China gets serious about protecting intellectual property

China's spending on research and development is predicted to outstrip Europe's by 2019

Is the cheap Chinese knock-off headed for extinction? China now files more international patents than Germany, and is taking intellectual property rules seriously.

By David Walker

In any discussion of global intellectual property (IP) law, sooner or later someone is likely to say that China has terrible IP regulation. They will tell you that it’s loose, poorly enforced and heavily biased towards Chinese interests. They’ll probably add that Chinese firms don’t innovate, they simply copy, ignoring patents, infringing trademarks and sometimes even stealing trade secrets.

For support, critics can point to a May 2013 report by the Commission on the Theft of American Intellectual Property, which concluded that Chinese IP theft costs US organisations at least US$150 billion a year.

Allegations of Chinese IP offences range from the People’s Liberation Army hacking into the computers of foreign companies, to the proliferation of iPhone clones and pirate movie files in Shanghai backstreet markets. There’s a Chinese term for businesses based on imitation products – “shan zhai”.

Francis Gurry, a former Melbourne lawyer and now director general of the World Intellectual Property Organization (WIPO), heard a lot of this when he first started in his role in 2008.

"China now spends more on research and development than Europe."

WIPO is an arm of the United Nations, created in 1967 “to encourage creative activity” while at the same time promoting “the protection of intellectual property throughout the world”. It’s not so much an intellectual property cop as an IP mediator. It raises most of its own funding through various IP fees levied in the systems it helps run.

And WIPO and its boss are now aggressively making the case that Chinese innovation is happening faster, and its intellectual property interests are much more serious, than most people outside China believe.

Gurry tells the story of meeting then Chinese premier Wen Jiabao in early 2009.

“The first thing he said to me, which I’ve never forgotten … was that intellectual property will be the basis of competition in the future.”

Francis Gurry

He is still convinced that statement reflected more than just the contents of the former premier’s briefing notes. China, he believes, is in the middle of a remarkable transformation in its attitude to intellectual property and innovation.

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As evidence, Gurry points particularly to the explosion of patents in China over the past decade. The country which first enacted a patent law in 1984 now files more international patent applications than Germany, France, the UK or Australia.

Yet the rise in Chinese patents is itself controversial. Critics contend that most Chinese patents are quota-filling exercises with little commercial value.

But Gurry also points to the economic realities behind the patent explosion. As China’s firms grow and compete, they are starting to innovate on a large scale. Businesses that started their lives creating versions of Western products, from smartphone maker Xiaomi to messaging giant Tencent QQ, now run burgeoning research and development (R&D) operations.

China now spends more on research and development than Europe, measured as a share of its gross domestic product. As Gurry notes, the OECD expects China’s absolute spending on R&D will overtake Europe’s by 2019. Such an economic transformation demands a system to police patents, trademarks and design laws. Gurry argues the Chinese Government has now built just such a system.

Wen Jiabao

Beijing, Shanghai and Guangzhou now have specialist intellectual property enforcement courts. Other parts of the country are less advanced, Gurry acknowledges, and the Chinese Government is “still working on compliance”. But compliance will come, he says, because the Chinese leadership understands what is at stake.

When China adopted its patent law in 1984, the Communist Bloc was still in existence. At the time, other communist nations such as the Soviet Union and Vietnam merely handed out “inventors’ certificates”, which recognise an individual as the inventor of an item but is not a patent. But China created private intellectual property rights. Gurry sees that “quite remarkable” decision as indicating China’s more sympathetic attitude to intellectual property, and he believes it will only become more obvious in the years ahead.

Read more: China cracks down on counterfeiting 
Read more: Xiaomi takes on the iPhone

This article is from the May 2015 issue of INTHEBLACK

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