Intellectual Property Rights in China (Routledge Contemporary China)

Intellectual Property Rights in China

Intellectual property rights (IPR) infringement is so rampant in China that counterfeit goods – from general household merchandise, garments and media consumables to specialist products including pharmaceutical products and supercomputer chips – can be found in roadside stalls, markets, shops, department stores and even laboratories of leading universities. If allowed to continue, these infringements may further engender a socially accepted culture of ‘fakeness’ that may seriously hamper innovation and economic progress. Gordon C. K. Cheung uses the case of IPR to examine how and to what extent market forces and knowledge development affect the relationships of China and the world, especially the United States. Including detailed original statistics and data collected from Chinese provinces and cities and in-depth interviews with legal experts and policy makers, this book gives a unique insight into the opportunities and challenges that China faces as it increasingly becomes part of the global society. Intellectual Property Rights in China is a stimulating read for anyone studying Chinese Business and International Political Economy. Gordon C. K. Cheung is Lecturer in the School of Government and International Affairs, Durham University, UK.

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Intellectual Property Rights in China Politics of piracy, trade and protection

Gordon C. K. Cheung

First published 2009 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business This edition published in the Taylor & Francis e-Library, 2009. To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. © 2009 Gordon C. K. Cheung All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Cheung, Gordon C. K. Intellectual property rights in China : politics of piracy, trade and protection / Gordon Cheung. p. cm. – (Routledge contemporary China series) 1. Intellectual property–Political aspects–China. I. Title. II. Series. KNQ1155.C48275 2009 346.5104'8–dc22 2008039004 ISBN 0-203-00681-X Master e-book ISBN

ISBN10: 0-415-36496-5 (hbk) ISBN10: 0-203-00681-X (ebk) ISBN13: 978-0-415-36496-6 (hbk) ISBN13: 978-0-203-00681-8 (ebk)

For Flora, Edmund and Jenna

Contents

List of figures List of tables Preface Acknowledgements

x xi xiii xv

1

Introduction

1

2

Approaches and perspectives

7

3

US-Sino IPR disputes

24

4

New ‘hot spots’ of counterfeiting and Chinese consumer culture

39

5

Protecting IPR: the Chinese way

63

6

Case study: dynamics and changes of trademark development in China

83

Conclusion

96

Notes References Index

100 102 112

7

Figures

2.1 Interactive roles between individual countries and international society through the functions of tacit consent and explicit consent 4.1 Total retail sales of consumer goods in China 2004–2005 4.2 Quadrangular relations between consumer culture and IPR infringement in the Chinese context 5.1 The derivation of social cost of IPR disputes between China and the US 5.2 Policy result of price mechanism

14 57 59 79 81

Tables

3.1 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 5.1 5.2 5.3 5.4 5.5 5.6

US trade deficit with China 2000–2007 Per capita GDP and consumption level, Guangdong 2000–2006 Average wage of staff and workers by city, Guangdong 2005–2006 Foreign direct investment by country (selected), Guangdong 2000, 2005, 2006 Utilization of foreign capital by type, Guangdong 2006 Gross domestic product of Beijing 2000–2006 Basic information on household, Beijing 2000–2006 Foreign capital actually used of foreign funded enterprises in Beijing 2005–2006 Gross domestic products, Zhejiang 2000–2005 Average wage of staff and workers in urban units, Zhejiang 2000–2005 People’s material and cultural life, Zhejiang 2000–2005 Gross domestic products, Fujian 2000–2006 Basic indicators of urban households, Fujian 2000–2006 Foreign direct investment by country, Fujian 2002–2006 Development and changes of Chinese consumer culture before and after 1978 Major dishonest behaviours of Chinese enterprises 2002 Years of adoption and amendment of patent law, trademark law and copyright law Chinese copyrights management at a glance 2005 Domestic and overseas patents applications 1985–2005 Domestic and overseas patents granted 1985–2005 Top ten province/city applications for patents in China 2005

30 42 43 44 45 47 47 48 49 50 51 53 54 54 56 66 67 68 70 71 72

xii 5.7 5.8

Tables

Top ten foreign applications for patents in China 2005 Top ten foreign companies’ applications for patents in China 2005 5.9 China’s membership of WIPO treaties 5.10 Percentage of foreign-owned patents in high-tech products 6.1 Six legislative developments in trademarks and well-known marks between 1993 and 2003 6.2 Numbers of famous trademarks in Chinese provinces, municipalities and autonomous regions 2001

72 73 74 75 87 89

Preface

My interest in intellectual property rights (IPR) in China stemmed from my previous studies on the market liberalism that developed in US-Sino foreign economic relations after the Second World War. In other words, this book serves as an extension of the notion of market liberalism in USSino relations with particular reference to IPR disputes and IPR protection in China. In moving along the market development, China has gone through various truncated, if not zigzag, ways of development. Even after 30 years of economic openness following Deng Xiaoping’s open door policy in 1978, market economy has always been a double-edged sword. The concomitant outcome of economic success has always been further criticism either on the ideological front or with regard to domestic socioeconomic problems. In the report of the 17th Party Congress in October 2007, Hu Jintao reemphasized the importance of Deng’s economic development, which has increasingly become the core value of the current political economy in China. Yet, he also detailed the challenges of the social and economic costs of a market economy as well as rampant corruption and environmental problems. In the area of international political economy, China is still working within an economic system largely constructed by the US market development after the Second World War. The US leadership role has witnessed a steady decline, but, as Susan Shirk and John Ikenberry recently pointed out, China should be acting as a responsible power and be in cooperation with the current superpower, the US – even if China can take the US on alone, China cannot replace the Western international order. China had made applications for membership in the World Trade Organization (WTO) since 1986. It was eventually accepted as a member in December 2001. With regard to an IPR regime, China has been learning quite rapidly to incorporate established IPR regimes into its economy, especially those from the World Intellectual Property Organization (WIPO) and Trade-related Aspects of Intellectual Property Rights (TRIPS) of the WTO.

xiv

Preface

On the state level, China did effectively comply with many world treaties and global conventions. Even bilaterally, China has signed important agreements with the US. Yet, if we look to the provincial level, the picture of an IPR regime becomes hugely distorted by the intertwining political interests between local governments and business people. The key problem of IPR infringement is that implementation of laws is weak and ineffective. The third level would be that individual choices and consumer culture have been accelerated through the establishment of the market economy of China since 1978. Commodity, money and freedom to exercise individual’s consumer power effectively transform China’s economic landscape as well as contest Chinese people’s acceptance and compliance of the global norms. What I am trying to demonstrate in this book, tentatively, is that while multilateral or bilateral agreements and legal establishments are necessary conditions for China to comply with international standards, they are not sufficient alone. In a country as large as China, we have to take into consideration the social and economic experiences to see how and whether the concept of IPR is being fully understood by people at various levels. In the game of catching up with global norms and standards, China is basically a follower, not a leader. Some people may take a different view on the IPR issues in China, especially from the domestic and the developing nature of Chinese circumstances. They demand greater relaxation of China’s compliance. This is highly debatable. I will therefore leave this open for people to consider. Finally, I spent lots of time reconstructing all the figures and the tables used in this book. If there are any errors, I am the only one to be blamed. Gordon C. K. Cheung Durham 2008

Acknowledgements

This book is the result of research that was carried out in various organizations: Renmin University in Beijing (2004), East Asian Institute (EAI) at the National University of Singapore (2005), St Antony’s College at the University of Oxford (2005), World Intellectual Property Organization (WIPO) in Geneva (2006) and Universities Service Centre for China Studies at the Chinese University (USC) of Hong Kong (2007). I thank Xinning Song from Renmin University, Steve Tsang from Oxford University, Gungwu Wang and John Wong from East Asian Institute of the National University of Singapore. Thanks are also due to the WIPO in Geneva for their helpful library resources during my visit in September 2006, especially to Tshimanga Kongolo and Lise McLeod. Thanks are due to Professor Xiao Jin from the USC for inviting me as visiting scholar during November 2007 to facilitate the archival and statistical research of four Chinese cities and provinces: Beijing, Zhejiang, Guangdong and Fujian. Various topics of intellectual property were presented in Tamkang University in Taipei and the University of Malaya in September 2005, National Central University, Taiwan in 2006 and Victoria University in Canada in April 2008, with thanks for the organizers’ invitations. I thank the Universities’ China Committee in London, Lee Foundation (Singapore) and the Asia-Link project of the European Commission for their financial support. I would like to thank Shaun Breslin, William A. Callahan, To-hao Liou, Khaw Lake Tee and Emile Yeoh for their comments. Many thanks to Michael Pendleton for his acceptance of sharing a great deal of his teaching and legal experiences of IPR in China, and also to other Chinese officials, scholars and respondents that I have interviewed. Thanks are also due to two reviewers of the manuscript, various editors of Asian studies from Routledge (especially Stephanie Rogers and Sonja van Leeuwen), Philippa Mulberry, my copy editor, and to my former student Nick Plosser for his polishing of the English. I have used some materials from a paper of mine entitled ‘The political economy of social cost

xvi

Acknowledgements

analysis in Sino-American disputes over intellectual property rights’ which appeared in the Journal of World Intellectual Property, vol. 2, no. 2 (March 1999: 189–207) for Chapters 3 and 5. Thank you to Jacques Werner for permission to use that material here.

1

Introduction

Ban zheng, shenfenzheng, gongzuozheng, biyezheng . . . [Needing any certificate, identity certificate, working certificate, graduation certificate . . .]1

In 2004 the above words were murmured to me daily as I crossed the footbridge in Beijing in Zhongguancun Street to get to the university that I was visiting. These people were trying to sell different kinds of identity cards, counterfeit certificates and receipts to any passerby. Intellectual property rights (IPR) infringement is so rampant in China that fake goods and counterfeit products can be found in roadside stalls, markets, shops and even department stores. Street vendors also infiltrate every nook and corner of the streets with makeshift stands, even selling counterfeit products in broad daylight. In China, apart from the counterfeit production of computers, machine parts, garments, golf equipment and so on, fake products also include food, medicine and infant formula milk powder. In 2004 the fake infant formula milk powder, produced by some unknown factories and small businesses, led to 12 infant deaths and the permanent brain damage or physical impairment of 200 babies in Fuyang, Anhui province (Financial Times, 18 August 2004; and South China Morning Post, 7 January 2005).2 These cases demonstrate that counterfeit culture is rampant and is becoming part of the social life in China. No sooner had the Chinese government demonstrated to the global society a very successful Olympics games – both the result and the administration of – in August 2008, than a new scandal of tainted baby formula milk powder containing an industrial chemical called melamine spread from September 2008. This time, leading giants of dairy companies such as Sanlu, Mengniu and Yili were all discovered to be producing tainted baby milk powder leading to at least three babies being killed and more than 53,000 children being sick. Prime Minister Wen Jiabao had to apologize and promise a reform on food safety (Yardley and Barboza 2008). But more alarming perhaps was that the use

2

Introduction

of melamine could reveal another bigger scandal of the culture of fakeness in the current Chinese society. According to David Pilling, Do not believe what you read on the label. Just as state-owned companies allowed suppliers to boost the supposed content of infant milk power with melamine, an industrial plastic, so state-controlled statisticians have sometimes doctored official figures to suit the Communist party’s needs. (Pilling 2008) Due to the importance of food safety and the heavy trade deficit with China, the United States opened the first overseas branch of the Food and Drug Administration (FDA) on 20 November 2008 in Beijing to monitor and ensure foodstuffs are safe before exporting to the United States (Jacobs and McDonald 2008). With IPR infringement in China being so pervasive and unstoppable, questions arise concerning the confluence between the government and the private sector in terms of privacy, which also partially explains the inadequacy of law enforcement. According to Arthur Kroeber, managing editor of China Economic Quarterly, They feel like they need to steal as much as they can for as long as they can until they produce their own technology. They have no incentive whatsoever to enforce, so most of these discussions are not very useful. (Goodman 2006) Moreover, a recent study by Andrew Mertha on the external influence of IPR protection in China reveals the very close ties, if not orchestration, between the Chinese government and piracy. In one example, a retail outlet for pirated VCDs is housed under a building with the government crest in the front (Mertha 2005: 5). This book uses the case of IPR to examine how and to what extent market forces and knowledge development affect the relationships of China and the world, especially the United States. The engagement of China with the outside world has been highlighted by some recent developments: Beijing hosting the 2008 Olympic Games in August; becoming a member of the World Trade Organization (WTO) in December 2001; becoming the largest recipient of foreign direct investment (FDI) in the world; and being commonly known as the so-called factory of the world. These facts point to the notion that a large socialist developing country has a chance of being involved in the larger world economy, which is predominantly ruled by

Introduction

3

market forces (Cheung 1998). Second, knowledge (here defined as ‘common sense in a knowledge based society’, such as knowing the international norms, abiding by agreements, contractual spirit and rules of the game) will be the dominant factor in measuring China’s level of engagement with the world economy. The case of IPR can be used as an operational measurement to study the opportunities and challenges that China presents the world. It also helps illustrate whether China is able to exercise the notion of peaceful rise to an extent that not only physical confrontations can be avoided but also the minimization of detrimental effects to global norms, IPR regime being one of those core norms (Zheng 2005). In theory, IPR should be institutionally protected because the enforcement and respect of such rights ensures a reward to creativity. In a knowledge-based society, the protection of ideas and invention is essential in ensuring continued progress in those areas. If this protection cannot be maintained, the reward for such ideas and invention, and thus the activities themselves, will cease to exist. By abiding by the international norms and standards which are so important concerning IPR, a state provides a powerful example of the duties a modern global citizen should perform. Practically, China has gone through more than 30 years of economic reform after Deng Xiaoping’s open door policy in 1978. In other words, through the reform period, a socialist state has been increasingly engaging into the global market economy (market socialism was written into the constitution in 1993 and private property rights were included in the amendment of the constitution in the early 2007). Although Hu Jintao had pointed out the importance of ‘scientific development’ and ‘harmonious society’ in his 17th Party Congress Report in October 2007, the central focus of the report was to follow Deng Xiaoping’s idea on economic development.3 This is indeed the core idea behind the economic path of China in the future – to enhance economic reform and to perpetuate a market economy (Yazhou Zhoukan (Hong Kong) 12 August 2007: 26–29). Yet, the economic rise of China still needs to remain functional if it wishes to participate in the global economy on a level playing field and to adhere to accepted standards. Susan Shirk, in China: Fragile Superpower, put down clearly that: ‘The best way for China to rise peacefully is to behave like a responsible power and accommodate to the current superpower, the United States’ (2007: 219). Nevertheless, many global norms and international rules of the game are new to China. On the other hand, China is an emerging centre of production on a global scale. Currently, the global division of labour allows China to produce most of the less sophisticated manufacturing goods; where IPR is important but not severely determinant. However, we have witnessed more and more

4

Introduction

high-end products (semi-conductors, computers, cars) being produced in China. Those goods (knowledge goods) demand rigorous protection and enforcement of IPR related laws; otherwise the values will be greatly affected. Finally, being a member of WTO, China needs to comply with the international standard under the Trade-related Aspects of Intellectual Property Rights (TRIPS). There are many factors contributing to the rampant piracy and counterfeiting in China. Although the legal reforms and various IPR laws (patents, copyrights and trademarks) have been established in China for some time, implementation and enforcement of those laws remain a major problem. Again, although China signed a number of treaties and conventions with the World Intellectual Property Organization (WIPO) (see Table 5.9) and the WTO under TRIPS, in practice such central commands and requirements are difficult to translate into workable policies at the local and provincial government level. China has long been arguing that because of its vast area and population, there is a gap between the understanding of the norms of IPR and using the norms as rules of behaviours. Counterfeiting is a lucrative business itself in China. It involves not only the manufacturing sectors (the infringers) but also the consumer and the ethos of counterfeiting culture in China. Counterfeiting operates much like any genuine industry. Hung argued: ‘Some large counterfeiters have a vertically integrated network with material sourcing, manufacturing, assembly, distribution and retailing all under a single command’ (2003: 62). Some cities and provinces are more susceptible to counterfeiting and piracy. For example, Beijing, Shanghai, Zhejiang, Fujian and Guangdong are particularly susceptible to counterfeiting due to dramatic economic growth and rise of GDP and population influx. Law and legal measures remain the major ways to protect IPR. There are other options such as education and policy mechanisms that can be useful in reducing the level and intensity of counterfeiting. Although applications and registrations of patents, copyrights and trademarks are on the rise, protection of foreign IPR seems to be less active than the protection of local and domestic IPR. The fight against piracy and counterfeiting is constantly brought up as an issue between China and the US. Within China, it has already become a war between the central and the local governments.

The plan of the book Like most of the concepts, IPR has long been discussed by different areas and disciplines. The next chapter will look at the conceptual development as well as the philosophical understanding behind the notion of IPR. The

Introduction

5

argument goes beyond the national level. When China became a member of the WTO in 2001, it became subject to the rules under TRIPS. Finally, some conceptual meaning and approach of the use of social cost and the world welfare loss are being employed to the study of the IPR infringement in China, given that the notion of socialist market economy is still an experimental concept and the effects are under scrutiny both within and outside China. Chapter 3 takes us back to the major focus of this book, the continuous disputes between the US and China since the 1990s. IPR infringements are certainly a global phenomenon. The US has had to deal with IPR infringements from many developing countries other than China, such as Brazil, Egypt, India and Vietnam. This is why the US has to exercise both offensive and defensive measures in tackling IPR infringement from developing countries. The fact that China is the fastest growing economy and the contributor of the largest trade deficit to the US (US$237 billion in 2007) elevates the issue of IPR counterfeiting from a trade dispute to a matter of national interest to the US. The section on the overview of the US–China IPR disputes traces the beginning of the negotiations on IPR between the US and China from the signing of the Sino–American Memorandum of Understanding on the Protection of Intellectual Property in 1992 to the 2007 Special 301 Report. In the 2006 Special 301 Report, the US identified four ‘hot spots’ of counterfeiting in China, Guangdong, Beijing, Zhejiang and Fujian. Chapter 4 attempts to further investigate this through the examination of the original statistics of the provincial and city level of these ‘hot spots’ with a look at how the burgeoning economic growth of these four areas links up with the consumption levels and possible contributing factors from the demand side of the counterfeit products. I shall examine individually the GDP growth, consumption levels, foreign direct investment (FDI) distribution and wage levels of each of the four areas. I will further analyse the evolution and development of a consumer market as a result of the Chinese modernity. The politics of the economic aspect of an emerging consumer culture serve as a point of departure in understanding the demand side of counterfeiting in China. Undeniably, China has been dealing with IPR protection using mostly quantitative methods. One such significant legal measure, the Trademark Law, was implemented in 1982. On the international level, China has signed many treaties and conventions under WIPO. Two of the most important conventions, for instance, were the Berne Convention in 1992 and the Paris Convention in 1985. Despite such official treaties, it appears that trademark and copyright holders will be left without much official protection because the Chinese state can do little to cope with the

6

Introduction

ever-changing counterfeiting environment. The final section will also try to locate some policy level resolutions on IPR protection, particularly the mechanism of social cost and the application of a price mechanism. This book will conclude by using the case of trademark to illustrate the dynamics and changes of IPR regime in the current discussion of IPR protection. The history and definition of trademark will be detailed first. Second, I will go on to look at the historical context of the trademark regime in China. I will further depict some of the latest measures in which trademarks are being protected in China. I will further examine a case of trademark infringement (Andy Lau or Huazai) to illustrate the connection between trademark and linguistic. This section will be concluded by detailing an interview with Michael Pendleton, a well-known professor on IPR studies, in November 2007.

