Recently in Intellectual Property Category

In February this year, the World Famous Brand Assembly (WFBA) announced that 88 of the world’s top 500 brands are Chinese. Of these 88 China-based brands, 79 are from the mainland, six are from Taiwan and three are based in Hong Kong. China’s representatives on the list were predominantly state-owned firms, notably oil companies such as China Petroleum and Chemical Corporation (Sinopec) and China National Petroleum Corporation (CNPC), although appliance manufacturer Haier Group was also included. Many of China’s banks were also positioned among the best brands. The list of 500 included 130 representatives from the United States, 60 from Japan, and 35 companies from both Germany and France.

This marks the most favorable international brand recognition to date for Chinese companies. In 2005, WFBA included only 27 Chinese companies in its list of 500. Other global brand rankings still do not have a significant Chinese presence, however. A 2009 top 100 brands’ list produced by Interbrand for Business Week magazine was topped by the usual suspects – Coca Cola (1), McDonald’s (6), Toyota (8) – without a single Chinese representative on the whole list. Another by Millward Brown entitled 'BrandZ Top 100' reserved five places for Chinese companies. China Mobile made it into the top ten at number seven. The remaining four were banks.

The discrepancies between the lists are due to different evaluation techniques utilised in each ranking system. To qualify for Interbrand’s list, for example, a company must derive at least a third of its earnings outside its home country, must be recognisable beyond its customer base, and must make its marketing and financial data publicly available. These standards, particularly the first, would eliminate most Chinese firms, and is part of the reason why Wal-Mart and Visa are also not recognised.

China’s ‘going abroad’ policy is a relatively new phenomenon. Chinese companies will increase their earnings abroad, become more widely recognised and achieve a greater presence on these lists of leading global brands. So we will be keeping a look out for a China-based company in Interbrand’s list for 2010.

For many years, China has been criticized for lacking innovative and creative ideas in the course of its economic development, a shortcoming in large part ascribed to the technological gap between China and developed countries. As an inevitable consequence of this gap, China has few other options but to adopt, legally or illegally, innovations from developed states. This often led to IPR violations in China, which in turn resulted in China being labeled as a nation that imitates rather than innovates. Yet in trying to make China a leading world economy, the Chinese government is increasingly exerting itself to shake off this negative image. And 2008 was a year when the results of its work in this direction took a more visible shape.

Patents

In 2008, China received 828,328 patent applications, an increase of 19.4% year-on-year. Among these applications, 86.6% (717,144) were submitted by Chinese companies, and 13.4% (111,184) came from foreign companies. China granted 411,982 patent rights, 17% more than in 2007. 352,406 were granted for domestic companies and 59,576 for foreign companies, with a growth rate of 16.8% and 14.5% respectively, according to the State Intellectual Property Office (SIPO).

Patent applications have grown steadily, with an increased number of applications from enterprises. Around 40,500 domestic companies submitted patent applications in 2008, a year-on-year rise of 23.9%, while 420 enterprises had more than 100 patent applications. 27% of the total number of domestic applications was for invention patents, a rise of 1% on the previous year. The rate of approvals for applications from Chinese companies increased, but the ratio of granted patents to total applications was still slightly in favor of foreign companies. The gap was especially evident in high-tech fields, such as audio-visual, optical and semiconductor technologies, where Chinese companies still lag far behind foreign countries. The number of patent applications in every domestic technical area increased, and most of these achieved double-digit growth.

Policy and Anti-piracy campaigns

With the adoption of the latest National Intellectual Property Strategy, China's Patent Law is undergoing amendment in order to ensure enhanced IPR protection and more efficient application processes. In the past, each application took one to three years to be processed, depending on their complexity. The revised law, which will take effect on October 1 2009, will encourage Chinese companies to develop more high-tech patents.

China has also conducted a number of anti-piracy campaigns, aiming to demonstrate a more rigorous response to numerous violations in the IPR sphere. In 2008, China confiscated over 76 million pirated publications and investigated 12,490 piracy cases. Among the seized publications, there were over 56 million pirated audio-visual products, 13 million pirated books, over 3 million fake teaching materials and pirated software and 2.8 million pirated electronic publications.

