China DOES Have IPR Protection
By: Steve Dickinson
Note: This post comes from an article originally published in Jongo, a new China media website, of which I will be writing shortly.
With the recent U.S. filing in the WTO accusing China of failing to provide adequate protection of foreign Intellectual Property Rights, we are headed for another China/U.S. disinformation campaign on an important issue. Many foreign companies get caught up in the confusion of the political rhetoric and conclude there is no hope for protection of their IP rights in China. This is a mistake.
China actually provides effective protection for IP in the patent, trademark and trade secrecy areas. These are the areas that are relevant to the vast majority of foreign businesses in China. The problem addressed by the U.S. WTO filing concerns pirated DVDs and media downloads. This is still a major problem in China, but it is not relevant to the IP issues that confront most foreign businesses in the country.
Many foreign businesses mistakenly conclude IP protection is hopeless in China. As a result, many do not come to China, and others who do fail to take any measures to protect themselves because they feel the process is futile and a waste of time and money. This is a mistake.
I have been arguing for years that the IPR protection situation in China has substantially improved. However, when I make these statements, I am often challenged. In addition to the negative press and government reports, my clients often point to the situation on the ground. Take Shanghai for example. Within five minutes of the door to my apartment there are five pushcarts doing a brisk business in pirated DVDs and software. When I get off the subway on Nan Jing Road to walk to my office, I am immediately accosted by vendors selling pirated watches, bags and pens. My clients say: Isn't this proof that China is 'flooded with pirated products' as the U.S. reports state? If giant foreign companies cannot protect their product from such pirating, what hope is there for a small or medium size foreign firm? Isn't despair at a solution the only reasonable conclusion?
These surface impressions are completely irrelevant and misleading to the vast majority of foreign businesses operating in China. China has done an excellent job in establishing laws and creating an enforcement system for IPR protection. Largely for reasons of market structure and the technology of distribution, in the areas of patent, trademark and trade secret protection, the protection system has made substantial progress. Though there is substantial infringement in these areas in China, much progress is being made in combating such infringement and the registration, court and enforcement system has been reasonably effective.
On the other hand, in the area of protection of media distributed on DVDs and downloadable on the internet, progress in China has not been good at all. Again, largely for reasons of market structure and the technology of distribution, there has been little measurable impact on reducing infringement in this area.
Now, let's go back to our scene on the streets of Shanghai. Why do I say that this obvious IPR piracy is not an issue for the vast majority of foreign businesses? What about all those folks who are selling pirated foreign brands (other than DVDs) on the street. First of all, these pirates have been driven from the retail outlets and are forced to sell their products on the street. They are not even permitted to operate pushcarts. Second, look carefully at who they sell to. They never approach a Chinese citizen. They only approach foreigners. This is because only foreigners are willing to purchase their inferior products. Chinese consumers are not that gullible. If you travel to Qingdao or Guangzhou or other cities with a low number of Western expats and tourists, you will find that street vendors selling pirated goods do not exist. This is because there are not enough foreign customers who want the product. It simply is not true that China is 'awash in pirated goods.' In fact, this is a problem unique to cities with large foreign and expat populations. It therefore is simply irrelevant to foreign businesses operating in China.
Pirated DVDs, however, are available all over China and are purchased regularly by Chinese consumers who would never knowingly purchase a pirated luxury product like a coat or bag. The same stigma concerning prestige and quality simply does not apply to entertainment and software DVDs. Very little progress has been made in preventing the sales of such items over the past several years, in spite of major campaigns by the Chinese government. In this respect, the U.S. presentation of the situation on the ground is actually quite accurate. However, the vast majority of foreign companies are not selling a product in China that can be reduced to a DVD or internet download. Therefore, even though this issue is a major problem, it is simply not relevant to most companies doing business in China. It is a mistake to assume that China's poor record in preventing infringement of media and software DVDs extends to the more common IPR areas of patent, trademark and trade secrecy.
For most foreign businesses, their important intellectual property rights (IPR) fall in the areas of patent, trademark and trade secrets. These IP rights can be quite effectively protected in China. However, the Chinese system, like the U.S. system, is a self-help program. Do not expect either the Chinese government or a foreign embassy to do the job for you. You must do it yourself. This means making the proper filings and entering into the required agreements. It also means investing the time and money to locate infringers and then prosecute them aggressively. This process is a tough one. Unlike many other developing countries, however, aggressive protection of IP rights can succeed in China.
The greatest mistake is to do nothing.
Comments
On paper, China has IPR protection. But as we've seen, Starbucks, GM and Toyota can't get a fair day in IP court when it comes to real IP theft.
