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Intellectual property in China
知识产权在中国
Still murky
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Is the Middle Kingdom getting serious about protecting intellectual property?
Apr 21st 2012 | HONG KONG | from the print edition
SOMETHING strange is happening in China. For decades American politicians and businessmen have made it a ritual to bash China over theft of intellectual property (IP). But now Gary Locke, America’s ambassador to China, has proclaimed that “for every foreign company calling for stronger IP protection, there are really more Chinese companies calling for the same…progress is occurring.”
Is China really getting serious about protecting people’s ideas? There are promising signs. Chinese firms keen on expanding overseas are investing heavily to develop and protect original technologies. Last year ZTE and Huawei, which make telecoms gear, stood at numbers one and three in the tally of global patent applications. At home, the numbers both of patent filings and of IP lawsuits brought by Chinese firms have grown by double digits.
Though partly a product of government inducements to file patents, the changes are also the result of China’s legal system getting better. Two decades ago, many judges were political or military appointees and ill-equipped to try technical cases. Thanks to better training, particularly in Shanghai, Beijing and Shenzhen, that is now much less common. Justin Davidson of Norton Rose, a law firm, also notes that locals used to file dubious patents that ripped off overseas inventions; a change in the law makes that more difficult today.
Foreign firms have often complained of biased local courts. Rightly so, argues Douglas Clark of the European Union Chamber of Commerce: China’s judicial system is not independent. Yet today, he says, a bigger problem than anti-foreigner bias is that some provincial courts may favour local firms over outsiders, Chinese or foreign. China’s Supreme Court will have to help overcome such cronyism, he thinks.
One case will show if it is up to the task. AMSC, an American firm that makes software to run wind turbines, is entangled in a legal battle with Sinovel, a Chinese firm that turned from customer to rival. AMSC claims to have clear-cut evidence, validated by European authorities, of IP theft; Sinovel denies wrongdoing. A court in Hainan denied AMSC’s request for a ruling based on the evidence, insisting on arbitration instead. The firm has this month appealed to the Supreme Court.
Another case may also bring more legal clarity. SI Group, an American firm, and Sino Legend, a Chinese rival, are embroiled in various legal challenges involving chemicals that go into tyres. One manoeuvre is revealing. Sino Legend has just sued an agency affiliated with the Shanghai government that verifies claims made by litigants, alleging it revealed trade secrets to SI Group. Corey Xie, Sino Legend’s general manager, worries that his competitor (with operations in Shanghai) is benefiting from a legal system which may favour a company with local economic clout over his Jiangsu-based firm.
It does not help that damage awards in China are usually so meagre (less than $30,000 per victory, by one estimate) that they do not justify the costs of litigation. But things are also improving here, argues Benjamin Qiu of Innovation Works, a combination of start-up incubator and venture-capital firm based in Beijing. He points to a victory earlier this year for Ashland, a chemicals firm, that came with a damages award of 22m yuan ($3.5m).
Yet the biggest threat to innovators, foreign or local, is opacity. Judges often do not publish detailed rulings, or do so only after much delay. That makes it hard to work out why they have reached a verdict, what this says about the evidence presented, and whether a particular judge is competent. Asked how much such murkiness costs, Mr Qiu says he discounts the value of a Chinese start-up’s IP (versus that of a comparable Silicon Valley one) by 33% to 50%. That is progress, of a sort: a decade ago he would have discounted it by 80-90%.
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