China Business

China IP Protection: Will it Ever Get Better?

China future business

I received a somewhat ranting email the other day from a highly respected China law academic in response to my having been interviewed in an article about IKEA’s stores being copied in China.

Below is the heart of the email:

1. No one in the world thinks China “cares” about intellectual property, in the sense it will voluntarily comply with Western notions of how IP law works or should work.

2. The Chinese do care about IP in the sense that they recognize its value. That is why they will copy whatever they are legally or practically able to copy. For example, on the legal side, it is possible to trademark a color scheme. If IKEA did not trademark its color scheme, then it is perfectly legal for a Chinese company to use that color scheme in its own trade dress. On the practical side, if foreign companies do not pursue infringers in the courts, there is no practical reason not to copy foreign companies if you think it will give you an advantage in the China market.

3. If foreign companies are not willing to register and then defend their copyrights and trade dress in China, they deserve what they get. As China gets more prosperous, the problem will get worse, not better.

There is a more interesting issue, however. The Chinese know this Kunming store is NOT a real IKEA store; they know it is just a Chinese copy. They know it is a fake. So why do they shop there? There are two reasons: 1) the IKEA product is all made in China, so the store is actually selling exactly the same product (or at least this is believed to be the case), so in that sense it is not a fake, and 2) the fake product is cheaper than the IKEA trademarked product, and Chinese only care about price. They don’t care about atmosphere or service or interior design. This leads to their only wanting the foreign brand at the cheap price. So it is mostly about what the Chinese want. They want cheap with no frills. The fake store gives them what they want.

This all leads to another question. China is full of fakes. The eggs are fake, the Baijiu is fake, the wine is fake, the clothing is fake, the phones are fake, the bags and shoes are fake, the antiques are fake. There is no other country in the world even close to China on this. Not India, not Russia, not Brazil, not Vietnam, not Thailand, not Mexico, not Indonesia: not anywhere.

Why?

The Chinese are supposed to love food, but they live in a world of low quality, fake and poisoned food. Why? What’s wrong with China? Will this continue? Is it part of the internal design of Chinese culture, or is it a temporary response to the Leninist single party state? I used to think it was due to population pressure, but the different experience of India, Pakistan and Indonesia shows population pressure is not the reason. There is actually greater overall population density in Holland than in China. So what is actually going on? I really do not understand the current situation in China.

Which leads to another issue: copying is not innovation. If China remains at the copy stage and never moves to the learning and creating stage, where will China be in the future? My own view is that China will not change and that China in the future will be a somewhat poor, quaint country that will be a good place to visit and maybe a good place to retire. All this current interest in China as a future modern superpower is temporary, I think.

Is this person right or has he gone too far? What do you think?

38 responses to “China IP Protection: Will it Ever Get Better?”

  1. I am a patent attorney and I have had several Chinese clients ask if they are allowed to patent an invention in China that already is patented in America. The concept that you should be the inventor to file a patent does not seem to even enter their mind. The clients just want to know if anything will stop them from obtaining Chinese patents for other people’s inventions.
    Fortunately, China is an absolute novelty country which allows the rightful patent owner to invalidate such patents. However, I believe design patents and utility model patents only go through preliminary examination in China and are not examined for novelty, therefore, in effect, these clients can obtain patents for other people’s inventions and be able to enforce them until someone is able to invalidate the patent.
    Sometimes I feel the desire to copy is so great that many Chinese companies spend much more time, effort and risk copying others instead of taking the safer path of truly creating something.

  2. Hi,
    I am Pakistani settled in UK.
    the writer is absolutely correct.
    no one asks questions of how snapping windows was stolen from the Linux comunity and how apples OSX is actually a re-branded Linux.
    in the courts the Linux comunity is helpless because they are non-profit organisations.
    Apple with its snake tongued layers is not giving the source code of its OSX operating system to courts for examination, its excuse is that making the source code public in a court will jeopardise Apples intelectual property and allow others to copy it…
    so in effect APPLE itself is one of the biggest culprits of inetelctual property abuse. same goes for many other western brnds such as Microsoft which pays out billions every year to people it stole source code from in compensation law suits.
    apparantly anything west does is legal and ok. anything the developing world does is wrong because obviusly it destabilises the global regime wherein west is the dominant power.

    • Typical Islamist fundamentalist who likes in west enjoys everything they have to offer and still resents them.

  3. Very interesting point of view, and not without its merits. But I beg to differ. I think China’s current GDP per capita has a larger role to play in this. Currently the Chinese have a GDP per capita of roughly $4,400 USD, while other developed countries are about $25,000+. While they have over doubled in GDP per capita over the past decade, they are still poor by developed standards. I estimate that this trend you pointed out will continue until their GDP per capita reaches near developed heights and are able to afford quality foreign goods and at that point we’ll see a shift.
    Conversely, Hong Kong and Taiwan are both on par with developed world GDP; which could completely foil my theory. I’ll leave it to someone else to do the research.
    Cheers on another good read.

  4. pure pragmatism .. (incidentally, a characteristic found in every guru i ever met, implying that when social conditioning is lessened people see “what is” and act accordingly)
    and from a whole-systems view, what IS ipr and copyright? what is its value for the human species as a whole?
    and where DO ideas come from? if there is such a thing as collective consciousness, as many creative people feel, ipr and copyright don’t reflect the larger reality and are not much more than protection rackets for distribution systems.
    these concepts as they exist today are very incomplete .. happy that someone, china, is testing the boundaries.