With the financial crisis affecting most of the world economies, it becomes even more crucial for China to integrate further with the development trends of global IPR protection. To overcome the most serious economic challenge in this century so far, countries will inevitably need to unite and coordinate their efforts, and exchange new plans and ideas with each other. At times like these, trust and responsibility plays an even more crucial role.
IPR image.jpgWith the Games now in full swing, Olympic tourists would be unaware of the concentrated efforts on the streets of Beijing that preceded their visit to the Chinese capital. Foreigners residing in Beijing before the Games would know, however, that cheap DVDs are no longer freely available on the street corners, while Beijing's Silk Street has been put through what Chinese Vice Premier Wang Qishan described as rectification. If there are visible outcomes of the Chinese government's claims of taking Intellectual Property Rights (IPR) seriously, these are part of it.

Crackdowns in China are no small feat: China's scrap with the counterfeit industry has historically been of epic proportions. The tide of Western companies setting up production in China has provided numerous opportunities to copy designs and production techniques, and China's rising middle class (according to Supply Chain Digest) has been eager to snap up realistic looking knock-offs at low-ball prices. 80% of all items confiscated in 2007 by U.S. Customs authorities as counterfeit items, moreover, were produced in China, pointing to an advanced global distribution network for fake goods.

The latest crackdown in China was preceded by warnings in June of harsher punishments about to be meted out to piracy offenders. Copyright Management Bureau Director Xu Chao admitted to a grave piracy situation in China, yet as part of China's new Intellectual Property Rights Strategy, Xu promised better administrative protection of copyrights and harsher judicial penalties. Yet while a sign of changes on the ground, crackdowns in China still occur in a general context of lax enforcement of IPR, a description preferred by the Economist's Intelligence Unit, based on their analysis of China's still fragmented regulatory environment with various toothless agencies and biased courts.

Nevertheless, yesterday's edition of the China Daily newspaper reports of a crackdown planned for the local cultural market in the city of Anshan, Liaoning province. During the crackdown,
law enforcement officials will inflict a stiff punishment on offenders. If the amount of pirated [goods] sold in one time do not exceed 100 items, all illegal goods and income will be confiscated, and the law breaker will be punished a minimum of 10,000 yuan (sic).
Yet if the amount of pirated goods exceeds 500 items, the article concludes with the terse yet ominous proclamation: the law-breaking unit or individual will bear criminal liability.

So despite China's infamous status as the counterfeit capital of the world, with the current crackdown in force, copyright offenders in China have been put on notice: surpass the magic number of 500 and you will face the full might of the law. Yet like with all crackdowns, the real test will be to see what happens after the crackdown, or more to the point, after the Olympics.

Image: China Daily.
Peri.jpgPanda.jpg Does the Peri minicar (left), built by China's Great
Wall Motor, look remarkably similar to the Fiat Panda (right)?


A Turin court was in no doubt last month when it barred the Peri from being sold in the E.U., after an appeal by Fiat. Yet unsurprisingly, Great Wall Motor was able to shrug off the Italian court's decision, because a few days later a Chinese court dismissed the claim filed by Fiat in China alleging the GWPeri model was an infringement of its patent.

The Peri/Panda case is by no means the first claim of imitation against Chinese auto makers. In 2006 The Times described at length how the likes of General Motors, Rolls-Royce, BMW, DaimlerChrysler, Honda, Audi, Nissan, Toyota and Mercedes-Benz have all had to fend off a so-called attack of the clones from Chinese manufacturers like Chery, Shuanghuan, Hongqi, Geely and JiangLing. Some analysts have even concluded that Western manufacturers have to accept copying as part of the price of doing business in China, like Honda concluded when it lost half of its motorcycle manufacturing market share in China to cheaper Chinese immitations. Staying in China, Honda decided, required entering into partnership with some of the very companies copying its bikes. 

Yet with the steady growth of the Chinese car market, China is no longer producing just lower-value clones. Chinese brands have grown to the point that 57% of all vehicles sold in China in 2006 were from local manufacturers, and in March 2006 Chery Automobile became the first Chinese auto maker to top the domestic car sales list. To actually break in to markets overseas, however, and to overcome their disadvantages in product and business model innovation and manufacturing quality, Chinese car makers have to make a quantum leap across the automotive value chain, enhance quality standards while developing unique models. While positioning itself for exports, Chery has been co-operating with global design and engineering experts and is now boosting exports to markets such as Egypt, Italy and Russia.

