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What Chinese companies want: intellectual property protection

Chinese-American business relations appear to be benefiting from a new Chinese respect for intellectual property rights.

As Chinese innovators begin to see that there’s money to be made in protecting their own intellectual property, they’re becoming more willing to cooperate with big foreign firms.

The result? China‘s courts are now among the busiest in the world for intellectual property rights (IPR) lawsuits. And Sino-American business relations, long fraught with distrust for China because it was not controlling piracy, appear to be benefiting.

US Ambassador Gary Locke yesterday praised China’s progress in expanding its IP protection regime last fall, after much US lobbying, to ensure that China meet international standards in protecting the building blocks of capitalism – copyrights, patents, trademarks, and trade secrets. 

“Ten or 15 years ago, most people in China saw IPR protection as something only US or foreign companies cared about, but that is changing as more and more Chinese entities are creating intellectual property of their own,” Ambassador Locke said as he opened an IPR roundtable.

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Former Commerce Secretary Locke lauded leading Chinese search engine Baidu, once blacklisted for serving up links to stolen music files, for cleaning up its act. Yet theft of IP in pharmaceuticals, biotechnology, advanced manufacturing and entertainment, he said, still results in billions of dollars lost each year.

For every $1 in computer hardware sold in the US last year, 88 cents of software was sold in 2011. Compare that with China, the world’s second largest economy, he said, where only 8 cents of legitimate software is sold. Eighty percent of software sold in China is thought to be pirated. 

In fact, US companies such as Microsoft report they earn more from legitimate software sales in Vietnam than they do in China, a country whose economy is 50 times larger.

“But for every foreign company calling for stronger IP protection, there are really more Chinese companies calling for the same. Stronger IPR enforcement is essential to protect the work of Chinese writers and musicians and to provide incentives to Chinese firms to invest in research and development,” Locke said. “There’s still much work to be done, but progress is occurring here in China. We applaud that progress.”

China’s Vice Minister of Commerce Chong Quan said that now that there are more than half a billion Chinese netizens, the platform for piracy is huge. Online shopping in China rose 66 percent in 2011, outstripping the 11.6 percent jump in retail sales. “Internet development has highlighted China’s IPR problems, spurring a crackdown on faked goods sold online,” Chong said.

Last year giant online marketplace Tabao closed more than 3,000 of its online stores, Chong said, instilling a new confidence in e-commerce.

Yan Xiaohong, national copyright administration vice minister, said, “More Chinese songwriters and filmmakers are putting their products online and discovering that they can make good revenue.”

Charles Zhang, CEO of Internet portal, said that over the past three years, the license fees paid by Chinese online video sites for television dramas that used to be ripped off outright rose from about 1,000 yuan (about $158) to as high as 1 million yuan each. “Hollywood should be very happy,” Zhang said.

However, disputes between IP owners and knock-off artists or thieves persist. In 2010, local civil courts admitted a total of 24,719 cases dealing with IPR violations, accounting for more than half their caseload, Yan said.

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“More Chinese rights holders have come to realize that IPR protection is not a diplomatic issue. It’s an issue concerning their own growth. We must take this road to achieve future development. It is in the fundamental interests of our two countries to build good and prosperous IPR relations,” he said. 

And China’s pride in, and desire to protect, its own work is only going to grow, said Teresa Rea, deputy director of the US Patent and Trademark Office, noting that China’s State Intellectual Property Office issued 800,000 patents in 2010 after receiving 1.2 million applications.  This volume is expected to rise by two-thirds by 2015.

Carol Lam, a senior vice president and deputy general council of US chipmaker Qualcomm cited competing Chinese chip makers Huawei and ZTE, which are now among the largest holders of international patents in the world. 

But even big, listed Chinese companies whose brands are beginning to be recognized abroad have a way to go to overcome the stigma of China’s longtime disregard of IPR.

Bob Poole, vice president of the US-China Business Council, said 30-40 percent of the group’s members say IPR concerns prevent them from introducing their products in China.

Another industry group, the Motion Picture Association of America, won a long-fought battle in February when China raised the cap on imported movies to 34 each year from 20. 

But MPAA Asia-Pacific President Michael Ellis says the market is still a fraction of the size it could be since cheap pirated DVDs are still prevalent.

Still, Ellis pointed to a victory in that area, too, when, last summer, Alibaba, another of China’s giant online marketplaces, stopped selling all DVDs altogether.  “That solved a major problem overnight,” Ellis said. “It’s all about getting local leaders to take the initiative in the fight.”