  5. But doesn’t China have a great deal of momentum going for it? At the rate they are going, wouldn’t it have to be a phenomenal, frogs-from-the-sky kind of crash for them not to reach at least a South Korea-lite state of being in many areas?
    Given the income inequality in China, I don’t see how the government can afford to let the country slip not continue making spectacular progress. There is simply no way they can keep people from widespread social unrest if the idea that the frenetic forward progress has stalled and will not begin again. I also think that the (massive and becoming more massive) Chinese diaspora will continue to grow and they would never, ever, ever allow China to sink back into the funk of old. At this point there are too many people, Chinese and otherwise, with too much of a vested interest in China too allow the ship to do anything more than rock. Sinking is not an option.
    You’ve said it yourself many times, predictions more than 5 years out are very tough. I think that is definitely true with China. Do you still hold to that or has some recent development caused a change in your POV?

  6. The Chinese are not very creative and many of them know it. But they are energetic and fairly wise. And because of these two things, I think China will be rich, just as Singapore, Korea and Japan are rich. In fact, the Chinese are prosperous everywhere in the world except China, so it would be foolish to bet against them when forecasting, for example, long term per capita GDP levels.
    But China will never be able to get too far ahead of the West, because it will always rely on the West for breakthrough technology. All of the Asian nations are like this. It’s why Japan has stagnated the last two decades, and Japan is already far more creative than China. A water skier can’t get ahead of the boat that’s pulling him.

  7. China is just doing now what the United States did in the 19th century.
    see http://moreintelligentlife.com/story/dickens-vs-america
    Also it’s far from clear that strong IP laws foster innovation. One thing that IP laws do is to allow large companies to lock up copyrights and patents making it impossible for small companies to do anything original. In fact one of the reasons that Silicon Valley happened in California rather than in another other state was that California law explicitly forbid non-compete agreements so people could go to one company, learn stuff and start their own company…..
    see http://hbswk.hbs.edu/item/5628.html
    You are seeing this with the patent wars over smartphones. Vast sums of money are being spent defending and issuing patents, and it’s not clear that any of this is actually generating value.

  8. Quote: No one in the world thinks the Chinese “care” about intellectual property, in the sense that they voluntarily will comply with current Western notions of how IP law works or should work.
    And of course no one in the West downloads MP3’s. You shouldn’t confuse “current Western notions” of how IP law should work with “current Western large multinational company notions” of how IP law should work. Also even among multinationals, you end up with screaming fights over things like the broadcast flag.
    Quote: So it is mostly about what the Chinese want. They want cheap with no frills. The fake store gives them what they want.
    Sometimes. One thing that I find interesting is that no one in China that I know dares shop for fake things for luxury goods. What’s the point? If you don’t care about the brand, you are going to buy no-name knock offs. If you do, you are going to get the real item. Also Chinese *will* buy the “real thing” if there is a quality difference.
    And you have to ask if there is no quality difference then who is the bigger “faker”. The consumer, or the manufacturer that puts a label on the same product you can get elsewhere to charge twice as much.
    Quote: The Chinese are supposed to love food, but they live in a world of low quality, fake and poisoned food. Why?
    Oh that’s easy. In 1985, you insured the quality of food because you grew it yourself or you personally knew the person that did. Once you start having processed food, being able to insure food quality no longer works, and it takes a while for laws to catch up. The fact that it is taking China about ten years to do what took fifty in the US is room for optimism.
    Quote: . If China remains at the copy stage and never moves to the learning and creating stage, where will China be in the future? My view own view is that China will not change and that China in the future will be a poor, quaint country that will be a good place to visit and maybe a good place to retire.
    I don’t think that’s possible. If Chinese growth stalls, you’ll have a revolution. Also I think you underestimate the human capacity for change. China is riding the tiger, and if it becomes obvious that strong IP enforcement is essential to keep the Chinese leadership in power, then you’ll have strong IP enforcement.
    Quote: All this current interest in China as a future modern superpower is very temporary, I think.
    China as a future modern superpower is the “only good outcome.” China is so interlinked with the rest of the world that there is just no way for China to collapse and not blow up the rest of the world.

  9. patent attorney: The concept that you should be the inventor to file a patent does not seem to even enter their mind.
    Because in most cases, the inventor doesn’t file the patent. Most patents are invariably owned by the corporation that the inventor works for. If you go to any major company, you’ll find that the people that make the big bucks aren’t the engineers.
    patent attorney: Sometimes I feel the desire to copy is so great that many Chinese companies spend much more time, effort and risk copying others instead of taking the safer path of truly creating something.
    I don’t see that this is unique to Chinese companies, and it’s not necessarily a bad thing. Look at google. It copied Altavista and just did it better.
    Shanghai Ty: But China will never be able to get too far ahead of the West, because it will always rely on the West for breakthrough technology.
    And a lot of that breakthrough technology is being done by Chinese. Go into any university or high technology company.
    I’m more worried about the future of US innovation than I am about Chinese innovation.

