No end in sight? Protecting Intellectual Property in China

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Three cases in the news this week highlight the precarious nature of Intellectual Property (IP) regulation in China.

The Financial Times (see also TIME) reported Tuesday of the ongoing saga involving Chinese glue-making company Magpow and its chairman Yuan Hongwei, who stands accused in the U.S. of trying to register more than 221 trademarks in China, most of them well-known brands such as UTT, Castell, Araldite and Super Glue. U.S.-based industrial adhesive manufacturer Abro has been engaged in a global campaign against Magpow's blatant display of corporate identity theft since 2001, yet the day before he was due to appear in a London court facing extradition to the U.S. earlier this month, Yuan Hongwei published an open letter on the internet thanking the people and government of China, who had just assisted him in returning home to the 'embrace of the motherland' after he was apparently 'tricked' into flying to the U.K.

In somewhat contrasting news, The New York Times reported Friday of Zhongyi Electronic Ltd., a small Chinese high-tech firm, who are suing Microsoft who they say have been using its Chinese language input technology and fonts in Windows operating systems without commercial agreement for over a decade. Microsoft has refuted the claims, saying it fully performed its obligations and that earlier license agreements had given it the right to use the technology. The China Business Law Blog (blocked on the mainland) recently also did a posting on the developing story of how Microsoft this month was dealt another blow when the China Trademark and Patent Office (CTPO) rejected its opposition of the registration of the trademark "Windows" by a Ningbo eye glass company.

While this illustrates the difficulties foreign enterprises could often face in protecting their intellectual property in China, a September 2007 World Intellectual Property Organization (WIPO) study on the economic impact of IP systems in China (available here) cast some light on the interplay of factors complicating IP in China. From 1992 to 2003, the report states, Chinese imports of high-tech products far exceeded exports, and local companies' high-tech imports were less than a quarter of those of foreign funded enterprises. Hence local companies, in lack of essential patents, find it harder to break out of low value-added processing trades.

Typically, the authors (both from the Law School of Peking University) concluded, Chinese companies use IP and "seek protection for defensive purposes," yet even successful companies "have not yet grown strong enough to bear the cost and risk inherent in R&D in China." Although "expanded sale" can induce R&D investment,
With limited net income and limited experience in managing R&D activity, concern is raised as to whether domestic companies could successfully make and commercialize innovation before being thrown out of the market or simply being absorbed by foreign companies.
This analysis would suggest that while both sides can appreciate the value of IP, Chinese companies can easily view the status quo of IP as a barrier and unfair disadvantage in the face of rising costs, which is just one more issue complicating IP protection in China.

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