2

Approaches and perspectives

Human Genius is the source of all works of art and invention. These works are the guarantee of a life worthy of men. It is the duty of the state to ensure with diligence the protection of the arts and inventions. (Mossinghoff and Oman, World Affairs)

Introduction The above admonition was originally inscribed in marble in the World Intellectual Property Organization (WIPO) in Geneva. In general, human innovation and creation should be rewarded. The reward allows the inventor to secure the benefit of years of investment and innovation. If such security is threatened, as it is in the act of infringement, inventors will be less willing to invest time and energy and innovation will be retarded. The society as a whole will suffer from being less innovative and therefore becomes less competitive. One of the major protections of intellectual property, and perhaps the most effective, is legal protection. As far as intellectual property law is concerned, it is an area of law ‘which concerns legal rights associated with creative effort or commercial reputation and goodwill’ (Bainbridge 2007: 3). Three major rights – patents, copyright and trademarks – fall into the domain of intellectual property law, although trade secrets and unfair competition are also covered under intellectual property law. In international trade, IPR infringement is considered as part of the negative externalities of international trade, whose focus has linked domestic economies with international trade, and which was subjected to the Trade-related Aspects of Intellectual Property Rights Agreements (TRIPS) under the World Trade Organization (WTO) (Grossman and Shapiro 1988, May 2004 and Richards 2005). Trade and IPR disputes, for instance, have long been a bone of contention in Sino-American trade relations, which involve foreign policy analysis as well as diplomatic

8

Approaches and perspectives

negotiations (Mertha and Pahre 2005). Primo Braga et al. summarized the economic significance of IPR protection as follows: Intellectual creations have some characteristics of public good. The blueprint for a new machine, the computer code for a software application, the script for a play, or a television broadcast can be simultaneously consumed by many economic agents at zero (or at a very low) marginal cost. In short, the code of reproduction of intellectual creation is typically a fraction of the cost of production. Although pricing at marginal cost would maximize consumer welfare from a static perspective, it would curtail incentives for investing in the creation of new intellectual works or improving existing knowledge. By granting temporary exclusive right, IPR are intended to allow property-holders to price their products above marginal cost and to recoup the initial knowledge- or information-generating investment. (Primo Braga et al. 1998: 27; emphasis in original) On a global level, IPR protection has increasingly become more and more acceptable as a world standard, not only at the governmental level, but at the individual level as well. Like any property rights, IPR allow the creator to benefit from his/her own creativity. Such property rights are protected under Article 27 of the Universal Declaration of Human Rights, ‘which sets forth the right to benefit from the protection of moral and material interests resulting from authorship of any scientific, literary, or artistic production’ (WIPO: Publication no. 450(E): 3). The infringement of IPR, therefore, allows some theoretical space to be filled up with such economic and political notions of world welfare lost, social cost and obligation to formulate a model of how global norms can be understood not just in an abstract sense, but from a more workable solution. These three approaches will be detailed in the following pages. Other than the legal, trade and philosophical approaches, the debates of the extension and ideas of legal means have always been challenged from other disciplines, using phrases like ‘social equality’ and ‘exploitation’ of those developing countries to frame attacks. The larger system of IPR protection and legal litigation very often puts developing countries at a disadvantage. ‘In signing the TRIPS, developing countries do not necessarily subscribe to the notion that the general welfare of the less developed countries can be protected, especially as it applies to critical needs such as food and medicines’ (Richards 2005: 536). More importantly, China (under first priority [priority foreign country] watch list of the US Special 301 Report) has been arguing vehemently that its unique cultural background, under-developed economic structure and poor popu-

Approaches and perspectives 9 lation should be taken into consideration in the way that infringement in China occurs and is tolerated. Yet, in witnessing the rise of the economic power of China in the 2000s, the argument for toleration of infringement will only add to the burden of the world economy when more and more investment is being made into the Chinese economy.

Theoretical development and legal meanings of intellectual property In a letter from Thomas Jefferson to Isaac McPherson on 13 August 1813, Jefferson notes: Inventions then cannot, in nature, be a subject of property. Society may give an exclusive right to the profits arising from them, as an encouragement to men to pursue ideas which may produce utility, but this may or may not be done, according to the will and convenience of the society, without claim or complaint from any body. (Merges and Ginsburg 2004: 21) This notion of property rights, according to Robert P. Merges and Jane C. Ginsburg, provided the intellectual foundation of intellectual property law in the US (2004: 21). Brad Sherman and Lionel Bently eloquently trace the historical debate and the development of the British Intellectual Property Law (Sherman and Bently 1999). As W. R. Cornish stated, ‘IP’ or ‘IPR’ is indeed becoming a fashionable description of research results and other original ideas, whether or not they fall within the ambit of what the law protects. As a title, the term may sound rather grandiloquent. But then, at its most serious, this is a branch of the law which protects some of the finer manifestations of human achievement. (1996: 3; emphasis added) The reward to human achievement therefore is the gist of IPR. To a large extent, IPR encourage more human achievement by giving certain kinds of protection to inventors and innovators. However, if we want to know exactly what intellectual property constitutes in a legal sense, we should consult a more precise definition. According to the definition from the McCarthy’s Desk Encyclopedia of Intellectual Property, ‘ “Intellectual Property” is an all encompassing term now widely used to designate as a group all of the following fields of law: patent, trademark, unfair competition, copyright, trade secret, moral rights, and the right of publicity’ (McCarthy et al. 2004:

10

Approaches and perspectives

308). The notion of intellectual is therefore very important because ‘these kinds of “property” are distinct from real estate or personal property in that they are products of the human mind or intellect’ (McCarthy et al. 2004: 308). According to William M. Landes and Richard A. Posner: By ‘intellectual property’ we mean ideas, inventions, discoveries, symbols, images, expressive works (verbal, visual, musical, theatrical), or in short any potentially valuable human product (broadly, ‘information’) that has an existence separable from a unique physical embodiment, whether or not the product has actually been ‘propertized’, that is, brought under a legal regime of property rights. (2003: 1) This definition is very broad. Yet, the concept of intellectual property can also be very operational, especially in the legal aspect. There are two other legal branches of intellectual property protection: trade secret and unfair competition. Trade secret According to a recent study by Gamal Atallah on the optimal level of secrecy in protecting innovation, the result generally suggested that: Although Patents are the main legal means of protecting the incentives for innovation, it is commonly asserted that patents are not very effective in protecting innovations, and that firms use other means to maintain their technological edge . . . Secrecy increases the return on innovation until the introduction of the new technology . . . innovation and secrecy are strategic complements. (Atallah 2004: 4–7) The report Trade Secrets and Intellectual Property Management suggests trade secrets be embedded as management strategy and to prioritize the level of disclosure on the valuation of information (Trade Secret and Intellectual Property Management 2005: 47). Unfair competition According to J. Thomas McCarthy, ‘Unfair competition is a commercial tort. Can the tort of unfair competition be defined? The simple and honest answer to this question is no – not in the abstract . . . In a word, it is illegal to compete “too hard” ’ (McCarthy 2006: 1–17). Therefore, there is no a priori

Approaches and perspectives 11 understanding of unfair competition. It depends on, and should be judged by the incident and the situational circumstances. However, competing too hard underlies the notion of the principle of competition in a market economy. It entails the spirit of the rule of law. In terms of international dimension, in Article 10 of the Paris Convention, unfair competition was defined as ‘any act of competition contrary to honest practices in industrial or commercial matters’ (ibid.). It specified three types of unfair competition: All acts that create confusion with the company, goods or activities of a competitor; false allegations that discredit a competitor; and indications that are liable to mislead the public as to things such as the nature or qualities of the good. (Ibid.) One way to define what is meant by unfair competition, according to McCarthy, is to provide some useful examples. Although they are not exclusive, they certainly provide some guidelines in leading us to understand the nature and the context of unfair competition. Some interesting cases are as follows: • • • • • • • •

Dilution of goodwill in trademarks; Use of confusingly similar corporate, business and professional names; Simulation of a container or product configuration and trade dress and packaging; ‘Bait and switch’ selling tactics; Below-cost selling; False representations and false advertising; ‘Palming off’ goods by unauthorized substitution of one brand for the brand ordered; Theft of trade secrets. (McCarthy 2006, vol. 1: 23–27)

However, again due to its nature of being a tort, the judgement of whether an action is an unfair competition depends on factors other than legal. Sometimes moral and psychological factors may apply to a case.

IPR protection as enforcement of TRIPS agreements It is not the aim of this book to detail all the articles or the legal justifications behind TRIPS. It is not possible or necessary to do so. However, since TRIPS is derived from the WTO, which accepted China as member in December 2001, it is necessary to give a concise summary of TRIPS and its

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Approaches and perspectives

importance to those countries who signed up to be members of the WTO – China is the case in point in this book. China had been applying to be a member of the General Agreement on Tariffs and Trade (GATT), the predecessor of the WTO, since 1986. It was widely believed that China should be able to change its legal, accounting and related systems to comply with the rules of the GATT before being accepted as a member. Article 41 of TRIPS clearly indicates the obligation and enforcement, as well as legal and criminal procedure of the member in enacting the protection of IPR. The acceptance of China to be its member was based on the assumption that China has agreed to comply with the standards and the rules governed by the agreement without even a grace period, from 2001. According to Graham Dutfield, At the international level, the most important legal document on IPR is probably the 1994 [in Marrakech] Agreement of Trade-related Aspects of Intellectual Property Rights (TRIPS) . . . TRIPS establishes enforceable global minimum (and high) standards of protection and enforcement for virtually all of the most important IPR in a single agreement. (Dutfield 2003: 2) Its origin was a complaint made by the US to the GATT in 1987 over the loss of US$50 billion due to ineffective IPR protection. In order to develop a more impartial global body (representing the interests of the developed as well as developing countries) to oversee the issue, negotiations and discussion were initiated along the framework of GATT. The objectives of the negotiations were: In order to reduce the distortions and impediments to international trade and taking into account the need to promote effective and adequate protection of intellectual property rights, and to ensure that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade, the negotiations shall aim to clarify GATT provisions and elaborate as appropriate new rules and disciplines. Negotiations shall aim to develop a multilateral framework of principles, rules and disciplines dealing with international trade in counterfeit goods, taking into account work already undertaken in the GATT. These negotiations shall be without prejudice to other complementary initiatives that may be taken in the World Intellectual Property Organization and elsewhere to deal with these matters. (Adede 2003: 26; emphasis in original) More importantly, to put TRIPS under the GATT framework rather than under the WIPO framework allows the developing countries ‘to use

Approaches and perspectives 13 bargaining power and secure trade-offs in negotiating favourable terms’ (Adede 2003: 26). To China’s benefit, it has been using TRIPS to facilitate its argument of being a developing country through the international trading system. On the contrary, China does not comply with the requirements of the WTO, especially in the implementation process of IPR protection. This is quite contradictory to the original aim of the TRIPS.

Social cost of IPR infringement as world welfare loss The study of social cost and the problems of measuring externalities are well received in the study of economics as a side-effect of economic development and the dissipation of aggregate social welfare to the general economy (Pigou 1932, Coase 1960 and Cheung 1978). After the social cost concept was fully recognized as one of the most important elements in economic studies, later studies focused on how to reconcile the problem with market force (price) and even extend the scale and scope of understanding to the effects of environmental problems, counterfeit products and the IPR infringements (Holtermann 1976, Grossman and Shapiro 1988, Holtermann 1972 and Feinberg and Rousslang 1990). Whether the effects of externalities should be dealt with by a central agent (mostly government) or by the function of a market, the context of social cost and the incident of the event fall within the individual countries’ jurisdiction. However, once the incident of externalities affects two countries or more, such as the case of IPR infringement disputes between China and the United States (a case which I will be focusing on – more background can be located in Chapter 3), the context of study will shift to the world economy; and how infringement affects global conditions at large. The central theme of this perspective, therefore, is to link the domestic domain of social dis-economy caused by the IPR infringement with the international aspects of world welfare loss. The interfaces are the tacit consent (norms recognition) and the explicit consent (international legal agreements) embodied between domestic economy and the international environment. Figure 2.1 indicates that, in the notion of IPR infringement, individual sovereign states are linked with the international environment by the function of two forces: tacit consent and the explicit consent. Tacit consent Tacit consent refers to the process of reconciliation where recognition of social cost and awareness of the externalities within a country’s domain gives rise to the attribution of that awareness as worldwide concern. The process involves two levels: (a) strong recognition of IPR protection at home; and (b) norms proliferation and world welfare loss.

14

Approaches and perspectives Tacit consent (transfusion of norms, e.g. IPR protection in individual country to international society)

Individual country

International society

Explicit consent (transfusion of international norms through the empowerment of international legal agreement, e.g. Berne Convention)

Figure 2.1 Interactive roles between individual countries and international society through the functions of tacit consent and explicit consent.

Strong recognition of IPR protection at home For example, the 1973 Greater London Development Plan indicated that social dis-economy such as car exhaust fumes or aircraft movements can be internalized by the imposition of a tax (Holtermann 1976: 1). This is a welfare loss to the internal economy. The fact that social dis-economies took place within one’s sovereign jurisdiction can be reconciled by the local government or through price mechanism. To link an individual country’s consent towards IPR protection, for example, one should recognize that the notion of understanding underwrites a normative extrapolation of the appreciation of IPR beyond one’s national boundary. Thus, tacit recognition is further consolidated by the empowerment of the international norms, which, in reverse, regulate countries’ behaviour. Intellectual property is not a public good because ‘public good is a good such that each person’s consumption of it is equal to the total supply of the good’ (Holtermann 1972: 80). The enjoyment of a film, the playing of war game software, the reading of a book and the surfing on the net will certainly limit the supply of the goods. More important, intellectual property is more fragile than many other private goods because once infringed, they can be copied or duplicated, theoretically, indefinitely. From a country’s specific losses to world welfare loss, one can add the notion of norms proliferation as well. Norms proliferation and world welfare loss According to Robert D. Putnam, the linkage between domestic politics and international relations is more easily revealed in particular issue (1993: 431–468). The norms of IPR protection define states’ ‘responsibilities and

Approaches and perspectives 15 obligations’ in a more general way (Keohane 1984: 58). The issues of IPR infringement has led to serious trade disputes between the US and China. First, it damaged home producers because they had invested large sums of money and time in an effort to solidify their reputation by providing quality goods. Second, it damaged consumers because they were misled in a world of imperfect competition. Third, there was a world welfare loss because of efforts paid to counteract or combat the infringement. These efforts could have been directed in other more productive directions (Grossman and Shapiro 1988: 60–72). As suggested, these kinds of social dis-economies engender enormous pressure in the home country. Since ‘social pressure is the predicted mechanism bringing international norms to the domestic arena’, the norms of IPR protection would be more secure if it could be translated as loss to the world as a whole (Checkel 1997: 487). The world welfare loss resulting from IPR infringement not only represents ‘quality-adjustment effect’ (Grossman and Shapiro 1988: 69) in a strictly economic sense, but also creates moral and ethical dissipation in the liberal political framework. If, however, the process of IPR protection and the proliferation of norms are vigorously debated, ‘intersubjective understanding’ will be generated (Samhat 1997: 372). Nevertheless, one might argue that the norms of IPR infringement only reflect great power interest (in the case of US–China IPR dispute) and the hegemonic coerciveness behind the norms (Klotz 1995: 25). But, if we consider trade liberation regime as norms empowerment, the US and Japan’s confrontation over Japan’s market openness reflects only long time regime re-establishment and the pursuit of Japan to accept the trade liberation movement prevailing in the world economy ever since the establishment of the General Agreement on Tariffs and Trade (GATT) in 1947 and the proxy of World Trade Organization (WTO) in 1995 (Gourevitch 1996: 370). The proliferation of IPR protection therefore allows China and the US to cooperate without reference to sovereign intrusion but ‘from voluntary agreements to play by a set of rules which are binding in the sense that they create convergent expectations and govern behaviour’ (Mayer et al. 1993: 393). The following section will shift gears to explicit consent, which is justified by individual countries abiding by the rules of the international agreements. Explicit consent As can be seen from Figure 2.1, the political obligation of an individual country is governed by explicit consent. Explicit consent here mainly refers to the legal and international conventions that regulated China’s IPR protection, either bilaterally or multilaterally. Although there is no ‘unified system of sanctions’ in international law, the international legal system regulates the

16

Approaches and perspectives

behaviour of the state in the enforcement of conformity and the binding forces of statutory regulations (Shaw 1995: 4). The translation of tacit consent towards IPR protection from individual country to world economy necessitated the concept of world welfare loss. To promote world welfare enhancement (reducing IPR infringement) through international laws means the production of general good to the world society as a whole (Plamenatz 1968: 146). Moreover, the manifestation of IPR protection through international agreements and conventions gives rise to de jure influence in China’s pace towards IPR protection. According to the Practical Handbook of Intellectual Property in China, China was a signatory member of the Convention Establishing the World Intellectual Property Organization (WIPO) in 1980, the Paris Convention for the Protection of Industrial Property in 1985 and the Universal Copyright Convention in 1992 (a more complete picture of China’s agreement on IPR protection can be found in Chapter 6) (Hong Kong Trade Development Council 1994: 186–192). Among the three, WIPO is the largest international organization in regulating IPR protection. In terms of copyright protection, the preamble clearly stated that those contracting parties should be: ‘Desiring to develop and maintain the protection of the rights of authors in their literary and artistic works in a manner as effective and uniform as possible’ (Righini 1997: 68). However, the gap between China’s recognition of IPR protection (in terms of agreement) and the implementation level (combating and crack-down) is as wide as ever. Nor did the bilateral agreements between the US and China guarantee any improvement in IPR protection. On 17 January 1992, an agreement entitled: Intellectual Property: Memorandum of Understanding between the United States of America and the People’s Republic of China was signed. A similar agreement was signed again in February 1995 and June 1996. Ever since the 1978 economic reforms, one observer noticed that ‘China had undertaken a broad range of international legal obligations and participated in international organizations to an extent unthinkable before the death of Mao’ (Feinerman 1995: 187). However, in the areas of developing a legal framework and public education, there is a ‘distance between intention and reality’ (ibid.). With regard to the deficiency of China in adhering to international obligations, the country is more likely to abide by the international legal framework in relation to trade and investment, due to the fact that it falls in the domain of national interest where economic development is given the highest priority. Moreover, it also indicates that Chinese reformers have no choice but to liberalize their economy when economic performance is at stake and is seen as critical to the national economy as well as by the national authorities (Pearson 1991: 213). Finally, to settle IPR disputes between the US and China via international laws might sometimes yield inadequate results because:

Approaches and perspectives 17 Law can, of course, also supply an acceptable vehicle for a settlement in the form of a treaty. To draw attention to the fact that international law is significant in practice is not to suggest that law is the key to international relations, nor that states live under the rule of law in the same sense as citizens within a state. (Merrills 1993: 237) The social cost and world welfare loss is an interesting approach to theorize the notion of protection by maximizing the levels of understanding to a global level. In practice, both conceptual understanding of social cost and world welfare loss can be, nevertheless, categorized and refined as a policy choice and as an option to be applied to controlling the rampant infringement of IPR in China – bilaterally with the US or with other international organizations. This will be detailed in Chapter 6.

Debates and controversies of IPR protection In classical Western political thought, the notion of public and private property has always been controversial. According to Spyros M. Maniatis ‘the controversy surrounding the institution of private property . . . started with Plato viewing property as the cause of disharmony and greed and Aristotle responding that private property is the means for well being’ (Maniatis 2002: 135). As an intellectual political debate, this is very useful. In time, the idea and the importance of possession becomes an imperative if not an inalienable right. John Locke derived the ‘natural rights’ theory on property, which to summarize, included that: 1 2 3 4 5 6

God has given the world to people in common. Every person has a property right in his own person. A person’s labour belongs to him. Whenever a person mixes his labour with something in the commons he thereby makes it his own property. The right of property is conditional upon a person leaving in the commons enough and as good for the other commoners. A person cannot take more out of the commons than they can use to advantage. (Fisher 2005: 6–7)

This argument of natural rights provides a very basic and fundamental protection of one’s right concerning their own property. Yet, the first criticism of this kind of right encounters the debate between corporeal (tangible) and incorporeal (intangible) (Drahos 1996: 16). Second, if we accept

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Approaches and perspectives

that Locke’s concept of ‘natural rights’ entails incorporeal rights, as contended by Matthew Fisher, ‘thus, if property in ideas is a natural right, there is little logical basis for that right to be limited to a term of years; rather it should be perpetual’ (Fisher 2005: 7). Finally, May argued that ‘perhaps the most popular criticism of intellectual property qua property is based on its “non-exclusivity” ’ (1998: 73). The notion of protecting intellectual property was intensified during the eighteenth century when the Enlightenment and the Industrial Revolution led capitalists to stretch the idea of property to include not just tangible goods but also intangible goods (Vaver 1997: 3). From industrial economy to innovative economy, intellectual capital plays an important role in commercial as well as business activities. ‘In the innovation economy’, argued Voelpel et al., ‘the core truths of business and strategy still apply; businesses must create value for customers and capture some of that value (adequate for survival) for shareholders’ (2006: 47). Kazem Chaharbaghi and Sandy Cripps however, suggested a critical approach to examine the notion of intellectual capital (IC) because ‘it is impossible, and undesirable, to reduce intellectual capital to a calculable number that establishes whether an organization’s intellectual capital has increased or diminished’ (2006: 30). The intensity and the extensity of IC in turn have profound consequences for human development. They concluded that ‘this, however, requires a critical approach that provides an insight into the way different discourses are promoted and what their promoters gain from its use’ (Chaharbaghi and Cripps 2006: 39). Increasingly, the legal means of IPR protection have been criticized for creating a situation where less powerful actors, small firms and developing countries are at the mercy of the global big powers and big multinational companies. In a study of the patent suits and their outcomes during the period 1978–1999 in the US, Jean O. Lanjouw and Mark Schankerman discovered that ‘small firms are at some disadvantages in their attempts to protect their intellectual property’ (2001: 26). Developing countries are also said to adopt a policy of ‘weak protection’ of IPR. According to Stefania Emma Scandizzo, One reason why the government may decide to permit weak IPR protection has to do with the uncertain nature of research. Firms race to be the first to discover a new product or technology: all firms pay the cost of research but only one firm, the ‘winner’, makes positive profits. The government’s problem is to decide whether and how much to promote innovation, taking into account that if innovation occurs abroad no profits will accrue domestically. Innovation wherever it occurs, is desirable because it increases consumer surplus,

Approaches and perspectives 19 either through the introduction of new and better products or by lowering consumer prices. Furthermore innovation that occurs locally is desirable for its positive externalities (for example, there may be positive spillovers to other firms/industries or domestic innovation may cater to local tastes). Strong protection promotes innovation and increases the probability of local discovery. Weak protection is a disincentive to local innovation, but permits the country, through imitation, to increase the benefits from foreign innovation. In this scenario, imitation can serve as a form of insurance: allowing at least some firms to be imitators permits a country to avoid reaping no profits at all in the case domestic innovation is successful. (1997: 6) The debate within IPR protection about traditional knowledge has lifted the argument surrounding IPR to another level: who truly owns the intellectual property rights? According to Shubha Ghosh, the debate on traditional knowledge can be categorized into three positions: ‘the public domain position, the appropriation position, and the moral right position’ (Ghosh 2003: 885). Ghosh further explained: Public domain advocates see the creation of intellectual property rights in traditional knowledge as leading to the path of destroying traditional structures and institutions. Moral rights advocates extol the virtues of traditional knowledge and the long history of creating and disseminating traditional knowledge within traditional structures. Finally, appropriationists point to the beneficial uses of traditional knowledge and the need to disseminate such uses through the market place. (2003: 886) Ghosh argued that it was necessary to codify the relationship between the WTO and TRIPS and the nation-state under ‘federated participatory structure’ (Ghosh 2003: 886). In a word, since nation-states signed the agreements with the WTO and should be restricted by TRIPS, the notion of arbitration on traditional knowledge (TK) should be under the limitation of the rule-based format. Ghosh mentioned that ‘the substantive and procedural standards of Article 31 (which applied to compulsory licence) substantive standards of Article 30 (which applied to all other imitations of rights)’ are in place (ibid.). The cases Ghosh uses (turmeric, basmati rice and neem) are examples that show the functional usage of the WTO and TRIPS regimes. In the case of turmeric (an Indian and Pakistani plant), the USPTO granted a

20

Approaches and perspectives

patent to Drs Suman K. Das and Hari Har P. Cohly from the University of Mississippi for ‘the use of turmeric in wound healing’ (ibid.: 898). But, after the challenge by the Council of Scientific and Industrial Research in India, ‘the USPTO cancelled all six claims in the patent on the healing power of turmeric’ (ibid.: 899). New challenges on the legal domain of IPR protection are being debated by both legal professionals and economists. C. Ford Runge and Edi Defrancesco nevertheless argued for ‘common property’ and the ‘internalities of information sharing’, which can help technological transfer from the centre of research and development (developed countries) to developing countries (2006: 1722). Yet, legal tradition and IPR laws themselves are not without criticism. More recently, Lawrence Lessig (2005) put forth an argument regarding the public domain of IPR protection which soul-searchingly questions the limitation of the law of IPR and, much earlier, Lester Thurow pronounced the death of the old system of the IPR protection, while strongly advocating ‘a new system [that] must strike the right balance between the production and the distribution of new ideas’ (1997: 101).

