Debunking the Top Three IP Myths in China
March 2nd, 2008
Submitted By: Simeon Trieu
IP remains one of the growing concerns as brands move their productions and/or operations to China. With all the counterfeiting of products on the market, one can only reason that we need to keep our products in the US in order to protect them from Chinese pirates. But are you really safe? Catherine Sun, a partner of Foley and Lardner LLP, debunks 3 of the most common misconceptions of intellectual property law (IP law) in China in a video presentation.
Source Foley and Lardner LLP:
Below is a summarized outline of her points, in short, but I do recommend that you watch her short presentation (2:33):
1. IP is not enforceable in China.
2. If I keep my brands in the US, I will be safe.
3. The counterfeiting products are poor in quality.
The first point is the one I find myself so often telling myself: IP is not enforceable in China. It may be my misconception, but I always get the thought in the back of my mind that “the mountains are high, and Beijing is far away.” How is it possible for the Chinese government to enforce such IP rights? It appears that there are enforcement options in China. For example, the China-Britain Business Council details much of what I wanted to know about IP protection in China. I was surprised by how enforceable IP was, even just based on grounds of samples of pirated products compared to actual products. They actually perform raids based on this evidence in administrative proceedings! That might be unsettling to some. Below is an excerpt detailing IP enforcement in China.
Source China-Britain Business Council:
Enforcement
Once infringement has occurred the question arises, What action should be taken to ensure effective enforcement?Some companies may prefer to take actions outside China, for example in countries where goods are sold. It is generally more effective to stop the infringement at its source. This is particularly true as judgements of foreign courts are not enforceable in China.
There are ways, however, to enforce rights within China. There is a two-way enforcement system in operation: administrative and judicial. There are advantages and disadvantages to both proceedings and a company’s decision should be made upon the circumstances of the individual case. Taking each in turn:
Administrative proceedings
Administrative proceedings are appropriate for small-scale infringements as they are cheaper and quicker than judicial proceedings. Unlike in judicial proceedings, where the filed complaint has to be supported by substantial evidence, the threshold for administrative actions is much lower and can be based on simple evidence (such as a sample).Once a complaint submitted to the administration body has been accepted, an inspection on the premises of the suspected infringer will be conducted (a ‘raid’) almost immediately. In case infringing activities are found to take place, the administrative body has the authority instantly to seize or seal infringing goods and to confiscate the machinery used to produce infringing products. It can inspect accounting books in order to ascertain the level of infringement.
The administrative body also has the power to order that all infringing activity cease immediately and to impose a fine based on the profit of the infringer. In practice, however, the fine is often fairly low and has no real impact on the infringer’s motivation to restrain from infringing actions.
Judicial proceedings
Civil and, or, criminal court actions are more common for repeated and serious infringement. In judicial proceedings, the parties also have more scope to present their cases and are therefore more suitable for complex issues.Judicial proceedings are also advisable for complicated cases such as patent infringements.
As we also know, China’s legal system is still developing. My question to you is: how do you see IP law in China developing? Is it enough to protect our rights on intellectual property? What challenges do you see in the future as IP becomes more important (as it already is)? How would you consider conducting business in China with the current IP protection? Does the current IP law in China make you feel comfortable?
Entry Filed under: Pre-Departure, Beijing, China
12 Comments Add your own
1. Chris Carr | March 3rd, 2008 at 4:27 pm
Good post. Dan Harris, at the China Law blog, has posted extensively on this very topic. He points out that for IP cases in the area of trademark infringement and patents, China is doing a pretty good job. But in the area of copyrights, that’s a whole different ball game and China has a long way to go to develop that part of their legal system.
With respect to trade secret theft, China legal system and infrastructure is much like ours …. plenty of laws on the books to catch the bad guys, but it can be difficult to move within the legal system fast enough to get the proverbial genie back in the bottle once a trade secret has been stolen and thereby make getting an applicable injunction worth the time, expense and effort (the exception being where you want to keep a key employee from working for a competitor — then, pursuing an injunction that keeps them from taking such a job makes sense).
The above is important, because business people and academics who are not lawyers or law professors tend to lump “IP” into one big category and not take note of the distinctions I note above. One really needs to always be specific re which type of IP they are talking about when they analyze how a particular system is doing.
2. Ashley Drum | March 4th, 2008 at 12:46 pm
In today’s fast-paced economy, there are huge benefits of being the first to market with a product. Outsourcing to China can aid a company in doing this at a relatively low cost. But with every business transaction, there is a give and a take. A company profits from the lower production costs and speed which China can provide but they loose their IP protection. So a company must ask which is more important; the profits from launching their product ahead of competitors or the long-term protection of their idea. Catherine Sun is correct when she says that by keeping your brand in the US you aren’t necessarily safe, but I feel that in comparison, you are safer in the US then in China. So maybe this is the US’ saving grace? I foresee companies putting a lot of pressure on the Chinese Government to enact stronger IP protection because that is their only gamble when outsourcing. It would make sense if the US government started promoting their IP protection acts as a way of keeping big business within the US to stimulate our economy. It will be interesting to see in the coming years if there is more of a push towards enacting a worldwide IP protection agency with the increase of outsourcing.