Posted by: nanheyangrouchuan | April 30, 2007 7:50 AM
Excellent distinction that IP is not all the same. So what does it take to successfully defend patents/trademarks/secrets? What are the key differences with the US? Is the WTO copyright spat likely to spill over into other IP areas? Obviously a huge topic, looking forward to future posts.
Posted by: David | April 30, 2007 3:25 PM
It seems you are suggesting that foreigners complaining about IPR violations really have nobody to blame but themselves -- if it were not for foreigners purchasing cheap counterfeit goods, IPR problems would go away (except in the case of DVDs).
I disagree with the assertion that only foreigners purchase counterfeit goods:
First, the huge supply of fake products and their sellers in Shanghai. A supply that is much to large to meet the small demand created foreigners and tourists.
Second, I see many Chinese purchasing fake products -- maybe not in high-tourist areas like Nanjing Road -- but certainly in Qi Pu Road and the trade was brisk at Wu Jiang Road (one minute walk from Nanjing W Road) before it was cleaned-up last month.
Your comment that in comparison to foreigners, "chinese consumers are not that gullible" when it comes to purchasing fake goods is absolutely correct. Unlike foreigners, Chinese accept the fake for the bad quality that it is and bargain the price down!!
Posted by: John | May 1, 2007 5:27 AM
Perhaps I'm not interpreting your comment correctly, but I have to disagree with your statement that you don't see pirated brands in cities without large numbers of expats. Perhaps you are just talking about street vendors? But I'm not sure why that distinction is useful.
I live and work in Harbin (which has less expats than either Guangzhou or Qingdao), and just today as I was walking around I saw a t-shirt that featured the familiar swoosh and was labeled "Nire." On other days I see "Asidsas."
Also I'd be interested to hear how you respond to the criticisms of Chinese patent law raised in Ted Fishman's "China, Inc." If his analysis on the ownership of patents related to joint companies is correct, it's a very troubling situation.
Posted by: Rene | May 1, 2007 5:34 AM
No offense, you may be a great lawyer, but as a business owner noone wants to risk their precious IP even if its 'improving'. What good does it do to win some drawn out theoretical legal battle in the chinese court systems when your workers grabbed your product and started their own company down the street?
You should know there's more to law than whats on the books and a few media campaigns to show 'improvements'. Often times judgements are only for provable losses. No punitive damages at all. And who's gonna make them pay? That's even if you can get your case heard. Use some common sense, it's not just fake watches and DVD's. I see websites virtually cloned. I see 'trustmarts' which look just like walmarts. It's the culture. You cant have the masses on one hand feeling no qualms about buying ripped off DVDs on the street and expect those very same people to work for you and respect your IP.
I agree things are "getting better" Maybe business owners can put that on their company's gravestone. "It's getting better"
Posted by: jimbob | May 1, 2007 9:33 AM
As Rene said before me, I must disagree with the idea that Chinese vendors of fake merchandise only succeed where foreigners can sustain the market for their goods. I am currently living in Dalian and can confirm the abundance of counterfeit clothing, accessories, DVDs, and electronics at two reputable shopping malls. I say reputable because in addition vendors of the aforementioned items, these malls host a KFC, Starbucks, and GOME. All the Chinese I've asked certainly knew that the stuff was fake and of marginal quality. However, that did not prevent them from buying said stuff.
Posted by: Michael | May 1, 2007 10:22 AM
I would have to agree with the last three comments: My own observations seem to contradict your analysis.
The thing i am reminded of is a trade fair in London, where Chinese businesses were trying to export fake Louis Vuitton bags and hello kitty merchandise. Or look at ebay, where chinese vendors are attempting to sell 'fender' guitars for nine dollars.
Are you really trying to claim that this kind of thing is unique to export markets?
Posted by: . | May 2, 2007 2:12 AM
nh --
What are you talking about? Starbucks has been very successful in litigating its IP rights in China and I am guessing the Toyota case to which you are referring is from many years ago. I am also guessing you are referring to GM's dispute with Chery, which was settled. Car design cases are notoriously difficult, worldwide.
Posted by: China Law Blog | May 2, 2007 9:18 AM
David --
First step to protect is to register.
I see China IP as being more like Europe than the US. Biggest difference with US is that US places more value on use and China emphasizes first to file.
Posted by: China Law Blog | May 2, 2007 9:19 AM
John --
I (Dan) agree with you that Chinese are obviously buying fakes (often knowingly) as well. I think what Steve was getting at here was that the Chinese are not buying the fakes so much to substitute for the real thing, but simply because they are available and cheap. In other words, these fakes are not really cutting into the sales of the real product all that much, if at all, though this is not meant to minimize the counterfeiting.