IPR in Chinese context The legal notion of IPR protection in China was once dominated by the questions of Chinese legal traditions/culture, especially when William Alford (a Harvard Law professor) famously used an old Chinese proverb To Steal a Book is an Elegant Offence for the title of his book in order to demonstrate the lack of a legal tradition of private property rights in Chinese legal ideology (Alford 1995 and also Feng 1997). Nils Victor Montan elaborated on this notion of an Eastern way of learning: In the Confucian societies, imitation and reproduction of ideas, art, and scholarship are considered tokens of honor and respect. In fact, learning is not considered to be an individual pursuit, but rather something a student does by copying a master’s work. Within this cultural context, the protection of intellectual property rights is not a concept that fits easily into a Confucian society, where copying is often an integral part of the learning process. (2001: 23) The second argument China uses to defend her weak IPR protection is that technological development and transfer are vital to the economic growth of China. In the WIPO Asian regional training workshop on the use of industrial property and technology transfer arrangements in the electronics

Approaches and perspectives 21 industry, held in Beijing from 24 to 28 February 1992, Ding Qihong, Deputy Chief Engineer/Director (R&D Department) of Beijing Peony Electronics Group Company argued ‘China is a developing country. It requires the advanced technologies of developed countries to speed up its economic development’ (WIPO 1992: 343). The third argument that we have heard is that China is simply too big. With a population of 1.3 billion, it is virtually impossible to manage. This argument was made by Cheng Chang, the Chief of International Division, National Copyright Administration of China (NCAC) during the Regional Copyright Seminar for Asia and the Pacific in Tokyo, 15–19 November 1993. He admitted that: Frankly speaking, China’s copyright protection system still remains at a preliminary stage. We all know, it is no easy job to foster among nearly 1.2 billion people a culture of respecting knowledge, respecting intellects, respecting intellectual achievements of other people and realizing the importance of intellectual property right in furthering social development, particularly when our cultural and economic conditions are still underdeveloped.1 (WIPO 1993) Such arguments are the standard line coming from developing countries. However, according to Michael Pendleton, a well-known IPR lawyer, ‘every developing country is saying the same thing. China is no exception. After all, a legal system is important’.2 In addition, most of the above arguments of ‘weak IPR protection’ from the Chinese points of view can easily be challenged. First the kind of cultural historicism has been challenged. Thomas M. Buoye (2000), by using the historical archive to detail violence in relation to property rights in Guangdong province during the Qing dynasty, provided an institutional rather than a cultural argument on property rights development in China. He argued that ‘the historical record demonstrates that the Chinese economy was increasingly commercialized and that peasant households were active participants in the market, with all the attendant benefits and risks that this entailed’ (Buoye 2000: 219). In a word, a market economy was evolving in Chinese history and what the violence revealed was probably the ‘demand for changes in economic institutions and property rights’ (Buoye 2000: 220). In other words, within their own borders, Chinese have historically fought to the death in defence of their property. This is not entirely in the Confucian tradition. Obviously, following the ideological notion of communist China (especially before the 1978 reforms), IPR were considered as tools of exploitation.

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Approaches and perspectives

Yet, ‘in the early period of reform, China failed to see any benefits to be gained by enforcing almost entirely foreign-held IPR’ (Loppacher and Kerr 2004: 555). Even nowadays, IPR protection among Chinese citizens is not taken for granted, simply because they do not recognize such an obligation.3 Second, to scrutinize those arguments further from the political economist’s point of view on technological gap, Sunil Kanwar and Robert E. Evenson revealed, the conventional arguments for weak protection of intellectual property rights, especially among developing countries, are keeping the market price of the products low; cheap acquisition of technology; withholding of important information by the patent application; and the creation of a monopoly if strong protection is applied (2001: 5). Yet, Kanwar and Evenson state that ‘we found evidence to support the claim that the former [protection of IPR] encourages the latter [technological change] insofar as intellectual property protection was found to have a strong positive association with R&D investment’ (Kanwar and Evenson 2001: 22). To the Chinese government, knowledge, technology and economic growth are inter-related. Dale Jorgenson has strongly proved the effect of IT in the growth of the US economy. First, the development and application of information technology in the US allowed it to achieve economic growth, especially in the semiconductor industry (Jorgenson 2000: 1–2). Second, IT development in the US promoted business and stimulated exports. These contributing factors, collectively, expanded the production possibility frontier, allowing the increasing of productivity (ibid.: 17). Therefore, China’s plea on weak protection on IPR, especially on media, telecommunications, knowledge and general high-tech products does not seem to be very convincing because there is a strong correlation between technology and growth. By ‘procrastinating’ on IPR protection, China can obtain cheap and abundant resources of global knowledge, which benefits not only the government, but also a highly marketized economy which increasingly requires more and more consumer goods to fill the appetite of the burgeoning consumer class.

Conclusion Between theory and practice, IPR serves as a good testing ground to measure how and in what way international norms can be worked out, not just nationally but also individually. IPR has a long-established legal tradition in Western societies. Buttressed with strong legal philosophy, conceptually as well as practically, economic affairs within a market economy can be facilitated with discipline. Protecting IPR through TRIPS escalates

Approaches and perspectives 23 protection to a multilateral level where a minimum standard of protection can be ensured across the board among all the signatory countries. I add another dimension of discussion of the protection of IPR through the introduction of world welfare loss. The interaction between tacit consent and explicit consent helps change the lenses from technical to more theoretical scopes of argument. As mentioned in the second-to-last section, a universal legal and all-encompassing trade measure will certainly face challenges because the coverage and domain of help may not be utilized by every individual country, especially poor countries. Notwithstanding, China is one of the developing countries that has been arguing for less stringent IPR bindings because of the unique nature of Chinese culture, economy, population and level of economic development. Yet, the evidence has demonstrated that weak implementation cannot be substantiated and the enforcement of IPR protection should be more stringent not only from the state level but also from the local, provincial and individual levels.

3

US-Sino IPR disputes

I pointed out that the US has damages of 20 to 24 billion dollars a year from piracy in China. . . . The honest citizens of China have a lot to gain by protecting IPR. It creates jobs. Creates innovation. Rewards competition. Pirates don’t need education. Pirates need jail time. Pirates don’t respect rules. Pirates respect force. (William Lash, US Assistant Secretary of Commerce)1

Introduction Given the economic development after 1978, the consolidation of a market economy in the constitution of China in 1993 and the flourishing of the latest consumption revolution in 1998, Sino-American trade disputes in general and IPR infringement in particular are inevitable. The third plenum of the Chinese Communist Party’s (CCP) Eleventh Central Committee in December 1978 changed the official government policy from ideological confrontation to economic development. In terms of official announcement, the economic reform was considered as an ‘imperative need to reform economic structure for China’s socialist modernization’.2 In terms of academic inquiry, economic reform ‘was a reorientation of Chinese development strategy’ (Naughton 1996: 59). To accommodate their views, having reset the orientation of China’s path of development, the recapturing of the material foundation of state development became the logic behind the economic reform. Moreover, the effort towards economic development was further consolidated when the concept of a market economy obtained legal status. On 29 March 1993, the statement ‘The state practices socialist market economy’ was officially adopted at the first session of the eighth National People’s Congress (Constitution of the People’s Republic of China 1994: 94). The constitutional nature of a market economy enabled China to move further towards an era of consumption revolution. In December

US-Sino IPR disputes 25 2003, the Constitution of the People’s Republic of China was further revised. Article 13, specifically, allowed legal private property to be protected by the Constitution (Xinjinbao, 23 December 2003: A04). Finally, a new generation of consumers (the single child), are now creating a new level of a consumer revolution with enormous purchasing power bolstered by their parents, grandparents, aunts and uncles (Li 1998: 6). Those youngsters, known as ‘little emperors’ will certainly demand trendy goods and information products, which are prone to fall into the category of IPR items commonly infringed upon. These alarming trends in China will add some fuel to the already hot trade disputes in Sino–American relations. In 2005, the annual survey of the American Chamber of Commerce in China revealed that 80 per cent of the respondents regarded intellectual property rights protection in China as either totally ineffective or ineffective (Asian Wall Street Journal, 2–4 September 2005: A3). Coupled with the mounting trade deficits and the undervaluation of Chinese currency, renminbi (or yuan), Sino–American IPR disputes are now being considered not just an imperative, but a matter of national interest. IPR infringements are global phenomena. Other than China, (which tops the Priority Watch List) the United States has put Russia, Belize, Brazil, Egypt, India, Indonesia, Israel, Lebanon, Turkey, Ukraine and Venezuela on the Priority Watch List in the 2006 Special 301 Report. Among others, the US has long had discontents with developing countries over IPR infringements. The first section of this chapter will examine more broadly the offensive (IPR infringements) and defensive (IPR protection) experiences between the US and developing countries as a whole. The second section illustrates that IPR infringements increasingly have become an issue of national interest to the US, in connection with other pressing economic issues such as the unprecedented trade deficits with China and the disgruntled knowledge industry’s demands for more intellectual property protection. With the increasing pressure on the exchange rate of renminbi and the binding force of the TRIPS agreements, more and more national clout has been brought to bear concerning disciplinary measures over China’s IPR infringements. The third section will trace the historical disputes between the US and China over IPR since the 1990s. The US and China first signed the Sino-American Memorandum of Understanding on the Protection of Intellectual Property in January 1992. However, this agreement proved ineffective in curbing rampant IPR infringements in China. Further efforts were made with the US–China Joint Commission on Commerce and Trade (JCCT) in 2004 and the placing of China on top of the Special 301 Report as well as the more recent launch of the Special Provincial Review (SPW) in 2007. In the post-Cold War global economic environment, IPR infringements are becoming more and more vital as a

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kind of non-traditional security issue, such that consistent efforts such as Strategic Economic Dialogues (SED) will be maintained between the US and a rising economic super power-China.

US discontents of IPR infringements with developing countries The United States has IPR issues with developing countries in two major areas: offensive and defensive. The offensive problems refer to the actual losses, in terms of monetary value, caused to businesses. The notion of defensive problems refers to the preventive measures that may be adopted in order to prevent IPR infringement in some emerging countries, especially former socialist countries. Offensive: IPR infringements In February 1988, the United States International Trade Commission released a report entitled Foreign Protection of Intellectual Property Rights and the Effect on U.S. Industry and Trade. This report was a comprehensive study of more than 269 firms in the US which examined the effect of IPR infringements on US industries in 1986 (USITC 1998: vii and 1–1). The total loss due to IPR infringements was estimated at $23.8 billion (ibid.: 4–2). Moreover, the scope and the domain of the IPR infringements are not economic alone. Reputation, the incentive to innovate and social loss were also affected. It reported that: The failure of foreign countries to protect the intellectual property rights of U.S. companies may lead to several types of losses; some of these represent transfers from the legitimate producers to counterfeiters, pirates, other infringers, and consumers; some represent losses to the world economy in total. . . . In addition, these diminished returns to legitimate producers are likely to reduce the incentives for, and extent of, investment in new products or processes that could be patented, trademarked, copyrighted, or otherwise viewed as intellectual property. This discouragement of incentive represents a social loss in that fewer new or improved products will be available in the future. (Ibid.: 4–1) Industries most affected by IPR infringements include scientific and photographic, computers and software, electronics, entertainment, pharmaceuticals and chemicals (ibid.: 4–3). In terms of geographical distribution, IPR infringements are ubiquitous. They are not restricted to developing

US-Sino IPR disputes 27 countries alone. But the most serious cases of infringement occur in countries clustered in Asia and Latin America. The top five are Taiwan, Mexico, Korea, Brazil and China. The reported estimated losses were US$752,501,000, US$533,435,000, US$496,090,000, US$426,285,000 and US$420,250,000, respectively (ibid.: 4–16). In brief, although the IPR infringements are considered to be one of the most important losses in trade among the US and its counterparts, the policy to stop IPR infringements is not successful. For example, one of the most notorious IPR infringers, Taiwan was condemned by the US government of not doing enough to inspect pirating firms and for not honouring the agreements that were signed between the two countries in 1992 under Taiwan Copyright Law (Chen 1994: 129–130). What makes the prevention of IPR infringements so complicated? Lester C. Thurow, a professor from MIT, coined it correctly: ‘Yet despite these differences in economic positions, cultures, and practices, no system of protecting intellectual property rights can work unless most of the governments of the world agree to enforce’ (Thurow 1997: 100). The government, whether they are developed or developing, have enormous responsibilities to protect IPR and to implement the crackdown on infringements. The protection of intellectual products is a necessary trend for the global society because ‘The new economic powerhouses are matters not of huge material resources, but of ideas and technology’ (Wriston 1997: 177). The ideas and technology are fragile and methods are needed to protect them from infringements. The basic reason is that IPR infringements not only affect developed countries, but the countries that infringe will be hurt in terms of real wages and the initiative for innovations retarded (Miyagiwa 1995: 12). Defensive: IPR protection For many years, developing countries have been very eager to grant patents to industries and companies from developed countries. The major objective has been the acquisition of technological transfer and bringing improvement to the local economies (United Nations 1975: 63). But the use and the non-use of the patents depend on many factors other than simple circulation of the economic benefits. Many considerations must be taken into account, such as importing countries’ choices, social consideration of the patented products towards the local countries and the patentowners’ marketing strategies involved in the decision-making (ibid.: 56). More importantly, patent laws and administrative regulation for the enforcement of patents are crucial to developing countries in order for them to implement patent laws effectively and efficiently (ibid.: 64).

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The economic landscape of eastern Europe changed dramatically after the demise of the former Soviet Union. The collapse of the former Council for Mutual Economic Assistance (CMEA) and the decline of the communist bloc necessitated many eastern European countries to move from central planning to a market economy (McKinnon 1994: 7). In terms of trading, commodities exchanges shifted from the former communist bloc to the West or European Community (EC) especially. The former Soviet Union communist bloc not only lost the political control of ideology towards those eastern European countries but also ceased to be the economic powerhouse which provided opportunities as well as market for these states. For example, from 1989–1993, imports from the EC increased by 25.3 per cent in Poland, in Czechoslovakia by 25.5 per cent and in Hungary by 16.3 per cent (de Menil 1997: 265). Trade liberalization, economic reform and internationalization became central government policies of these countries. Looking forward, the demand for information and technological products will dominate their future trading agenda. It is therefore reasonable to keep an eye on the possibility of IPR infringements in these countries. According to a study by the Organization for Economic Co-operation and Development (OECD) group, a ‘double challenge’ of transforming these socialist countries and the need for modernization towards a market economy in general, and the understanding of IPR regulations in particular, made the reconsideration of the legal aspects of the IPR protection unavoidable tasks (OECD 1995: 9–10). The OECD report also indicates the effort of these eastern European countries in the pursuit of IPR protection. For example, among the other eastern European countries, Bulgaria, the Czech Republic and Slovakia, Hungary, Poland and Romania are members of some major international conventions in IPR protection, including WIPO Convention, Paris Convention, Patent Co-operation Treaty, Madrid Agreements and Bern Convention (ibid.: 135–137). More recently, there has been cooperation between WIPO and the EC – the EC, together with signatory countries, was supposed to adopt the WIPO Copyright Treaty in 1997 (Righini 1997: 73–74). Eventually, the WIPO Copyright Treaty was approved by the EU on 16 March 2000. This section explored some problems and prospects confronted by developing countries in relation to IPR protection. The next section will illustrate how and why IPR infringements from China are vital to the national interest of the US.

