Archives: China IPR

Just came across an interesting post with a not so interesting title on the China IPR Blog: IP Developments in Beijing.  The post starts out discussing how “due to the rapid increase in IP cases in the Beijing Number 1 Intermediate Court, particularly IP cases involving patent and trademark validity, the Beijing Intermediate Court will split its Intellectual Property Tribunal in two” with the number one IP Tribunal hearing mostly trademark and unfair competition cases and the number two IP tribunal hearing mostly patent and copyright cases.

The post then notes that the Beijing court (which hears about 10% of all China IP cases) has seen its case load increase from “4,748 cases in 2008 to 11,305 in 2012, an increase of nearly 150%,” with copyright cases representing about half the total.

This is important for foreign companies doing business in China and here’s why.

  1. Rational human beings do not generally spend money on something that is not going to bring them any benefit.
  2. Bringing a lawsuit in China always costs money (China court filing fees tend to be fairly high), oftentimes a relatively large amount of money.
  3. Chinese businesses tend to be made up of rational human beings who understand the value of an RMB.
  4. Chinese businesses must believe that they can get the Beijing IP court to give them redress for alleged IP infringements or they would not pursue the lawsuits.
  5. Chinese businesses must, in increasingly large numbers, believe that they can get the Beijing IP court to give them redress for alleged IP infringements or they would not be increasing the number of IP lawsuits they are pursuing.
  6. Chinese businesses are almost certainly correct in their belief that suing before the Beijing IP court will give them redress.
  7. If Chinese businesses are correct in their belief (and they almost certainly are, see number 6 above), that means that IP enforcement, at least through China’s courts is improving.

Independently of the above, you would have a tough time finding a China lawyer who does not also believe that IP enforcement in China is improving, particularly with respect to trademarks.

IP enforcement/IP protection is improving in China for two main reasons.  First, Chinese companies and foreign companies alike are now realizing that it makes sense for them to register their trademarks, copyrights and patents in China so that they have an opportunity at being able to protect them (in the courts, among other places).  And two, China’s courts are increasingly realizing the importance of protecting IP in China, largely because Chinese companies increasingly want them to grant IP protections.

What this all means for those of you doing business in China is that you too should be jumping on the IP registration bandwagon.  For more on protecting your IP in China, check out the following:

  • How To Protect Your IP From China. Part 2. What we, as China lawyers, look at in trying to protect our clients’ IP from China and what you, the company, should be looking at and doing to protect your own IP.

What are you seeing out there?

I have to admit that one of the things I love about both China and Russia is that they take various international days seriously, that nobody even knows about in the United States.  I suspect that is due to communism and/or its remnants.  Anyway, as part of today’s World Intellectual Property Rights Day (how many of you knew there was such a thing and how many of you knew it was today?) I was interviewed about the past, present and future of China intellectual property law and intellectual property protections in China.  Here is that interview between Zheng Chenguang (ZC) and me (DH).

 

ZC: First, from the international scene we speak to Dan Harris, founding member of Asia-focused commercial law firm, Harris & Moure, based in Seattle, in the US Mr. Harris, welcome to the program.

DH: Thank you.

 

ZC: Friday marks World Intellectual Property Rights Day.  How do you look at the level of IPR protection today, how better are we compared with the situation, say like five years ago, and do you see IPR protection as mainly a challenge facing the developing countries, rather than the developed countries.

DH: No, I do not. I see it as a challenge for any company that does business anywhere in the world.

 

ZC: Why would you say that?

DH: Because certainly developing countries tend to have a poorer record at IP protection than developed countries, but at the same time, developed countries have all sorts of issues as well.  You’re not going to find a company with more than 100 employees in the United States that hasn’t had a problem with an employee leaving with trade secrets or an employee leaving to compete when they shouldn’t have or with a rival using their design. It goes on everywhere.

 

ZC: In your mind, what is the key to protecting IP rights?  Is it more important to make more or stronger laws, or is it more important to solve the problems related to implementation of the existing laws?

