One of the biggest electronics supply chain challenges today is the counterfeiting and copying of Western components for sale into the huge China market. There has been a lot of talk and some effort to clamp down on it, but in the eyes of one major semiconductor CEO, it's a waste of time.
Industry associations and the US government “can lobby all they like, but China doesn't care,” Steve Sanghi, Microchip Technology's CEO, told me during the recent Design West event. “They know basically the US government officials will cave, because they've got a bigger agenda and need China's support in Korea or the UN. There are larger political issues. It's politics, and industry suffers.”
Sanghi hasn't seen “any tangible progress” from the US Semiconductor Industry Association. “None. Zero.”
China continues to have a terrible record on protecting intellectual property. Sometimes it seems as if the country endorses counterfeiting.
Sanghi has firsthand knowledge of the situation. For some time, Microchip sold PIC microcontroller parts to the white-goods conglomerate Haier. But he said Haier formed a semiconductor subsidiary, Shanghai Haier Integrated Circuits, which proceeded to copy some PIC products. “They took our data sheets and apps notes and translated them into Chinese, filed patents and apps notes, and published them in China.”
Microchip filed a patent infringement lawsuit against SHIC on the Fourth of July of 2007. Nearly six years later, the case is unresolved.
I asked Sanghi whether he buys into the theory that the Chinese think differently about property rights.
I buy that argument. If we are business partners and you and I sign a contract, I fundamentally believe you have the best of intentions to abide by the contract. In China, that's not the case. In China, when you sign a contract, it means nothing. If you cheat and make money, you can probably tell that accomplishment to your friends proudly. People will say, “He's really smart.” Here, if I did that, people would say, “You better not do business with Steve Sanghi.”
Interestingly, one Chinese publication wrote in its coverage of the lawsuit's filing:
A senior manager with the Haier Group says that now so-called intellectual propriety protection is a tool for multinational companies to lambaste others in order to retain their technology monopoly. This tool is more lethal than trade barriers and 60 percent of Chinese export companies are suffering this kind of technical barrier set by foreign countries, the manager reveals.
The experience hasn't altered Microchip's China strategy much. After all, it's impossible to abandon one of the world's biggest electronics markets. However, Microchip is now more diligent about filing patents in China and turning the technology crank on its products, so copycats stay behind.