US national interests and IPR infringement The post-Cold War Sino-American relations can best be summarized by the title of a recent book: Living with China: U.S.–China Relations in the Twenty-first Century edited by Ezra F. Vogel, a professor from Harvard

US-Sino IPR disputes 29 University (1997). The book was a collection of essays prepared for the eighty-ninth American Assembly held in November 1996. The notion of ‘living with’ inevitably enounces new perspectives – accommodation and co-ordination – of US foreign relations with China. More importantly, many participants in the assembly are from major business sectors, such as the Vice President of the Boeing Company, the Chair and CEO of AT&T (China) Co. Ltd, the Chair of AEA Investors Inc. and the Chairman of Hang Lung Development Group (Hong Kong) (ibid.: 310–313). The participation of such people indicates that economic matters such as trade and business activities will be critical issues in future Sino-American relations. In 2003, China surpassed the US as the largest recipient of FDI (Kraus 2004: 153). Its total reserves more than doubled from US$142,762 million in 1997 to US$291,128 million in 2002 (IMF 2004: 924). In fact, when China’s president, Jiang Zemin, paid a historical visit to the United States between 26 October 1997 and 3 November 1997, the foreign relations between these two powers were consolidated into a workable manner. Jiang and President Clinton agreed that a stable relationship would serve both countries’ fundamental interests and pledged further development in the areas of military-to-military exchanges, nuclear non-proliferation and technological transfers.3 The story behind Jiang’s visit was that a group from the Chinese government procurement team was sent to the United States before the formal visit, accompanied by the largest purchasing lists ever made before. More than US$4 billion of products such as Boeing planes, oil, automobiles and other infrastructure facilities were purchased from the United States as a friendly preparatory gesture of Jiang’s visit. From the above scenario, one should realize that trade is one of the most important aspects of Sino-American relations in the future. For example, in terms of trade figures, from 1985 to 1993, the United States’ imports from China increased by 716 per cent. Yet, US exports to China increased by only 128 per cent. In 1995, moreover, the United States recorded a trade deficit of US$2.25 billion (USIS 1995: 1). Such trade deficit figures increased exponentially during 2000–2007. As can be seen from Table 3.1, the US experienced huge trade deficit with China from about US$83 billion in 2000 to US$237 billion in 2007, a three-fold increase in seven years! On the surface, politicians have been able to make use of these trade figures to push China to open up its economy. Another case in point is the appreciation of Chinese currency – yuan or renminbi. The US has long demanded that the Chinese government re-value its currency, the renminbi. As a result of mounting pressure from the US and Europe, China allowed a small appreciation from 8.3 yuan per US$1 (which has been fixed for decades) to 8.1 yuan (2.1 per cent revaluation) on 21 July

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Table 3.1 US trade deficit with China 2000–2007 (US$ million) Year

Deficit

2000 2001 2002 2003 2004 2005 2006 2007

–83,833.0 –83,096.1 –103,064.9 –124,068.2 –161,938.0 –201,544.8 –232,588.6 –237,477.5

Source: Adapted from US Census Bureau 2000–2007. Online, at: www.census.gov/foreign-trade/balance/c5700.html (accessed 26 January 2007).

available

2005 (Asian Wall Street Journal, 16–18 September 2005, A1 and A2). Although not everyone agrees that the trade surplus necessarily can be linked up with an unfair exchange rate directly. Albert Keidel from the Carnegie Endowment for International Peace argued that: A surplus with one trading partner does not prove that a country’s exchange rate is unfair . . . China’s 2003 and 2004 world trade surpluses were not large as a share of GDP – both roughly 3 percent. These surpluses are smaller than those for Germany, the Netherlands, Thailand, Argentina, Malaysia, and Singapore. (2005: 1–2) Nevertheless, the rise of China after the Asian financial crisis in 1997 has become more concrete with evidence that cannot be neglected by any decision maker. China has posted huge economic challenges already towards US economic competitiveness. If IPR infringements are not treated as serious issues connecting with the US national economic interest, the US will hardly have any further grounds to check China as an economic rival. Among many others, IPR infringement in China is one of the major problems between China and the US. The notion of IPR trade disputes is beyond normal trade negotiations. China’s openness and the collapse of communism in the former Soviet Union doubled the intensity for the importation of media products from the United States (Barnet and Cavanagh 1994: 139). On the contrary, the law of IPR protection and the mentality of the Chinese towards law enforcement are immature, if not outright non-existent. In other words, there are cultural, legal and institutional gaps between China and the United States in relation to IPR

US-Sino IPR disputes 31 protection (Alford 1995). The reconciliation of this dilemma is a crucial factor for the future of the two countries’ foreign relations. For one thing, the infringement of IPR in China affects both countries’ interests. IPR infringement discourages US industries in product investment, distribution and marketization. Second, those in counterfeiting destroyed the image and long developed reputation of the industries (Grossman and Shapiro 1988: 60). The incentive to invest on reputation is largely reduced because those industries will anticipate some losses due to infringement. Since US exports are highly concentrated among a few firms (80 per cent of US exports come from 250 firms, and the top 15 exporting firms account for 25 per cent exporting manufacturing products) (Greider 1997: 216), the behaviour of Chinese industries affects US national interests. Third, IPR infringements internally discredit China in the international economy because China was a member of the Berne Convention for the protection of intellectual property rights (USDS 1992: 6). China also had agreements with the United States concerning IPR protection. In 1992, China signed the Memorandum of Understanding between the United States and the People’s Republic of China (PRC) on the Protection of Intellectual Property (ibid.: 8). In 1995, both countries also reached an accord on the protection of IPR. To a certain extent, IPR infringement, internal legal backwardness and weak compliance with the global norms allowed the US to keep China from being accepted by the members of the WTO until December 2001. On 23 March 2004, E. Anthony Wayne, Assistant Secretary of State for Economic and Business Affairs, gave testimony before the Senate Judiciary Committee which linked intellectual property rights to national security. IPR infringement is highly related to national security because the US is increasingly depending on transnational economic activities related to trade, finance, investment, knowledge and innovation. IPR infringement put these important economic clouts under jeopardy. There is a final set of issues that is making the protection of intellectual property an even more critical issue today. Counterfeiting and piracy in most countries around the world is a high margin, low risk activity. Combine that with a weak legal and law enforcement regime, as again we find in many countries, and you have a situation that invites organized crime and other actors to step in. INTERPOL has identified this as a serious and growing risk, and called for intellectual property crimes to be treated more seriously by governments around the globe. So in this sense, we see cracking down on intellectual property theft as part of our response to the new set of national security challenges we face as a nation. (USDS 2004: 3)

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To facilitate a collective national awareness of such issue, Wayne called for the building of knowledge, capacity and will to fight the IPR infringements. With regard to China, he emphasized that the US government has spent large sums providing technical training to Chinese legal professionals such as judges, prosecutors and customs officers. The largest operational training took place in October 2003 when large numbers of IPR experts travelled to Beijing, Shanghai and Guangzhou to train Chinese legal professionals in areas such as ‘protection of IP over internet, procedures for collection of evidence for IPR crimes, and legal standards for opening cases against criminal networks involved in large-scale IPR counterfeiting and privacy’ (ibid.: 6). On 12 April 2005, a press conference was held in the US Embassy in Beijing. Assistant Secretary of Commerce for Market Access and Compliance, William Lash, urged tougher punishment and more severe fines to deal with IPR infringements in China. He warned that IPR infringements in China were more severe than ever before. Apart from the notorious Silk Street in Beijing, Hongqiao is becoming another hot spot for pirated goods. Well known US brands such as Bee playing cards, North Face clothing, New Balance shoes, Ping golf clubs, Zippo lighters, DVDs of US feature films etc. The US has lost US$20 billion to US$24 billion per year due to piracy in China. Fines related to IPR infringements in 2004 totalled close to US$30 million in China. Lash concluded that there was a need of strong enforcement, heavy fines and imprisonment of IPR infringers to reduce the level and extent of IPR infringements in China (USDS 2005a: 2–4). Through high-level talks and open criticism from senior government officials, the US has been trying to make use of the case of IPR infringements in China to link up with economic and business losses. Increasingly, the threshold of business and commercial enterprise is being torn by the rampant and ‘endemic’ IPR infringements in China. It can easily be translated from commercial and business issues to become a matter of national interest. The following section will trace the trade disputes between the US and China and examine what ways IPR infringements have gained currency as an issue in the two countries’ bilateral relations.

Overview on Sino-American IPR disputes In 1903, China was induced to sign a treaty with the US obliging it to provide formal protection of IPR to foreigners. It was the first treaty in which a Western IPR standard was imposed on China (Yu 2002: 6). Nevertheless, as far as this book is concerned we are going to focus on the US-Sino IPR disputes after the end of the Cold War. Sino-American IPR disputes began in the early 1990s. In 1991, China was charged by the United States under

US-Sino IPR disputes 33 Section 301 of the Trade Act of 1974 for violation of intellectual property protection (Sell 1995: 326). This economic impasse was later reconciled in the Sino-American Memorandum of Understanding on the Protection of Intellectual Property signed by China and the US in January 1992. The Memorandum demanded that ‘both governments will provide procedures and remedies to prevent or stop, internally and at their borders, infringement of intellectual property rights and to deter further infringement’ (USDS 1992: 8). Yet, counterfeiting and IPR infringement continued in China at both the provincial and local level. From July 1993 to 26 February 1995, the United States held 20 negotiation sessions with China over the IPR infringements (USIS 1995: 7). Those painstaking negotiations finally resulted in an Accord of Intellectual Protection on 26 February 1995. Both countries agreed to fully commit to the protection of IPR products. The Chinese government had ‘to take immediate steps to address rampant piracy throughout China; to make long-term changes to ensure effective enforcement of intellectual property rights; and to provide US right-holders with enhanced access to the Chinese markets’ (USIS 1995: 2–4). This scenario of economic brinkmanship was repeated in 1996. As expected, conflicts over IPR infringement resulted in another agreement, on 17 June 1996, between US Trade Representative Charlene Barshefsky and her Chinese counterpart, Zhang Yuejiao, in which China eventually agreed to close 15 infringing manufacturing plants and further opened up its market for US films and media products (South China Morning Post, 23 June 1996). After China became a WTO member in December 2001, bilateral trade disputes between the US and China became an issue under the WTO framework. China, as a member of the WTO, is required to protect IPR in accordance with the WTO’s agreement on TRIPS. As Christopher May has pointed out, TRIPS perform better than WIPO because of their comprehensiveness as well as the protection of ‘ “non-nationals” intellectual property outside the most developed countries’ (May 2004: 822). In the report China’s Implementation of its WTO Commitments: Mixed Results after Two Years to the Atlantic Council, Senior Vice President of Stonebridge International, Jeffrey A. Bader, first echoed two major scepticisms over China’s commitments to WTO: The sympathetic critics point to the difficulty of moving an underdeveloped country of over one and a quarter billion people, with a rudimentary grounding in rule of law, into conformity with the WTO’s rules-based system. The less sympathetic critics point to the dictatorship of the Communist Party, the opaqueness of the political process, and the vested interests in China resistant to markets and competition. (2003: 2)

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The results, according to Bader, are mixed. In particular, IPR protection was at the mercy of ‘inadequate enforcement’ and ‘bias against foreign right-holders’ (Bader 2003: 4). In April of 2004, China and the US held a Joint Commission on Commerce and Trade (JCCT) to discuss trade related issues of which IPR was one of the most important areas of discussion (JCCT was established in 1983 as a government-to-government consultative mechanism to resolve bilateral economic and commercial issues) (USDS 2005c: 2). China was represented by Wu Yi, Vice Premier, whilst the US’s representatives were the Secretary of Commerce, Donald L. Evans and the US Trade Representative, Robert B. Zoellick. The result of the Joint Commission was published in late 2004 in 2004 Report to Congress on China’s WTO Compliance (USTR 2004). For the JCCT, China produced a comprehensive action plan on IPR enforcement: (1) significantly reduce IPR infringement levels; (2) take steps by the end of 2004 to increase penalties for IPR violations by subjecting a greater range of violations to criminal investigation, applying sanctions to the import, export, storage and distribution of pirated and counterfeit products and applying criminal sanctions to on-line piracy; (3) crack down on IPR violators by conducting nation-wide enforcement actions and increasing customs enforcement actions; (4) improve protection of electronic works by ratifying and implementing the World Intellectual Property Organization (WIPO) Internet-related treaties as soon as possible, and by extending an existing ban on the use of pirated software in government offices; and (5) launch a national IPR education campaign. China also agreed to establish an IPR working group that would function under the auspices of the JCCT to consult and cooperate with the United States on the full range of issues described in China’s IPR action plan. (USTR 2004: 59) Apart from the action plan to implement measures for the protection of IPR, the intellectual property bureau directors of Shanxi, Henan, Anhui, Jiangxi, Hubei and Hunan signed the Agreement on IPR Development and Cooperation Mechanism in Six Central Provinces in November 2004 to form an alliance to protect IPR, especially concerning trademark enforcement (USTR 2004: 65). This is the first time IPR issues have been coherently implemented from the state level to the provincial level. In the past, the weakest link of IPR protection in China has always been that ‘the country has been unable to produce tangible law enforcement results at the local level’ (Yeh 2005). Obviously, it is not necessarily that these provinces are especially law-abiding but it may point to the notion that

US-Sino IPR disputes 35 these provinces are competing as well as developing after their predecessors in the coastal cities and that they may create the second wave of IPR infringement. In the following year, the JCCT was held in Beijing on 11 July and cochaired by US Trade Representative, Rob Portman, Commerce Secretary Carlos Gutierrez and Chinese Vice-Premier Wu Yi. In the press release, Portman hailed the success of the JCCT, particularly with regard to IPR enforcement, including cracking down on fake goods in China; preventing restrictions on what the Chinese government buys from American companies . . . But, our work is far from finished. We remain concerned about many areas and we will redouble our efforts to address these issues with the Chinese government. (USDS 2005c: 2) In 2005 another effort by the President was witnessed in pressing China to enforce IPR protection. The Bush administration’s annual National Trade Estimate Report on Foreign Trade Barriers (NTE) was released in March 2005. The NTE discovered that China’s rampant IPR infringements affected almost any tangible or intangible goods, knowledge or manufacturing goods including ‘films, music, publishing, software, pharmaceuticals, chemicals, information technology, textiles and floor coverings, consumer goods, electrical equipment, automotive parts and industrial products’ (USDS 2005b: 1). On 11 April 2006, another JCCT meeting was held in Washington, DC. Again, China was represented by its Premier, Wu Yi, and the US trade representatives were Rob Portman and Secretary of Commerce, Carlos Gutierrez. Although the US agreed that China had made some progress, the overall improvement was not acceptable. China, however, agreed to ‘continue efforts to ensure use of legalized software at all levels of government, and to adopt procedures to ensure that enterprises use legal software, beginning with large enterprises and state-owned enterprises’ (USTR 2006: 22). In terms of administrative coordination to enforce border IPR protection, China’s General Administration of Customs (GAC) is working with US Customs and Border Protection (CBP) to work out ‘a four-part customs cooperation program’ to facilitate the aim (ibid.: 23). Nevertheless, the IPR disputes between the US and China were not reconciled until 2006. The first speech by Chinese president, Hu Jintao, in his state visit to the US in April 2006 was about the protection of IPR and he mentioned that protecting IPR was ‘essential’ for China (Financial Times, 19 April 2006). Coincidentally, the speech was made in Seattle as a guest

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in the house of Bill Gates, chairman of Microsoft. Soon after the visit, USTR’s 2006 Special 301 Report put China as the first country under the priority watch list. The report strongly suggested that ‘faced with only limited progress by China in addressing certain deficiencies in IPR protection and enforcement, the United States will set up consideration of its WTO disputes settlement options’ (USTR 2006: 15). Accordingly, four ‘hot spots’ – Guangdong province, Beijing City, Zhejiang province, and Fujian province were to be examined more closely under the 301 Report (ibid). It seems that combatting IPR infringement in different provinces and cities in China is a battle, while the IPR disputes between US and China is a war. More details of these four cities/provinces will be discussed in Chapter 4. Yet, in addition to providing a broad picture of the review, the USTR further initiated a Special Provincial Review (SPR) on China. The SPR was to serve as a more in-depth study on the previous four hot spots with two additions: Jiangsu and Shanghai (USTR 2007: 43–52). Chinese officials, with the help from the general public, monitor very closely those areas such as retail and wholesale, administrative enforcement, internet, exports and universities (ibid). In response to the SPR, China agreed to launch a 2007 Action Plan to strengthen administrative and criminal action against general IPR infringements. With the action plan in place, ‘the United States calls on China to launch and publicize significant administrative and criminal enforcement actions against optical media piracy, Internet piracy, software end-user piracy, and other forms of piracy affecting US copyright owners’ (USTR 2007: 21). Increasingly, the IPR disputes between the US and China have witnessed more and more direct interactions and enforcement being launched in tackling rampant infringements in China. Provincial government and local authorities are gradually under more and more severe monitoring measures from the US. Sino-American IPR disputes continued in 2007. China remained on the top of the priority watch list in the 2007 Special 301 Report. Although China had shown some improvement, the overall level of infringement was still unacceptable. According to the report, in 2006, ‘85 percent to 93 percent of all copyrighted materials sold in China were pirated, indicating little or no improvement over 2005’ (USTR 2007: 18). Given that infringement has extended from manufacturing goods, garments and consumer goods to pharmaceutical products, toys, auto parts etc. the report openly criticized that the extent of infringement will ‘pose a direct threat to the health and safety of consumers in the United States, China and elsewhere’ (ibid.). The 2007 Special 301 Report also featured a more comprehensive Special Provincial Review of China (discussed before). Other than Guangzhou, Beijing, Zhejiang and Fujian, Shanghai and Jiangsu were added

US-Sino IPR disputes 37 with a view to closely monitoring those key issues of IPR infringement in China such as the localities, retail and wholesale, Internet and universitywide infringement.

Conclusion To summarize, this chapter has shown that IPR infringement is a worldwide issue that continuously leads to confrontations and disputes between the US and other countries, especially developing countries. Nevertheless, the truth is that China has posed a threat to US economic interests due to its rampant IPR infringement. Along with trade deficits and the exchange rate of the Chinese renminbi, IPR infringements are creating enough economic and political evidence to the US government that it is creating a new and more comprehensive economic strategy towards China. Sino-American disputes over IPR infringement generate economic, political and cultural questions which will figure heavily in future relations between the two powers. Economically, it is impossible to imagine that the future development of trade between them will be significantly reduced because of the IPR infringement. To launch large-scale US investigators on Chinese soil, however, will generate political questions from the Chinese point of view because such action would be interpreted as interfering in Chinese sovereign rights. It seems that the previous focus by China of relying on internal/governmental measures of combating IPR infringement has not been successful. This chapter has pointed out that US–China IPR disputes have witnessed more and more direct contact and initiatives being carried out through the Joint Commission on Commerce and Trade (JCCT) in April 2004, the placing of China on the Priority Watch List of the Special 301 Report, the establishment of Special Provincial Report, etc. More recently, the first Strategic Economic Dialogue (SED) between the United States and China was held between 14 and 15 December 2006 in Beijing. The theme of this dialogue was ‘China’s Development Road and China’s Economic Development Strategy’. It was co-chaired by the US Treasury Secretary Henry M. Paulson Jr. and Vice Premier Wu Yi. Intellectual property rights protection was the major point of discussion (USDT 2006). The SED has become a systematic way to establish high-level talks where mutual economic interests can be expressed more directly and constructively between China and the US. The second US–China Strategic Economic Dialogue was held in Washington on 22–23 May 2007. To further enforce IPR protection, China’s General Administration of Customs, and the US Customs and Border Protection, Department of Homeland Security signed a Memorandum of Cooperation on IPR Enforcement (USDT 2007).

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Previously, such measures could have been interpreted as infringing on Chinese sovereignty. Nowadays, it appears that Chinese government is increasingly willing to co-operate with the US by being more proactive in carrying out investigations into various Chinese provinces and cities. Does it reflect any substantial change of Chinese foreign economic policy towards the US? Or has the US been used by the Chinese government as an external scapegoat in order to deflect attention from efforts to discipline Chinese local provinces, revealing a new variable between the already intense central/local politics in China? In the next chapter, I will follow the Special 301 Report to examine the various characteristics of the four ‘hot spots’ – Guangdong province, Beijing, Zhejiang province, and Fujian province – of IPR infringement.

4

New ‘hot spots’ of counterfeiting and Chinese consumer culture

Both Governments will provide effective procedures and remedies to prevent or stop, internally and at their borders, infringement of intellectual property rights and to deter further infringement. In applying these procedures and remedies, both Governments will provide safeguards against abuse and shall avoid creating obstacles to legitimate trade. (Article 5, Memorandum of Understanding Between the United States of America and the People’s Republic of China 1992)

Introduction According to a recent report issued by the US General Accounting Office, the Chinese government was deemed to have made progress in strengthening IPR law and regulation but remained weak in law enforcement and implementation (USGAO 1995: 7). For one thing, the sluggishness of policy implementation was due to the complex relations between the central and provincial government. According to the Practical Handbook of Intellectual Property in China, both the central and the municipal governments were given the jurisdiction rights and the administrative duties to enforce the protection of IPR infringement (HKTDC 1994: 193–202). Theoretically, the central organizations are supposed to monitor the situation of policy implementation at the municipal level (ibid.: 193). However, the power of enforcement, arbitration, development schedule and management are delegated to the 57 individual municipal bureaus that are responsible for patent administration (ibid.: 202–203). There are other municipal bureaus responsible for trademark administration, which have less power and jurisdictional oversight. Nevertheless, such fragmentation of bureaucratic redundancy, according to Andrew Mertha, provides some sort of market-based enforcement of anti-counterfeiting:

40

New ‘hot spots’ of counterfeiting In the case of anti-counterfeiting enforcement, by contrast, bureaucratic redundancy through parallel administrative systems has led to more market-efficient enforcement outcomes . .. These conditions include similar administrative functions across two or more bureaucracies, the requisite power to enforce these functions, suitable positive and negatives, and a sufficient degree of independence from a host bureaucracy. (2006: 312)

Yet, his analysis and argument on bureaucratic redundancy remained a test case. Weak IPR enforcement and ubiquitous counterfeiting in China further complicated the negotiation and disputes between the US and China over IPR infringements. In 2006 Special 301 Report, the United States first identified four ‘hot spots’, Guangdong, Beijing, Zhejiang and Fujian, which required more attention to be paid to the implementation and prosecution of IPR infringement. Obviously, these provinces and cities have demonstrated fast GDP growth, and an increasing trend of per capita income and wages. They attracted lots of foreign direct investment (FDI), especially from Hong Kong, Taiwan and Asian countries. More importantly, one of the key issues is that they have demonstrated a burgeoning reliance on consumption which can be translated into patterns of consumption habits that explained the current IPR infringement. According to Deborah Davis, Chinese society’s new access to the outside world also brought a flood of videos and movies. Within a span of just three or four years, urban residents, especially young adults, had a lengthy and ever-changing menu of topics and leisure activities to discuss and experience. (2000: 12–13). Since the 1978 economic reform, China has entered into a market-based economic development. Consumer culture, once the key element of capitalism, has increasingly been blossoming not only across the whole country – more so in different coastal cities and special economic zones (SEZs) – but also in the population’s mind. A socialist market economy and the authoritarian control of the Chinese Communist Party (CCP) further complicate the version of consumer culture which also involves some political meanings between the power of consumption and the concomitant freedom that consumption can bring along. I am going to illustrate some of the latest statistical findings, from 2000 to 2006 mainly, of the four ‘hot-spots’: Guangdong, Beijing, Zhejiang and Fujian from the official government statistical year books. Their respective statistics on GDP, consumption, FDI and savings come from their being

New ‘hot spots’ of counterfeiting

41

listed in the 2006 Special 301 Report for further investigation. Then, I am going to trace the historical development of the consumer culture in China to illustrate the formation of a consumer market in China. The political consequences and the emancipation of consumption culture allow one to further question rampant IPR infringements in association with the political and economic plights of China.

