Faking It BRIC (Brazil, Russia, India, China) Style
The International Chamber of Commerce just released its survey of businesses on the countries with the best and worst environments for intellectual property protection and China came in last place, followed by Russia, India, and Brazil. The US, UK, Germany and France came out on top:
Companies rated the US, UK, Germany and France, respectively, as having the most favourable IP environments. Also among the 10 best performers, in descending order were Japan, Canada, Switzerland, the Netherlands, Singapore and Australia. Respondents named China and Russia, respectively, as the two worst-performing countries followed by India, Brazil, Indonesia, Vietnam, Taiwan, Pakistan, Turkey and Ukraine.
The International Chamber of Commerce seems to be using this survey to mobilize global action to increase IP protection in those countries known for fakes:
The survey shows a lot more work needs to be done on enforcement. We need to educate policymakers that greater investments in IP enforcement will translate into more jobs and tax revenues and also help them in the fight against organized crime,' said ICC Secretary General Guy Sebban. The survey ranked the best- and worst-performing countries in addressing counterfeiting and piracy. Companies rated the US, UK, Germany and France, respectively, as having the most favourable IP.
Bob Wright, Vice-Chairman and Executive Officer, GE and Chairman and CEO, NBC Universal, said: 'This issue needs to be moved up on the agenda of every business leader, every trade organization, and every policymaker. At risk is every sector of our economy where creativity, innovation, and invention drive the creation of economic value and of high-wage jobs.'
Pure Hype.
A review of the top performing countries and the worst performing countries should tell you all one needs to know about what it takes to be "good" and what it takes to be "bad" and that it has little to do with morality, politics or pontificating and everything to do with stage of development. The countries at the top in terms of IP protection are pretty much the countries at the top in terms of economic production. The countries at the bottom are all fast growing emerging market countries; these are the creme de la creme of emerging market countries. Indeed, the worst four countries for IP protection are the four BRIC countries: Brazil, Russia, India, and China, of whom great things have been happening and are predicted.
This survey is further proof of what I am always saying about how China's failure to provide high levels of IP protection is economically, not culturally based. IP protection will continue improving in China as its economy continues to grow and as Chinese companies start demanding protection for their own IP. Not saying jawboning is completely futile, but . . . .
Comments (10)
Read through and enter the discussion by using the form at the endAudall - February 2, 2007 2:08 PM
Dan,
In your experience, how many situations have you run into in which the IP situation in China has dissuaded a company from pursuing operations in China? I work with companies looking for ODMs (Original Design Manufacturers) over there and despite IP being a big issue on their mind, I haven't seen one assess the situation and then turn back. IP risk is a big problem and certainly is changing the way companies operate over there, but it doesn't seem to be a make or break issue in most cases I've run into.
David Li - February 2, 2007 5:10 PM
To echo Audall's question, has piracy actually make a significant roadblock for the companies to invest in or doing business with these developing countries?
Romanian President just issued a statement in a joint press conference with Bill Gates in opening of Microsoft global technical center in Romania.
"Piracy helped the young generation discover computers. It set off the development of the IT industry in Romania,"
http://www.washingtonpost.com/wp-dyn/content/article/2007/02/01/AR2007020100715.html
David Li - February 2, 2007 7:03 PM
I think IP protection is important to protect real valuable IP such as drugs and production related ones. However, the problem with the spin on IP these days tend to concentrate on the protection of medias and software.
Evidenced in recent success of open source software and the raise of creative common medias, some leading thinkers such as Lawrence Lessig of "the future of idea" has put out pretty good argument on how overly protection of IP, and in specific IP protection law in the US may be damaging the future of creativity and innovation thus economic growth.
http://www.the-future-of-ideas.com/
For us in software, the number 1 issue is software patent which US has try to spread. The software patent met resistance in EU. It looks like China is on the fence.
China Law Blog - February 2, 2007 9:56 PM
Audall --
Thanks for checking in. That is a great question. My experience has been very different from yours. I even have examples where clients were afraid to go into China, even though they should not have been. Here are composites of examples;
1. Small biotech company chose Singapore over China strictly because of IP. Told me this was common.
2. Software company decided strictly on IP grounds not to go to China.
3. Countless companies that choose to have only a portion of a product made in China or have the assembly of all portions done outside of China, all strictly on IP grounds.