3. Chris Carr | March 4th, 2008 at 5:55 pm
Dan Harris at the CLB just made a related post on this topic today. Click HERE to check it out.
4. Simeon Trieu | March 5th, 2008 at 1:47 am
Impressive! The turnaround time on the Motorola lawsuit was quick (within the same year of 2007)! This is an example of the judicial proceedings route to IP enforcement. Now, let’s see if Guangzhou Weierwei Electronic Science and Technology Company plays nice and doesn’t sell the IP to tech pirates or feign compliance. Compliance is really a function of visibility in China. I’m not sure how many businesses in China wouldn’t cut corners if nobody was looking.
5. gary chou on his blackberry | March 6th, 2008 at 6:37 pm
IP is not enforceable and the concept of it is not instilled in Chinese populace, but it will change.
IP law is not a Western made up law to benefit foreign companies. IP concept is equivalent to real estate deed, tabgible property right. A society or country without such would face thieves and discourage competition. At the end a country’s IP law really benefits itself.
As China’s industry matures, especially as its companies transform from labor intensive to R&D intensive (inevitable due to increase in quality of life, environmental liability, added value chait, etc), IP law must take place in that country. Its industry themselves will demand so.
Gary Chou
6. Simeon Trieu | March 7th, 2008 at 4:24 pm
Gary: As you correctly said, IP law is not meant to benefit foreigners, necessarily, but really to benefit itself. But I would respectfully disagree with you that IP is not enforceable in China. Numerous law resources are available on the internet through Google that shows IP to be enforceable by judicial and administrative means. If one takes the preventative measures necessary to protect IP by registering with the state, then many enforcement options exist to help foreigners protect the IP rights. Do you have a source for the claim that IP is not enforceable in China?
7. Richard Ciesco | March 8th, 2008 at 4:19 pm
I am currently working with a business partner to develop a product and bring it to market. One of the biggest issues/decision we have been talking about is just this. Should we have some of our parts made in China and risk having them stolen/copied?
My partner at first was against going to China to have parts made. I on the other hand was all for it. I am concerned about that same thing he is but I feel that if the appropriate steeps are taken, ie. get patents/trademarks here ins the US and china., but then again I am a very trusting person. After talking with some business people who have done business in China we were feeling better about having our products made over there. One person just told use about some recent labor union disputes that might affect things over these and now we again in question. Our decision to go to china is still months away and I will continue to talk with people who have experience over there. The one thing that we know we must do if we are going to go over there is to have all the IP in place before we make any moves. That is the only safety net you can have and it is vital do doing business anywhere.
8. gary chou | March 9th, 2008 at 11:06 pm
hi simeon, sorry that i made it unclear so. i used the word “enforceable” because i got it from your post. i thought the source you quoted said IP is not enforceable. no, i don’t have any source supporting that, but surely from what I have seen (pictures of knock off products ranged from CARS! to iPhone!) IP law is certainly very lax over there. would the government enforce it if one complains? perhaps if you know the right people and bribe enough money? i am sure the concept of IP however is NOT ingrained in the minds of most people.
if you disagree with my last statement, then i will write more about why i believe so.
9. Simeon Trieu | March 9th, 2008 at 11:52 pm
Gary: Sorry about the confusion with the points. The listing was meant to be 3 myths.. not 3 facts. I originally submitted my post e-mail to the MBA office as “Debunking the Top 3 IP Myths in China”, but somehow, it got converted into the vague title of “IP in China”. Thanks for replying, however.
I don’t disagree that the Chinese mindset is opposed to the respect of IP rights. As the Catherine Sun points out, the idea is to work with the government who is willing to protect your rights *when* they are infringed upon. It is inevitable to see copies and knockoffs on the market. But if you take the administrative enforcement route, for example, simple product comparison can be enough to warrant government crackdowns that even involve raids, all within a short timeframe. Hopefully, we see that the point isn’t necessarily to change the mindset, but rather to show foreign (and consequently local) businesses that IP is indeed enforceable in China, and also that patents need to be registered with the government in order to have any chance of protecting your IP rights. The mindset will change as the consequences of infringement make IP theft too costly to be profitable.
10. Chris Carr | March 10th, 2008 at 3:29 am
Simeon,
Not sure what happened with the title change in your post. Somehow in the loading process it must have got changed, but I can’t explain or determine the details of why. This one has me scratching my head. Do know that said change was inadvertent. I made the change.
11. Simeon Trieu | March 10th, 2008 at 7:37 am
Oh, great! Thanks for the title change, Prof. Carr. I’ll try to be more clear in my e-mails in the future about the details of my post.
12. Gary Chou | March 10th, 2008 at 8:31 am
Thanks Simeon. I think we both agree that the big idea (and the one promises bright hope) from Chinese IP law is that it will eventually mature and become established, when the Chinese industry themselves demand it out of needs for justice and predictability. Although Chinese legal system is not common law (which is predominantly so in the American tort law), I am sure IP standards will still provide a floor of minimal predictability and business continuance for Chinese companies who actually are trying to invent and innovate.
Leave a Comment
Some HTML allowed:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
Subscribe to the comments via RSS Feed