Guangdong province According to the 2006 Special 301 Report, the first ‘hot spot’ is Guangdong which serves as an engine of export as well as a hub of large-scale counterfeiting. The most notorious areas and counterfeiting markets include ‘Guangzhou, Shenzhen, Shantou, Chaoyang, and Jieyang, as well as several markets in Baiyun District. Luowu Market at the border between Shenzhen and Hong Kong, and numerous other markets’ (USTR 2006: 21). Guangdong has always been one of the key provinces facing huge IPR counterfeiting. As early as 1996, the staff members from the International Federation of the Phonographic Industry in Guangzhou has already received death threats from local gangsters involved in pirating (International Herald Tribune 16 May 1996). The Olympic Games in 2008 presented enormous opportunities for IPR infringements on various sport-related products. According to one of the wholesalers of football gear, counterfeit merchandise was being made in Zhongshan Shakai and Fumen in Dongguan (both in Guangdong province). You could also order in large quantity (2,000 items per order). Due to the government’s anti-counterfeiting measures (government officials were disguised as workers in these workshops) and investigations, football gear was made in small workshops at night. According to the Trademark Law, fines were to be three times the profits from selling the counterfeit products or no more than 100,000 yuan if profit could not be identified (Beijing Youth Daily, 27 April 2007, B2). Table 4.1 shows the per capita GDP and consumption level of Guangdong province in the period 2000–2006. In the span of just seven years, per capita GDP has increased from 12,736 to 28,332 yuan (an increase of 120 per cent). From 2002 to 2006, the growth of GDP was kept at a level between 11 and 13 per cent. This level is much higher than that of the overall growth of China. More importantly, per capita consumption level has demonstrated a constant increase, especially from 2002 to 2005, having an average of 14 per cent, there is not much difference in the increase between rural and non-rural consumption. There are variations, but the rural households are keeping the pace of reasonable growth (14.1 per cent growth in 2005, for instance).

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New ‘hot spots’ of counterfeiting

Table 4.1 Per capita GDP and consumption level, Guangdong 2000–2006 Year Per capita consumption level 1 Per capita GDP

Households

Rural households

Non-rural households

Absolute Growth Absolute Growth Absolute Growth Absolute Growth (yuan) % (yuan) % (yuan) % (yuan) % 2000 2001 2002 2003 2004 2005 2006

12,736 13,852 15,365 17,798 20,876 24,438 28,332

7.1 7.2 11.1 13.4 13.1 12.4 13.4

5,305 5,445 6,199 7,342 8,800 9,821 10,829

0.2 1.9 13.2 17.0 15.9 10.3 9.1

2,680 2,759 2,904 3,032 3,386 3,947 4,205

–1.3 3.0 5.7 3.4 8.2 14.1 5.1

9,189 9,312 10,358 11,136 12,409 13,624 14,913

0.2 0.3 10.2 6.4 7.9 8.7 8.4

Source: Adapted from Guangdong tongji nianjian 2007 (2007: 73). Note 1 Only three categories: households (residences), rural households (farmers) and nonhouseholds (non-farmers) are used in the original Chinese statistics. These are the majority of all households; other uncategorized households (very small in total) are not included.

Guangdong province can further be divided into 21 cities/counties. Obviously, two of the cities, Guangzhou and Shenzhen are the largest. Deng Xiaoping’s Southern tour in Shenzhen in 1992 demonstrated the vital role-model of this special economic zone. Nevertheless, other cities in Guangdong province have developed their economic characteristics to compete in the economic development process. Dongguan for example, with lots of small and medium size enterprises from Hong Kong, is famous for its tourist and entertainment industries. Zhongshan is famous for its greenery and was once considered as a garden city. Table 4.2 shows average annual wages of these 21 cities between 2005 and 2006 both in the state-owned units (SOUs) and urban collectiveowned units (UCUs). In 2005, the highest average wages cities were Guangzhou (33,853 yuan), Shenzhen (32,396 yuan), Zhuhai (21,791 yuan), Dongguan (28,128 yuan) and Zhongshan (22,722 yuan). The poorest city, Jieyang, only averaged 9,657 yuan, which was 28 per cent of the richest city Guangzhou. Yet, between the SOUs and the UCUs, there is a huge difference in average earnings. In the case of Guangzhou SOUs, the average wage was significantly more than that of the UCUs and still more than that of the non-SOU/UCU average wage. In 2006, other than the above cities, Qingyuan has shown substantial improvement of average annual earnings of 20,172 yuan.

New ‘hot spots’ of counterfeiting

43

Table 4.2 Average wage of staff and workers by city, Guangdong 2005–2006 (yuan) City

Guangzhou Shenzhen Zhuhai Shantou Foshan Shaoguan Heyuan Meizhou Huizhou Shanwei Dongguan Zhongshan Jiangmen Yangjiang Zhanjiang Maoming Zhaoqing Qingyuan Chaozhou Jieyang Yunfu

2005

2006

Average SOUs

UCUs Others Average SOUs

UCUs Others

33,853 32,396 21,791 14,541 21,850 17,222 14,824 13,049 15,848 12,342 28,128 22,722 14,964 12,671 13,313 15,847 16,772 18,183 10,377 9,657 14,303

16,846 17,091 16,908 5,964 17,426 9,116 10,322 8,295 11,424 6,786 15,829 21,821 11,412 8,474 5,344 9,815 11,985 13,705 3,383 4,355 9,772

18,540 20,524 18,340 6,587 20,935 9,600 11,774 9,121 12,401 8,788 17,070 22,000 12,403 9,437 6,351 10,125 13,194 17,188 3,818 5,030 10,780

44,842 47,420 38,198 17,810 29,324 18,960 16,378 13,949 20,955 13,717 37,724 34,300 19,828 15,207 14,731 16,123 20,368 22,358 13,246 11,381 18,721

26,596 28,474 18,169 14,488 17,636 16,439 13,651 12,597 14,311 12,141 20,912 17,398 11,911 9,986 12,063 20,293 12,393 13,277 9,930 9,936 9,693

36,321 35,028 23,707 16,356 25,053 19,113 16,195 14,788 17,550 13,885 31,016 24,939 16,623 14,041 15,182 16,715 18,318 20,172 11,102 10,493 15,154

48,736 49,013 42,187 19,979 34,134 21,507 18,376 15,772 23,359 14,655 41,261 39,190 21,888 16,771 16,756 17,170 22,390 24,648 13,763 11,915 19,727

29,161 31,240 19,988 16,678 19,661 17,897 14,579 14,373 15,856 15,281 23,048 18,985 13,593 11,083 13,896 20,600 13,373 15,770 11,098 11,962 10,590

Source: Adapted from Guangdong tongji nianjian 2007 (2007: 122). Note SOUs = state-owned units; UCUs = urban collective-owned units.

Guangdong province is one of the driving forces of the Pearl River Delta (PRD) in the southern part of China. It has captured huge foreign direct investment (FDI) from overseas. Table 4.3 demonstrates Guangdong’s FDI received from selected countries in 2000, 2005 and 2006. Total FDI actually utilized in 2000, 2005 and 2006 was US$12,237, US$12,363 and US$14,510 million, respectively. Yet, one thing about the FDI is that most of it is from Greater China (especially Hong Kong and Taiwan). In 2006 Hong Kong provided US$6,809 million of FDI and Taiwan US$389 million (80 per cent of the total Asian FDI). The US, however, has shown a modest increase of US$256 million in 2005 and US$325 million in 2006 (an increase of 25 per cent). Yet, comparing with the FDI in 2000, US$669 million, the US has seen a substantial decrease of FDI in Guangdong province. For one thing, the rampant IPR infringement in China as a whole and in Guangdong in particular has contributed to the decrease. As we have mentioned before,

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New ‘hot spots’ of counterfeiting

Table 4.3 Foreign direct investment by country (selected), Guangdong 2000, 2005, 2006 (US$10,000) Country

Foreign capital actually utilized Asia Hong Kong, China Macao, China Taiwan, China Japan Singapore Korea Malaysia Thailand Africa Europe Germany France Italy Netherlands United Kingdom Finland Sweden Norway Switzerland Spain Latin America Virgin Islands Cayman Islands North America Canada United States of America Bermuda Oceania Australia Western Samoa

Year 2000

2005

2006

1,223,720 927,071 744,826 26,137 49,746 30,852 49,115 13,671 4,993 2,895 4,272 38,643 10,057 4,551 0 7,886 8,258 2,302 360 710 3,349 44 161,983 149,200 6,694 74,453 5,161 66,972 2,320 14,510 4,697 8,942

1,236,391 794,244 582,361 28,579 33,370 94,365 29,207 10,904 3,761 1,044 11,283 83,276 8,041 14,148 4,991 38,768 12,096 150 257 211 2,385 1,052 237,757 210,548 20,526 34,704 2,728 25,694 6,252 57,743 4,315 50,651

1,451,065 912,457 680,946 39,639 38,941 72,930 44,023 14,916 5,501 2,019 15,094 54,655 9,122 7,882 4,794 13,709 8,081 1,162 786 248 978 5,383 321,296 283,697 26,861 54,115 4,066 32,567 17,433 58,782 6,302 50,182

Source: Adapted from Guangdong tongji nianjian 2007 (2007: 476).

business interests in the US have been trying to make a case about their worry of the IPR infringement in China. In practice, the data indicate that US investors have shown hesitation about the investment environment in Guangdong. Alternatively, to boost the potential for greater US investment in the future, more IPR protection should be developed ahead of such future investment from the US.

New ‘hot spots’ of counterfeiting

45

To substantiate this point, Table 4.4 illustrates the utilization of foreign capital by type in Guangdong in 2006. With total investment projects of 11,276 and actually utilized capital of US$17,807 million, FDI is still the most popular type of investment. In 2006, there were 8,452 FDI projects (75 per cent of total), which generated US$24,568 million contractual investment and US$14,510 million actually utilized FDI. To categorize, joint venture and cooperative enterprises give way to foreign sole investment enterprises, which had already contributed 7,240 projects and US$11,292 million actually utilized FDI. Foreign companies used to be very sceptical of China’s protection of trade secrets and IPR. Therefore, transfer of technology and provision of knowledge were not considered in the early reform period through joint ventures. Margaret Pearson rightly pointed out: Although in the early years foreign companies were often more willing to transfer technology through joint ventures than through other formats, they had an interest in refraining from providing technology and proprietary information that would not be appropriate for the joint venture. They also worried that their trade secrets might not be protected sufficiently in the Chinese environment, particularly because there was little codified protection of intellectual property. (1991: 146)

Table 4.4 Utilization of foreign capital by type, Guangdong 2006 Items

Number of signed projects (unit)

Amount of contracted foreign capital (US$10,000)

Amount of foreign capital actually utilized (US$10,000)

Total Foreign direct investment Joint ventures Cooperative enterprises Foreign sole investment enterprises Foreign share-holding corporations Cooperative development Others Other foreign investment Shares issued abroad Processing and assembly

11,276 8,452 991 217 7,240 4 n. a. n. a. 2,824 2 2,822

2,838,923 2,456,820 318,863 120,604 2,011,978 5,375 n. a. n. a. 382,103 82,275 299,828

1,780,780 1,451,065 222,896 81,050 1,129,205 17,914 n. a. n. a. 329,715 82,275 247,440

Source: Adapted from Guangdong tongji nianjian 2007 (2007: 473).

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New ‘hot spots’ of counterfeiting

Yet, nowadays, FDI has become the dominant mode of investment. For one thing, China has shown more economic clout and high local market potential that can allow it to give less tax incentives or other incentives for foreign investment after almost 30 years of economic reform since 1978. Second, foreign investors are therefore at their own risk in balancing the profit and loss in their FDI in China as sole investors. Since IPR infringements have a harmful effect directly towards FDI, the increasing trends of sole investors in Guangdong necessarily keeps a very close eye on the rampant IPR infringement in Guangdong. From the US point of view, the government has become more vigilant in monitoring some IPR infringement prone areas in order to safeguard the interest of FDI from the US.

Beijing Beijing, the capital of China, inevitably invites lots of interest from economic and political interests as far as IPR infringements are concerned. According to the 2006 Special 301 Report: ‘Problem areas include major markets, such as the infamous Silk Street Market located near the US Embassy; numerous CD/DVD shops operating with official permission in the Chaoyang District and elsewhere in the city’ (USTR 2006: 21). During the World Cup 2006, counterfeit Nike, Adidas and Puma football T-shirts were sold in Beijing Quangzhao Daidao sports specialist shops. There are two types of counterfeit football wear, one of them being very similar to the original products without registered trademarks. They were sold for 20 to 30 yuan. Another type actually had registered trademarks and logos. They were sold for 100 yuan (Beijing Youth Daily, 27 April 2007, B2). Table 4.5 shows the GDP of Beijing in the period 2000–2006. From 2000 to 2006, GDP has increased from 316 billion yuan to 787 billion yuan (more than double). As can be seen from the table, Beijing had relied heavily on tertiary industry, which contributed 558 billion yuan GDP in 2006 (71 per cent of the total GDP). Increasing at the same speed, the GDP per capita demonstrated a 100 per cent increase of 24,122 yuan in 2000, to 50,467 yuan in 2006. In other words, the exponential increase of GDP per capita has allowed Beijing residents to enjoy more consumption power in absolute terms. To get more accurate data of the household income, Table 4.6 shows the basic information on Beijing households in the same period. Per capita income has increased from 12,560.3 yuan in 2000 to 22,417.0 yuan in 2006. More importantly, per capita disposable income has also demonstrated an increasing trend, from 10,349.7 yuan in 2000 to 19,978.0 yuan in 2006 (an increase of almost 100 per cent). In other words, within the span

New ‘hot spots’ of counterfeiting

47

Table 4.5 Gross domestic product of Beijing 2000–2006 (100 million yuan) Year Total

Primary Secondary Industry Construction Tertiary Per industry industry industry capita GDP (yuan)

2000 2001 2002 2003 2004 2005 2006

78.6 80.8 84.0 89.8 95.5 98.0 98.0

3,161.0 3,710.5 4,330.4 5,023.8 6,060.3 6,886.3 7,870.3

1,033.3 1,142.4 1,250.0 1,487.2 1,853.6 2,026.5 2,191.5

844.0 938.8 1,021.2 1,224.5 1,554.7 1,707.0 1,821.9

189.3 203.6 228.8 262.7 298.9 319.5 369.6

2,049.1 2,487.3 2,996.4 3,446.8 4,111.2 4,761.8 5,580.8

24,122.0 26,998.0 30,840.0 34,892.0 41,099.0 45,444.0 50,467.0

Source: Adapted from Beijing tongji nianjian 2007 (2007: 41).

Table 4.6 Basic information on household, Beijing 2000–2006 (yuan) Year

Per capita total income

Per capita disposable Per capita living Per capita income expenditures saving deposits

2000 2001 2002 2003 2004 2005 2006

12,560.3 13,768.8 13,253.3 14,959.3 17,116.5 19,533.3 22,417.0

10,349.7 11,577.8 12,463.9 13,882.6 15,637.8 17,653.0 19,978.0

8,493.5 8,922.7 10,285.8 11,123.8 12,200.4 13,244.2 14,825.0

26,395.0 31,510.0 38,631.0 46,079.0 52,647.0 49,346.0 55,808.0

Source: Adapted from Beijing tonggi nianjian 2007 (2007: 153–154).

of seven years, people in Beijing have shown some improvement with regard to net income, which can easily be translated into consumption. However, the last column of the table indicates that much more of household income has been put into savings, which has also increased substantially (from 26,395 yuan in 2000 to 55,808 yuan in 2006). A high savings rate is nothing new among Chinese, or most Asian people for that matter. The problem is that if the savings rate remains that high, further consumption will not result. Rampant IPR infringement has therefore become an unavoidable phenomenon that works along with the current savings pattern. Therefore, it seems that if education regarding IPR protection can be more effective, people should have the potential to purchase genuine brands with better quality and level of enjoyment, given the obvious high saving rate.

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New ‘hot spots’ of counterfeiting

Table 4.7 Foreign capital actually used of foreign funded enterprises in Beijing 2005–2006 (US$10,000) Country

2005

2006

Hong Kong, China Taiwan, China Japan Singapore France United States Germany Korea United Kingdom Austria Canada Other

57,170 1,108 79,877 15,899 9,511 15,753 24,896 25,790 905 227 333 12,169

86,600 1,598 67,580 17,616 3,578 20,043 47,797 35,357 2,977 3,331 863 167,851

Source: Adapted from Beijing tongji nianjian 2007 (2007: 303).

Table 4.7 demonstrates the foreign capital actually used among selected countries in Beijing from 2005 to 2006. Hong Kong, Japan, Singapore, United States, Germany and Korea top the list with around US$866 million, US$675 million, US$176 million, US$200 million, US$477 million and US$353 million, respectively. Most of the countries have shown a substantial increase from 2005, for example Hong Kong (51 per cent), Germany (92 per cent) and Korea (37 per cent). However, the increase of the US remained comparatively modest (27 per cent). We have mentioned before in the case of Guangdong, the FDI of the US has increased modestly, by about 25 per cent. Apparently, US firms in Beijing are very cautious compared with other countries. The rampant IPR infringement in Beijing cannot be neglected in this case.

Zhejiang province Zhejiang, as described by the 2006 Special 301 Report, is identified by many rights holders as a ‘distribution centre for infringed goods’ which can be found in areas such as Yiwu, Ningbo, Cixi, Taizhou and Wenzhou (USTR 2006: 22). As can be seen from Table 4.8, the GDP of Zhejiang has increased tremendously from 2000 to 2005. Within six years, the GDP in Zhejiang has increased from 614.1 billion yuan in 2000 to 1,343.7 billion yuan in 2005 (an increase of 118 per cent). Zhejiang, as can be seen from the table, relies on secondary industry and tertiary products. The per capita GDP consistently increased from 13,416 yuan in 2000 to 27,703

6,141.03 6,898.34 8,003.67 9,705.02 11,648.70 13,437.85

2000 2001 2002 2003 2004 2005

630.98 659.78 659.78 659.78 659.78 659.78

Primary

3,273.93 3,572.88 4,090.48 5,096.38 6,250.38 7,166.15

Secondary

2,945.70 3,181.93 3,640.84 4,462.97 5,491.33 6,349.34

Industry

Source: Adapted from Zhejiang tongji nianjian 2006 (2006: 24).

Total

Year

328.23 390.94 449.64 633.42 759.05 816.81

2,236.12 2,665.68 3,227.99 3,890.79 4,584.22 5,378.87

Construction Tertiary

Table 4.8 Gross domestic products, Zhejiang 2000–2005 (100 million yuan)

363.37 418.62 490.16 559.07 652.46 745.25

Transport, storage and post

794.64 868.00 983.72 1,095.92 1,256.02 1,401.45

Wholesale and retail

13,416 14,713 16,978 20,444 24,352 27,703

Per capita GDP (yuan)

50

New ‘hot spots’ of counterfeiting

yuan in 2005. In the span of six years, GDP per capita has grown 106 per cent. For example, Wenzhou has long been described by the Chinese as the nurturing ground for future business leaders in China because of the entrepreneurial mentalities of the people in Wenzhou. Amongst other Chinese cities, Wenzhou is also characterized by its ability to attract both small and medium size enterprises and large numbers of Taiwanese business people. Table 4.9 further explores the average wage in the urban area of Zhejiang from 2000 to 2005. It has demonstrated a similar pattern of increase as was seen in Beijing and Guangdong. The average wage in 2000 was 12,414 yuan, which has increased to 23,572 in 2005 (106 per cent increase). Again, average wages of the state-owned units are much higher than those of the urban collective owned units and other types of ownership across the board. Table 4.10 provides a comparison of various income expenditures of rural and urban households from 2000 to 2005 in Zhejiang province. In terms of per capita expenditure of urban residents, it has increased from 7,020 yuan in 2000 to 12,254 yuan in 2005 (75 per cent increase). Obviously, there is a gap between urban and rural consumption. For example, the per capita consumption of urban residents was 14,097 yuan in 2005, comparing with 8,746 yuan of rural residents in the same year. Like other cities mentioned, saving rates were kept at a very high level of 17,856 yuan in 2005, which was 64 per cent of the per capita. It appears that although both rural and urban households did earn more, most of the earnings were being kept as savings, which partly contributed to the continuation of counterfeiting in the market.

Table 4.9 Average wage of staff and workers in urban units, Zhejiang 2000–2005 (yuan) Year

Average wage

State-owned units

Urban collective owned units

Units of other types of ownership

2000 2001 2002 2003 2004 2005

12,414 15,770 18,227 20,853 23,101 25,572

13,775 18,926 22,195 26,651 32,736 38,313

9,479 11,281 13,281 15,174 17,265 19,659

11,539 13,508 14,650 16,036 16,653 18,813

Source: Adapted from Zhejiang tongji nianjian 2006 (2006: 190).