If anything, I am always fascinated by how companies act as though what they are doing is some great secret when just about anyone involved in the industry knows about it. In other words, I think companies tend to think they have more secrets than they do and this causes companies to choose not to go into China even though they should. I would love to hear from others on this issue and I think this would make a great idea for a post soliciting comments.
Perhaps we could do the post jointly and run it on our two blogs contemporaneously.
China Law Blog - February 2, 2007 9:57 PM
Mr. Li --
Significant roadblock? I don't know. A roadblock? Yes. See my response to Audall below.
China Law Blog - February 2, 2007 9:58 PM
Mr. Li (ii) --
Maybe.
David Li - February 2, 2007 10:58 PM
I can only speak for personal experience in software and I really don't think IP protection has anything to do with deciding not to invest in China.
Professionally, I deal most with open source companies. These are probably the last companies worrying about having their IP "stolen." Copyright is used in open source to guarantee the right to copy. But even then, there are few successes to talk about in China.
The lack of trusts are more likely the reasons. I remember you also deal with small/medium size companies? Small software companies are very intimated in their development, mostly organized informally. Trust play a key role in the setting. Developers have to get personally comfortable with the outsourcing team. It's simply hard to cross the cultural barriers for a lot of Western developers to get comfortable with Chinese ones. For Indian, at least, they all know Abu. Does the level of IP protection become an issue before or after your clients meet their potential Chinese developers?
Malcolm Gladwell's "Blink" provides a good view on our unconscious thinking.
China Law Blog - February 3, 2007 8:16 AM
Mr. Li --
I loved "Blink," but not sure how it fits in here.
The decision not to go into China is usually based way more on what they have heard about China, not on the people they meet there. In fact, the decision not to go to China is usually made so early that nobody from the company ever goes there at all.
Sometimes I think it is not so much the fear of IP problems in China that dissuade them, but rather the fear of having to spend so much to avoid them. I think they grosslly overrate the costs, but because there is so much out there on the topic, they know they MUST do certain things to protect their IP and they are reluctant to do them.
So what I have seen, and way more than once, is that these same companies are already in Russia or have plans to go to Russia and they do so without any real protection there. They get lured into Russia by some really smart programmer and then a few years later they find their product being sold worldwide out of Russia and there is almost nothing they can do about it. China gets so much bad IP press that Russia (which is every bit as bad, maybe worse) sneaks in under the radar. I kid you not.
We have had fairly sophisicated companies contact us to assist them in China and when we learn they are already in Russia, we ask to see their Russian agreements and filings so that we can use them as a model for the Chinese ones we will be doing for them. It is at that point that they tell us that they have nothing for Russia, that they did not realize it was necessary and .... They oftentimes do not even know if their 5 person programming group in Russia are independent contractors or employees. We do a bit of investigation and quickly learn they are all independent contractors and, under Russian law, pretty much own everything they have been doing and getting paid for over the last few years. No IP protection is going to get that back.
Interestingly, I cannnot think of a single technology company (software or hardware) that has come to us to complain about IP problems in China after they have gone over there. What do you think of that?
I will say one of the biggest mistakes high-tech companies make when going to China (or Russia, or anywhere else for that matter) is to focus too much on the external threat, as opposed to the internal one. We are aware of a pretty well known software company whose general counsel tells us that he frequently wakes up in a cold sweat because their China employees have never signed any sort of non-compete or non-disclosure agreement. His explanation for this is that the company went into China really fast before they knew one could get such agreements, and now they are afraid to go to their employees to get them for fear that it will tip them off.
David Li - February 4, 2007 6:44 AM
"Blink" has quite a few of example of difficult for human to explain the true action of action. I thought of Blink because I had a mental image of your clients bringing up IP issues after the visit. Also, it talks about the effect of priming. Getting enough news on association on China and piracy, the problem starts to look more serious then it is.
I think this is more or less an expectation games. You clients heard so horror stories about China before they came over, all the Chinese programmers have to do is not to spill water on your clients to get the jobs. Mine would come over with image of China as such as Microsoft hating and open source loving land (after all, Bill Gates called open source Communism!), they are often disappointed with what they see.
There are problems, there are perception of problems. IP is really just one of those perception of problems.
China Law Blog - February 4, 2007 3:22 PM
David Li --
I completely agree. The most dangerous perception is that there is no law in China and I see that one all the time. It is dangerous because it leads people to do business there without contracts. Interestingly enough though, when they get burned on their oral contracts, they are still interested in suing to recover, but it is usually too difficult because they have no written contract. Then when we tell them this, they say, "I knew China had no laws."