  10. Doesn’t sound like much of a rant to me and is very accurate, at least until the end when he prognosticates on the ultimate character and possible success of China, its people and its culture.
    As for the current mentality of the Chinese he is spot on. Spot on. We would disagree on whether that mentality can or will change.
    People get lost in sound bite mentalities and lose their grip on reality. One sound bite is China is taking over the US. It’s a great sound bite for media to work under because there is data indicating China has the potential to be number one, so it can be promulgated as serious while it drives people crazy emotionally and stirs up debate. The fact is, China is a very poor nation on a per capita basis and will therefore develop its behaviors and attitudes more slowly than the sound bite indicates should happen.
    The take away for me from this dialogue is that the educated and elite in China understand this dichotomy. They understand the west and the rest of the world play and want to play by a different standard of leadership and they are rhetorically amenable to the west’s complaints. At the same time this does not in the least sway them from their sympathy, dedication and ultimately the business realities that exist in their country and do not fain to believe they individually can change anything about the situation. That is a western possibility, to think independently one can change the system. In fact, that independence is the insanity they see in western people’s thinking, and it is all too easy to point out the hypocrisy in the west when it is argued to be superior. They are one nation striving to be one nation and keep it together against the rest of the world, not to become melted into the rest of the world, which is the agenda of global business.
    I don’t feel his comparisons to other countries merits the conclusion he makes about the Chinese people. In fact, it may be their stubbornness to play by the west’s rules that will enable them to bring their per capita GDP past the $10k mark.

  11. In my opinion the world should accept the way IPR is treated by the Chinese. Yes, everyone should go on and defend their intellectual property by all means. But instead of getting outraged they should turn this to their own benefit. When would Reuters do such an extensive article about the openning of a REAL Ikea or Apple store? It is a great marketing possibility for the companies, which I beleive can even strengthen the loyalty of their customers.
    I don’t agree with the thing about the Chinese way of recognizing the value of IP. You can’t just choose yourself which law you want to follow and which you want to ignore. It’s a very poor reasoning from an academic, being absolutely against the very basics of legal thinking. And the thing about foreign companies deserving what they get is simply ridiculous.

  12. China is just so big you have all kinds of people. Some are leading in innovation and create new IP either for Chinese groups or for multinationals with research centers based in China. Others are just copying whatever they can. Why so much in China? Probably because OEM has been so big and because Chinese are overall very competent in producing anything. China is living at different stages of economic development all at the same time. From late XIX century to mid XX to those living in the future.

  13. Twofish: You raise some good points, however, in the US, many patents are filed by the inventor. The idea of the garage inventor is a strong part of American culture and even folklore. The point I was raising is that the Chinese that ask me this question almost innocently seem unaware that being the inventor is a requirement to apply for the patent. Many American kids grow up dreaming of patenting the next light bulb. There is a sense of prestige associated with patents in the US. In China, I see patents only viewed as tools to make money in business, while in the US I occasionally see inventors care more about obtaining a patent than whether they ever make money from the invention. Historically, the concept of intellectual property doesn’t seem to be ingrained into the fabric of Chinese culture as it has been with American culture. That being said, as you mentioned, if intellectual property becomes more important that can change and I think already has begun to change. And to be fair, just because patents have prestige in the US doesn’t mean there isn’t a long history of people stealing each other’s inventions in the US.
    Twofish: In general, I agree with you about how Chinese view luxury brands. Luxury brands have become part of Chinese culture, almost to a fault. I believe more Chinese than Westerners these days will spend top dollar for a famous brand precisely because it is well known. Here the concept of “face” plays a important factor that actually helps create a large market for genuine products in China. As for why there are still so many fake products in China, one factor is that they just find it easier to copy, almost more from a laziness perspective rather than a nefarious attempt to unfairly gain from another’s ideas. Often the Chinese consumers buy these knockoffs with no awareness of the original brand. They just view it as a nice looking product at a cheap price.
    For all these topics, only time will tell how China adapts to using different types of intellectual property. In the immediate future, it will be hard to encourage innovation in China when the nails that stand out seem to keep getting hammered down. On the other hand, I’ve seen too many American inventors get lost focusing on their “rights” and not focus enough on how to make money. Hopefully, the more the West and China interact the more we learn the best practices from each other….versus the other way around.

  14. If an article uses the term “the Chinese” several times, you should be very cautious about the contents.
    China is a huge, very diversified country, with many companies which have no creative people at all and are only able to copy others, and also with excellent high-tech companies which develop excellent innovative products.
    We are cooperating with excellent Chinese partners who are afraid that western companies will copy their products …
    Why does IPR violation in China catch everyone’s attention? I think there are mainly two reasons:
    1st. China is big and China’s economy is much more linked with Western countries than that of other countries. If any western product is copied in Myanmar, who cares.
    2nd. IPR are the “human rights” of the business world. Definitly IPR violations do exist in China, but there is no real evidence that it is worse in China than in other countries. I remember a paper that German companies loose much more money because of IPR violations of French companies than because of IPR violations of Chinese companies.
    When governments and business associations blame China of IPR violations there is often much politics involved. They don’t like China’s political and social system and they envy China’s success.

