Intellectual Property Rights
Foreign Firms to Get "National Treatment" in Shenzhen
Beginning January 1, 1997, foreign firms and traders in Shenzhen will be treated equally with domestic firms. This will be the first phase in a bid to put all companies in China, both foreign and domestic, on an even footing in terms of tax and investment regulations. China plans to achieve so-called "national treatment" during the Ninth Five-Year Plan (1996-2000), as part of its bid for acceptance into the WTO. Sun Weiyan, president of MOFTEC's University of International Business and Economics, said that China already does not discriminate in the taxing and marketing of imported versus domestic goods. He also said that China will move to create more agencies to help foreign firms with trademark and other IPR concerns. He also suggested that China should combine the various laws regarding JVs, cooperative ventures, and wholly-owned foreign companies into a single body of corporate law.
China Daily (PRC), 12/18/96
IPR Enforcement Not Just For Show
South China has witnessed a number of highly publicized IPR enforcement actions in recent weeks, culminating in a ceremony on December 13 in which 700,000 pirated or pornographic CDs and videocasettes were destroyed in Guangzhou. While some of these actions have ben seen only as public education, observers of IPR issues in South China feel that substantial efforts at enforcement are being made. Guangdong Vice Governor Li Lanfang reported that although IPR enforcement in Guangdong was new, they were trying very hard. She said that 2.9 million pirated tapes and CDs had been seized last year, while 4000 retailers were shut down and 340 people arrested for IPR violations. More importantly, two production lines for illegitimate materials were shut down. In a further show of their seriousness about IPR enforcement, the Guangzhou Public Security Bureau has set up a hotline to report IPR violations, offering a $36,000 reward for information leading to the closure of illegal production lines. In a related story, two Chinese businessmen were convicted of counterfeiting the 3M trademark and selling fake 3M floppy disks, and sentenced to one and two years in jail apiece. Their company was fined $30,000 as well.
China Economic Information (PRC), 12/18/96
More Crackdowns on Disc Piracy
An official with China's National Copyright Administration said that Guangdong authorities had shut down 12 illegal compact disc production lines in the last two weeks as part of ongoing IPR enforcement efforts. Chinese officials felt that tough IPR enforcement, which included the seizure of over 10 million illegal products this year, had even won some positive recognition from Washington. But one official warned that copyright enforcement was not just a matter of a couple of years enforcement, but would involve efforts over a longer period of time.
South China Morning Post (HK), 12/27/96
Chinese Courts are Giving Closer Scrutiny to IPR Cases
A senior judge who focuses on intellectual property rights said that IPR related law suits in China are increasing. Chinese courts heard 341 copyright related cases during the first months of 1996, a rise of 6.2 percent over 1995. There were also 493 computer software related cases, up 36.9 percent; a 22 percent rise in trademark infringement cases and a 14 percent rise in patent infringement cases, according to Li Guoguang, vice-president of the Supreme People's Court. Courts intend to strengthen IPR even more this year, Li said.
China Daily (PRC), 01/09/97
IPR Problems Remain in Spite of Increased Enforcement
It is hard to say how far China's government officials will go to enforce intellectual property rights at the local level. Although there is success here and there, foreign companies and the government are, up to now, fighting a losing battle against counterfeiters. Factories have been closed but serious problems still exist at a time when the economy is growing and more foreign product is being brought to China. Protectionist practices are still rampant says Tan Loke Khoon, an attorney at Baker and McKenzie in Hong Kong. "If you want to take action against a factory and that is the only factory that provides jobs for the town, do you think the local administration will be so keen to take action or impose fines?" Problems in IPR are faced by companies when dealing with different arms of the government . Although multinationals may be successful in getting Chinese officials to conduct a raid, there is rarely any follow-up coordination with other Chinese authorities. A high percentage of cases are repeat offenders and the fines are too low to discourage others for joining them. "The fundamental issue is that nobody goes to jail," says
Tan. Some of the fake goods made in small towns outside Guangzhou include fake batteries, film, lubricants, candies, clothes, milk powder, shampoo, golf clubs, perfume, beverages, cosmetics and CDs. Software piracy is still widespread even though the government has cracked down on illegal factories. Losses to foreign software companies have reached in the millions each year. Several successful court cases and the increasing number of factory raids have shown that the Chinese authorities are serious about the issue but the problem remains. Progress will come with U.S. pressure as well as internal interest groups such as Chinese software firms, writers and artists who begin to complain that product is being stolen and they are losing money.
