The Globe and Mail did a story the other day, entitled, “Bombardier to share railway technology with Chinese.”  The story is on how Bombardier has granted a ten year license of its tram technology to “a subsidiary of China South Locomotive & Rolling Stock Corp. Ltd., the biggest player in the railway manufacturing sector.”  Under the deal, “Bombardier will supply documentation, training and other assistance in manufacturing and selling the streetcars to South China unit CSR Puzhen.”

The article raises IP concerns about such a deal:

This type of licensing-only agreement and other partnerships, however, raise concerns in some quarters that Bombardier is simply helping China develop its rail expertise so as to eventually become a major global rival in manufacturing trains and subway cars.

“I don’t think Bombardier is going to get much of a bump on this. Bombardier will regret it in 10 years when China starts mass producing their own versions,” said Malcolm Johnston, a transit advocate based in British Columbia.

Bombardier seeks to refute such worries by stating that “the key to these types of partnerships or joint ventures is to stay ahead of the innovation curve.”  The Facebook buzz, among people I greatly respect, is decidedly negative about Bombardier’s deal, and I note the following comments:

  • It’s the maglev technology transfer all over again.
  • Canadians
  • GE is the American version of Bombardier. They’ve been trading away entire industries.
  • If history is a good predictor of things to come, then I look forward to seeing their partner “innovate” upon the technology transferred and export “their” technology to markets around the world.

I eventually chimed in with the following and got the following responses:

Me: May turn out to be a brilliant move. Not kidding.

Response: How do you figure this will turn out any different from any other foreign company that has placed their technology in Chinese hands, Dan? The goals of the Chinese haven’t changed.  I don’t blame the Chinese for copying as much as I blame gullible foreigners for making it so easy.

Me:  You-all are making all sorts of conclusions. I will do a post on this, asserting that this sort of deal MAY be the wave of the future. Of course the goals of the Chinese haven’t changed and of course they do and will do whatever they can to steal technology. That isn’t the issue.

Response: I look forward to your post on this, Dan. From what I can tell “this sort of deal” looks like most of the others that have come before. It seems reasonable to expect a similar outcome.

Okay, here goes.

First off, let me say that I have represented hundreds of businesses in my legal career, ranging from one person operations all the way up to the largest company in the world (at the time) and, generally, I have found that nobody knows their business better than the people whose job it is to know the business. That alone makes me reluctant to criticize a company for a prospective move, especially when I no doubt lack many of the relevant facts.

The facts in the press are not enough to know whether Bombardier’s China technology licensing deal makes sense for Bombardier or not.  What if Bombardier is being paid $10 billion a year?  It’s a great deal, right?  What if Bombardier is licensing out an existing technology and it knows it is only a year or two away from a next generation technology that will put the existing one to shame?  What if this is an industry where the product is only one small aspect of a buyer’s decision, and Bombardier is rightly confident that no Chinese company will ever be able to compete on the more important aspects of installation of product, maintenance of product, and/or repair of product?  Or what if Bombardier knows that the product it is licensing is going to be surpassed by various competitors’ products within the next year or so and this deal is a profitable way to unload it? I do not know if any of these things are true, but isn’t it more likely that Bombardier knows what is best for Bombardier than my friends on Facebook? And anyway, what were Bombardier’s alternatives if it was going to make money in China?  I don’t know, do you?

This is not a comment about my friends on Facebook (who were participating in a relatively private discussion), but it has always bothered me how there are some China pundits out there who are always quick to criticize how certain companies are doing in China (usually noting how they are not moving fast enough), while ignoring all of the China factors that make doing what the pundit suggests so difficult.

I actually like what Bombardier is doing and it is something that we are seeing with increasing frequency among our SME clients. Licensing a technology to a Chinese company for a fee and then charging that Chinese company even more money to teach it about the technology oftentimes makes sense for SMEs without the capital or the desire to go into China on their own. I hate to equivocate like a lawyer, but the bottom line is that sometimes licensing makes sense and sometimes it doesn’t, and it is hard for us to judge from afar those companies that do it.

For more on licensing to China, check out the following:

  • China Intellectual Property (IP). I Hate Cats, in which we give the following advice to help assure payment from those to whom you license your IP:
    • Base your pricing on the assumption that you will not get full payment on your final payments.
    • Do whatever you can to make sure the Chinese company still needs you at the end of the deal so that the Chinese company has no choice but to keep paying you.
    • Put in some killer provisions in your contract that deal with a situation where the Chinese company stops paying at the end.

What do you think?