  15. I think it’s a matter of incentives. The incentive to create new technology and other novel forms of IP is low in China, precisely because of the crazy IP environment. It’s very risky, because you can lose what you have worked long and hard for in a flash. I have to admit, I’ve never been in a place before where figuring out complicated ways to wrest someone else’s IP from them is a business strategy, haha. But I can’t agree at all with the notion that the Chinese are somehow inherently uncreative. I refuse to accept that, it flies in the face of all common sense. Why should the Japanese be enormously creative (they went through their cheap imitation phase too, but for a long period in the 80s and 90s their companies turned out loads of leading and innovative products), but the Chinese not? I think one day the central gov’t will feel that the balance has tipped, that it’s in the country’s best interest to take IP enforcement really seriously, and then things will change and probably rather quickly. Until then the best thing to do with your IP is … don’t bring it to China, haha.
    -LH

  16. I work in the capital markets area and have had an opportunity to “look under the hood” of a number of medium sized privately held PRC companies in various industries, including so-called “High and New Technology Enterprises”.
    What I have observed is that they rarely have more than a handful of registered IP rights and their investment in R&D (based on the audited figures) is some paltry amount. The registered IP they do have is often insignificant to the business. The patents are invariably only of the utility model variety. In discussions with management I generally make it a point to ask about their IP licensing arrangements. More often than not, these companies have none (or it is some insignificant deal with a big name company for “face” so they can tell their customers they have cooperation with an international company).
    So the question comes up: how do they manufacture the advanced products they sell without any documented historical acquisition of technology, sufficient R&D investment or licensing arrangements? Nobody ever has a good answer to this one.
    I suspect that what really happens is that they simply copy and hope they won’t get caught. Odds are probably pretty good if their clients are PRC state owned companies and nobody from the big international competitors can ever go in see what products these companies are using. They either reverse engineer the products or hire away the technical personnel to bring over the know-how.

  17. The ingredients for China’s proportion of fakes:
    A traditional tolerance for copying (seen as flattery) + a very entrepreneurial society + no ethics/religion + people who don’t care about what happens to people outside their family/friends circle + a low average revenue (and strong sensitivity to price).

  18. Three words: rule of law.
    The Chinese culture is, sadly, a “get away with whatever you can” culture. I don’t know about Mandarin, but certainly in Cantonese there is a specific word for it. And the central government sees enormous benefit in facilitating (i.e. turning a blind eye to) “technology transfers” that advance the country’s economy and global standing. Its entire trade and foreign policy is geared toward enabling this.
    Many foreign companies are reluctant to engage Chinese IP infringers directly because they know they can expect all-out retaliation, probably government-backed. And the government knows this as well. How many times has the U.S. Trade Representative presented American free trade- and IP-related complaints, only to be told, “We haven’t heard that from the companies you purport to represent. They haven’t made a single complaint.”
    What are the medium- and long-term implications of this for the Chinese economy and the growth of its intellectual capital? As Zhou Enlai said, “It’s too early to say.” But certainly China will not be a significant contributor to global intellectual property development until it puts in place intellectual property protections backed by enforcement and prosecution, and until it makes clear to citizens and businesspeople (most of all, those in government who are benefiting most from the wide range of IP theft that is occurring) that IP theft is not a legitimate shortcut to business success.
    Unfortunately, “business success” in China can also be spun as “Chinese business success”, and made a nationalistic success story … and that is China’s one note samba, likely to be popular for decades to come.

  19. I’m only a PQ UK PA at best, but I’ll throw in my 2 mao on this:
    Patent Attorney –
    1) I worked in the patenting department at Foxconn, where we were clearing thousands of patent applications per year, almost all of them from our Mainland China R&D. Anyone who thinks the modern Chinese incapable of innovation (in the sense the word is used in the world of patenting) is talking 100% pure-grade garbage. Check out Huawei for another large, China-based company that does LOADS of patenting.
    2) Don’t conflate disregard for copyright and trademarks with a disregard for innovation. Trademarks are not directly connected to innovation. Copyright can help protect innovation in, for example, software, but that is not its primary purpose – copyright is there to prevent copying of any original work, innovative or not.
    3) Don’t confuse stupid requests from a few Mainland Chinese clients with the country as a whole. Hell, most people don’t understand the concept of novelty in patenting – and why should they? I get asked the same kind of thing at pretty much every presentation I make in my current job.
    Twofish –
    5) When it comes right down to it, the Smartphone wars are over who owns what – if you invented it, then you own it – this is the whole point of the patenting system, and why it works. Yes, there’s a lot of suing and counter-suing, but just take one look at the Samsung Galaxy S UI and tell me it isn’t a rip-off of the Apple iPhone UI. I dare you. I double-dare you.
    6) Yes, big companies file a lot of patents. That big companies also create a lot of innovation is no co-incidence – but just look at how many small entities (and here we’re talk real SME’s, not patent trolls) have been out giant-killing using their registered IP: Nokia paid InterDigital $253 million for the license on 2G mobile technology patents, Apple was ordered to pay $625.5 million to Mirror World.
    7) Saying that patents only benefit large companies is the exact opposite of how IP people in large companies see things. instead they spend their entire time worrying about smaller companies out to make money from large companies infringing their IP.
    8) It doesn’t even ring true when you look at who gets patent grants – small entities file 40-50% of US patent applications in most years.
    9) As for sales staff reaping the reward of engineer’s hard work, this is only true where the engineers have no way of showing the quality of their work – especially the ones who haven’t been named as inventor in any filings. The first thing HR staff (at least in the companies I’ve worked in) do when they are head-hunting for innovative talent is ask IP staff to do a patent search in the relevant tech area. Each and every patent filing has to name the inventors (no matter which company or individual owns the patent) this is public information, so all HR needs to do is name the tech they want and I can give them high-quality names, guys who will come with a big asking price.
    10) On top of this more and more jurisdictions have a “reasonable compensation” requirement for companies taking the IP produced by their employees, and this can mean inventors making big bucks from the proceeds of licencing etc.
    Dan –
    11) My answer as to why people buy/use fake goods in China is the same as my answer as to why British urban youth are ripping off electronics and luxuries stores across the country at the moment – “because they can”. There’s no special Chinese mindset about this, it’s just pure economics. The answer is pretty much the same for both of them as well – enforce the law.