DH: Well are you asking about China or are you asking about anywhere?

 

ZC: How about the situation in China?

DH: China’s laws are actually just fine.  It’s not a question of the laws. It’s really a question of implementation. And a lot of times it’s a question of implementation not even so much by the Chinese government, but by companies that are doing business in China.  Meaning, a lot of times foreign companies complain about IP in China, when in reality it was the foreign company that made the mistake when it went into China of not sufficiently protecting its IP. But one thing I want to clarify, and that is when I talk about IP, I always like to divide it up into three, sometimes even four areas: trademarks, copyrights, patents, and you can throw in trade secrets as the fourth item. And the reason I like to divide this up is because in some of those areas, China is actually quite good, while in other of those areas it’s quite poor, and so it’s really unfair to talk about China IP in general without breaking it up.

 

ZC: You’ve divided IP intro three categories. In what category do you think China has done the best job, and which leaves a lot to be desired?

DH: Trade secrets—China’s excellent. They borrowed the laws from the United States and they tend to enforce them. Trademarks—China’s fine. Their laws are very similar to France, to Sweden, to much of the world, and enforcement is pretty good as well. When it comes to patents, China’s patent laws are not as tough as those in the United States, but those in the United States are tougher than those in Europe, and that’s just the way China wants it … its enforcement isn’t bad. Where China does poorly is in copyrights. And that hurts China’s reputation because so many people ascribe China’s handling of IP based entirely on China’s handling of copyrights. And copyrights involve, generally speaking, content—books, movies, software.   Everybody knows you can buy a DVD of just about any movie on the street in China for about two dollars. That’s a problem.

 

ZC: Chinese Intellectual Property laws, there are origins in Deng Xiaoping’s 1978 reform and opening up policy. During the past decade or so, especially after China’s accession into the World Trade Organization, IP protection has been brought to the fore, since China wants to dock with international standard and adopt international practices. How did China’s accession into the World Trade Organization influence intellectual property rights in China? And how better are we compared to with, say, ten years ago?

DH: China is a lot better compared to ten years ago. I think very little of that has to do with the WTO. I think that China is better because China is getting wealthier, and because Chinese companies are starting to care more about IP. I am of the view that countries start doing well with IP when its own powerful companies really start caring about it. And I’ve seen this progression happen in Japan, I’ve seen this progression happen in Korea, I’ve read about how this progression happened in the United States. The reality is nobody is going to be able to force China to improve its IP from the outside, but big companies within China like Haier, like Huawei, like Lenovo — companies that care about their own IP — are going to be able to force China to improve. That’s what’s happening. And as more big companies come to the fore in China, China’s IP is going to continue to improve. And there’s not much that can be done to rush it. In fact, if anything China’s IP is improving nicely. Meaning, it’s improving at least as fast as Korea’s did, at least as fast as Japan’s did, and probably as fast as the US’s did, but the US was a long time ago.

 

ZC: As the founding member of an international law firm which has operations both in US and in China, what kind of advice do you want to give to say, Chinese investors, who want to do business in the US, and vice versa, what kind of advice do you want to give to US companies making a foray into the Chinese market?

DH: Okay, I’ll start with the US first, US companies doing business with China, because that’s easier for me because I talk about that every day with our clients. The advice I always give is twofold: number one, know what your IP is and know how to protect it yourself. And what I mean by that is look at your own IP and figure out how you can protect it outside of the law. One of the ways you can protect it is don’t bring it over to China, or just bring over part of it.  Or have a good partner in China — one who is not going to steal your IP. These are things called structural IP protection; it’s what companies can do outside of the law. The second thing, register your IP in China. Don’t complain if your IP is taken in China and you haven’t registered it, because if you haven’t registered it in China, it’s not your IP. On the flip side for Chinese companies coming to the United States, our IP system is different from China’s and you better recognize that and you better take it seriously. Interestingly enough, in my experience, Chinese companies that come to the United States take IP protection more seriously than American companies that go over to China. I think a lot of the reason for that is because in the United States certain IP protections are automatic without even needing to file for them. So when Chinese come over here they’re prepared to file, whereas when Americans go over to China, oftentimes they neglect filing.

