Local voices

China is notorious for having the highest counterfeit rate in the world, but statistics show the situation is slowly getting better. The percent of software programs in use that are pirated has fallen from a shocking 92% in 2001 to a slightly less shocking 78% in 2010, according to industry group Business Software Alliance. China’s courts reviewed 42,931 intellectual property cases in 2010 and concluded 41,718, figures that were up 40.2% and 36.7% year-on-year, respectively.

The driving force behind these improvements is undoubtedly a push by the government. Since its accession to the WTO in 2001, Beijing has slowly strengthened its legal framework and amended its regulations on intellectual property rights (IPR) to comply with WTO standards. Pirates are a resilient folk in any age, however, and these measures have still proved insufficient to completely deter them.

Most observers expect China’s IPR environment to continue improving in the future. Yet many questions remain: Can schools and other institutions instill public respect for intellectual property? How will the legal system and enforcement develop? In the meantime, what strategies will companies use to protect their IPR while remaining competitive? China Economic Review spoke with law professionals and business leaders to answer questions about the country’s changing IPR landscape.

Ms Zhu Lanye, professor of law at East China University of Political Science and Law

We’ve seen the number of civil IPR cases increase over the years, which indicates that more Chinese are learning how to claim their rights. Nevertheless, the concept of IPR hasn’t really taken root in China. Everyone agrees that it is unethical to stick our hands in other people’s pockets. Stealing ideas is akin to this, but somehow people feel that’s more morally ambiguous. So I think improving IPR protections isn’t simply about relying on the government to hammer out stricter regulations. It needs to be incorporated into the legal culture, and that can only be achieved gradually. There are many cases where Chinese companies imitate product packaging from international brands, and they become somewhat successful by taking advantage of this legal loophole. But if Chinese companies want to develop lasting empires, they should resist imitation from the very beginning.

Jin Rui, a public relations employee at Shanghai-based Wanrong Book

Piracy is a critical problem for the book publishing industry, especially internet piracy, since material spreads much faster electronically than via paper-based books. IPR is not taken seriously in China, and there are free electronic versions of books available for download online. There was a furious copyright dispute between Baidu and nearly 50 popular Chinese authors last March. Eventually Baidu decided to compromise, thanks to a strong effort on the part of the writers. That’s how change happens; the incident demonstrated that it is possible to eradicate piracy. But small steps led by the elite and intellectuals are not enough – we need strong policy support. We often come across piracy problems, and we’re always trying to find solutions to reduce the impact of piracy on our key products. For example, about one month after we published “Chun Yan” by Annie Baby, we found pirated editions in Shanghai. Our approach was to include a free CD with some interesting content in the first print edition of “Chun Yan,” as a bonus to readers. We try to speed up our product distribution while also delaying authorizing digital copies in an effort to reduce the impact of digital piracy on paper books. As you can see, these methods are all somewhat weak. Fortunately, most readers are willing to buy genuine books.

Zhao Yan, IPR attorney specializing in patent and techniques, DLA Piper

From my point of view, IPR protection in China still faces a number of challenges, including damage rewards for victims of IPR infringement, corporate experience in safeguarding rights, transparency and consistency in court judgments and effectiveness of law enforcement. Despite these challenges, the enforcement of IP law in China has improved dramatically. We see the government channeling increasing efforts into IPR protection. The legal system has improved since Beijing launched its IPR protection strategy in 2008. The patent law, trademark law, copyright law and the anti-unfair competition law have undergone or are undergoing revisions, especially the copyright law, which now focuses more on internet copyright protection. And the number of cases the courts are dealing with is increasing by double digits every year, which shows the rising awareness of IPR protection.

Michael Hui, CEO of ShangPharma, a company that provides outsourced research services to the pharmaceutical industry

IP issues have been a hot topic since we started the business 10 years ago. These days, though, people ask less and less about that. The industry is getting more mature and our people are getting more educated. The overall IPR protection environment in China has improved significantly, both from the perspective of reinforcement and measures. The key is developing very good IPR protection practices. We create different firewalls to ensure each customer’s confidentiality. That requires a lot of investment in IT technology, comprehensive systems like reinforced notebooks and documents, signature auditing and so on. Everyone signs a confidentiality agreement, and we sometimes adopt exclusivity clauses to make sure we don’t provide similar services for different customers. As a service company, we help our customers to generate intellectual property. That means a lot of our employees are actually named as inventors for patents, but we have a system in place where those people sign all their rights to ShangPharma, and ShangPharma then signs all the rights to the customer.

Sascha Czibulka, the vice president of INTAMIN Amusement Rides, a global manufacturer of amusement rides for operators including OCT Group, Chimelong Paradise and the Changzhou Dinosaur Land

Copying has been an issue for us since day one. It’s part of our business, and it’s not only limited to Chinese manufacturers – it’s worldwide. Our philosophy is to stay as innovative as possible to maintain the advantage we still have. Once in a while, both the copier and their client find out the hard way that there is a bit more to be found in the details that you cannot see when you just take pictures and make copies. Copying, if it is not done by the right people, is a safety issue. We are obviously very hesitant when it comes to handing out details, but you cannot avoid unauthorized people once in a while getting a hand on something they shouldn’t. Can we be 100% sure that the documents we are handing out to the [Chinese] authorities stay there? No, we can’t. That has been an issue in the past in Japan, for instance, where you have to submit for local approval basically all the detailed engineering documents. And despite confidentiality agreements, you can’t make sure that this information is kept confidential. The more complex the technology, the more resistant our potential copiers are to go [down] that path. Even when you do copy you still have to do some development. Because there is a learning curve for everything, no matter whether you invent it or copy it.

Mr. Yang Xuri, manager of intellectual property protection and standardization at Chinese technology conglomerate Founder Group

China’s legal environment has improved significantly since its accession to the WTO. But the contribution of innovative technologies to a product or company’s total value has always been low in this country. Historically, Chinese culture doesn’t hold technological innovation in high regard. We’re more obsessed with land, capital and other resources. And unlike the US, China still doesn’t have multinational compan
ies like Apple, Google and Microsoft which are built on innovation – though China has made tremendous progress in this area, and innovation-based MNCs are having a big impact on local industry. Problems with IP protection in China don’t just lie with the courts – although the courts don’t properly measure the actual commercial value of intellectual property either. China uses the continental law system, which means there is no evidence investigation procedure prior to the trial. The plaintiff is often unwilling to reveal their sales figures to the public, which makes it difficult for them to prove the infringement led to material losses. As a result, the compensation awarded by the court is often too small to cover the company’s losses, and sometimes even the cost of litigation.