  20. First of all the Chinese are extremely creative. The scams and fraud methods I have seen in China are very impressive. The number of innovations in the Ming dynasty also tells us that this is the case. The reason for lack of Chinese innovation lies in recent history.
    In 1956 – 1967 the first 12 year science plan was started together with the Russian innovation system, and the Chinese scientists that had returned from Europe and the US among other things created a massive and successful nuclear program. Even under the Great Leap Forward they created very successful tech programs.
    The Great Proletarian Cultural Revolution destroyed the Chinese innovation system, school system and university system. The Chinese education and innovation system was annihilated.
    It was only in 1981 that the scientists from the first 12 year science plan could start creating a new generation of real scientists. This means that we only have to go back 30 years to find a none existing innovation or education system.
    So China has just now reached an university and innovation level where it has a fairly critical mass of experienced scientists.
    Next problem is that the Chinese economy is focused on fixed asset investment and export. A nation has to have a high level of private consumption in order to create consumer innovation. If one is innovating for people outside one’s cultural sphere the success rate is going to be lower, than if one is innovating for people within one’s own cultural sphere. In China situation is that the ones exporting are foreigners, so the Chinese export sector is mostly foreigners exporting to foreigners. It is impossible not to copy in such an enviroment, what else should they do? ex nihilo nihil est.
    Exports and building expensive apartments only feed the copy mentality. None of these sectors need or want creative thinking. The 08/09/10/11 stimulus and excessive lending has hurt the Chinese innovation system in the medium and long run, as that money should have been used on creating reform and a larger private consumption sector.

  21. @James G.,
    By views on this have not changed. If anything the volatility we are seeing out there is only hardening my belief in the difficulty of seeing ten or twenty years out. The comments above were by the person who sent me the email; my putting them on here does not mean I agree with them.

  22. This is an awesome thread.
    I particularly like Twofish and FOARP’s comments. Roberto’s take is interesting too.
    We assume Chinese will care about property rights as much as we do. I’m in London at the moment and perhaps I can offer another perspective.
    In Western democracies, a lot of the violence to sustain our way of life is committed ‘outside of society’. Criminals are out-laws and we say they are not part of our society. We don’t commit crimes. If only they were like us, they wouldn’t commit crimes. Our society is not threatening. All threats to our society come from outside.
    In China, there is the proverb along the lines of ‘if you have a pair of shoes, but no-one else has a pair of shoes, you will be afraid.’ The violence of enforcing property rights is much more widely understood. Property rights are not respected in themselves – Chinese consumerism is for showing off. Property shows the power commanded, demonstrates the force one can wield, the violence they possess. This is mine and you can’t take if from me. If you try, you will suffer.
    We have the same threat in the West – but it is made discreetly through the courts and through law. IP protection in China does not require a different mindset – just better and more public enforcement. Dan’s quoted academic suggests the Chinese are fakers – perhaps they are just more daring?
    Why do they need the drive to be original? Their philosophies – of family and harmony with the cosmic order means Chinese will be less likely to worry about being original or not. They are defined by their particular place in society, not by removing themselves from society either through talent or criminality.

  23. There are two assumptions in the latter
    strong IP laws -> innovation
    innovation -> economic growth
    Both are questionable.
    FOARP: When it comes right down to it, the Smartphone wars are over who owns what – if you invented it, then you own it – this is the whole point of the patenting system, and why it works.
    Works for whom? I see a lot of lawyers getting rich, but I don’t see any innovation that would not have happened if you put all of the patents in a common pool, and agree not to sue each other. If most of the patents had not existed, then what would have happened?
    What would have happened to Silicon Valley if Honeywell v. Sperry Rand gone the other way?
    In any event, this is a very important and controversial topic for which reasonable people can and do disagree. But to keep this on topic, it’s certainly not the case that the West has got things figured out or that whatever system exists in the West is self-evidently the “ideal” system for innovation.
    FOARP: That big companies also create a lot of innovation is no co-incidence – but just look at how many small entities (and here we’re talk real SME’s, not patent trolls) have been out giant-killing using their registered IP.
    And look at how many people win the lottery? It seem to me a horrible way to run an economy.
    The problem is that if you structure patent law in a certain way, you favor large companies. Large companies can pay $1 billion in patent settlements, whereas if you are another SME without a defensive patent portfolio, you are dead. Even the *risk* of patent infringement will keep you from doing something creative. If you are a big company, you can hire a staff of patent lawyers. If you are a small company, you are dead.
    Since my “economic vision” involves making it easy for small companies to get set up and to be big companies, certain specific types of patents are IMHO bad news.
    The problem with these sorts of discussions is that they end up being “for or against” patents and IP. I don’t think that we would be better off abolishing patents, but a lot depends on the details of the patent rules and the details of the mechanics of the system. The thing about China is that just from random chance, it’s likely to end up with a somewhat different system, and it will be interesting to watch things evolve.

