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Will China Ever Really Protect IP?

Posted in Legal News

The following is by Stephanie Henry, one of our legal assistants, who will soon be starting the Masters in Communications program at Johns Hopkins University. 

It is a commonly held assumption (and one often stated here at CLB) that the increase in Chinese companies seeking protection of their own intellectual property (IP) in China will inexorably lead China to more vigorously enforce its IP laws so as to better protect those companies.

In a Harvard Business Review post, entitled, “Why China Might Never Protect IP,” Chris Meyer and Julia Kirby challenge that assumption by contending that more IP in China will not necessarily increase IP enforcement. Instead, China might follow a different path in the evolution of its IP regulation, one that, at its core, acknowledges the difference between the information and industrial economies.

The post distinguishes between “industrial product” and “information product” (things like movies, software, and books) in terms of the protection we should expect from China. Information product is “infinite” and has “zero” reproduction cost:

A farmer produces a bale of hay, one horse or another eats it, but not both. A steel mill’s ingot goes into a sedan or a skyscraper, but not both. So a price mechanism and market is needed to mediate the competition for a scarce resource. But when a hacker produces a new capability on Linux, any number of people can use it without taking it away from anyone else. We can all have our code and eat it, too. 

The authors are not convinced China will ever vigorously protect information product. They note how China often “[finds] a way to blunt the pressure [to protect this sort of IP] without actually doing very much,” and cite China’s recent move to disassociate the RMB with the dollar as an example of how China responds to international pressure by not really responding at all. By unfixing the Yuan-Dollar peg, China seemed to have made a bold change, but in reality, the RMB remains at about the same (managed) level as when it was fixed to the dollar.

As another example, Meyer and Kirby cite a recent Businesses Software Alliance and IDC Global Software Piracy Study demonstrating China’s illegal software sector is booming, rising nearly $900 million over the preceding year. The authors see this as evidence of China forging a “new interpretation” of IP regulation in the 21st century.

What do you think? Has China chosen to punt on IP regulation going forward? Does the distinction between industrial and information product make sense? How does/will all of this impact your business? 

  • Twofish

    One thing that discussions of IP miss in China is 1) how complicated and different various parts of IP are and 2) the development of IP in the West and how IP law is itself evolving outside of China. China in the early 21st century isn’t that different from the US in the late-19th which had rather week productions in IP law.
    The other thing is that the article associates IP law with “strong enforcement of proprietary copyrights.” In fact a lot of IP law involves making it illegal to restrict distribution in certain ways. There are things in IP law such as compulsary licensing, that forces someone that holds a copyright to avoid placing restrictions on it.

  • Falen

    The IP system in the US is in need of repair, with all the infamous abuses of RIAA, patent trolling, frivolous patents, software patents… it’s hard to use that as a basis for what ought to be happening in China. Many things are still wide open to debate, so it’s only fair China can evolve to have a take on IP that’s different.
    On the other hand, actively busting smalltime street peddlers to the benefit of foreign corporations’ profit margin will, in the big scheme of things, remain a fairly low priority for Chinese law enforcement for a long time.

  • Falen

    BSA has a rather dubious reputation for inflating numbers as far as piracy goes.

  • Sabrina

    The answer is no. Just no.

  • Brian

    Want I do not understand is why, when talking about certain issues in China there is allways the comparision to the US. It makes no difference whether the US does or does not do anything as well, is worse or better than China in some areas.
    If China violates IP rights it is wrong and in many industries it is a serious issue. Only because you have certain violations in the US does not make it any better.
    If the energy consumption per capita of China is high but in the US it is higher it is still a problem for global warming! We should stop this constant comparing.
    I live in China I care about China I love China and I sometimes hate it but with respect to the enforcement of IP rights it is just violating international standards and I do not see it becoming better. Thats it!

  • Michiel V

    IMHO as former ‘IP Department Manager’ occupied with the development, licensing and protecting ‘IP’ in China (mind you, ‘IP’ and ‘IP’ are not the same thing), the answer is: “yes, no, maybe, it will take time”.
    It seems to me that the proponents of the “China doesn’t protect IP” point of view forget that their opinion is really just that, an opinion. This is akin to the arguments about China’s currency valuation: does it need to change (to the USA’s benefit) because the USA wants it to, or because when comparing the relative cost of a big mac in particular or the spending power of an average factory worker in general is somehow skewed to the detriment of the USA. Is it? Or is this an election year?
    Back to IP:
    For one, China can, to some extent, do whatever it likes, and jumping up and down flapping your arms will not do much about it.
    For another, in various industries in China, including those with fairly ‘intangible’ forms of ‘IP’, including software and such, there ARE laws and regulations for the protection of ‘IP’ and copyrights, and to some extent, these l&r are adequate and are enforced with some success.
    Lastly, the ‘debate’ as to which kind of ‘IP’ deserves what level of protection is by no means settled. For example, whatever IP laws aside, I personally shall not ever accept the notion that some pharma billionational can hold a patent on MY own DNA, or even a piece of it. IP protection, schmotection! One might also ague that such things as movies, music and other art forms constitute illegal monopolies and the rights of the masses to have affordable access to these outweigh the rights of the owners of such IP to unreasonably restrict access to it (e.g. by demanding an average weeks’ wages or more just to see Shrek in 3D).