For many years regarded as low-end, unreliable brands, Chinese auto manufacturing is experiencing a gradual coming of age with the global emergence of Chery, and with the growth of the market in China and government encouragement of R&D, China will gradually lose its knack for manufacturing cheap clones.

Additional sources:
China. An Automotive Industry on the Verge (Accenture)
Shaping the Future of China's Auto Industry (McKinsey)
Foreign Technology in China's Automobile Industry (China Environment Series)

Images:
http://blogs.automobilemag.com (Panda)
http://www.cnnauto.com (Peri)


This year's World Intellectual Property Day on April 26 focused on celebrating innovation and promoting respect for intellectual property (IP). In his message to mark the eighth World IP Day, World Intellectual Property Organization (WIPO, of which China is also a member state) director general Dr. Kamil Idris hailed the growing popularity of World IP Day, and explained what IP has to do with the really big issues like global warming or the things that add spice to life:
Without Intellectual Property Rights (IPRs), many new technologies developed to tackle global problems would never see the light of day and the great sporting events, which entertain and unite us, would not be broadcast into homes across the globe.
With the added significance of the greatest sporting event taking place in China this year, China's role in protecting the things that add spice to life remains a hot issue. To illustrate its achievements as well as its determination with IPR, China welcomed IP Day this year by means of a Book Burning, where as many as 47 million pieces of pirated and illegal publications were destroyed across China.

Despite the evident importance attached to protecting IP in China (IPR guidelines were last month approved by the State Council in lieu of a national strategy) and the series of campaigns launched in recent years against crimes related to the infringement of copyrights, trademarks and patent rights (more than 4,300 people were tried and convicted on IPR infringements in 2007), the 'Special 301 Report' on the global state of IP (annually produced by the Office of the U.S. Trade Representative) described China as troublesome for failing to protect U.S. patents and copyrights. From an article at Industry Week, the Special 301 Report emphasized China's overbearing role in a sophisticated global counterfeiting network (citing estimates from U.S. copyright industries that up to 95% of their members' products sold in China are pirated), and attributed this to inadequate IP rights enforcement and high criminal thresholds in China. (See also Business Week on the fifth annual Global PC Software Piracy Study and its findings on the pronounced rates of software piracy in second and third-tier Chinese cities).

European Commission president Jose Barroso in March claimed that China is the source of 80% of all fake goods in the world, and while acclaiming the concrete steps taken by the Chinese government to rein in rampant counterfeiting in China, State Intellectual Property Office spokesman Yin Xintian acknowledged last month the uphill struggle against piracy in China, where an IPR protection system has only existed for a relatively short time of about 20 years. Yet as China Esquire urges, China's apparent predominance in global IP violations should be seen in the context of its large population, and in fact the Chinese government should be commended for its determination to enforce IP regulations:
Yes, there is always much more to do. But we are talking about stemming a flood...It will take a LONG time before IP is as highly regarded as it is in America... But for now, can we just applaud the government's efforts?
And for now, moreover, the U.S.-China Business Council recommends (link from Thomasnet.com) any successful China IP protection strategy to have both defensive and offensive elements, with companies required to combine all the necessary preventive measures (i.e. rigorous auditing, educating of employees and speedy registering of works) with devoting time and resources to detecting violations and taking legal action, because
A company's legal rights mean little in China unless the company chooses to protect them.
Unless you are one of the few who are somehow more concerned with storing up treasures in heaven (it is after all a narrow road that leads there), you know that there will always be someone looking to break in and steal your treasures and ancient relics. Like Cain and Able, the bond between property and theft is set in stone. It is for this very reason that farmers in a few villages in Shaanxi have taken to 'sleeping with their pigs' after repeated thefts in the wake of rising pork prices. By means of the Shanghai Daily's purple prose we read of brazen thieves in Lantian County who drugged the 'pigs or dogs' that guarded the enclosures, dyed seven white pigs black and even got the unwitting owner to help them load the stolen pigs onto their truck.