  24. Anon: So the question comes up: how do they manufacture the advanced products they sell without any documented historical acquisition of technology, sufficient R&D investment or licensing arrangements? Nobody ever has a good answer to this one
    They focus on getting good technical people. One reason that I’m not convinced that the “US model of innovation” is automatically better is that I’ve seen small mom-and-pop Chinese tech companies, and they tend to put much less emphasis on the legal stuff than US companies, which means that they put more resources into the technology. The people that do technology in most Chinese firms that I’ve had experience with tend to be first rate.
    Look at how many native born Americans want to go into law and management versus engineering. That tells you where the money is.
    You make a bizillion dollars with American lawyers and managers owning innovation that is built on the backs of Chinese and Indian immigrants. That works fine until the economy changes and all of those Chinese and Indian engineers go back home, which is what is happening now.
    Roberto: ” But certainly China will not be a significant contributor to global intellectual property development until it puts in place intellectual property protections backed by enforcement and prosecution, and until it makes clear to citizens and businesspeople (most of all, those in government who are benefiting most from the wide range of IP theft that is occurring) that IP theft is not a legitimate shortcut to business success.
    It’s not certain to me. Part of the problem with IP restrictions that are too strong is that it prevents efficient allocation of capital. IP is a monopoly. It may be a justified monopoly, but every other area of the economy monopolies are considered to be bad things. If you have a critical patent, then what you can do is to attach monopoly rents to that patent, and this distorts markets.
    Also talking about IP or no-IP just gives you a cartoon conversation. You really have to go into the details of specific IP laws.

  25. Twofish:
    “The thing about China is that just from random chance, it’s likely to end up with a somewhat different system, and it will be interesting to watch things evolve.”
    There is nothing random about the ways things will evolve in the IP system of China, and I don’t know how interesting things are to look at when one knows the outcome.
    State-own enterprises and universities will control the relevant IP in the important sectors of the economy. In that sense the Chinese system will be different from the West. The idea of national champions is based on a state controlled top down innovation system. Utility and design pantents will be left to private companies if deemed irrelevant. The 2006 – 2020 tech plan is very clear on this matter. It is the goal to create an innovation system that is based on the state-owned enterprises. Zizhu chuangxin or innovation based on oneself as it is called.
    In that sense the IP judicial system will accommodate any needs these state-owned entities may have. The needs of foreign or private entities will come in second to this.

  26. @Twofish – I guess my take is that if a company that cannot afford ~2,500 Euros to do a decent FTO search (that’s fixed price for a single product – shop around, some companies ask a lot more than this but that’s usually because they’re not clear on what needs searching) then maybe they should approach someone who can. My impression is that much of the fear of IP comes from lack of understanding of how it works – particularly the fatalistic view that infringement is unavoidable when in fact it is usually easily avoided so long as infringement is not integral to your plans.
    Re: Smartphones, yeah, realistically a combination of RAND licencing enforced through competition law and patent pools is the way to go. Right now, though, the companies are trying to mark out their territory because this is a new tech area.
    The billion-dollar settlements and patent-troll craziness you see in the US are a product of a system which, through triple damages, jury trials, “pure” software/business patents, and forum-shopping, has allowed the US patent law in general and the East Texas Federal District Court in particular to be turned into an ATM for patent trolls. OK, I exaggerate, but the problem here is not the patent law as exists in most of the world, but special circumstances applying in the United States.
    The work I’ve done with Chinese patents was all for foreign companies on the prosecution side, so I don’t have the dull picture, but my impression is that it is much the same as elsewhere. My only really weird experience was having a patent rejected because it “allowed the economic exploitation of third world countries” (it was related to recycling electronics). However, I don’t have much of a view on the enforcement side and would be interested to hear more.
    More generally, I’m a big fan of greater use of competition law to reign in abuse of IP by dominant companies to extend their monopoly into downstream markets (the classic example being Microsoft’s case with the EU Commission). Yes, the authorities are way too slow to respond, but I think it very significant that as soon as SAP had a complaint filed against them with the EU Commission, their people were suddenly making noises about how they were willing to offer RAND licencing of their software (including free licencing to Open Source developers).

  27. Andeli: State-own enterprises and universities will control the relevant IP in the important sectors of the economy. In that sense the Chinese system will be different from the West.
    If you have a system in which state developed IP then becomes “common socialist property” then I think you could end up with a system that is in some ways could be more innovative than the US. The way that this would work is that the government would pay a university to develop some critical technology. Say practical lithium-air batteries. The university then grants a license to any Chinese company that wants to use that technology a royalty-free license to do whatever they want.
    If the government really wants to get clever it can then restrict the royalty-free licenses to Chinese companies, but they require payments from foreign companies. *That* would be an interesting WTO case.

