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Protecting Your China IP. Me Thinks Thou Dost Worry Too Much.

By Dan Harris on Posted in Uncategorized

Okay, so the title is a bit of an exaggeration, but it is true, at least to a certain extent.  I just read two articles that got me to thinking about this.

The first article, “The footwear firm that gave counterfeiters the boot,” is by BBC reporter Kim Gittleson. Ms Gittleson extensively interviewed me for the article, but I ended up getting two small quote lines.  One had me repeating my usual mantra on how if you do not register your IP in China, you are not entitled to complain when it gets taken from you in China:

Dan Harris, an international lawyer with Harris & Moore and author of the popular China Law Blog, says that while American companies have got smarter about protecting their products, there is still one golden rule.

“The key is if you don’t register you’re intellectual property – your trademark, your copyright, your patent – you have pretty much no chance,” says Harris.

For more on the need to register your IP in China meme, check out “China IP Protection. Deja Vu All Over Again” and “An ABC To Losing Your China IP.”

My other quote is more interesting:

But, he [me] adds, focusing on how to protect your business can drive you crazy – and at the end of the day: “Sometimes you have to ignore it and focus on making money.”

I like that one and here’s why.  Far too often foreign companies come to our firm almost debilitated with fear about doing business in China, to the point that they have left big money on the table seeking to protect what simply does not need protecting. Of course you should be concerned about protecting your IP in China, but at the same time, you should weigh that concern against the money-making or money-saving opportunities China can give your company.

The second article, “Retirement Living World China 2012 – Day 1,” has Ben Shobert writing on the Retirement Living Conference that just started in Shanghai.  Ben writes about an “interesting insight” on China IP revealed by Kevin Ryan of Waterbrook Xian:

He [Kevin Ryan] also offered up what I found an interesting insight into one concern he had that has been alleviated over the last year; specifically, his concerns over intellectual property theft in the service realm related to senior care have not proven out. Kevin shared “my thinking on IP has changed 100% … I now think that the ongoing management expertise is what will create long term value, that is something that can’t be thrown away.”  Western operators have this IP and while some Chinese developers and prospective operators may believe they can easily copy this, Kevin is confident his long term capabilities and know-how are components of his business model that he can continue to leverage and protect.

For those who think that Kevin’s comments on IP make too little of this potential issue, it is worth pointing out that while China does have a well-earned reputation for IP theft, the country’s ability to take IP in what are commonly known as service or highly intangible industries has not been as much of a problem for foreign operators.  The best example of this, and one that is quite relevant to the senior care sector, is of course the hospitality industry in general.  As I was reminded during a meeting Monday, the hospitality industry in China is still dominated by foreign operators whose primary point of distinction is a brand that offers foundationally better customer experiences than what their Chinese competitors can offer.

Ben’s and Kevin’s comments surprised me a bit in that it would not have occurred to me that a senior living facility would be so concerned about IP protection.  I too do not want to make light of this industry’s IP protection needs (especially since I am certainly no expert in this industry), but it seems to me that about all they would typically need would be strong protections against others stealing their trademarks (their name, their brands, their logos, etc.) and good employee contracts setting forth the trade secrets their employees cannot take with them.

Not saying that you should stop worrying entirely about your IP in China because protecting your China IP is obviously important. Just saying that you should not allow yourself to put too high a priority on this one aspect of your business.

What do you think?

  • bystander

    There’s IP and there’s IP.  When someone obtains complete designs for a product or source code to an important software system, it’s a real loss.  Between that loss and the natural disadvantage of being a foreigner operating in China, such a loss of IP can spell catastrophe.  Were it not so, hackers would not go to such lengths to snatch the stuff over the internet.  The DuPont case with whitener, the recent case of the energy firm who had firmware stolen, those cases cost real (big) money.  There are other kinds of IP that are not nearly so valuable, like the designs produced in the course of a single project, various other kinds of low-grade documentation and ideas.  The Angry Birds case is one of copyright theft of executable end-user software, something entirely different from, say, getting the source code to Google’s search engine.  Lots of different cases out there.

    • 罗宝亮

      Good points. However, but ultimately there is no sure-fire way to prevent IP theft. I have grown up in the generation of people that can find anything, get anything, and then distribute anything completely for free. Reading Chinese only makes this task much easier. Companies that want to stay competitive, need to focus less on protecting their IP’s and regulating, and far more on innovating. When you stay ahead of the curve, a loss of such a formula, as in the case of DuPont, does far less damage to the bottom line. Apple is an excellent example of this model, as well as Monsanto. 

      You have to look at the pay scheme set-up of many Chinese companies compared to their Western counterparts. Because IP theft is expected in China, local firms use business models, and also techniques that are often friendlier to the consumer. Examples of this include Youku, Tudou, Baidu, Sogou, Renren, and Weibo – each of which rely more on advertising and television sales. When I wanted to upload my wedding video, Youtube blocked it, therefore it went up on Youku. 

      http://www.telegraph.co.uk/finance/china-business/8201764/Youku-founder-Victor-Koo-believes-only-China-can-help-his-company-grow-make-money-and-even-beat-piracy.html

      The middle line is probably somewhere in between. But clearly, the over reliance on law in the United States is causing our companies to be less competitive and creative. Hollywood, the music industry, many of the smaller electronic companies, and even book sellers have been posting losses at increased rates. And in this increasingly digital age, you cannot halt an increase in theft. The answer isn’t more law, the answer is more creativity. 