New ‘hot spots’ of counterfeiting

51

Table 4.10 People’s material and cultural life, Zhejiang 2000–2005 (yuan) Item

2000

2001

2002

2003

Income and expenditure of urban and rural residents Annual per capita 4,254 4,582 4,940 5,431 net income of rural residents Annual per capita 3,231 3,479 3,693 4,287 living expenditure of rural residents Annual per capita 9,279 10,465 11,716 13,180 disposable income of urban residents Annaul per capita 7,020 7,952 8,713 9,713 expenditure of urban residents Per capita 5,099 5,551 6,098 7,033 consumption1 Rural residents 3,278 3,621 4,012 4,504 Urban residents 8,020 8,404 8,839 9,907 Savings Year end saving 5,234 – – 6,452 deposit of rural and urban (100 million yuan) Per capita balance 11,063 – – 13,545 of saving deposits (yuan)

2004

2005

6,096

6,660

4,659

5,215

14,546

16,294

10,636

12,254

8,174

9,701

4,918 11,771

5,476 14,097

7,364

8,746

15,331

17,856

Source: Adapted from (Zhejiang tongji nianjian 2006, 2006: 185–186). Note 1 According to the Chinese statistics, this refers to residences. Here there are only two types of residences proved: rural and urban. There should be another provision for uncategorized households (although very small), which is not included.

Fujian province To many people, Fujian is famous for its ability to attract large amounts of Taiwanese business investment. Investment from Taiwan is characterized by being small scale, FDI predominant and labour intensive (shoe-making, plastics and textiles, etc. (Chang and Cheung 2000: 116). Yet the largest corruption case, Yuanhua, also happened in Fujian, involving many highlevel Chinese leaders. Amongst IPR infringements and counterfeits, Fujian is regarded as the home of counterfeit athletic footwear. Large-scale trademark infringements of famous US brands such as New Balance and Nike can be located from Jinjiang, Putian and Quanzhou (USTR 2006: 22).

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New ‘hot spots’ of counterfeiting

As can be seen from Table 4.11, the GDP in Fujian has shown a substantial increase from 376 billion yuan in 2000 to 761 billion yuan in 2006 (102 per cent increase). Like Beijing, Guangdong and Zhejiang, Fujian also relies heavily on secondary, industrial and tertiary products. Per capita GDP increased in a similar scale from 11,194 yuan in 2000 to 21,471 yuan in 2006 (92 per cent increase). Table 4.12 denotes some basic indicators of urban households in Fujian from 2000 to 2006. The household structure is maintained with roughly three people across these years. When we compare the per capita annual disposable income (13,753 yuan) with the per capita consumption (9,808 yuan), for example in 2006, the percentage of consumption has maintained a high level of 70 per cent. As indicated from Table 4.13, Hong Kong has invested the largest amount of FDI in Fujian, from US$1,591 million in 2002 to US$4,034 million in 2006 (more than 150 per cent). We cannot extract a figure for the Taiwanese investment in Fujian in this table because China did not consider Taiwan’s investment as foreign. Yet, the investment in China from Taiwan in 2006 was very substantial. According to the Mainland Affairs Council (MCA) in Taiwan, Taiwan invested US$7.6 billion from January to November 2006.1 The US, however, has shown a significant decrease since 2002 (US$558 million) – the FDI in 2006 was US$232 million and US$255 million in 2005 (a decrease of about 10 per cent). The corruption case appeared to be a factor which affected investment. The low level of investment from 2003 onwards demonstrated the hesitation which IPR infringements cause as well as how it contributes to other barriers. The 2007 Special 301 Report provided a more comprehensive overview of the provincial review of China which also included Jiangsu province and Shanghai. Jiangsu, being a large manufacturing centre in China, officially worked with the US Chamber of Commerce in early 2007 in IPR protection (USTR 2007: 47). Major hotspots and localities of large scale counterfeit products can be found in Wuxi, Yancheng, Nanjing, Suzhou and Lianyungang (ibid.: 48). As I mentioned briefly in the previous chapter, the special provincial review in 2007 also paid attention to two areas, internet infringements – especially the hosting of infringed products by internet service providers (ISPs) – and widespread textbook piracy on various university campuses. The report praised Shanghai on its IPR protection and more sophisticated legal enforcement. Nevertheless, widespread counterfeiting can be found in various retail areas such as Xiangyang Market, Yatai and Qipu Road Market (ibid.: 49–50). More alarmingly however, is that illegal copying of textbooks is being carried out by ‘small-scale student-run facilities’ (ibid.: 51). Among other universities, the famous Fudan University is actually the hotbed of textbook counterfeiting.

3,764.54 4,072.85 4,467.55 4,983.67 5,763.35 6,568.93 7,614.55

2000 2001 2002 2003 2004 2005 2006

640.57 651.11 664.78 692.94 786.84 831.08 896.17

Primary

1,628.45 1,803.50 2,036.97 2,340.82 2,770.49 3,200.26 3,743.71

Secondary

1,422.34 1,586.48 1,808.95 2,061.31 2,438.62 2,842.43 3,311.59

Industry

Source: Adapted from Fujian tongji nianjian 2007 (2007: 44).

Total

Year

206.11 217.02 228.02 279.51 331.87 357.83 432.12

Construction

Table 4.11 Gross domestic products, Fujian 2000–2006 (100 million yuan)

1,495.52 1,618.24 1,765.80 1,949.91 2,206.02 2,537.59 2,974.67

Tertiary

410.66 428.87 445.06 478.84 537.41 613.42 537.11

Transport, storage and post

399.11 429.56 465.91 520.56 595.35 669.58 667.79

Wholesale and retail

11,194 11,892 12,938 14,333 16,469 18,646 21,471

Per capita GDP (yuan)

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New ‘hot spots’ of counterfeiting

Table 4.12 Basic indicators of urban households, Fujian 2000–2006 Year

Average person/ households (person)

Average employed/ households (person)

Per capita annual disposable income (yuan)

Per capita consumption (yuan)

2000 2001 2002 2003 2004 2005 2006

3.23 3.20 3.13 3.08 3.05 3.04 3.04

1.80 1.80 1.73 1.72 1.58 1.60 1.64

7,432 8,313 9,189 10,000 11,175 12,321 13,753

5,639 6,015 6,632 7,356 8,161 8,794 9,808

Source: Adapted from Fujian tongji nianjian 2007 (2007: 115).

Table 4.13 Foreign direct investment by country, Fujian 2002–2006 (US$10,000) Country

2002

Hong Kong, China Macao, China Japan Philippines Thailand Malaysia Singapore Indonesia Germany France United Kingdom Canada United States Australia

159,118 5,139 11,938 16,868 1,534 5,851 4,838 2,867 770 1,432 873 6,875 55,875 2,223

2003 233,425 11,595 6,044 20,436 3,617 1,353 6,589 2,749 571 –598 1,880 7,015 22,978 6,805

2004

2005

2006

304,613 11,996 10,985 24,722 517 3,262 7,803 1,262 1,985 196 1,074 5,978 24,806 2,515

286,810 15,623 10,575 19,213 292 7,559 12,343 1,892 251 881 –4,364 3,510 25,534 5,138

403,437 20,835 20,202 15,389 3,283 1,744 19,843 9,967 541 2,482 –94 7,465 23,215 3,189

Source: Adapted from Fujian tongji nianjian 2007 (2007: 339).

To follow the identified ‘hot spots’, the statistical findings further illustrate the provincial and domestic characteristics along their economic power, consumer power, FDI patterns and levels of savings. We believe that further clout of IPR disputes between the US and China will centre on these and many other cities or provinces in China that are moving towards high levels of consumption. In other words, China’s economic reform first engenders the state to react as a result of the economic changes and marketization. Cities and various key provinces are coping with the changes

New ‘hot spots’ of counterfeiting

55

and spontaneously generated characteristics of a market economy. One of the issues is the development of a consumer culture which effectively transforms the economy as well as peoples’ understanding of consumption and expenditure. The following section is going to explore the historical as well as the political meanings of the consumer culture in China.

Chinese economic development, marketization and consumer culture The evolution and development of consumer markets and Chinese modernity Consumption studies in Chinese societies touch upon the very core understanding of the social economic changes of China in history. According to Kenneth Pomeranz, ‘the possession and exchange of objects has been an important marker of status in any number of societies’ (Pomeranz 2000: 128). In terms of the consumption on luxury commodities, ‘China [in the Ming dynasty, 1368–1644] also became increasingly crammed with paintings, sculptures, fine furniture, and so on’ (Pomeranz 2000: 130). Such possessions and the notion of consumption development changed during the Qing dynasty (1644–1911) and due to domestic manufacturing development and business networks, more consumption occurred with local commodities. Especially for the consumption of foreign products, Gary Hamilton states ‘that the Chinese did not purchase large quantities of Western products in the nineteenth and early twentieth centuries is a wellknown fact’ (2006: 76). However, compared with local commodities, which have the same if not better qualities, ‘Western commodities had a symbolic value precisely because the class lines were so sharply drawn’ (ibid.: 87). The current notion of consumer culture development in China mingles with the importance of acquiring knowledge through some foreign IPR goods such as media, entertainment and software. According to the analysis of Lu Han Long, Director of Institute of Sociology, Shanghai Academy of Social Sciences, the development of Chinese consumer culture has demonstrated some unique changes before and after the opening of the economy in 1978, creating some characteristics for the development of a consumer culture. As can be seen from Table 4.14, the opening of the Chinese economy after 1978 generated some obvious changes in its consumer culture. Under state planning mechanisms, especially before 1978, consumers did not have much autonomy as they were passively subordinated to the state. Since the state operated such a system, the so-called market was actually monopolized by the state, which symbolized a seller’s market. On the surface,

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New ‘hot spots’ of counterfeiting

Table 4.14 Development and changes of Chinese consumer culture before and after 1978 Aspects of consumer culture

Pre-1978

Post-1978

Autonomy of consumer Market formation Social status Cluster of consumption Symbols of status Power relations with the state

Passive Seller (state) Equalized danwei Ranking High reliance

Active Buyer (consumer) Differentiated Family/individual Income Low reliance

Source: Compiled from Lu (2002: 67–81).

consumers were quite equalized; however, the social status was hierarchical with social units such as the danwei as the centre of consumption. As a whole, it was not possible to facilitate consumption without the state. Nevertheless, after 1978 (and especially after 1985), the opening of the Chinese economy allowed market forces to germinate, giving consumers more autonomy to manipulate their capital as buyers. Social status began to change as income became the symbol of social status and social stratification ensued. Since the danwei was dissolved, families, if not individuals, began to exercise their consumption power. In theory, the empowerment of individual consumption not only creates changes in the urban sector but also reduces the relative importance of food consumption in the rural sector due to the income effect. In practice, according to a recent study on food consumption in rural China by Wan Guang-hua, the income effect on food consumption in the rural area will be to weaken it. He concluded that, ‘in the long run, however, income will become a weaker determinant of food expenditure, as the budget share for food items becomes smaller’ (2005: 12), allowing extra consumption power to be placed on secondary, if not knowledge, goods. Li Conghua mentioned that after 1985, the evolution of consumer preference in China moved from functionality to quality with the aspiration to intangible goods in the 1990s (Li 1998: 121). Figure 4.1 further demonstrates the growth of the consumer economy in China from 2004 to 2005. In October 2005, the total retail sale of consumer goods was 584.7 billion yuan, a rise of 12.8 per cent compared with the same month of the previous year. Among the goods detailed, clothing and commodities increased by 24.1 per cent, communication equipment rose by 26.91 per cent and motor vehicles increased by 26.7 per cent compared with the figures from October 2004.2 Moreover, the current consumer market in China, as the Beijing newspaper the Economic Observer, Almanac 2003 described, has been stratified

New ‘hot spots’ of counterfeiting

57

Retail sales (100 million yuan)

6,000 5,000 4,000 3,000 2,000 1,000 0

Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Year 2004

Total retail sales of consumer goods

Jul.

Aug. Sep. Oct.

Year 2005 Urban area

County and below county level

Figure 4.1 Total retail sales of consumer goods in China 2004–2005 (source: National Bureau of Statistics of China. Online, available at: www.stats.gov.cn/english/newsandcomingevents/t20051115_402291343. htm (accessed 4 January 2006)).

and will be further accelerated by the various advertisements from the big companies (Economic Observer, Almanac 2003 [Beijing]: 33). However, in studying Chinese consumer culture, there are many potential problems, making it less apt to follow the Western consumption pattern completely. The reasons, according to Tim Ambler and Morgen Witzel, are due to the difference in Chinese consumer psychology, regional difference and the reliable obtaining of data (2004: 179–180). In terms of data gathering, my experience was that you should compare the formal statistics together with the data from the social environment, such as the average mortgage and monthly payment for an apartment. During my research, I was asked by a couple of students in Beijing in 2004 about the general public’s opinion towards the launching of Cats (a Broadway musical) in Beijing. The upper quartile of the monthly household income in their survey questionnaire was 5,000 yuan (US$641) or above, which is considered to be very high in China. Therefore, the inter-subjectivity of income levels in China should be understood in relation to the area (regions and cities) as well as the class of the consumers. For instance, Deborah Davis discovered that for urban dwellers in Shanghai ‘consumer cultures may be dominated by exclusion, seduction or exploitation, but they are more likely to be as polyvalent and multi-levelled as the social positions and the temporal framing of the

58

New ‘hot spots’ of counterfeiting

participants’ (2005: 697). Finally, the development of Chinese market society and consumer culture does not necessarily repeat the Western ways of consumption patterns. Many traditional values such as children’s education (especially due to the one child policy) and supporting the elderly are still considered to be family obligations rather than parts of consumption (Lu 2002: 78–79). Consumption as freedom The interaction among consumers, information and the market economy contribute to the development of a consumer culture in present day Chinese society. As Don Slater has pointed out, Consumer culture marks out a system in which consumption is dominated by the consumption of commodities, and in which cultural reproduction is largely understood to be carried out through the exercise of free personal choice in the private sphere of everyday life. (1997: 8) When China adopted market openness in the late 1970s, the concomitant socio-economic development helped germinate the beginning of a consumer culture. The burgeoning of the Chinese market economy galvanizes various aspirations towards ideas from the outside, which generates further demands for acquiring knowledge products as people consume in order to acquire some new ideas and satisfaction. China has gone through almost three decades of economic development after the open door policy in 1978 and the economic/material base that contributes to its economic development is buttressed through the burgeoning development of its major cities, Shanghai and Beijing, as well as coastal cities in Guangdong province such as Dongguan, Zhuhai, Guangzhou and Shenzhen.3 Yet, as Ash Amin and Nigel Thrift argue, ‘the pursuit of prosperity must be seen as the pursuit of many goals at once, from meeting material needs and accumulating riches to seeking symbolic satisfaction and satisfying fleeting pleasures’ (2004: xiv). The burgeoning market economy and consumer culture in China therefore empower individuals in information gathering and the pursuit of advanced knowledge. The consumption of foreign ideas or products at some point generates a cognitive search for better information as well as knowledge acquisition. Figure 4.2 demonstrates the quadrangular relations between consumer culture and IPR infringement in China. Area I refers to the knowledge industry that is created from the media, entertainment, software, life style

New ‘hot spots’ of counterfeiting

59

Free (IV) Piracy

(I) Knowledge Foreign

Domestic (III) Politics

(II) Production Un-free

Figure 4.2 Quadrangular relations between consumer culture and IPR infringement in the Chinese context.

and other technology-related products that are imported (very often from the US).4 The notion of knowledge acquisition symbolizes the freedom that one can obtain in the current Chinese political context. Second, knowledge (here defined as ‘common sense in a knowledge based society’ – such as knowing the international norms and abiding by the agreements, contractual spirits and rules of the games) will be the dominant factor in measuring China’s level of engagement with the world economy (Zheng 2004 and Daniel 2004). For instance, coffee culture has increasingly become another American cultural and social influence, especially in big Chinese cities. More importantly, according to Stefano Ponte, ‘coffee bar chains sell an ambience and a social positioning more than just “good” coffee’ (Ponte 2002: 1099). For example, the Starbucks (later closed down) in front of Renmin University in Beijing is considered to be an adventure in American culture as the relaxed environment coincides with the liberalization and openness of American society.5 Although the coffee shop is only a place for consumption, it highlights the contrast between the outside, where the government has ultimate control over everyday matters and the inside, where relaxation and liberation can be located via the American-styled spatial atmosphere.6 When you are in such a coffee shop, a writer in the Beijing newspaper the Economic Observer, Almanac 2003 exclaimed, ‘the only thing you need is a laptop with Intel Pentium, everything will become so wonderful, no more worrying, no more anxiety’ (Economic Observer, Almanac 2003 [Beijing]: 39). The internal value of a cup of coffee lies in the cultural identity that is signified in the cultivated business culture and the promotion of social civic culture. Coffee is a symbol, and the act of consumption can be viewed as a repercussion of the circumstantial political control in China in general and Beijing in particular. In other words, while the state monopolizes the political space, under a market economy and the

60

New ‘hot spots’ of counterfeiting

globalization of multinational companies, the general public has been emancipated with those products through their consumption. Nevertheless, on the other hand, any further advancement of American culture will surely confront mainstream Chinese culture, not to mention the conflict with the economic interests of the private, and sometimes the public, sector. For instance, one of the Starbucks stores in China (in the Forbidden City) faced relocation because there was a vehement protest from some patriotic bloggers in January 2007. They regarded the company as an assault on China’s culture (Financial Times 19 January 2007). This cultural expansion is based on American interests and prompted by capitalism and globalization. Time is needed to find out whether or not it’s just another kind of cultural invasion (Rothkopf 1997: 38–53). However, the market potential of those goods marketed with American style is enormous, and the potential of the Chinese consumption market makes the ‘invasion of American culture’ in great demand; and is still expanding. Area II represents the notion of the economic rise of China. In terms of economic growth, China has become the largest recipient of Foreign Direct Investment (FDI) (out performed by the United States) in the world, and has been crowned the so-called ‘factory of the world’ (The Economist 15 February 2003 and Financial Times 8 June 2004: 19). I have pointed out already in the previous chapter that the US experienced a huge trade deficit with China from about US$83 billion in 2000 to US$237 billion in 2007, a three-fold increase in seven years! These facts point to the notion that a large socialist developing country has a chance of being engaged in the structured world economy that is predominantly ruled by market forces (Lardy 2002 and So 2003). Through joint venture and FDI, Chinese products create the industrial and manufacturing prowess in the world economy. However, the collective notion of production strength paid tribute to the state, not the individual. Very often, especially for females, workers are those who receive the least monetary income whilst being provided with very poor welfare and working conditions under the notion of Chinese economic development (Lee 1995). The relevance of Area III is more obvious. It refers to the current political environment in China which is highly monitored and controlled by the state. The Chinese government has been trying to further restrict people’s freedom and the Xinhua news agency, China’s mouthpiece, recently announced that ‘foreign media must now seek its approval before distributing any news and pictures within China’.7 IPR is one of the problems which subordinates to general consumer culture and modernity in China. The consumption of counterfeited or pirated Microsoft software, video games, movies and media products and so on, is a manifestation of one’s choice and, to a certain extent, a liberation from one’s spatial

New ‘hot spots’ of counterfeiting

61

humdrum plight in China with the possibility of extending oneself to another spatial area. Consumption and GDP did increase significantly from 2000 to 2006 across the four cities and provinces. However, unemployment rocketed and job security became increasingly unprotected. This was partly explained by the concomitant increase of the savings rate. The increasing average wages and GDP are off-set by the economic uncertainty. In order to keep pace with the consumption of knowledge and new products, the market of counterfeiting and piracy are not uncommon, as shown in Area IV. For instance, even in urban cities such as Shanghai, Wuhan, Shenyang, Xian and Fuzhou, unemployment rates remain in the double digits (Giles et al. 2006: 93). In terms of income inequality, according to Kenneth Keng’s analysis, urban and rural separation and rural urban migration contributed ‘unambiguously’ (2006: 193). In addition, urban poverty has been compounded with the unstable conditions of job opportunities due to the privatization of the State Owned Enterprises (SOEs). According to John Knight and Shi Li’s studies, in order to prepare for some unforeseeable job insecurity, ‘consumption is held back by precautionary considerations, such as health status and the likelihood of unemployment’, that is created out of the rapid market transformation of China (2006: 384). According to Nicholas Lardy, although the Chinese government announced in December 2004 that the economic growth pattern should be driven by increasing domestic consumption, due to the continuous growth, less flexible exchange rate, tax burden on rural residents, etc., ‘China’s transition toward more consumption-driven growth is likely to be substantially delayed’ (Lardy 2006: 12). The IPR issue is a side effect of the general modernization and social changes of China and it seems fair to say that the existing counterfeiting phenomenon in China is a culmination of consumer culture with rapid market development and poor administrative implementation of IPR protections.