As a lab for monitoring China's eastern coast for 'red tides' (outbreaks of algae in organic matter) was dedicated in Shanghai this month, recent media reports have hinted at another red tide of recurring economic espionage involving Chinese nationals and foreign military technology, and an even bigger tide of sophisticated cyber attacks on the most sensitive computer networks in the U.S. After the severe sentence handed out this month to Chinese engineer Chi Mak, who had supposedly been placed in the U.S. for more than 20 years to gradually burrow into the defense-industrial establishment, one senior U.S. official likened China's sophisticated intelligence-gathering operation to an intellectual vacuum cleaner with a diverse network of individuals systematically collecting U.S. know-how

Courts in China, however, cannot quite deliver the same hammer blow like that dealt to Chi Mak (despite the Economist's hopeful assessment for China's 'new' intellectual property courts). In the Foundation for Law, Justice and Society at Oxford's report Regulating Enterprise in China, Andrew Mertha examined the complex nexus underlying enforcement of a given law, regulation or judicial decision in China. As courts in China fall under the jurisdiction of local governments as just another civil branch, confidence in the judicial system is not very high and courts are institutionally weak and largely unable to enforce their own decisions. Enforcement is also complicated by the intricate levels of administrative ranks and complex hierarchical structures that characterize power relations in China, and as courts are constantly afflicted by a scarcity of resources, political directives from above and powerful individuals or unscrupulous commercial concerns could all inordinately affect enforcement.

In the context of the relative novelty in China of the concept of private property embedded in IPR and the conflicting traditional awareness of knowledge as a public good (see Fraunhofer Institute discussion paper), the copying of technologies without paying royalties, unauthorized trademarks and publication infringements are a real challenge for judicial enforcement that is costly and complicated and for administrative enforcement (i.e. the Intellectual Property Office) that lacks independent power and authority. Catching a determined thief (someone like the prisoner who escaped jail when he managed to use a crane to smash through three iron gates in a Hebei prison last month) is just a little harder in China.

And as put by Maarten Roos at China Success Stories, the ineffectiveness of China's IPR protection mechanism is evident in the
high standards for criminal liability of counterfeiters, the high burden of evidence to prove bad faith registrations, and the difficulty to prove damages in civil proceedings.
While these issues will improve with time, owners of intellectual property can
ensure that they have the exclusive rights to their IP in China under Chinese law, and the best decision can be made quickly on whether to take action against a perceived infringement. Such protection, usually inexpensive and rarely time-consuming, is the most basic element to an organization's IP strategy.
Yet if a foreign company fails to be the first to patent their product in China, the best legal advice is (see China Law Blog) 'better luck next time' - somebody made off with your stuff.
If there was ever someone who lived up to their name, Hero of Alexandria can take a bow. Among the inventions credited to this freak, who lived in the first century A.D., are the aelophile, a working steam engine used to open temple doors, and a coin-operated vending machine for holy water in the temple (Hero's local temple must have been an otherworldly experience).

Yet while individuals may be creative at any time and place, it is much harder for nations to be systematically innovative, to foster the appropriate institutions and have the ability to consistently produce creative individuals.  And in this, the never-ending global chariot race to be in the vanguard of innovation, nations in history have succeeded each other at the front as the transfer of knowledge and technology enabled the chasing pack to catch up with the leaders. Far from repeating the errors of its isolationist imperial heritage, today's China is fully intent on getting what it needs to be next in line for leading the global torch of creativity. For China it is the fulfillment of a long sojourn from incessant imitation and burgeoning low-value production, to being a truly innovative society on the road to maturing as a world power. Yet in this momentous Olympic year for China, it has found that getting the Olympic torch all the way to Beijing is a bit more challenging than expected.

And depending on whom you ask, China's rise to the top is either just a question of time or a case of wishful thinking, because while there are clear signs of progress, naysayers always have a bone to pick with China's institutional obstacles. Richard Brubaker at All Roads Lead to China is a big proponent of the fact that the Chinese are very innovative, although it is just the system in which the talent is incubated that actually has been the barrier. Yet working its way up through the low cost manufacturing market, through improved knowledge bases China's moving up the value chain is only a matter of time. And while it may take some time, China will get there in the end. For Bill Dodson at the This is China! blog, however, the Chinese people are amongst the most backward-looking in the world:
They'll take a concept or process from beyond their borders, and then send it back in time to the Chinese countryside and fit it in with the way things have always been done in their civilization... [China] will have to reform much of its narcissistic thinking about itself as a civilization that believes it has little to learn from the world.