  28. Roberto’s three words were “rule of law.” I’ll suggest a different set of three words:
    “Empire of Lies.” It’s the title of a book, google it.
    Deception is deeply rooted in the local culture. See The Art of War, saving face, tainted milk, poisonous toys, cheating on tests (ETS stopped offering computer-based testing in China because of cheating), and “hide our strength, bide our time,” among others. There’s lying and cheating in every culture, but the Chinese are in a class of their own.

  29. Twofish writes: “Because in most cases, the inventor doesn’t file the patent. Most patents are invariably owned by the corporation that the inventor works for. If you go to any major company, you’ll find that the people that make the big bucks aren’t the engineers.”
    Oh, this is full of misinformation. I have quite a few patents in both the U.S. and China. They were prepared by attorneys for the most part (although the need for patent applications to be written by attorneys is wildly exaggerated by attorneys — another subject), but all of them attribute the invention to the inventor and without proof of originality and true “invention” (i.e., creation by the inventor) there is no filing and no patent. What we are talking about here (among other things) is the filing of patents that falsely claim invention by a non-inventor. So far as I know, this is not the spirit or the letter of Chinese law, it is simply common practice here. It is not at all common practice by blue-chip U.S. firms. I’ve been dealing with patents and IP with big US companies for much of my adult life and I’ve never encountered a flippant approach. What one does encounter is a tremendous over-patenting of inventions of very questionable value, and the only payout for those patent filings is indeed to engineers as a rule; they are paid bonuses merely to pile up patents for their companies. I became quite rich working as an engineer/entrepreneur in the U.S. There are many engineers who rise to engineering management positions or senior design positions and make quite a lot of money. At least there were many until relatively recently (I’m out of touch for the past few years).
    Many of your (twofish) arguments seem to suggest that the concept of patents themselves is a bad one, or has many bad effects. Fine to argue this, but China has a patent statute that is quite consistent with patent statutes worldwide, so far as I know and have been told by attorneys. I predict that Chinese inventors will pursue their patent rights very aggressively in court, giving lie to the notion that somehow the whole concept of patents is one that Chinese businessmen don’t buy into.
    -LH

  30. I forgot to add the 50 cent Army and the party censorship machinery. No other country has that level of state-sponsored, pervasive deception apparatus.

  31. Twofish:
    If you have a system in which state developed IP then becomes “common socialist property” then I think you could end up with a system that is in some ways could be more innovative than the US.
    Yes in theory I agree. I also believe in from each according to his ability, to each according to his need, until the guy next to me starts playing a Facebook farm game when our team has a deadline. Then I believe in fundamentalistic market economy 1980s Gordon Gekko style.
    It would never work. Not even in a Singaporean Mandate of Heaven like system.
    What China needs to get it’s IP golden age is massive consumerism driven by private companies. I hope the Western countries are willing to cut their needs in order to make room for the Chinese.

  32. LH – . There are many engineers who rise to engineering management positions or senior design positions and make quite a lot of money. At least there were many until relatively recently (I’m out of touch for the past few years).
    It’s gotten a lot worse for engineers. One problem is that over the last few years the economy has gotten a lot worse, and the engineers are often the first to get fired, because they aren’t the people making the decisions as to who can get fired. The other problem is that increasingly companies are moving their engineering off-shore (to China).
    LH – Many of your (twofish) arguments seem to suggest that the concept of patents themselves is a bad one, or has many bad effects.
    The problem with these discussions is that they end up overgeneralizing positions. Patents work really well in some industries. Very badly in others. I happen to have spend most of my career in an industry (software) in which it works very badly.
    It turns out that in software it is impossible to write a non-trivial piece of software without infringing in some patent. There are so many “obvious” software patents that it is impossible to not infringe on something, and it is impractical to do a patent search every time you breath. So what effectively happens is that the lawyers tell us to just code and not worry about software patents. One irony here is that the legal sanctions for knowingly violating a patent are higher than innocently violating a patent, so a programming that is totally clueless about what is patented ends up in better shape.
    What ends up happening is that any software company will have a ton of “defensive patents” so if you true to sue us for patent infringement, we will sue you for patent infringement, and this sort of “mutually assured destruction” lets to a settlement in which the lawyers work out and leave the programmers alone. Now in principle, things that are obvious and have prior art shouldn’t be patentable, but in practice, the USPTO has messed this so much that you have a ton of obvious patents, and trying to kill a patent via prior art is both highly expensive and risky.
    The system is extremely broke, but people have figured out workarounds. Those workarounds are highly inefficient, but people manage to make do.
    LH: Fine to argue this, but China has a patent statute that is quite consistent with patent statutes worldwide, so far as I know and have been told by attorneys.
    In general yes, but this is where the details matter. For some things (i.e. the patentability of software or business process patents) there is not really an international consensus, and a few minor differences can make a big difference. Also patent law is much more than the statute. The statue in both China and the US says that “non-obvious” inventions are not patentible, but you can have wildly different notions of what is “non-obvious.” Also even if the law is the same, the processes can make a big difference. If I could hypothetically put my code through a processor and in five minutes figure out who I have to pay and how much, that makes a big difference than the current situation in which is the in practice impossible to figure out who to pay without a federal court case. If China structures it’s judicial process to make quashing an obvious patent something that can be done in one week rather than one year, that makes a big difference.
    LH: I predict that Chinese inventors will pursue their patent rights very aggressively in court, giving lie to the notion that somehow the whole concept of patents is one that Chinese businessmen don’t buy into.
    They actually do. Chinese IP dockets are full, but that’s not the issue here. We aren’t talking about the “whole concept of patents.” We are talking about how patents can cause problems in specific situations.
    Just to give an example. If you go to Huaqiang Street in Shenzhen, you find a “cell phone ecosystem.” What happens is that you have three or four blocks of people, and you have what looks like “flea market stands” in which you have mom-and-pop shops in which each person builds one part of a cell phone. You couldn’t set something like this up in the US, because people would get killed by the lawyers.
    andeli: It would never work.
    We’ll see. Also it’s not a socialism versus capitalism thing. It’s a question of how governments can have policies that encourage small companies to make money doing innovative things. What I have in mind is that the Chinese government spends money to come up with some basic technology in universities, then has a big box of patents that they give anyone that wants in China, and then says “make money off these.”