 

ZC: We understand that China is now trying to effect a transition in its growth model, focusing more on the quality of the growth side, commercial and technological innovation and a so-called knowledge economy would be important factors for China’s economic growth. To what extent will technological innovation play in China’s economic future? Will the roles of intellectual property laws increase their influence in the future?

DH: Yes. And that goes to what I said earlier, that as domestic companies view intellectual property protection as becoming more important, then the country will as well. And so, as China develops more companies with their own intellectual property, China’s intellectual property laws will improve. More importantly, enforcement will improve as well. China is developing sophisticated pharmaceutical companies, sophisticated technology companies. Those companies are not going to let China fall behind in terms of intellectual property protection. They’re going to be fighting for it. So yes, as China’s economy goes more and more towards the high end, I’m virtually certain its intellectual property enforcement will follow right along with it. It has to. And if it doesn’t, that will temper innovation and a knowledge-based economy in China. The two have to go together.

 

ZC: Lastly, Mr. Harris, one of the most controversial and polarizing debates regarding intellectual property law in the modern world seems to be IP law as it applies to the pharmaceutical industries in the developing world. And this year the Indian Supreme Court came down with a ruling against the patent claims by Swiss pharmaceutical company Novartis. Speaking from a broad perspective, what do you think about the debate of availability versus innovation regarding pharmaceuticals and the developing world?

DH: It’s a tough debate. It’s a really tough debate. I think that China has played that hand better than India. When India makes a ruling like it did, all sorts of companies say “I’m not going to India, I’m too afraid.” Yes, India is going to get some medication because of the that ruling, but, in the end, my guess is dollar-wise they probably hurt themselves a lot more than they help themselves. Because companies see — or I should say hear — about rulings like that, and it really scares them. And that’s not what India should be wanting right now. And not just pharmaceutical companies. People hear about a ruling like that and, non-lawyers, by the time it reaches them, they don’t understand that it’s a complicated patent issue/accessibility issue.  All they hear is, “Wow, India doesn’t protect western intellectual property rights. I’m not going to take my widget factory there.”

 

ZC: Right. That was Dan Harris, founding member of the Asia-focused commercial law firm, Harris & Moure, talking about intellectual property rights protection in China. Mr. Harris, thank you very much indeed for your insights.

DH: Thank you very much for having me.

Time that I mention a really good and high-level blog that focuses on China IP.  The blog is called China IPR and it is headed up by Mark Cohen, a law professor at Fordham Law School.  It completely accurately describes itself as follows:

ChinaIPR.com is published by Mark Allen Cohen, a Visiting Professor of Law at Fordham Law School in New York City. Formerly, he was Director of International Intellectual Property Policy at Microsoft Corporation. Prior to that time he was Of Counsel to Jones Day’s Beijing office. Before then, he served as Senior Intellectual Property Attaché at the U.S. Embassy in Beijing and as Attorney-Advisor in the Office of International Relations at USPTO. In total, he has over 25 years private, public sector, in house and academic experience on IPR issues in China.

The blog aims to provide access to information, news and events related to IP development in China.

It is not so much a how-to type blog, but rather one that focuses on existing and future China policies revolving around intellectual property.  If that interests you, I strongly recommend you start reading the China IPR blog.

PC World Magazine has an excellent article on the costs of intellectual property (IP) violations in China. The article is entitled, “US Panel Looks at Intellectual Property Violations in China,” and what it essentially says is that the value of China’s stolen IP has been grossly exaggerated.  