Posted by: China Law Blog | May 2, 2007 9:23 AM
Rene --
I (Dan) have actually not read China Inc. (I know, I know), but I am guessing he is talking about how in so many Chinese JVs the Chinese company walked away with the foreign IP. If so, my response to that is that is usually the fault of the contracts establishing the JV, not the fault of China's laws or even law enforcement.
Do I have it right re what Fishman was saying?
Posted by: China Law Blog | May 2, 2007 9:26 AM
jimbob --
I respectfully disagree. First off, IP is always at some risk, everywhere. It is just a matter of degree. IP litigation costs at least 5 times as much to pursue in the US as in China.
Businesses take risks with their IP every day, everywhere and they do so because the risk-reward ratio tells them they should.
The new AmCham study shows US companies continue to do better in China profit-wise every year.
Posted by: China Law Blog | May 2, 2007 9:28 AM
Michael --
I (Dan) would agree with you that this most certainly goes on in places like Harbin (but is that mostly for the Russians?) and elsewhere. But please see my comments above regarding this.
Posted by: China Law Blog | May 2, 2007 9:30 AM
Anon
I (Dan) am not making that claim.
Posted by: China Law Blog | May 2, 2007 9:31 AM
Dan, you are correct as to the basic scope of Fishman's argument, and I will certainly defer to your much greater knowledge of the topic. However, Fishman seems to be claiming that Chinese patent law gives an unfair advantage to domestic companies in that the rights of any patent to be used in a JV must be shared between the domestic and foreign company. Upon termination of the JV, the domestic company then maintains the previous rights, and is free to use the IP in whatever fashion they want, including competing directly against their former partner and at lower cost. His ultimate argument, of course, is that many foreign companies are willing to take this risk (potentially foolishly) for the dream of making China-sized profits.
Is this just a result of bad contract design as you have said?
Posted by: Rene | May 2, 2007 10:03 AM
Hi CLB/Dan,
Thanks for responding to my comment. I agree that they are not substitute products and thus short-term revenues may not be impacted. I can only imagine however, what kind of damange "brands" suffer in China.
A good example of this is the problem that Burberry faced in the UK. As was highlighted in the media, Burberry felt that their brand was severly being cheapened by the fact that many "chavs" (ask a British friend!) were fitted out in counterfiet goods bearing their brand and signature burberry pattern. As a consequence, Burberry has modified many of their products to introduce alternate designs which are not based so much around the signature burberry design.
I know that living in China has certainly changed me -- whenever I see a LV bag on the arm of a young lady I always assume it is a fake. But maybe that's because I'm a man and don't understand why women would spend so much on such things!
John.
Posted by: John | May 2, 2007 10:43 AM
"tarbucks has been very successful in litigating its IP rights in China "
On paper, Starbucks won its court case, but the defendant, "xing ba ke" has yet to pay one chinese cent in compensation and still operates around China, with other copycats such as Moonbucks and Sunbucks also on the rise and using strickingly similar logos. Never believe for a second that any western company, WOFE or JV has the back door access to the chinese courts that a domestic company does.
Toyota also had a case involving the Chery QQ as there was some engine technology lifted from a very small, very similar Toyota model and this was between 2002-2004.
Posted by: nanheyangrouchuan | May 2, 2007 11:48 AM
Just to pile on everyone's complain of China ripping off big International Brands! Here is the Chinese clone of Disney, the theme park! ;)
Disneyland in China?
http://www.japanprobe.com/?p=1678
Posted by: David Li | May 3, 2007 11:26 PM
Rene --
That may sometimes happen in practice, but that certainly is not required under Chinese law.
Posted by: China Law Blog | May 6, 2007 11:43 AM
John --
Look at those LV bags more closely and I would bet that you can distinguish fairly easily whether they are fake or not.
Posted by: China Law Blog | May 6, 2007 11:45 AM
nh
Starbucks has won a number of its trademark cases in China but it probably has not pursued such cases against Moonbucks or Sunbucks because under Chinese trademark law (and I think this is true of most of Asia and of Europe as well), one is less likely to prevail on "a likliehood of confusion" claim. For instance, in Korea, there are countless companies with the name Samsung or Hyundai that are not related to Samsung Electronics or to Hyundai Motors. This is allowed because the feeling is that whoever files the name first in a particular category gets it, unlike in the United States, where it is the first to use the name.
