In 1935, Erwin Schrödinger developed a thought experiment, popularly known as "Schrödinger’s cat," to demonstrate the difficulty of intellectually encompassing the realities of quantum physics. He proposed the existence of a hypothetical cat sealed in a locked box with a vial of poison and a trigger with a precisely 50/50 chance of going off.
The result was that the cat could be understood to be both alive and dead simultaneously. The only way to determine fate of both the cat and the keeper was to open the box, thus terminating the experiment.
Westerners negotiating with Chinese counter-parties about designs, brands, unique services or any other type of intellectual property (IP) have a special sympathy for the feline in question since they face a similar conundrum. In order to demonstrate and monetize their IP, they must risk revealing the inner workings to the very people from whom they need to keep it secret.
The moment you explain your idea or demonstrate your intellectual property, it ceases to have value because it is no longer exclusively yours. Thus in China your IP can be valued at zero and an infinitely high price simultaneously.
So is the situation hopeless? Not necessarily, but most international lawyers will tell you that simply relying on Chinese IP regulations is a poor strategy. (It’s not that there aren’t good laws on the books – but the lack of punitive damages and the intricacies of the legal system make it a poor first line of defense.) The best negotiators have learned to understand IP as a process, not a product.
To be successful at negotiating the best value for your IP in China, you must convince your local counter-party of two things:
• His share in this as-yet-undelivered IP will be even more profitable than the deal he has a share in now.
This encapsulates the Chinese view on brands – the ultimate embodiment of IP. Westerners consider a brand powerful because of its history – it is a pedigree. We take comfort from the track record of what has been produced before.
Chinese, however, view brands as powerful because of their promise – to them they are DNA. They are buying a share in breeding stock that will become even more exclusive and highly valued in the future.
Westerners selling IP and services in China are mistaken to base their valuation on what the Chinese can hold in their hands today – they are much better off tying value to the ineffable shape of things yet to come.
Or in terms that Schrödinger might understand: Don’t praise the cat – sell the kittens.
Andrew Hupert is an adjunct professor at New York University in Shanghai and publisher of ChinaSolved and ChineseNegotiation.com.
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