LETTER FROM CHINA: IPR Developments Will Catalyse Innovation in China

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Inadequacy in China’s intellectual property rights (IPR) protection regime is one of the key challenges faced by foreign firms operating in and considering entry into China’s market. The world’s second-largest economy has a “first to file” system and is notorious for protecting local firms over foreign ones in disputes.

However, recent developments - such as a deal with the Motion Picture Association of America (MPAA), the central government’s creation of a slew of IPR courts, and the emergence of intellectual property (IP) financing techniques - demonstrate China’s intentions to foster the innovation-oriented business environment it sees as leading future economic growth.

The MPAA, the key enforcer of film copyright issues in the US, signed a deal with Shenzhen Xunlei Networking Technologies, a Chinese video hosting website to “prevent unauthorized access” to MPAA member copyrighted works.

The two groups have a history of involvement. In 2008, MPAA sued Xunlei for supposedly providing illegal access to its members’ works. The CNY 7-million suit was later dropped.

This deal comes shortly after Chinese authorities cracked down on Xunlei competitor, QVOD, for copyright issues and after Xunlei applied to go public in the US for the second time. Its initial IPO application in 2011 was revoked due to copyright issues.

This unique deal represents an innovative response to the Chinese authorities’ recent crackdown on instances of copyright infringement. Chinese authorities have identified bolstering IPR protection as a priority issue in 2014. In fact, Chinese Premier Li Keqiang recently stated that, "protecting IPR is protecting innovation."

To provide for greater protection of IPR in China, Beijing is establishing new IPR courts. At a recent press conference, Tao Kaiyuan, Vice President of the Supreme People's Court, announced that China’s highest judicial body is currently reviewing IPR courts abroad. Following this research tour, judicial authorities will embark on the creation of China’s new IPR courts.

Analysts assert that other judicial reforms, from increasing the courts’ capacity to grant preliminary injunctions (a vital tool for the protection of trade secrets from defendants) to awarding larger damage awards and bringing simultaneous actions against infringers, are also helping plaintiffs protect their IP in China.

One reason Beijing is pushing for greater IPR protection is in the hopes of fostering the technological innovation seen propelling other economies with leading IPR protection regimes. The Party’s recent policy toward “indigenous innovation” has become one of the key drivers of the economy.

Beijing also aims to increase the perceived value of IPR through the country’s IP financing initiative. Earlier this year, Shandong-based Quanlin Paper reported to the State Intellectual Property Office that it had secured a $1.3-billion loan against a portfolio of 110 patents and 34 trademarks, most of which are based in China. This is one of the largest sums produced from an IP portfolio and may demonstrate confidence in China’s IPR regime.

China’s leaders have recognized that China’s future economic growth will be driven, not solely by heavy industry or manufacturing, but with private technology companies leading the way.

Beijing seeks to support these Chinese technology companies, which are heavily reliant on IPR protection and who have become increasingly relevant to China’s economic growth.

China is rapidly catching up to international high-tech leaders. Proper IPR protection is a prerequisite for attaining greater growth and not losing future competitiveness in this key area of the economy. Foreign firms will benefit from this development by minimizing the risk of losing their intellectual property to their competitors in this crucial market.

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