On June 29 the European Union Chamber of Commerce in China released the results of its Business Confidence Survey 2010, and among its conclusions were that while 66 percent of survey respondents believe China's written intellectual property law to be 'adequate,' only 22 percent of respondents believe the enforcement of such law to be adequate. 29 percent of respondents ranked intellectual property rights protection among the top five regulatory obstacles to doing business in mainland China, and 40 percent of survey respondents concluded that the regulatory environment in China is likely to worsen over the next two years.
China's intellectual property system is not as weak as these numbers suggest.
Just a few days ago, I returned to the United States after a two-week graduate study abroad program in China through New York University. During my stay in China, I had the opportunity to dialogue with several leaders in the business and legal communities. As part of the program, I had the opportunity to meet with representatives of Lehman, Lee and Xu in Beijing, as well as the Shanghai Patent & Trademark Law Office. Both were convinced that Western businesses can effectively enforce their intellectual property rights in China so long as they leave their preconceived notions behind.
European and other foreign companies are not taking full advantage of the enforcement opportunities China's existing intellectual property system affords. According to statistics from China's State Intellectual Property Office, from January to May 2010, only 14.3 percent of the applications filed with Chinese authorities for invention patents were submitted by foreigners. Furthermore, according to statistics set forth in an April 2009 White Paper issued by China's Supreme Court, of the IP-related cases closed in Chinese courts in 2009, only 4.3 percent of them involved foreign litigants. It is difficult to conclude that the Chamber's survey results truly reflect the business environment in China if European and other foreign companies are not availing themselves to the protections that do exist in China and are simply basing their business decision-making on misconceptions.
This week's European report follows a previous report issued by the American Chamber of Commerce (AmCham) in China in April 2010, which similarly concluded that 74 percent of American businesses operating in China believe its intellectual property system to be weak and ineffectual. When questioned about these numbers last week by myself and a group of eager students, representatives of AmCham in Shanghai suggested that even making an attempt to enforce intellectual property rights in China is not worth the while of Western businesses, which often find the costs of prevailing in Chinese courts too far outweigh the potential for rewards, and it was suggested that the average judgment in an intellectual property case issued by a Chinese court was approximately $25,000.
Although I never had the opportunity to question the representatives on how this average figure was derived, there have been several notable cases over the past few years which signal that the operating environment is significantly improving for foreign businesses. One such case involved Neoplan Bus GmbH, a German bus manufacturer, suing the Zonda Industrial Group, a Chinese company, for plagiarizing the design of a bus. In January 2009, the German company was awarded a judgment of approximately $3.1 million. A second case involved British kettle manufacturer Strix suing two Chinese manufacturers for infringing a design patent possessed by Strix for the manufacture of a safety valve. Here, the British company was awarded a judgment approximating $1.3 million in February 2010. These large awards evidence a system adaptable to change and committed to improvement. Furthermore, they demonstrate the emergence of a system of courts increasingly willing to award unprecedentedly large intellectual property judgments to foreign companies over the objections of Chinese defendants.
These findings suggest that the conclusions reached earlier this week by the European Chamber fail to accurately depict the opportunities available to Western businesses for enforcing their intellectual property rights in China in 2010. Before complaining to their respective Chambers of Commerce, Western businessmen would be well-advised to work within the existing system. This means filing for intellectual property protection, seeking representation by local counsel, and putting forth a salient effort to use the court system to enforce their rights. In the end, they may find themselves surprised by the outcome.
Brian Joshua Safran is pursuing a Master of Science in Global Affairs with a specialization in International Law at New York University.