  33. As this chain has now become exceedingly long, and contains many valid (and more than a few questionable) points, as well as numerous point-by-point responses, counter-responses, counter-counter-responses, etc., I will simply throw out the following observation, without resorting to an “I agree with” or “contrary to what person X has said”:
    There are many highly-educated Chinese engineers and scientists who are working for large private companies in the US and/or conducting research (and working on both processes and inventions that indeed may be important for the entire World, and of course patentable) at major US academic institutions.
    As these elite, middle class, and often recent (over the past 6-15 years) immigrants see that for many of them, their work product is owned by the entrenched management or “team leaders” at the companies or academic institutions where they now work, experience the painful contractions of the US economy and begin to feel perhaps there’s a Sword of Damacles over their heads as to whether their jobs will even exist through more economic downturns in the West, and either directly or through the media feel the “pinch” (whether actual or merely imagined) that capital markets are also contracting and essentially drying up for new, start-up entities in the US, they also further witness the growth of the economy in China (and see and hear about the existence of potential funds, from the PRC government and elsewhere), and…
    GUESS WHAT? These same people, despite their hard-earned work visas and green cards, are now weighing the options, and are considering and even actually pulling up stakes, taking their skills, knowledge, creativity and enthusiasm back to China, and trying to seek their fame, fortune and destiny there (I believe this was once referred to as the “brain drain”). I’m seeing it in Boston, Northern California, Texas, North Carolina and points in between. And it’s not only true for Chinese immigrants (but that’s beyond the scope of this blog, anyway).
    This is particularly true for Chinese people here who (a) have not yet had children, nor otherwise established deep roots here, (b) have grown-up children, and no longer feel the drag to stay in the US, and (c) have significant relationships with successful, powerful and/or highly-trained people back in China–and nobody should be surprised that educated immigrant people working at major international technology companies here, or at Ivy League universities, came from an elite family class, or had worked with and/or went to graduate school in China (or in the US, or both) with others, from such circumstances.
    Anyway, any analysis of the so-called creativity of people in China and the development of innovation there–call it IP or whatever other term that suits you, probably should at least acknowledge that whatever (overgeneralized) determinations are now being rendered by folks here in the West, may be that much further distorted (or downright wrong) in the days ahead!

  34. Contrary to the original post, I think Chinese shops at the fake store because they CARE about atmosphere and service and interior design. The shopping experience at the fake Apple Store is much better than the electronic stall mall. If I am sinking 2 months salary on an Ipad I would shop somewhere that makes me feel like a king. Entering the Apple layout/service/design.
    So what does it say about the threshold of innovation? Nothing. It doesn’t take a genies to come up with different store colors, while providing the same retail experience. We are not talking about coming up with an iPhone killer. Instead, Chinese stores can replicate the shopping experience from the likes of Apple and Ikea (since it’s legal to appropriate a retail experience) while developing their own brand and trade dress.
    This whole fake store thing smells of insecurity. It is not that hard to change blue-yellow to some other color combination, green-purple. I also note that the IKEA case actually shows an attempt to avoid IKEA’s exact name (which many Chinese brands and companies do)–showing that they are willing to do the least to avoid infringement. And they ultimately hurt themselves because, to the extent any confusions exist, they are handing business goodwill over to IKEA and risk death should genuine IKEA enters the market place (or take legal action). Why not build your own brand and trade dress using layout concepts inspired from IKEA? It only takes 30 more seconds.

  35. I’m also seeing a ***massive*** US->China brain drain among scientists and engineers, and it’s scaring the living bejeezus out of me.

  36. The person in the post is right, I don’t think China will ever get any better. Most Chinese I know are proud of their ability to copy and are content with fake products that don’t work as well as the real thing, because, after all, all they want is face. That’s it.
    I like the words of Shanghai Ty: But China will never be able to get too far ahead of the West, because it will always rely on the West for breakthrough technology. All of the Asian nations are like this. It’s why Japan has stagnated the last two decades, and Japan is already far more creative than China. A water skier can’t get ahead of the boat that’s pulling him.

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