Conclusion This chapter is based on the provincial report of the 2006 Special 301 Report and is an effort to investigate more deeply the economic circumstances of Guangzhou, Beijing, Zhejiang and Fujian through the examination of the official statistical and government reports. These four cities/provinces demonstrated, more broadly, a rising trend in terms of living standard and investment environment (GDP, GDP per capita, consumption, disposable income and FDI). These statistics further support the argument from the US that more attention should be paid to the monitoring of counterfeiting and infringements in these areas because of the potential

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New ‘hot spots’ of counterfeiting

of more substantial counterfeiting. In addition, these empirical findings mirror the burgeoning consumer culture that established itself alongside contemporary Chinese history, which reflects partly the socio-political changes in China and the emancipation of people’s demand for consumption of pirated products and more importantly, a fake culture. At some point, GDP was the guiding principal of the government and the general public. Yet, after 30 years of growth since 1978, Hu Jintao reinforced the importance of creating a harmonious society in his 17th Party Congress report in October 2007. Both the state and the general public sense the need to restore order and a standard of living that is congruent with the market economy and the consumer culture of China. Increasingly, buttressed by both the consumer culture and marketization, more fundamental social and political change will take place. Deborah Davis contended that: Deng Xiaoping knew that a xiaokang society would demolish the ‘massified’ conditions of the Mao era, but neither he nor any of his immediate successors could control the attachments and investments spawned by the promotion of commercial mass consumption. Whether or not the millions of apolitical market transactions have realigned institutional power and authority, the multiplicity of horizontal ties and the increased invisibility and privacy of personal life have already created a society for which the past conventions of the authoritarian rule appear ill-suited. Eating a Big Mac will not bring down a dictator, but it can send a million daily messages that old ways have changed. (Davis 2000: 22) By the same token, buying pirated DVDs, software and other knowledge products does not necessarily help bring down the dictator; such consumer behaviour siphons into everyday life and increasingly becomes part of the daily life of Chinese people. It creates a channel through which domestic and foreign can be brought together. However, the negative effect is that piracy can easily be interpreted by the general public as the norm and part of the social element. Once accepted, a fake culture will be gradually developed out of the market demand and will endanger the general livelihood of the people.

5

Protecting IPR The Chinese way

Today it is both more important than ever to protect intellectual property rights – and more difficult to do so. (Thurow, Harvard Business Review)

Introduction We have mentioned in the previous chapters that IPR counterfeiting is rampant in China because of the problems of implementation of IPR protection, the lucrative profit margin of counterfeiting, low chance of being caught, light penalties and a new class of consumers which creates demand for various knowledge products (see also Hung 2003: 58). It is undeniable that the Chinese government did come up with some solutions to correct the problems. Most of them are quantitative and legal measures, such as the promulgation of various IPR laws under copyrights, patents and trademarks. Other measures such as replacing the label of ‘made in China’ with ‘invented in China’ will help China appreciate the importance of IPR protection because the incidence of the infringements will not be borne solely by foreign companies and overseas investors but by local, domestic and even state sectors. With the advancement of technology and the future reliance on knowledge based industry, more innovative methods of IPR protections should be deployed in order to create a system to deter infringements, if not to control the loss more effectively and efficiently. This chapter will first look at the quantitative efforts that China has put in toward IPR protection in the 1990s. Then, it will shed light on the legal development of IPR protections, especially with regard to patents. I shall further examine the global and individual levels of IPR protection to illustrate what can be done through the WIPO as well as those individuals/ investors in various IPR applications in China. I shall demonstrate, finally,

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Protecting IPR

the extent of the use of a concept of social cost in which IPR may be resolved through a price mechanism.

China’s quantitative effort in the 1990s In the WIPO Asian Regional Seminar on Industrial Designs held in Beijing on 1–3 March 1994, Jiang Ying, the Deputy Director General of the Chinese Patent Office (CPO) reported in the opening address that China’s system of protection of industrial designs has also made rapid progress. In 1993, the total number of design applications was 10,180. As compared with 640 in 1985, the number of applications has increased by 16 times in the past nine years. (WIPO 1994: 2) Her praise on the improvement of IPR protection was on the number and quantitative measurements on patents. After almost a decade, the measurement of improvement of IPR protection in China is still in the use of patents, trademarks and copyrights registered. In the general report of the Thirty-sixth Series of Meetings of the Assemblies of the Member States of WIPO, Chinese delegates mentioned the achievements in IPR protections.1 They concluded: With respect to major new developments in IP protection in China, the Delegation noted that 170,682 applications for patents, model utilities and industrial designs were received last year, representing an increase of 27.1% compared to 1999, and that this trend was expected to continue this year, with 114,830 patent applications already received by the end of July. Furthermore, 223,177 applications for the registration of trademarks were received in 2000, 52,462 more than in 1999, and at the end of 2000. The number of valid marks registered amounted to 1,249,438. . . . The Delegation noted that the Diplomatic Conference on Protection of Audiovisual Performances had not achieved the expected results. It stated that China could continue to fulfil its obligations and make efforts in this respect, while hoping that consensus could be reached by Member States as soon as possible. (WIPO 2001a: 30) Their report revealed that IPR protection in China has achieved some success especially in terms of the quantitative measurement of the patents, trademarks and copyrights registration. Yet the delegates conceded that in

Protecting IPR 65 terms of the protection of the most important product category, audiovisual infringements, the measures still fall short as confessed by the delegates. In the Nineteenth (15th Ordinary) Session of the meeting, the delegates also reported that The delegation highlighted the active cooperation of WIPO with China in 2000, recalling that China and WIPO jointly organized a PCT training course, a trademark training course and a seminar of intellectual property protection of new technologies, with the participation of over 500 Chinese official and professionals, and that China sent altogether over 50 intellectual property officials in patent, trademark and copyright areas to attend various seminars organized by WIPO both within and outside the Asia and the Pacific region. (WIPO 2001b: 12) By the same token, the delegation emphasized the quantitative achievement of the IPR protection in China. However, the question of China’s IPR infringement relies more on qualitative resolution. According to the Report of the Growth and Development of Chinese Enterprise 2002, the key factors which contributed to much of the dishonest behaviour in China (as can be seen from Table 5.1) were due to ‘poor implementation, lack of professionalism, poor management and rent seeking behaviours’ (Luo 2005: 29). As can be seen from Table 5.1, debt, loans and tax evasion remained on top (76.2 per cent) amongst all the dishonest behaviour in 2002. One of the important findings from the table is that there is not much regional difference in China as far as dishonest behaviour is concerned, meaning that across the whole country such dishonest behaviour is typical and general. Second, both major categories of dishonest behaviour are experienced by all sorts of firms, regardless of their size and structure (state-owned or non-state owned). Producing and selling counterfeiting products were ranked the third and IPR infringement was ranked sixth in the same year. In other words, although people realized IPR related problems, they regarded these problems as secondary to money related dishonest behaviour. Whether the understanding of IPR protection can be translated into deep thinking is an unknown factor. In practice, Chinese government established the China Intellectual Property Training Center (CIPTC) under the Chinese Patent Office (CPO). It served as ‘a training institute for personnel specializing in the field of intellectual property and undertakes systematic and professional training in this field’ (Alikhan 2000: 182). If we look at the very latest figures of IPR infringements in China,

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Table 5.1 Major dishonest behaviours of Chinese enterprises 2002 (percentage) Dishonest behaviours

Total Region

Debts, loans 76.2 and tax evasion Contract 63.2 violation Producing and 42.4 selling counterfeit products Releasing false 27.3 information Quality flaunt 23.5 IPR 13.3 infringements Price 11.1 discrimination Others 1.0

Size

Type

East

Central West

Large

SMEs

SOEs Private

75.7

76.2

77.4

75.7

76.5

77.8

75.6

63.5

63.0

62.8

65.2

62.5

63.4

63.1

42.3

41.2

43.9

40.7

42.9

41.6

42.7

27.0

27.5

27.8

34.0

25.3

27.0

27.4

24.0 16.0

23.2 9.7

22.8 11.1

22.6 13.8

23.9 13.3

24.1 10.9

23.2 14.4

11.0

11.6

10.6

10.2

11.4

11.2

10.9

1.3

0.5

0.9

0.6

1.1

0.9

1.1

Source: Luo (2005: 28). Notes SOEs = State owned enterprises SMEs = Small and medium size enterprises IPR = Intellectural Property Rights

it seems that the quantitative number failed the empirical test of the IPR infringement.

Legal aspects of IPR protection After the open door policy in 1978, China implemented the Trademarks Law in 1982, the Patents Law in 1984 and the Copyrights Law in 1990. The Patents Law was amended in 1992 and 2000 (as demonstrated in Table 5.2), while the Trademarks Law was amended in 1993 and 2001. In turn, the Copyrights Law was amended in 2001. Other legal protection of software products and design of semi-conductors were established in 1991 and 2001 respectively (Gao 2003: 15). There were 23,257 IPR law suits filed in China from 2000 to 2003 of which 22,340 files are already closed (Cao 2004: 9). According to Cao, the number of lawsuits was on an upward swing from 8.62 per cent in 2001 to

Protecting IPR 67 Table 5.2 Years of adoption and amendment of patent law, trademark law and copyright law The law

Year of adoption

Year of amendment

Patent law

1984

Trademark law

1982

Copyright law

1990

1992 (first) 2000 (second) 1993 (first) 2001 (second) 2001

Sources: Zhonghua renmin gongheguo zhuanlifa (Patent Law of the People’s Republic of China) (2002: 33); Zhonghua renmin gongheguo shangbiaofa (Trademark Law of the People’s Republic of China) (2002: 113) and Zhonghua renmin gongheguo zhuzuoquanfa (Copyright Law of the People’s Republic of China) (2002: 201).

17.78 per cent in 2002 and 17.78 per cent in 2003. These lawsuits shared the following characteristics: •

• • •

•

More than 50 per cent of these lawsuits were filed in six cities or provinces; Beijing, Guangdong, Shanghai, Jiangsu, Zhejiang and Shandong; 80 per cent of the cases were on trademarks infringement; The cases mainly related to foreign companies. Only 3 per cent of the cases were related to Hong Kong, Macau and Taiwan; The cases were more complicated, more professional and more technical, involving enormous amount of evidence and were related to different legal disciplines; They involved well known companies, professionals, academics and intellectuals and huge media coverage. (Cao 2004: 9–10)

According to Zhongguo zhishichanquan nianjian on copyrights management, 9,644 cases were filed or being investigated in 2005. It has indicated a significant increase from 2,756 cases in 2004 (2006: 369). Amongst those closed cases, 7,840 were fined. Yet, in terms of copyrights cases, 8,426 were domestic. There were only five cases that involved Hong Kong and Macau and 38 cases that involved overseas countries (ibid). Understandably, this can be explained by the control from the Chinese government on media, books and information products from outside China. In terms of copyrights protection, Table 5.3 demonstrates the general management of copyrights in China in 2005. From the items that were confiscated, more than 65 million were related to media products (more than 61 per cent).

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Protecting IPR

Table 5.3 Chinese copyrights management at a glance 2005 Confiscated (no., box, piece, items)

Copyrights registered (contract)

Personal registered

Category

Total

Category

Category

Total

Total Book Journal Software Media product

106,961,146 19,088,996 1,144,400 7,742,211 65,870,348

Total 10,787 Book 9,176 Journal 746 Media product 140 Electronic 168 publication Software 557

Total Word Oral Music Folk art

58,523 1,878 128 855 12

Movie TV programme

0 0

Other

0

Craft 2 Art 51,327 Photo 3,681 Architecture 12 TV and media 52 Sketch 337 Map 52 Model 7 Other 167

Electronic publication

Other

13,016,355

98,836

Total

Dance

13

Source: Zhongguo zhishichanquan nianjian (2006: 369).

This is very close to our study in the previous chapter that the consumer culture and the demand for knowledge products were burgeoning, making media products the ‘most-wanted’ items. Again, amongst the 10,787 copyrights items registered, the lion’s share was books (9,176 or 85 per cent). One interesting development is in the area of personal registration, 51,327 (88 per cent) out of total of 58,523 cases registered were related to art products. Although there was no further categorization under art, this would be an interesting point of departure to link up with the culture industry in China, for example the market of modern art and paintings in the current market-driven economy in China. In China, patent application has increasingly become a question of life or death of a product. I am, therefore, going to spend more time in discussing the patents application in China. Although patented products are still susceptible to being infringed, the lack of, or even late, application will result in the products having no ground to be protected at all. Table 5.4 has indicated that patents applications (inventions, new model and

Protecting IPR 69 outlook) have increased substantially. For example, in the period 1985 to 2001, there were 1,370,000 patents applications. Yet, the key question is why amongst the patents rights holders, the majority are domestic applicants (1,138,633 or 83 per cent) – only 231,367 (17 per cent) were foreign applicants. Total applications increased from 353,807 in 2004 to 476,264 in 2005 (34 per cent increase). Again, most of the increase was due to domestic application, from 278,943 in 2004 to 383,157 in 2005. Overseas or foreign applications accounted for 74,864 in 2004 and 93,107 in 2005, with an increase of 24 per cent nevertheless. Applications for patents take time, especially in China and therefore it has to be done much earlier. Otherwise, products run the risk of not even getting basic legal protection, although patented products are still at the mercy of counterfeiting. In respect of those patents applied for, Table 5.5 shows the patents granted from 1985 to 2005. There were 750,636 patents granted from 1985 to 2001, which meant that the success rate was about 55 per cent (roughly one in two applications could get the patents granted), if we compare with Table 5.4. The success rate decreased gradually. In 2005, 214,003 patents were granted (45 per cent of the total number of applications), and the success rate was more or less the same for domestic applications (171,619) and foreign applications (42,384). Whether the reason was due to competition or less product differentiation, the point remains the same: an application has to be made early and quickly in the Chinese market economy. Table 5.6 further shows in detail which province or city applied for most patents in China in 2005. It has indicated that Guangdong (72,220), Zhejiang (43,221), Jiangsu (34,811) and Shanghai (32,741) are the top four provinces/cities applying for patents in China. These areas were listed in the 2006 Special 301 Report and 2007 Special 301 Report of being further investigated and monitored by the US and China in a combined effort. Rampant counterfeiting in these areas has resulted in larger demand for legal protection. Second, these products present a potentially huge market for a growing consumer class with growing purchasing power due to an increase of GDP generally and average wages specifically. This consumer class can potentially be the future consumers of genuine products. Yet, their demand for counterfeit products can also be highly elastic. Table 5.7 examines the top ten foreign countries applying for patents in China in 2005. Obviously, all applications were from developed countries. Japan (36,221), US (20,395), Korea (9,300) and Germany (7,502) were the top four countries in number of applications. This is in connection with their FDI in China and the decrease of joint-venture projects.

1,128,501 673,856

93,139 109,115 112,825 139,566

252,631 80,232 308,487 105,318 353,807 130,133 476,264 173,327

Invention New model

2,761,189 879,025 1,370,000 390,015

Total

Total

Domestic

79,260 94,054 110,849 163,371

753,663 306,129

Notes 1985–1996 Hong Kong was considered as domestic. 1985–1999 Macau was considered as domestic.

205,544 251,238 278,943 383,157

39,806 56,769 65,786 93,485

Outlook Sub total

Overseas

92,166 73,572 107,842 86,627 111,578 101,579 138,085 151,587

47,087 57,249 74,864 93,107

40,426 48,549 64,347 79,842

973 5,688 1,273 7,427 1,247 9,270 1,481 11,784

7,940 59,538 2,966 25,369

Invention New Outlook model

1,120,561 694,125 503,674 436,196 670,890 280,760 231,367 203,032

Invention New model

2,257,515 442,829 1,138,633 186,983

Outlook Sub total

Source: Zhongguo zhishichanquan nianjian 2006 (2006: 355).

Overall 1985– 2001 2002 2003 2004 2005

Year

Table 5.4 Domestic and overseas patents applications 1985–2005

132,399 182,226 190,238 214,003

21,473 37,154 49,360 53,305

57,484 68,906 70,623 79,349

730,573 454,211

Invention New model

1,469,502 238,717 750,636 77,425

Total

Total

53,442 76,166 70,255 81,349

Notes 1985–1996 Hong Kong was considered as domestic. 1985–1999 Macau was considered as domestic.

112,103 5,868 149,588 11,404 151,328 18,241 171,619 20,705

57,092 68,291 70,019 78,137

725,326 451,787

Invention New model

500,212 1,264,887 87,365 219,000 680,249 31,147

Outlook Sub total

Domestic

Source: Zhongguo zhishichanquan nianjian 2006 (2006: 361).

Overall 1985– 2001 2002 2003 2004 2005

Year

Table 5.5 Domestic and overseas patents granted 1985–2005

49,143 69,893 63,068 72,777

452,196 197,315

Outlook

20,296 32,638 38,910 42,384

15,605 25,750 31,119 32,600

392 615 604 1,212

5,247 2,424

Invention New model

204,615 151,352 70,387 46,278

Sub total

Overseas

4,299 6,273 7,187 8,572

48,016 21,685

Outlook

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Table 5.6 Top ten province/city applications for patents in China 2005 Rank

Province/city

Number

1 2 3 4 5 6 7 8 9 10

Guangdong Zhejiang Jiangsu Shanghai Shandong Beijing Taiwan Liaoning Tianjin Hubei

72,220 43,221 34,811 32,741 28,835 22,572 20,599 15,672 11,657 11,534

Source: Zhongguo zhishichanquan nianjian 2006 (2006: 368).

Table 5.7 Top ten foreign applications for patents in China 2005 Rank

Country

Number

1 2 3 4 5 6 7 8 9 10

Japan United States of America Korea Germany Netherlands France Switzerland Italy United Kingdom Sweden

36,221 20,395 9,300 7,502 3,988 3,190 2,106 1,632 1,613 1,101

Source: Zhongguo zhishichanquan nianjian 2006 (2006: 368).

Table 5.8 further shows the top ten foreign companies applying for patents in China in 2005. Japanese companies topped the list (Panasonic, Sony, Toshiba, Seiko and Cannon) and Korea was second (Samsung Electric, LG and Samsung SDI). IBM is the only US company amongst the top ten. These companies are famous brands in the production of information, media, and telecommunication products as well as household appliances. Again, these brands have long been the targets of counterfeiting. Application for patents by these companies is therefore the most rudimentary measure to safeguard their interests.

Protecting IPR 73 Table 5.8 Top ten foreign companies’ applications for patents in China 2005 Rank

Country

Company

Number

1 2 3 4 5 6 7 8 9 10

Korea Japan Netherlands Japan Korea United States of America Japan Japan Korea Japan

Samsung Electric Panasonic Philips Sony LG IBM Toshiba Seiko Samsung SDI Cannon

3,508 3,042 2,709 1,652 1,424 1,213 1,177 1,119 1,052 940

Source: Zhongguo zhishichanquan nianjian 2006 (2006: 368).

Global protection and the role of the individual WIPO and China WIPO is one of the key institutions in helping to facilitate IPR protections globally. The majority of the staff at the WIPO headquarters in Geneva are professional lawyers specializing in patents, trademarks and copyrights. Mostly, they help companies apply for IPR legal protections or provide expert IPR advice.2 By the same token, China’s IPR protection is facilitated through compliance with different bodies and treaties of the WIPO in Geneva. As can be seen from Table 5.9, China has signed various treaties of the WIPO and most of them are already in force. Most recently, on 9 June 2007, China had joined the Performances and Phonograms Treaties (PPT) and Copyright Treaty (WCT). Both treaties are currently in force. As far as copyright protection is concerned, the WIPO Convention Preamble clearly states that contracting parties should be ‘desiring to develop and maintain the protection of the rights of authors in their literary and artistic works in a manner as effective and uniform as possible’ (Righini 1997: 68). You are your own protection Chinese companies did receive some fines and were required to pay compensation due to the infringement of intellectual property rights. According to the Minister of Technology, Xu Kuanhua, the accumulative amount was about US$1 billion:

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Table 5.9 China’s membership of WIPO treaties Treaty

Status

Entry into force

Berne Convention Budapest Treaty Locarno Agreement Madrid Agreement (Marks) Madrid Protocol Nice Agreement PCT Paris Convention Phonograms Convention Strasbourg Agreement TLT UPOV Convention WIPO Convention Washington Treaty Performances and Phonograms Treaties (PPT) Copyright Treaty (WCT)

in force in force in force in force in force in force in force in force in force in force signature in force in force signature in force

15 October 1992 1 July 1995 19 September 1996 4 October 1989 1 December 1995 9 August 1994 1 January 1994 19 March 1985 30 April 1993 19 June 1997

in force

23 April 1999 3 June 1980 9 June 2007 9 June 2007

Sources: World Intellectual Property Organization (WIPO) online, available at: www.wipo.int/ treaties/en/ShowResults.jsp?search_what=C&country_id=38C (accessed 4 September 2005) and USTR (2007: 41). Notes PCT = Patent Cooperation Treaty; TLT = Trademark Law Treaty; UPOV = The International Union for the Protection of New Varieties of Plants.