As for the Xingbake case, there are many lawyers who think that by all rights Starbucks should have lost that case, but won it simply because it is a foreigner. I for one believe Starbucks should have filed under that name and avoided the risk of trial entirely and I doubt many (including within Starbucks) would disagree with me on that score.
IP protection in China is not great, but it is there and it is improving.
Posted by: China Law Blog | May 6, 2007 11:51 AM
David Li --
That is amazing!
Interesting that they also use the Olympics mascot. But has Disney actually filed a trademark in China for each of its characters? Certainly though it ought to be able to argue that it is well known mark.
Posted by: China Law Blog | May 6, 2007 11:54 AM
Indeed, I am more amazed that they are using the Olympic mascots considering how closely guarded they are. It's almost impossible to buy counterfeit versions of those mascots.
Speaking of Disney's registration of their characters. Mickey was supposed to go into public domain in 2003 but that was protected by the "Mickey Mouse Act" of 1998 in the US. I think China didn't sign on to that extension of copyright behind 75 years and this brings many of the classic Disney characters into public domain in China and prohibits Disney from register them in China.
Posted by: David Li | May 6, 2007 7:36 PM
David Li --
Is it possible they are paying to be able to use the Olympic mascot?
You make a very interesting point re the Disney characters.
Posted by: China Law Blog | May 8, 2007 8:20 AM
Does the China Trademark Office have a working search page in English? Just curious. My attempts at performing my own searches have been futile. Perhaps the site just does not work with Firefox? Can anyone confirm? Also, is there another way to search, for example, are their filings linked to a Mardrid protocol database? I have been using what I believe is the official site: http://sbj.saic.gov.cn/english/search/search.asp
If it doesn't offer an English language search, or at least interface, won't it make a China trademark search somewhat sketchy by allowing so many 3rd party companies to bill themselves online as performing China trademark search?
Posted by: Nat | May 9, 2007 12:07 AM
Rene --
Just realized that there is a Chinese law that says that in a contractual joint venture (not the far more common joint venture) property (inculding IP) put into the joint venture belongs to the Chinese company at the end. But, the way to avoid this with IP is to not put the IP into the JV, but to register it in China and then license it to the JV. So there is the law out there, but I am not aware of anyone having fallen prey to it for so long that I had forgotten about it.
Posted by: China Law Blog | May 9, 2007 2:44 PM
adam --
I concur.
Posted by: China Law Blog | May 10, 2007 3:07 PM
Nat --
The only method of which I am aware (or at least the only method with any real reliability) is to ask the trademark office itself to conduct the search. There is about a $100 fee for this and they take a couple of weeks.
Posted by: China Law Blog | May 10, 2007 3:10 PM
Cool. Thanks for the info. Sorry if it was slightly off topic! Love your blog! Keep up the excellent work.
Posted by: Nat | May 13, 2007 10:20 PM
Well, on the subject of pirating Disney character, Hamas has recently produce a children program with Mickey like character.
I am sure there is a joke about how scary a Cease and Desist letter from Mickey's lawyers is in the story.
I think Steve made a really good point on the real IPR protection problem facing SME investing in China v.s. large brands MNC. However, the discussion are more or less likely to get into the same discussion of on how much Disney, LV and the likes are suffering from piracies and copycats.
The issues of IPR protections have stir up a lot of controversies in the US as well. Recently Supreme court has taken on the issues of patent granting. Fair content usage movement like Creative common have taken on the content owners and have recent presidential candidates backing their suggestion on releasing debates footage into CC license.
We are likely to see the future of IPR protection to meet somewhere between China and US today.
Posted by: David Li | May 14, 2007 8:37 AM
Nat --
No problem. Flattery will get you everywhere.
Posted by: China Law Blog | May 14, 2007 11:27 PM
David Li --
Maybe.
Hamas's handling of Mickey goes well beyond IP theft into the realm Hamas knows best: pure evil.
Posted by: China Law Blog | May 14, 2007 11:30 PM
China is increasingly recognised as a LEADER IN DESIGN, in addition to having intellectual property rights protection.
With personal experience and your useful blog in mind, I wrote the post "Designer Chinese and IP in China are not contradictions" (http://www.dilanchian.com.au/content/view/291/56/)
Posted by: Noric Dilanchian | June 9, 2007 9:08 PM
Noric Dilanchian --
Interesting article you wrote (http://www.dilanchian.com.au/index.php?option=com_content&task=view&id=291&Itemid=36) but though China does have innovation (of course), I think it is stretching it a bit to call it an innovation center. Not there yet.
Posted by: China Law Blog | June 10, 2007 9:55 PM