Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments or phone calls as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a quick general answer and, when it is easy to do so, a link or two to a blog post that provides some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.
I gave a long interview last night with a Canadian reporter regarding China. The focus was mostly on what the international lawyers at my firm were seeing with China in light of the Trump tariffs. At one point though, I was asked one of the most common questions I get asked by reporters and it went something like this: “What about intellectual property in China. Is that a risk for foreign companies that do business in China? Are things getting any better on that score?”
My initial answer was something like this: “I am going to give the same answer I have given for at least a decade. Things are not as bad for intellectual property in China as most believe and the intellectual property risks faced by companies that do business in China have declined every year for at least the last 15 or so years.”
But then all of a sudden (like right after I heard what I had said), I realized that my knee-jerk response (conditioned by the last 15 or so years) was no longer true. I then said something like the following:
Wait a second. I take that back. What I said was true but it stopped being true maybe 3-5 months ago. When a Western company goes to a Chinese manufacturer to have a new product made, that Chinese manufacturer looks at the new product and wonders whether it can make more from that product by “stealing” it and making it for itself or by making it for the Western company for the next five years. Most of the time, after conducting that cost benefit analysis, the Chinese manufacturer would choose to make the product for the Western company for the next five years.
But now, what with so many Western companies having moved their manufacturing outside China and so many more looking to do so (See e.g. Would the Last Company Manufacturing in China Please Turn Off the Lights and Doing Business Outside China: It’s Thailand’s Time), the calculus for Chinese manufacturers has changed. The Chinese government’s increasing antipathy towards private enterprise does not help either. All this means the new analysis for Chinese manufacturers seems to be whether they can make more by making the product for the Western company for the next year or so than they can by stealing it right now. So what we are seeing is Chinese companies stealing products immediately, rather than waiting until it has become somewhat clear that the Western company for which it is making the product will be moving to another manufacturer.
So yes, the intellectual property risks for Western companies doing business with China or in China are higher now than they were because the relative benefits to Chinese companies stealing your IP have gone up.