From humble origins with the famous Class of '77 when China's higher education system re-emerged from the Cultural Revolution, universities in China have experienced major transformation, especially since 1999. As this study on China's higher educational transformation released by NBER last month outlines, as a reflection of China's specific focus on tertiary education with major resource commitments to universities embodying significant changes in organizational form, the number of undergraduate and graduate students in China has grown by approximately 30% annually since 1999. And this transformation has brought in its wake a major and increasing focus on patenting in China, with much of the increased spending focused on elite universities with new academic contracts differing sharply from earlier ones with no tenure and annual publication quotas often used. All of these changes, the study concluded, have already largely impacted China's higher educational system and are beginning to be felt by the wider global educational structure.

Yet in an assessment that dampens a lot of the fanfare, 'fraud-buster' Fang Zhouzi recently confided to a Danish newspaper that scientific fraud in China is so widely spread that its a unique phenomenon, larger than elsewhere or any other periods of China, and it results from

interactions between totalitarianism (the lack of freedoms of speech, press and academic research), extreme capitalism (try to commercialize everything, including science and education) and traditional culture (the lack of scientific spirit, the culture of saving-face, etc.).

Although the situation is somehow improving, he added, with greater awareness of the problem and a Chinese media more willing to report misconduct.

Despite China's extensive state-led innovation, history has overwhelmingly favored innovation from the private sector (see Danwei's businesscast with Maya Alexandri discussing China's drive for indigenous innovation), and China's push to the front may ultimately depend on the competitiveness of its private firms. Author Rebecca Fannin (Silicon Dragon: How China is Winning the Tech Race) last month told Forbes.com how the success of 'copycat' firms like Baidu and Alibaba has inspired a new generation of real innovation, making China the next emerging Silicon Valley. And as the CScout China blog documented, the presence of Chinese companies at the annual Consumer Electronics Show has been steadily growing over the years, and new Chinese entries at this year's exhibition included wearable solar panels, Android handsets and Lenovo Ideapad laptops. In a study from the University of Toronto released last month investigating whether Chinese firms are making the transition from imitation to innovation, the authors emphasized the increasing competitive pressure on Chinese firms that is encouraging learning:

Intense product competition and demanding customers encourage rising R&D spending and the development of new products and processes, imitation of competitors, linkages with foreigners and local research institutions, and increased emphasis on incentives and development of human resources in their own organizations.    

All of this can be interpreted with skepticism or with optimism, yet even if you doubt whether China is ready to take the torch of innovation all the way to the top, its obvious China is definitely going somewhere, and fast.

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.

counterfeit.jpg
China’s State Intellectual Property Office (SIPO) launched its first ever “Patent Week” on friday, reports Xinhua. As part of the drive, trade fairs, exhibitions and lectures will take place in Beijing and 20 other provinces and municipalities including Tianjin, Shanghai and Jilin. In 2006 SIPO accepted 573,000 patent applications, a 20.3 per cent year-on-year increase, of which 210,000 were patent applications for new inventions.

Counterfeiting and IP have become hot issues in U.S.-China relations recently, especially with the perception that the Chinese government is not active enough in stemming the tide of counterfeit products emanating from China. Yet as The Economist recounts, there are visible signs of progress, and there are signs of retreat and cynicism. In essence the situation varies from industry to industry.

According to Chinese government statistics the number of criminal cases relating to intellectual property rights fell by 35 per cent in 2006, and the regulations regarding investigations and prosecutions are cumbersome and painfully bureaucratic. Yet as Chinese products become more sophisticated the costs of having no property rights become increasingly apparent. The availability of innumerable cheap foreign products is undoubtedly holding back the development of domestic industry, and Chinese firms increasingly have brands and technology they want to protect. Patents filed by Chinese companies overseas rose by 58 per cent in 2006, making China rank third only behind the U.S and Japan in terms of patent applications. Yet government officials eager to have China create advanced products have come to realise that no-one will create anything without stronger levels of protection.