

In your response to Lauren you raise a very important point that is also related to your original article: Is intellectual property protection a private or a public task?

I agree that many foreign companies in China could invest more resources in the protection of their IP. However, many companies do invest a lot in IP protection and always have to ask themselves if it really pays off. A civil litigation may work against an established company that has the resources to pay the compensation. But try claiming compensation from a crime syndicate!

Given the many fake products on public display in China, also the public law enforcement could do a lot more ex-officio. I don’t think it is only a matter of culture. It is also a matter of honoring binding agreements. China is a party to the TRIPS agreement that requires criminalization of trademark and copyright infringements of a commercial scale (TRIPS Art. 61). This goes beyond private law and emphasizes the public interest through the use of criminal law.

There are certainly private business interests involved but not exclusively. With medicine, cosmetics, beverages, or vehicle spare parts, many counterfeit products can pose serious health and safety risks for consumers. Therefore IP crimes are increasingly seen not only as an economic issue but also as a threat to public health and public security.

July 15, 2010

Lauren Tucker, Atlantic Community, Gold Contributor (78)

Thank you for mentioning the link between intellectual property rights and consumer protection, Christopher. As Brian brought up, most of the conversation around protecting intellectual property rights emerges from Chambers of Commerce and other parties that have a direct monetary interest. As a consequence, we in the larger public don't feel directly threatened when we see cheap knock-offs and pirated goods being hawked at the Silk Market. The consumer protection argument is less prevalent. But as Christopher said, when the law doesn't make it a point to enforce intellectual property rights, not only innovators but also consumers are harmed. Could this argument be used to pressure the Chinese government into making intellectual property a higher priority? What is the current state of consumer rights protection in China?

You might find this article below of interest. It speaks again to the issue of discrimination against foreign firms in China. Google is certainly becoming an interesting case study!

Is Google Just the Start?
Isabel Hilton
http://www.guardian.co.uk/commentisfree/2010/jul/13/google-china-bu...

July 18, 2010

Member deleted

Dear Christopher and Lauren,

Thank you both for your comments. The way the enforcement system was explained to me in Shanghai is that a complaint, made by an IP rights-holder to an administrative agency within the government, triggers the seizure, forfeiture and destruction of the offending goods, as well as criminal consequences including up to seven years imprisonment, all of which are pursuant to TRIPS Article 61. China does criminalize IP theft- it just goes about enforcing it in its own way. Nevertheless, I agree with you both in that consumers as well as businesses would stand to benefit if the Chinese government were to accept the view that intellectual property enforcement is in the interest of the consumer. That being said though, my basic point still remains, which is that given the current operating environment, the business community can do a better job of taking advantage of the protections that already exist within the system without relying on the efforts of their representatives to change policy.