  • Dan Maas

    China’s lack of IP enforcement makes perfect sense if you consider it from the perspective of national economic policy. China is still a net importer of IP – it imports more software, movies, and technology than it exports to other nations. Therefore the Chinese derive a far greater economic benefit from misappropriating foreign IP than they suffer in economic costs from not protecting Chinese IP. I predict that China will only truly fulfill its promises to increase IP protection once domestic companies and labs start producing more substantial amounts of IP for local consumption.
    (of course there is a bit of a chicken-and-egg problem here, so the transition will be a gradual one).

  • Twofish

    Brian: Want I do not understand is why, when talking about certain issues in China there is always the comparision to the US. It makes no difference whether the US does or does not do anything as well, is worse or better than China in some areas.
    The reason that happens is because usually these conversations are not in a vacuum, and people are not talking just about what China is doing but rather what the US can or should do about it. If we are talking about protection of copyright in the abstract, then it doesn’t matter, but usually the context is whether the US should or should not impose some sort of sanction against IP or whether China is good or bad at following international law.
    Let’s not get moral here. The purpose of copyright law is to help companies make money. There is nothing wrong with making money, but let’s not pretend we are saving baby seals. It’s all about how to split the pie, and when it comes time to split the pie, then how much you get versus how much I get does matter.
    In most issues of trade and international business law, “you do it too” is a perfectly valid defense and good legal and moral argument.
    Brian: If China violates IP rights it is wrong and in many industries it is a serious issue. Only because you have certain violations in the US does not make it any better.
    Actually in international trade law it does. WTO doesn’t have any power to directly sanction nations for violating trade practice. What the WTO can do is to permit one nation to violation a trade norm to compensate for another nation violating a norm. Often the decision whether or not to bring a case on WTO depends on whether or not that nation is also violating that same norm.
    There’s also the question of what the norms of international behavior should be, and that gets into a whole other thicket of issues.
    Brian: If the energy consumption per capita of China is high but in the US it is higher it is still a problem for global warming! We should stop this constant comparing.
    Why should we stop this constant comparing? We live on the same planet after all
    This won’t work. You then have the problem of “fairness.” Why should China bear the burden for reducing CO2 emissions? If you live in a world in which the US can do whatever it wants, and China has to restrict its economy, this is something that most Chinese won’t and shouldn’t put up with. Yes, if we don’t do anything, then everyone will fall off the cliff, but having a system in which the burdens aren’t shared equally is just not going to work, and I don’t see any legal, moral, or ethical justification for it.
    Brian: I live in China I care about China I love China and I sometimes hate it but with respect to the enforcement of IP rights it is just violating international standards and I do not see it becoming better.
    But what are international standards? Who determines what international standards are?
    If both China and the US and everyone else are doing something, then it doesn’t seem to be much of an international standard.
    If you end up defining “international standards” and you don’t have to follow anything you define, then you’ll define them to further your national interests, and smash everyone else. That doesn’t seem to be a good system for global governance.
    I’m all for “international standards.” What I do have problems with are “pseudo-standards” in which “international standards” are just “what benefits the US and Western Europe never mind anyone else.”

  • Twofish

    One other point, is that I mention the United States a lot because I’ve lived there most of my life, and I know a fair amount of US law and business practice. If I were to take about international standards, I’d be more likely to talk about how things are done in the US, than I would about Germany or France simply because I’ve never lived in Germany or France.

  • http://nz.linkedin.com/in/drllau drllau

    I commend to readers the book “To steal a book is an elegant offense”
    http://books.google.com.au/books?id=NahUmDXLYLwC
    which discusses the cultural underpinnings of IP system in China. The general premise is that chinese consider immitation to be a form of flattery and it is hard to emplace the concept of property on information goods. Having said that, I’ve seen signs that china is progressively improving, but mainly in areas which favor local industries like sealed design packets, licensing of humor talk-shows, lending against firm’s trademarks. IP Laws are not bad but enforcement is still erratic

  • avşa

    China will eventually protect IP, just as all countries that become developed eventually do. The two go together.

  • http://monitortalent.com/talent/Christopher-Meyer-Profile.html Chris Meyer

    Twofish makes an essential point–this is not a moral issue, it’s how we split the pie. But from an economics point of view, the issue is what kind of IP law promotes growth–better to have a bigger pie.
    The argument that IP protection is necessary to incent invention seems a lot weaker than it used to before the growth of Open Source in software and elsewhere (see Clay Shirky’s new book Cognitive Surplus for many examples.)
    Our intent was less to get into the question of China’s enforcement of international standards as they exist, and more to suggest that China would be leading the way to new and more productive IP laws.