It's no accident that the US International Trade Commission released the first of two reports on Monday investigating the extent of intellectual property (IP) infringement in China. The US-China Joint Commission on Commerce and Trade is meeting later this week.
Trade organizations such as the Business Software Alliance (BSA) have already weighed in on the matter: “The ITC's report provides a powerful and compelling inventory of policies and practices in China that harm owners of intellectual property rights,” said BSA president and CEO Robert Holleyman. “It is the most comprehensive assessment we have seen to date of how practices in China put innovative companies at a competitive disadvantage.”
The nearly 200-page report doesn't necessarily reveal anything new — under “Major Findings,” the report concludes that IP enforcement in China remains a problem — but it does make interesting reading. In addition to measuring the financial losses associated with IP infringement, the report attempts to quantify the impact counterfeiting has on economic competitiveness.
My take on the report after a quick skim: The US and China have fundamentally different philosophies on the value and treatment of intellectual property. Unless China starts to edge closer to the US philosophy, IP will remain at risk in China.
Here are a few more findings from the report:
Enforcement of IPR laws remains a serious problem in China. Significant structural and institutional impediments undermine effective IPR (intellectual property rights) enforcement in China. These include a lack of coordination among government agencies, insufficient resources for enforcement, local protectionism, and a lack of judicial independence. Administrative IPR enforcement, consisting of raids and seizure of infringing goods, generally results only in temporary slowdowns in production; penalties are insufficient to deter repeat offenders. Criminal prosecutions, which could have a deterrent effect, are rare.
There are also difficulties in prosecuting civil IPR cases, including relatively low damage awards, the lack of a robust system for discovery of evidence, sporadic application of contempt citations for uncooperative or dishonest defendants, an inexperienced judiciary, and onerous requirements for the use of evidence from abroad. However, there are some signs of improvement in IPR enforcement, especially with respect to courts in major cities in China.
Ineffective enforcement contributes to widespread IPR infringement in China. The illegal distribution of copyrighted works is common, both physically, for goods such as CDs and DVDs, and, increasingly, through digital means, such as Internet downloads of software, music, and movies. For example, about 240,000 Internet cafes in China reportedly rely on illegal copies of entertainment software. Similarly, trademarks for goods and services of all kinds are routinely counterfeited — from luxury goods to high-volume commodities, few products are immune from illegal imitation in China. The patents and trade secrets of US firms are also infringed in China, although concrete information on this topic is more difficult to obtain.
China is implementing indigenous innovation policies that US and foreign firms view as potentially reducing business opportunities in China’s fast-growing economy. These policies — often embedded in government procurement policies, technical standards, anti-monopoly regulations, and tax laws — aim to achieve several long-term goals. These goals include building domestic research-and-development capabilities to facilitate Chinese firms’ innovative capacity, limiting dependence on foreign technology and companies, and generally increasing the value that domestic companies add to China’s economy. The indigenous innovation “web of policies” is expected to make it difficult for foreign companies to compete on a level playing field in China.
In future blogs, we'll take a closer look at some of the other findings in the report and how they affect the electronics industry.