ITC: US IP Remains at Risk in China

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.

5 comments on “ITC: US IP Remains at Risk in China

  1. stochastic excursion
    December 14, 2010

    Part of the aims of “constructive engagement” was to demonstrate to the Chinese the merits of private property.  In the communist scheme of things, nothing is private or proprietary, it all belongs to the state, and therefore the people.  The ITC does give a moral impetus behind wielding a stick, but I would say until the carrot appears of people actually benefitting from a system of private ownership, it's hardly likely that the country will fall in line with U.S. statutes.


  2. DataCrunch
    December 14, 2010

    Although I feel foreign companies doing business in China still have to be very careful in this matter, I do believe China is making some positive steps in cracking down on IP infringements and is promising to do more on this front.  It still seems a bit like the Wild West, but things are starting to change in China. China is becoming less reliant on just production and outsourced manufacturing and Chinese companies are becoming innovative and actually making their own IP, which means that IPR will become even more important to China and Chinese companies.    It’s a bit ironic that innovative Chinese companies want to protect their own IP now.  What comes around goes around.

  3. AnalyzeThis
    December 15, 2010

    I do agree that US IP is at risk in China, absolutely. I also acknowledge that there are many current problems (many of which you mention, especially in terms of media piracy). And I concur that China needs to step up more when it comes to enforcement.

    Despite all that, I really do think that the situation over there could be much worse. It isn't completely the Wild West. Sure, counterfeit goods are produced and it's not uncommon for Chinese manufacturers to leak information on new electronics to blogs and things like that, but again, it could be much worse: you could see more US products being openly sold before their intended release date, direct spot-on rip-offs of very proprietary products such as game consoles, etc.

    And one thing to keep in mind is that often it is in the Chinese manufactures' best interest to protect US IP. Business is business, and if a company develops a reputation for lax security or assisting in the production of counterfeit goods, you can be sure that they will lose business, and thus lose money.

    Laws are great, but financial incentive is a much stronger motivator.

  4. Mydesign
    December 16, 2010

        “Intellectual property (IP) is the general term referring to a number of distinct types of creations of the mind for which property rights are recognized and the corresponding fields of law. Under intellectual property law, owners are granted certain exclusive rights to a variety of intangible assets” . The rights associated with particular person or company is called as Intellectual property rights (IPR). Normally when employees are working for a company, the employee’s contributions are accounted in companies name and hence the IPR belongs to that company. Here the important fact is that the employees have no right for IPR irrespective of their contributions. As per IPR act, employees are doing the work for parent companies and in lue they are getting salary along with other perks.

         In my opinion they have to modify this policy based on current scenario. Companies are able to generate the IPR only because of the hard work and contribution from the employee side. Even though they are paying for the contribution, they have the right to share with the contributors also.  If they are ready to share also, it may end up in a big mess because employee can change the employer whenever they needed.

  5. SP
    December 16, 2010

    This will always remain as an issue. The government there finds it correct to know everything about business no matter its IP.

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