China Trade Report (Hong Kong), 01/01/97
Savvy Practice For Foreign Companies Protecting Intellectual Property
In spite of the criticisms aimed at China's ineffectual assault on the pirating of foreign goods, the country has really done much to improve IPR in the past few years. It has established legal standards, had an occasional high-profile prosecution and has initiated awareness campaigns. Although these positive steps are taking place foreign firms are well advised to continue to mind their own technology through preventative measures. The reason for this is because the basis for China's laws is to absorb as much foreign technology as possible. For this reason the IPR law in the country is "first to register" rather than the international standard "first to invent" principle. This way a Chinese company can have the China patent for a product invented in the West. As companies keep this in mind they can develop an IPR strategy with the purpose of minimizing losses, rather than allowing the law to take care of it for them. Some of the beginning moves should be to: Find a partner who would be unlikely to pirate or who has the power to halt those who would; Bring mid-level, rather than the highest-technology, over to China; In the JV agreement specify that the technology transferred to the JV is not to the local partner as well; Have everyone involved, from the managers and local workers sign a non-disclosure agreement; Centralize crucial knowledge and processes. Uncentralizable knowledge should be camouflaged and spread out among different people in different areas. Give renumeration in the form of confiscatable assets like housing for the workers and managers. This will give employees a long term vested interest in the company and its success as well as reduce turnover, a major source of technology leakage; Train locals about intellectual property and how it can benefit China in the long term.
EIU Business China (U.K.), 02/03/97
S&P Rating to Remain Good Even if There is a Transfer of Power
In the event that China's paramount leader, Deng Xiaoping Dies, Standard & Poor will maintain a positive outlook on the country's credit rating. Guido Cipriani, director of Standard and Poor's sovereign ratings group said: "We have had all along for the past three and a half years a positive outlook on their credit rating and that has had to assume the scenario of a transfer of political power." S&P has given China's long-term debt a BBB investment grade rating.
Reuters (U.K.), 02/18/97
IPR Violations Will Be Hit Hard This Year
A senior official pledged that major steps would be taken this year to enhance IPR protection in the hope that there will be a fairer and healthier climate for domestic as well as international businesses. It is expected that guilds and IPR associations will play a more active role in IPR protection, and a system to assist companies to protect their own intellectual property will be set up, said Duan Ruichun, director of the IPR Ofice under the State Council. "IPR protection is important to economic and technological progress and necessary to international exchange," said Duan.
Cbnet (PRC), 02/18/97
IPR Update: False Advertising
Consulate officers in Guangzhou met with Guangdong IPR officials to discuss complaints brought by a U.S. firm against a local electronics firm. The firm claims that the repeat IPR offender is passing itself off as a U.S. company, using the American company's name without permission, and implying that the company also bears warranty responsibility for the local company's products. The consulate gave province IPR officials copies of evidence collected by the U.S. firm and a copy of previous judgement against the company. Guangdong IPR authorities, expressing concern that it might be blatant disregard for Chinese law, have promised to investigate and report back. A previous judgement was rendered against the company for infringements but the company has apparently changed its practices only enough to circumvent the letter of the 1996 judgement. It appears that Guangdong IPR authorities are committed to strengthening IPR protection in the province. Although they would make no promises about this case in particular, we are optimistic that the authorities will give this a fair hearing.
American Consulate Guangzhou, 03/24/97
China's Credibility Liked to WTO Accession
A recent Japanese trade policy report said that if China failed to become a member of the WTO it would jeopardize the country's future development. Expeditious accession for China and Taiwan was important not only to the countries themselves but the world as it would foster the expansion of global trade through increased liberalization of their trading regimes. Membership would also bring the countries under common rules and a place for multilateral dispute settlement. "The accession will also promote further integration of China into the global economy," the report said. If China should fail to accede, however, it could "seriously damage the credibility of the Chinese economy. Trade and investment from the rest of the world that are essential for its further development will also suffer." If China were left outside the WTO it would still play a major role in the world economy and be a growing burden for the world trading system, the report noted. However, China should make clear its commitment to follow WTO rules. It should provide a clear timetable for eliminating import restrictions in a completely transparent way, the report suggested. Subsidies, trade related aspects of investment measures, industrial policy measures and protection of IPR also needs to be addressed by Beijing. One of the greatest concerns is China's restrictions in the distribution sector, which remain a substantial barrier to trade.
South China Morning Post (Hong Kong), 04/01/97