IP in China: is the bad boy coming good?

Among IP experts, China has long had a reputation for being the “baddest of them all.” This reputation is well deserved. International intellectual property, in all its forms, copyrights and patents, is subject to a plunder on a truly massive scale.

The US Chamber of Commerce estimates that China accounts for two-thirds of all global counterfeiting and intellectual property theft. Counterfeiting is not limited to software (Microsoft loses hundred of millions in revenues from pirated copies of Windows and Office), movies and fashion design. Industrial IP theft is estimated to cost US companies as much as a quarter of a trillion dollars annually. It concerns a range of products from automobile brake pads and airline parts to pharmaceuticals and from mobile phones to batteries. For example, fake airplane parts are believed to cause more than 100 airplane accidents per year. Counterfeit baby foods formulas cause the annual death of over 200 babies.

The problem is widespread and deeply rooted at all levels of economy and economic policy. Reverse engineering of industrial designs and processes, whether or not covered by patents, has been practically a standard practice among state enterprises, many of which are controlled by the military. And counterfeited goods have created large industries, with mass employment and cheap products, affordable to the local consumers.

For their part, the government and the Communist Party long condoned those systematic violations of IP rights. Moreover, they actually favoured them by forcing foreign companies, with “desirable” technologies, to enter into joint ventures with Chinese partners, and to transfer IP rights to those joint ventures.

An alternative approach has been to encourage the development of “local” technologies, based on foreign IP, and developed in co-peration with non-Chinese companies, competing with the original core IP owner, For instance, after allowing Qualcomm to licence its CDMA 3G mobile technology to Chinese network operators, the government in 2000 launched a project to develop a competing CDMA standard, TS-CDMA, in co-operation with Alcatel and Siemens. At present, it is not clear whether China will actually deploy TS-CDMA or use one or both global standards (W-CDMA or CDMA2000).

As China is fast becoming a global economic power, in addition to being the largest retail market in the world, the IP problems are becoming both more acute and more delicate. It was reported earlier this week by the World Intellectual Property Organization (WIPO) that in 2005, China was the top destination of requests for trademark protection under WIPO's so-called Madrid System.

Together with the yuan’s exchange rate, IP is the probably the top issue in discussions between China, US and EU. The US government made conformity with international intellectual property a condition of approving China's accession to the World Trade Organization. Yet, at the same time, despite limited real progress, criticism from official sources became more muted. Thus, in its recent pronouncements, the US Chamber of Commerce put considerable emphasis on new government commitments. Its CEO, Thomas Donohue, will deliver a keynote speech at the Global IPR summit, organised by the Chamber and Chamber and the China Council for the Promotion of International Trade (CCPIT) on March 27–28 in Peking. His speech is awaited with great interest.

The lessening of outside criticism reflects not only a recognition of China’s growing international status but also a genuine evolution of official attitudes. On 16 March, the Communist Party Congress approved landmark legislation granting official recognition to private property. Furthermore, the Chinese policy makers recognise that China’s exports shift to products and services with higher technological content requires a solid IP basis. Thus, among developing countries involved in the WIPO’s Madrid System, Chinese companies, such as China Network Communications Shanghai Tyre and Rubber, were the most active in seeking trademark protection.