The PC World article was written on the heels of a recent meeting of members of the U.S. International Trade Commission (USITC) on “how to measure the effect of copyright and other intellectual property infringement in China.” The article starts out by pointing out the central flaw flaw with typical industry numbers: 

The estimates of monetary damages released by many U.S. industries often assume that a pirated copyright of a product like software or a music CD blocks the sale of an authorized copy, when that may not be the case, said Fritz Foley, a professor in the Harvard University business school.

“It seems a bit crazy to me to assume that someone who would pay some low amount for a pirated product would be the type of customer who’d pay some amount that’s six or 10 that amount for a real one,” he said during the first day of a two-day USITC hearing on the impact of Chinese intellectual property infringement on the U.S. economy. “Be careful about using information the multinational [companies] provide you. I would imagine they have an incentive to make the losses seem very, very large.”

Let’s get things straight. The woman who pays 70 RMB (approximately USD$10) for a badly made fake Gucci purse is not the same person who contemplates paying USD$1,750 for the real thing.  

The article then discusses movie pirating and how that may actually help the United States:

Although the U.S. movie industry is hurt by copyright infringement in China, the U.S. may benefit in other ways….Some U.S. workers may be employed by companies counterfeiting products in China, some U.S. companies may sell raw materials used by counterfeiters, and some counterfeited U.S. entertainment products may spread democratic ideals in China….

Counterfeiting in China is a huge problem, but let’s get the numbers straight.

AmCham Beijing is putting on what looks to be a wildly helpful seminar entitled, Best Practices in Running a Low-cost IPR [Intellectual Property Rights] Protection Program. It will be from 7:30-10 a.m. at the Beijing American Club located at the China Resources Building, 8 Jianguomen Beidajie in Beijing.

AmCham describes this event as follows:

Protecting intellectual property rights (IPR) is not just a job for companies that patented inventions or make DVDs – any company with a brand name is vulnerable to Chinese competitors who can take advantage of your company’s IPR by selling knock-off goods or by providing services under your company’s name. Even if you think your brand is safe, how do you ensure that your suppliers or distributors are not substituting fake products for your legitimates?

Operators of small- and medium-sized enterprises (SMEs) know that, due to smaller budgets, SMEs are hard pressed to withstand the crippling effects on profit margins that unchecked IPR abuse can have.

However, neither do they have the budget or personnel to employ teams of lawyers and investigators to curtail these IPR abuses. So what to do?

Whether you are currently an SME operator or you have ever considered starting your own company, this AmCham event will provide answers to many of your questions about low-cost strategies to safeguard your intellectual property.

Our all-star panel of IP experts, including Mark Cohen, the Senior IPR Attache at the US Embassy, Jack Chang, the Chairman of the Quality Brands Protection Committee, and Eugene Yu, the Chief China Representative for the Motion Picture Association, will share their tips and best practices on how to employ both clever preventative strategies as well as how to enforce your IP rights on a tight budget.

Registration will be from 7:30-8 a.m., with breakfast, presentations and Q&A from 8-10 a.m.

I like the conference’s emphasis on IP protection for SMEs because, in so many ways, budget constraints force SMEs to achieve that protection differently from large companies. Where the large company typically can do whatever it takes to protect its IP, the small company must wisely pick and choose from a long list of options. Though it is impossible to achieve complete protection, I have seen companies achieve excellent protection for very little money and I have seen companies spend more and completely miss the boat. I would expect this conference would help SMEs lean more to the former.

Little noticed, but in some ways an amazing story out of China regarding Beijing’s decision to delay closing unsafe coal mines.  Stay with me on this one, because the story is of far greater significance than initially appears, and for far more than just mining.

The China Daily story on this is headlined, “Government forced to delay unsafe coal mine closures.”  The government is Beijing and the forces delaying the closures are local officials.  Beijing wanted to shut down the mines but local officials balked.  China Daily does not hide any of this [emphasis added]:

China has delayed its plan to close all unsafe small coal mines within two years.

