By Tzyy Wang
Senior Consultant, Hill & Knowlton China
Last year Chinese scientist Chen Jin was discovered to have swindled the public into thinking he had invented China’s first homegrown microchip. He had taken a Motorola chip, filed away the company’s name and imprinted his own company name over it. For many Chinese, this scandal was an embarrassment as China struggled to build itself as an innovation-oriented country. For foreign companies selling or producing in China, it reinforced fears that their own technologies and products could be easily plagiarized. It also fueled international pressure for China to improve efforts on protecting intellectual property.
Intellectual Property Rights a top priority of Chinese leaders
On a recent state visit to Sweden, Chinese President Hu Jintao told members of the Sweden-China Trade Council that intellectual property rights (IPR) is needed for broadening China’s opening up, improving investment environments and strengthening the ability of independent innovation. He remained firm that China will further perfect IPR-related laws and regulations, educate society about IPR, and protect the rights and interests of IPR holders in China. [1]
While some of China’s trading partners remain unsure of this rhetoric, different reactions have shown an international community divided on how to help China. In an effort to force China to respond more swiftly, the United States recently submitted complaints to the WTO against China on copyright infringements and restrictions on the sale of US materials in China. The EU elected not to join the complaint indicating that it felt it wasn’t the right time.
Timing is an important factor when doing business in China but time is also money. US commerce officials claimed last August that “China is at the center of a counterfeiting ‘epidemic,’ which now accounts for roughly seven percent of global commerce and costs some U.S. companies roughly USD 50 billion a year.[2] Global software piracy alone nets USD 40 billion in lost revenues.[3] This amount does not include the hundreds of millions lost by the luxury fashion, film and music industries.
Beijing delivers
Chinese Vice Premier Wu Yi, who helms a special task force aimed at fighting piracy, defends China’s record of combating piracy. The government has installed regulations to “accelerate” the transfer of piracy cases from administrative to criminal enforcement bodies. A special court to prosecute product piracy cases was created. Last year alone, 988 people were arrested for IP violations and courts heard 6,441 IP cases. A detailed action plan outlines tactics ranging from legislation to multi-agency coordination to strengthening institutions to public promotion and education. Aggressive recruitment efforts – the State Intellectual Property Office (SIPO) of China alone hires 600 to 800 new staff every year – and specialized training programs are in place.
“Over the last few years, the amount of manpower and work that China has put into protecting intellectual property rights and the results that have been achieved, have been unprecedented,” Madame Wu said recently at high-level forum on IPR in Beijing.[4]
These efforts and figures may seem small compared to the prevalence of the problem, but consider that China started from a very low base and its leaders needed to build a legal framework for IPR protection before enforcement, an area trading partners argue is far more problematic. Collusion is endemic at the local level where companies are providing local authorities and officials with financial rewards for ignoring these laws. Counterfeiting shops open just as quickly as they are shut down. Even tourists coming to China fuel the demand for pirated goods.
China aims higher
For the last 20-odd years, China has been importing other countries’ know-how and re-producing those ideas in the form of consumer goods, cars and high- end technological devices. This was a result of the state’s “market for technology” strategy, which gave multinational companies market opportunities in China in return for technology transference. China prospered under this policy by becoming the manufacturing center of the world with its low-cost labor, ability to produce en masse, and favorable investment policies for foreign entities.
But it also created an economy dependent on foreign technology. As the nation’s economic clout grew, and leaders began to explore ways to secure its economic future. At last year’s National People’s Congress, China’s leadership announced a national priority to create an innovation-oriented country. More than 20 ministries and departments and more than 2,000 experts helped shape the National Medium- and Long-term Science and Technology Development Plan (2006-2020) aimed to make science and technology account for half of China’s growth by 2020. It’s an ambitious plan by all means, especially since currently Chinese institutions only spend 1.1 percent of its gross domestic product on R&D, compared with 3.2 percent in Japan and 2.6 percent in the United States.
This is a bigger challenge for the nation as it will need to reverse decades of limited creativity generated by a culture of conformity. Yet, extensive efforts to build a sound legal framework for intellectual property benefits domestic enterprises much more in the long-run than foreign brands. In order for China to fulfill its goal of becoming a cradle of innovation, it must create a sound environment for innovation to thrive, which is based on ensuring public confidence in intellectual property.
There is a lot of work still ahead. “At the moment, China’s burden is heavy and the road is long, with relatively little of its own intellectual property, weak competitiveness, continuous piracy disputes and a prominence of fake products….society as a whole does now know enough about the problem,” admitted Madame Wu.[5] The efforts are not China’s alone. Companies and countries do need to understand where China has come from and help the nation move toward a more open economy. In this way, all members of society will benefit from China’s prosperity.
Beijing 2008 Olympic Games IPR update
When Beijing was awarded the right to host the 2008 Olympic Games on July 13, 2001, the city promised to enact a series of measures to protect the Olympics trademarks. Since then, the State Council has released several regulations to protect and manage the Olympic symbols and relevant marks. State media reported last month that Chinese inspectors uncovered 1,556 cases of violations involving Beijing Olympic Games marks, the bulk of those – 1,128 – were detected in 2004 and 2005.[6] Cases those years involved goods worth RMB 14.8 million and incurred fines of RMB 8.38 million.[7]
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[1] “President Hu Jintao: IPR protection is common benefit to all countries,” IPR in China, 12 June 2007.
[2] Ansfield, Jonathan, “Lessons of Pirate Row,” Newsweek International, 10 January 2007.
[3] Blau, John, “Software piracy hits $40B worldwide, study says,” PC World, 15 May 2007.
[4] Blanchard, Ben, “China warns US piracy cases will harm trade ties,” Reuters News, 24 April 2007.
[5] Blanchard, Ben, “China warns US piracy cases will harm trade ties,” Reuters News, 24 April 2007.
[6] “China reports cases of Olympic trademark violations,” The Associated Press, 14 June 2007.
[7] “China reports cases of Olympic trademark violations,” The Associated Press, 14 June 2007.