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?