      And the proof is in the pudding. Where is Hollywood headed? East…

      • bystander

        >> The answer isn’t more law, the answer is more creativity.

        haha, I see.  That explains why all the creativity is coming from China and the West with its antiquated laws is stuck copying other people’s IP.

        • 罗宝亮

          China isn’t just copying other people’s IP, China is also inventing new IP. The difference is we don’t see a lot of this new IP in America, because the American market is saturated, and it doesn’t make as much sense for Chinese companies to drag their new brands over to a contracting market. 

          Yet, there are handfuls of daily devices we appreciate in the United States that were invented in China. 

          http://asiasociety.org/education/resources-schools/elementary-lesson-plans/chinese-inventions

          Read Joseph Needham on Science and Civilization in China. 

          Recall that the world’s four most significant inventions: gunpowder, paper making, printing, and the mariner’s compass all came out of, yes, China. 

          Tracing that into modernity we have a lot of competitive inventions coming out of China, everything from magnetic wind generators to huge advances in agriculture. Yes, China has a bad record of invention in the 20th century, but looking past the 100 year humiliation, and forward into the 21st century, there are interesting things ahead. 

          I’m not preposing that one system if better than the other. I am only proposing from a business standpoint, the Chinese entertainment model is making more money, despite the rampant IP theft in China. Maybe a loosening of our own regulations are worth a look. 

          • bystander

            China has had a hard time in the 20th century because its legal environment punishes rather than rewards creation.  I’ve worked for years in creative industries in China (software and music) and I don’t know a soul here (I’m talking about Chinese folks also working in those industries) who thinks that the solution is for the West to emulate the Chinese IP environment rather than the other way around.  Have a look at the commentary from the Chinese music production community concerning the recent proposed changes to music copyright in China.  You haven’t said what you think will change in the 21st century, assuming that IP theft remains the norm, to cause Chinese creative output to suddenly take off.  I don’t buy the humiliation stuff; Chinese creative types are not ‘humiliated’, they are powerless to collect money for their hard work.  If the legal environment were set right, there would be an unprecedented outpouring of creative work from China in my estimation.  Today, a creative software designer in China would be nuts to spend years of effort developing a difficult and innovative piece of software, because the chances of being able to recoup the investment are practically zero.  Between the probability of the developer’s own employees and business partners making off with it, and the prospect of end-users helping themselves to it for free, it’s a hopeless environment.  See Steve Ballmer’s recent comments on this point.

          • 罗宝亮

            I agree that more enforcement of Chinese existing IP law needs to occur. I am also confident that it will. And that eventually China will move its legal system in a direction that fosters more protection of IP. That being said, I never believe China will even remotely approach the litigious societies of the West, in particular the United States. For instance, Chinese lawyers are now required to swear an oath of loyalty to the Communist Party. 

            http://www.china.org.cn/china/2012-03/21/content_24954285.htm

            Doing business in China is understanding that their legal system will more closely model that of Europe, in particular Germany, and far less resemble the legal system of the United States. It is also important to recognize, that their legal system will always be distinct, and so long as their government remains the same, subservient to leadership. 

            As for Steve Ballmer. He is the perfect example of the tired, unsuccessful, un-innovative leadership to which I refer. It is ironic that you use him as an example of the strength of American entertainment, as he was just recently named the worst CEO in Microsoft history by Forbes. 

            http://9to5mac.com/2012/05/14/microsofts-infamous-steve-ballmer-named-worst-ceo-by-forbes/
            IP theft is going to increase as both technology gains greater prevalence and my generation takes the reins of power. You cannot halt it. With children growing up with iPads in their hands, many among us, myself included, can pull apart a computer, rebuild it from the ground up, and then program it. The answer to the increased proliferation of ideas (which are ultimately free), is to become better at developing technologies, and not to rely on your fleet of corporate attorneys to protect you. 

            As most lawyers cannot even open a LinkedIn account, (Dan should be commended for being an excellent example and a powerful potent of the legal future), there is little way the legal profession will be able to keep up with the speed at which IP gets distributed. 

            Therefore, best way to run a company, is to understand that only through invention will your brand continue to be relevant. The perfect example of this is Apple, a successful American brand that has made the transition to China admirably, and you correctly gave us the worst example – Microsoft. 

            US Patent Law is Murdering Innovation: Especially With its Recent Updates 

            http://gizmodo.com/5831354/the-us-patent-system-is-killing-innovation

            If you want a good example of the legal system that inspire innovation, you need only turn to another Mandarin speaking nation, Singapore. 

            http://www.ip-watch.org/2012/05/17/singapore-builds-patent-capacity-ahead-of-new-system/

            Which has a thriving electronic development industry. 

          • 罗宝亮

            Rereading I wanted to stress two things: 1) I do not disagree with you; and 2) I was commending Dan and his excellent blog, I think he really is a slam dunk attorney, and a fantastic example of how the legal profession can survive the 21st century – I was fearful the parentheses could be misconstrued and I should have better emphasized the two points within my post.