Why Should China Take IP Theft Seriously If US Businesses Do Not?

This summer's revelation that phony Apple stores had been opened in China was the latest uproar in the ongoing competition between the countries over intellectual property (IP) rights.

US Treasury Secretary Geithner followed up by accusing China of systematically looting US IP.

However, further examination of the Apple in China story by Joff Wild of IAM - and of US corporate IP protection generally reveals an unsettling truth. That many US businesses have failed to take even the most rudimentary steps to protect their IP in China. Apple, in fact, had done almost nothing until 2008 when it finally hired an IP legal team in China. And did it build this team from the ground up or bring in members of its own staff? That, apparently, would have been too costly and time-consuming. So it poached Pfizer's Chinese IP specialists.

The point is not that China is innocent or that US businesses are engaged in malfeasance, but that IP protection requires investment and commitment. Merely asking the government to do it for you is not going to be sufficient. JL

Joff Wild comments in Intellectual Asset Management blog :

Last Friday, US Treasury Secretary Tim Geithner was unusually outspoken in the criticism he offered of the level of protection afforded to American IP in China. Speaking at an event in Washington DC, Geithner is quoted by Reuters as saying that the Chinese “have made possible systematic stealing of intellectual property of American companies and have not been very aggressive to put in place the basic protections for property rights that every serious economy needs over time”.

That China is a hotbed of counterfeiting and piracy is not disputed. Neither will you find many people who will say that enforcement in the country is not a major issue. The fact is that IP is not as ingrained into Chinese society as it is elsewhere – but let’s remember that even now in places such as the US and the EU IP appropriation and theft happens all of the time. When looking at China it is always worth remembering that it is just three decades or so into the existence of its IP regime. When the CAFC was created in the US 29 years ago, China had only the most rudimentary of IP frameworks. The country got its trademark law in 1982, its patent law in 1984 and its copyright law in 1990. Before then, there was nothing. Within living memory the Chinese began learning IP from scratch – and that means judges, lawyers and enforcement authorities, as well as businesses, political leaders and the public. This is not an excuse for flagrant appropriation of IP rights and failures to do anything about it, but it is quite important to remember.

As many lone inventors and SMEs will tell you, the Americans and the Europeans have created a system that means if you happen to steal/appropriate IP from someone whose pockets are not as deep as yours, the chances are that you will get away with it. Funnily enough, some of those deep pocket companies do not have close to the same problem with that as they do with Chinese entities stealing their IP.

But let’s put that to one side. The thing I am struck by when I have conversations with those who have operated in China for a while is that they always say a similar thing: yes, IP violations are widespread and the system can be difficult to navigate, but if you know what you are doing and are prepared to spend some time and money doing it, you can often get very good results that do act as a deterrent and do end up lowering your overall exposure. It is also noteworthy that if you speak to companies that over time have committed IP resources to China, they frequently say the same thing. On top of that, what I have also been told by China-hands time and again is that the companies that are most likely to find things tricky in the country are those that do not make the effort: they let infringers get away with it or they do not have people on the ground or, in many cases, they do not even bother registering the relevant rights in the first place. And this is not just anecdote.

Earlier this year, WikiLeaks released a document written from the US embassy in Beijing detailing Apple’s IP woes in China. It is well worth looking at and begins like this:

As amazing as it seems computer maker Apple Inc. had no global security team – including inside China – until March 2008, when they hired away the team from Pfizer that formed and led a multi-year crackdown on counterfeit Viagra production in Asia. Now with Apple, Don Shruhan, based in Hong Kong, has taken the first basic step of registering the company’s trademarks in China and Hong Kong …

Read that again: “No global security team”; just “taken the basic step of registering the company’s trademarks in China and Hong Kong”. One of the world’s wealthiest, most successful businesses, in 2008, only three years ago, when the iPhone was already being largely manufactured in Shenzhen! And where Apple feared to tread, you can bet your bottom dollar that many other western companies do not tread to this day. If you do not bother to register, if you do not bother to invest in security, then you have to take your share of responsibility when things go wrong. Elsewhere in that leaked document, you find these sentences:

While Shruhan has the benefit of Pfizer experience in China, he laments that Apple lawyers do not. Based in California, the company’s inexperience has slowed cooperative progress with the Chinese authorities. Officials at Lowu Commercial City, one of China’s notorious counterfeit markets near Hong Kong, asked Apple for training and evidence of counterfeit sales in their shops. However, reluctance by the company to accept standard Chinese legal documents and other problems in corporate communication have so far prevented such cooperation.

I wonder how true this continues to be to this day with regards to other western companies operating in China. My guess is that it applies to a great many of them. Again, this is not to excuse infringement, theft and lack of action by the Chinese authorities; instead, it is to provide a fuller picture of the reality than the one that Geithner was painting. After all, it is only with the full picture that you can develop strategies and policies to tackle the significant problems that do undoubtedly exist in China (and all other developing markets it should be added). There is probably a lot more that the Chinese authorities can do to improve the lot of US IP owners in their country; but until US IP owners do all they can, why should the Chinese bother? And it's not just US companies, the same goes for all other foreign ones too.