The target was originally set for the end of 2008 but after meeting opposition from local governments, the central government has been forced to postpone the plan until 2010.

China currently has 17,000 small coal mines, which produce one-third of the nation’s coal output, and aims to reduce the number to around 10,000 by the end of 2010. The remaining is all expected to meet national safety standards.

An Yuanjie, an official with the State’s Administration of Work Safety confirmed to Xinhua News Agency that problems emerged when the policy was implemented at local levels.

The article minces no words in describing local officials’ opposition as arising from their desire to maintain their own financial gains:

Small coal mines, some of which are notoriously dangerous, are considered the major capital sources for local governments leading to many local authorities protecting unsafe mines for financial gain.

In addition to being unsafe, these mines are a “huge drain on natural resources,” and a “grave harm to the environment,” making their “closures more urgent.” The article concludes by saying “the Chinese Government has also launched a series of campaigns aimed at rooting out the business stakes that local officials have in small mines, a major contributing factor to the high number of accidents. ”

I find this article amazing because Beijing is conceding it lost a battle with local officials.  Since Beijing faces similar battles with local officials in trying to enforce its environmental and intellectual property laws, one can view this loss here as not boding well in those other areas.

To use a bad pun, is Beijing’s failure to enforce its will on the provinces here a canary in the coal mine?   As one who is constantly writing on how Beijing does not maintain an iron hand over all of China, I say no.  It is not a predictor of a lack of control because it has lacked control for years.  Rather, I view this article [which should be viewed as coming straight from Beijing] as Beijing seeking to rally public support to crack down on local officials.  This article should be analyzed in tandem with Beijing’s recent crackdown on corruption, both of which should be viewed as Beijing asserting itself. And this could be good for China Intellectual Property (IPR)….

The International Herald Tribune, in an article today, entitled, “Step in ‘right direction’ on piracy,” noted that the software industry is making “modest progress” in “encouraging” Chinese computer users to pay for their software, rather than copying it illegally.

According to the Business Software Alliance, the software industry’s leading trade group, the rate of pirated software fell four percentage points last year in China, to 86 percent, while the global piracy rate remained at 35 percent.  “They’re not hugely significant decreases, but going in the right direction,” said Beth Scott, vice president of the software alliance in the Europe, Middle East and Africa region.

The article noted that the Alliance has been working on behalf of software companies to protect their intellectual property (IP) by lobbying the Chinese government to increase its copyright protections. Last year, the Alliance joined the International Chamber of Commerce’s Business Action to Stop Counterfeiting and Piracy Initiative, “which has persuaded China to stiffen some anti-piracy measures.” Ms. Scott attributed the decline in Chinese software piracy to the lobbying efforts and to increased sales of laptops, “which which tend to come with more software already installed by the manufacturer, compared with desktop PC’s.”

The article notes that though “piracy rates of 80 percent or more may sound high, as recently as a decade ago, almost all software in use in developing countries was pirated, in part because Western providers had little sales presence there.”  The Alliance contends it lost $34 billion in potential sales last year because of illegal copying, though “outside experts said such estimates might be overstated, noting that software sales might not have occurred at all if users had to pay retail prices.”

Interestingly, the article also noted the “benefits” to be had from from having one’s software stolen. Some analysts point to what is called the “network effect”, in which the installation of an operating system like Microsoft Windows, even if it is pirated, leads to greater demand for other software that the company produces.  Seems Microsoft Chairman, Bill Gates (at least back in a 1998 interview) appears to agree:

“As long as they’re going to steal it, we want them to steal ours,” he said of Chinese users, according to Fortune magazine. “They’ll get sort of addicted, and then we’ll somehow figure out how to collect sometime in the next decade.”

A few days before Chinese President Hu Jintao dined at the Gates’ Mansion across the lake from Seattle, the Chinese government announced that all Chinese governmental agencies would be required to use only legal software.  It will be interesting to see what effect this mandate will have on China’s software piracy figures for this year.