99 percent of Chinese companies did not apply for patents because of the lack of core technology, Chinese made mobile phones and computers need to pay 20 and 30 per cent (out of their retail price) for foreign patent owners. (Beijing Youth Daily, 28 April 2007, A2) Table 5.10 indicates that in China, foreign-owned patents are substantially high, from 60 per cent to 93 per cent, across different ranges of telecommunication, hi-tech products, semi-conductors, pharmaceuticals and computers. As far as IPR protection is concerned, the Chinese government is eager to develop its own research and further delve into areas such as ‘independent innovation’. Geoff Dyer, however, worried that ‘on top of these obstacles, Chinese innovation faces the further threat of intellectual property theft’ (2007: 3). The key question with regard to the protection of one’s IPR, therefore, is not whether the right holders have patented their products overseas, but that they should patent their products in

Protecting IPR 75 Table 5.10 Percentage of foreign-owned patents in high-tech products Products

Patents owned by foreign companies (%)

Wireless communication Mobile communication Semi-conductor Pharmaceuticals Computers

93 91 85 69 60

Source: Beijing Youth Daily, 28 April 2007: A2.

China in order to be protected by the law, and they should take this step rapidly. Wang Xiang et al. say that filing a patent Becomes a race against time, against your competitors, and often against your own former or even present employees . . . Competitors in China are becoming more technologically advanced and legally sophisticated, so that IP disputes are already moving away from simple counterfeiting or copying towards more sophisticated methods of infringement and design-around. This makes obtaining effective and robust patent rights in China even more important. (Wang et al. 2006: 17–19) In practice, they suggested several strategies in the areas of patent protection: •

•

• • • •

File both utility model and invention patents at the same time, if economically justifiable, then drop the utility model patents after the invention patents are granted; Carefully monitor your patent prosecution at every step – i.e. translations, responses to office actions, etc. – in order to produce high quality original or translated patents (note that China has both the doctrine of equivalents and prosecution history estoppels); File design patents where applicable; Challenge the validity of your competitors’ patents in invalidation proceedings; Don’t be afraid to sue for patent infringement if you have Chinese patents and seek injunctive relief where available; Request executive of non-disclosure and non-compete agreements before delivering any confidential information to your local employees and/or Chinese suppliers, partners, or other parties;

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• •

Seek assistance in enforcing your rights from Chinese Customs; and Seek political help where possible. (Wang et al. 2006: 18–19)

These strategies provide an SOS or help tool kit from the perspective of a foreigner doing business in China. Contrary to the ‘Chinese way’ of dealing with things, most Chinese will seek political help in advance, and treat this as a first priority. IPR protection as a learning process According to a study on the management of intellectual capital (IC) at Toshiba (a famous Japanese brand in producing electronic appliances) by Mark Fruin, there are five major essential components for good management of IC: proximity to a capital city, technologically driven corporations, contingency plans of continuity and discontinuity in human resources and product and manufacturing processes, governance in the interest of employees and, finally, an emphasis on knowledge renewal (1997: 208–209). Such measures do provide some transferable insights into MNCs protecting their IC in China. Other than talking about the lucrative piracy business and the poor government implementation, China should develop its own brand of products that are of similar quality to foreign products with high IPR value-added elements. According to the Zhongguo zhishichanquan nianjian 2001/2002 (The Almanac of Chinese Intellectual Property Rights 2001/2002), in order to protect its local brands, 196 very famous brands were designated by the government to be highly protected because they represented the essential image and quality of Chinese products (2002: 502–506). In so doing, China will appreciate the effort, time and capital investment involved in producing products with important IPR components. Additionally, buttressed by a genuine appreciation of what goes into developing knowledge products, consumers, hopefully, will be less inclined to purchase pirated products. Further discussion will be illustrated in the next chapter on trademark.

Policy implementations of IPR in Chinese societies However, the legal means to IPR protection have been criticized as not providing enough protection to the companies or having too little of a deterring effect on the infringers. The following are salient examples. In late 1991, Microsoft accused the Reflective Material Factory of Shenzhen University of manufacturing the unique hologram ‘MICROSOFT’ and

Protecting IPR 77 ‘MS-DOS’ labels that were found on many copies of counterfeit software (Chang 1995: 88). This case was filed in court and lasted for two and a half years. Eventually, Microsoft won the case and was compensated 48,693.46 yuan (ibid.). In 1995, Levi Strauss & Co. condemned Sunrise International Trading Inc. in China of manufacturing counterfeit jeans labelled with Levi’s trademarks. Although the case was subsequently dropped because of insufficient evidence, it was suggested that those jeans would be sold in the US; ‘there is no doubt that the continued sale of thousands of pairs of counterfeit jeans would damage [plaintiff’s] business reputation and decrease its legitimate sales’ (Schechter 1997: 631; italic in original). In another recent case, Warner Music Group won a law suit against Shanghai Rongshuxia Company, which illegally allowed ten songs from Chinese female singer Na Ying to be downloaded for free from its web site (South China Morning Post, 13 May 2004). However, the penalty of 15,000 yuan was too little too late compared with what they had reaped from the violation in that it not only failed to deter IPR infringement but encouraged more offences. It seems that justice has been observed through the various courts’ verdicts yet the fine seems anachronistic given the lucrative business that is involved in the pirate and counterfeiting business. Counterfeiting activities and practices do not occur solely among foreign companies and there is a trend of counterfeiting activities on those successful Chinese brands. For instance, a very famous hot pot chain store named Xiao Fei Yany (Little Fat Sheep or Inner Mongolia Little Fat Sheep Restaurant Chain Co. Ltd), originally established in 1999 in Inner Mongolia had opened 639 stores across China by early 2004, with a 3.5 billion yuan market return in 2003. Xiao Fei Yang then filed a law suit in Beijing High Court to sue its imitator, for which it was finally compensated 150,000 yuan in March 2004 (Zhongguo Caifu 2004: 44–46). More importantly, is there a ‘fine discrimination’ over cases won by foreign firms where cases won by local firms as infringement of local brands are more severely fined than those of foreign companies? This is again an issue in the current IPR counterfeiting environment in China. It appears that although legal protection of IPR remains the most effective regime/mechanism in the protection of IPR across the world, there should be more ways in which to shoulder the burden. With the advancement of technology and the increasing importance of knowledge protection, Professor of Management and Economics at Massachusetts Institute of Technology, Lester Thurow, argues that ‘stronger systems of protection for intellectual property rights are clearly part of the answer’ (1997: 98). ‘In addition’, he continued, ‘The system must be able to determine rights and resolve disputes quickly and efficiently’ (ibid.: 102). I am going to shed light on the use of price mechanism to derive a policy oriented

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method to capitalize the general global welfare and reward investment and innovations. Social cost approach: implications for Sino-American IPR disputes In Chapter 2, we have demonstrated that IPR infringement in itself can be interpreted as a social cost to the world economy. Not only did the producers of IPR products suffer but also the consumers of IPR products. And one of the most important consequences of IPR infringement is that it will paralyze the incentive of researchers to invent and develop new products, representing a world welfare loss to the future of human beings at large. Considering IPR infringement as social cost implies that it should be internalized through some mechanisms. Among others, the charge of a welfare tax – a price – to internalize the loss is what we are exploring here. R. H. Coase advanced the price as an operationalized method: If we are to discuss the problem [social cost] in terms of causation, both parties cause the damage. If we are to attain an optimum allocation of resources, it is therefore desirable that both parties should take the harmful effect (the nuisance) into account in deciding on their course of action. It is one of the beauties of a smoothly operating pricing system that, as has already been explained, the fall in the value of production due to the harmful effect would be a cost for both parties. (1960: 13) In terms of Sino-American IPR disputes, the nature of the social cost can be more easily described with the help of a diagram. Figure 5.1 demonstrates graphically how social cost, as a result of continuous trade/investment between China and the US, is derived and the impact to the US producers when IPR infringement takes place in China. The Y axis represents the price or the cost of producing intellectual products. The X axis indicates the span of time in Sino–American trading. The horizontal MC (Marginal Cost – the change of total cost derived from the addition unit of the change of production) line shows the marginal cost of producing intellectual products. To equalize MC and AC (average cost) curve is just for simplification, variation of their shapes does not affect the logic of analysis (Buchanan 1980: 270). D1 represents demand curve for US intellectual products.3 The slope of D1 indicates the demand elasticity for certain kind of products. Assuming no IPR infringement happens, after certain years of trading

Protecting IPR 79 Price (cost)

MC1 ⫽ AC1 a

C2 C1

c

MC ⫽ AC

b

D1 0

T1

T2

D2 Time

Figure 5.1 The derivation of social cost of IPR disputes between China and the US.

activities between the US and China, say T1, the MC curve and the D1 will intersect at point c, where the cost of production is C1. As soon as the trading activities between China and the US blossom, IPR infringement flourishes, resulting in a movement from T1 to T2. As can be seen from the diagram, from time 0 to T1, IPR infringement cannot be found because it takes time to learn infringement techniques and also to observe the trend of market demand for IPR products. As soon as IPR infringement takes place, the MC curve cannot hold and the new MC1 curve develops accordingly. For the sake of production, IPR infringement reduces significantly the demand for genuine IPR products, resulting in more elasticity in demand. Therefore, D1 will move to D2. And the new intersection point will be at a, which brings a new level of cost C2. The difference between C1 and C2 is the social cost of infringement, which is also graphically represented by the combined area of a, b and c. It is argued that a price could be charged to the extent that this area of loss can be internalized. But, how much should be charged and who should bear the cost? In practice, the degree of elasticity depends on the nature of the goods. Entertainment products are more elastic while goods like garments or electrical appliances are more inelastic. The nature of goods also gives rise to different product life cycle of certain infringed items. For example, media products have a very short life cycle for an

80

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individual film or record but the aggregate effect on the whole industry is enormous. The determination of an exact price to be charged goes beyond the objective of this section. However, within the domain of China, a study indicates that the losses of the producers due to IPR infringement may range from 0.05 per cent for the extractive sector (mining, oil and minerals, etc.) to 3.6 per cent for entertainment industry (Feinberg and Rousslang 1990: 88). The figures here present a rough idea of the impact of IPR infringement. Diplomacy and negotiation should be carried out between both counterparts from the Chinese and the US when an issue as important and consequential as IPR infringement is involved. In theory, infringers should be charged and prosecuted because their criminal acts affect world welfare. However, to identify the infringers in the first place seems impossible or the information cost will be too high. In order to search for the infringers, for example, the Chinese government had to launch a reward system to those who provide information leading to successful seizure of counterfeit products (Muson 1998: 15). Second, the internal economy of China is deemed a domestic affair and foreign investigation is considered an intrusion of sovereignty, especially at the foreign policy level. Finally, although China is moving in tandem towards economic liberalization while downsizing the bureaucratic structure (50 per cent of the government officials was reduced before the end of 1998), the nature of a socialist economy, embracing with various levels of political and economic executive powers, preclude China from not involving in IPR infringement at the state level. In that sense, the charge (like a tax) will act as a prod to accelerate either the crackdown of IPR infringement or the ‘rights-to-infringements’. The mechanism is shown in Figure 5.2. The descending line B represents the price to be charged to internalize the social cost out of IPR infringement. Line A represents the effort (can be legal or educational) that the Chinese government pays for the seizure of pirated products. In the first year Y1, the price to be charged is set at P1, a relatively high charge. The P1 charged is expected to be translated to administrative initiative for the formulation of a more efficient and effective policy or operational methods in IPR protection at home. After mutual acceptance and negotiation of the pace towards IPR protection, the charge for next year will be reduced to another level as indicated by P2. Repeatedly, the eventual situation will come to the point C where no charge will be required. In the long-run, the Chinese effort paid to the IPR protection and implementation of crackdown policy will give rise to a payoff. Economically, IPR protection helps encourage incentive for product creation and innovation. At the international level, China’s image will be greatly enhanced. Using a price mechanism to regulate government failure

Protecting IPR 81 Price (charge)

Payoff

P1 P2

0

A

Y1 Y2

Time

C

B

Figure 5.2 Policy result of price mechanism.

is a new invention. The translation of an individual country’s concern towards IPR protection to a world welfare argument, nevertheless, captures the gist of IPR infringement and the dispute over those rights between China and the US. Apart from the legal means, IPR protection should also be viewed as concerning the economic measures which aim at using price mechanisms to reach a resolution, with one possibility being to derive a price (level of infringement) (Cheung 1999). Because of its economic structure and complex economic relations, the manifestation of the charge of IPR should also be aimed at the state because IPR protection in China involves the inefficiency and resistance of the government as well as local interests. We have demonstrated that government failure on IPR protection in China is obvious. This is why the US has been pushing the magnitude and enforcement of IPR into different provinces and cities. What if these provinces and cities are still intransigent in reacting to IPR protection and implementation of IPR legal requirements (the four ‘hot spots’ that were mentioned before, for instance)? According to a senior official in the Beijing Municipal Foreign Economic Relations and Trade Commission, the bureaucratic incentive of the Chinese government in complying with IPR matters depends on the rank and importance of individual departments. Those departments (IT and trade department for instance) regarded by the central government as having the necessity to demonstrate to the world Chinese IPR compliance would pay closer attention in observing IPR rules.4 Moreover, Xin He argued, in a study of law evasion in rural–urban migration in China, that:

82

Protecting IPR The state has an interest in controlling but not eliminating the migrants; and that the state could benefit from the situation. To enjoy the benefits of the migrant economy, the lower level governments in Beijing urban districts object to rigorous legal enforcement of license laws, though they may not object to more modest enforcement. The municipal government also wants to enjoy the business revenue and prosperous market brought by migrants, so it becomes more tolerant toward license evasion. In addition, keeping migrant business illegal gives the municipal government a good excuse to drive migrants out whenever necessary. The whole situation thus leads to an equilibrium in which legal collusion flourishes. (2003: 15)

It appears that the law is not particularly autonomous in Chinese society and is subjected to the confluence of the political economy of the centre and local authorities. To accomplish the legal efficiency, a price mechanism can possibly be considered whereby China should be asked to pay an annual fee (infringement of rights) to the WIPO or under separate entity of TRIPS as compensation. The annual fee would be adjusted and re-evaluated according to the annual performance of the implementation of IPR protection. The more effective China is in clamping down on piracy, the lower an annual fee it would need to pay.

Conclusion The former Chairman of the Intellectual Property Rights Ministry, Gao Lulin, did mention that the implementation of IPR protection was important and that the Chinese government will consider IPR infringements as a criminal offence (Gao 2003: 17). As we have demonstrated in this chapter, the Chinese government has implemented numerous quantitative measures and legal adjustments to cope with IPR protection. At some point legal measures are fundamental as the basis for IPR protection. However, the rule of law is weak in China, leaving us to think about other measures in tackling IPR protections. The ubiquitous and rampant IPR infringements, in connection with the centralized socialist system in China, allow the possibility of using some conceptual innovation such as social cost and price mechanism to work out a policy-oriented resolution. Obviously, the rule of law is important. Yet, we cannot rule out other possibilities in which IPR can be safeguarded and innovation won’t be dissipated through relentless counterfeiting.

6

Case study Dynamics and changes of trademark development in China

Although the notion of intellectual property rights was imported into China in the late nineteenth century, the contemporary Chinese intellectual property system was not developed until the late 1970s, when intellectual property rights re-emerged after China reopened its market to foreign trade. (Peter K. Yu, Occasional Papers in Intellectual Property)

Introduction On 28 November 2007, I had the opportunity to interview Professor Michael Pendleton, currently Associate Director (research) of the School of Law at the Chinese University of Hong Kong and a well-known scholar of IPR in China. When asked to identify amongst patents, copyrights and trademarks, which caused the most concern to those dealing with IPR protection in China, Pendleton pointed strongly to trademark issues.1 Essentially, trademarks are the most obvious symbol that distinguishes one product from another. In a special paper of the Zhongguo zhishichanquan nianjian 2006 (Chinese International Property Rights Almanac 2006) Zheng Chengsi, the former Head of the Chinese Intellectual Property Rights Bureau, mentioned that a trademark is not equal to a signboard on the street for direction only. It has embodied the management innovation of a company, direction of investment and quality control. It also serves as an indication for consumers to make their own decisions in purchasing. It is a ‘symbol of trust’ of a company and this symbol is the lifeblood of a company (2006: 30). In other words, trademark is a property through which the business’ goodwill and reputation can offer protection. Second, it also helps to protect the consumer from being deceived (Bainbridge 2007: 585). Again, this is an area that China is trying not only to comply with international standards but also to protect national and local stakes of interests. This chapter begins with a historical overview of the importance of trademark definition and its meaning and connotation in relation to

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Dynamics and trademark development

business and commerce. Then, we are going to look at China’s IPR regime with a view to examining the historical and current discussion. Increasingly, trademarks are becoming one of the major concerns in the political economy of China because of the protection of the country’s own brand and domestic products. We will be discussing this in the third section of this chapter. We shall then go on to use a case on trademark infringement of the singer Andy Lau, or Huazai, to illustrate the interplay between trademark and linguistics. The final section will be the result of an interview with Michael Pendleton. The interview broadly concludes his ideas towards the current IPR regime and challenges of IPR protection in China.

Rationales for trademarks and definitions According to Brad Sherman and Lionel Bently, the protection of a trademark is rather arbitrary along the historical development of IPR law. For trademark to be included, as they traced the report made to the 1862 Select Committee on Trade Marks, I consider a trade mark to be equivalent to a man’s signature to a letter. There may be hundreds of John Smiths, but there would be such an individuality in each man’s signature, that you could identify the whole. I consider that when a man puts a mark upon any article he produces to identify it as his production, that it is equivalent to his name. (1999: 167; emphasis added) The counter argument dealt with the degree of invention of a trademark in comparison to other acts of human creation such as patents and copyrights. In addition, following the identity argument, trademark is more to do with ‘forgery or fraud’, which is to do with authenticity not ownership (ibid.: 171). With regard to trademark definition, the WIPO puts it this way, Although there is no internationally accepted definition of a mark, a mark is generally understood to be a visible sign capable of distinguishing the goods or services of an enterprise from the goods or services of other enterprises. It is a form of intangible property whose principal value lies in the goodwill and reputation that a given mark represents. (WIPO 1983: 13) According to McCarthy’s Desk Encyclopaedia of Intellectual Property, trademarks are

Dynamics and trademark development

85

(1) A word, slogan, design, picture, or any other symbol used to identify and distinguish goods. (2) Any identifying symbol, including a word, design, or shape of a product or container, which qualifies for legal status as a trademark, service mark, collective mark, certification mark, trade name, or trade dress. (McCarthy et al. 2004: 608) In the 1946 Lanham Act, trademark was defined as ‘any word, name, symbol, or device or any combination thereof adopted and used by a manufacturer or merchant to identity his goods and distinguish them from those manufactured or sold by others’ (McCarthy 2006, vol. 4: 11–12). In 1988 amendments, the term was defined more precisely to refer to the intended use of trademark: The term ‘trademark’ includes any word, name, symbol, or device, or any combination thereof – (1) used by a person, or (2) which a person has a bona fide intention to use in commerce and applies to register on the principal register established by this Act, to identify and distinguish his or her goods, including a unique product, from those manufactured or sold by others and to indicate the source of the goods, even if that source is unknown. (McCarthy 2006, vol. 4: 12) Apart from these four functions, McCarthy added that ‘it must also be kept in mind that a trademark is also the objective symbol of the good will that a business has built up’ (McCarthy 2006, vol. 3: 3). In addition, members of the WTO should also agree to protect marks under the TRIPS Article 15(1), which says: Any sign, or any combination of signs, capable of distinguishing the goods or services of one undertaking from those of other undertakings, shall be capable of constituting a trademark. Such signs, in particular words including personal names, letters, numerals, figurative elements and combination of colours as well as any combination of such signs shall be eligible for registration as trademarks. Where signs are not inherently capable of distinguishing the relevant goods or services, members may make registrability depend on distinctiveness acquired through use. Members may require, as a condition of registration, that signs be visually perceptible. (Keon 1998: 169) The international protection of marks (trademarks and service marks) is currently facilitated by the Madrid System, which is governed by two

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Dynamics and trademark development

treaties: the Madrid Agreement Concerning the International Registration of Marks (dating from 1891) and the Protocol Relating to the Madrid Agreement (adopted in 1989 and implemented in 1996) (Madrid System: 4). China is both a member of the Agreement and the Protocol.

Trademark regime in China Trademarks were used in ancient Egypt, China and Western civilizations as identification of products which provided an association with the makers (McCarthy 2006, vol. 5: 2). In the bible, according to Robert P. Merges and Jane C. Ginsburg, The book of Genesis contains several references to branding. When Cain was expelled from the Garden of Eden after killing Abel, the Lord set a sign upon Cain – and some translations use the word ‘mark’ instead of ‘sign’. This may be the earliest literary reference to branding. (2004: 444) In China, according to Zheng Chengsi and Michael D. Pendleton, trademark could have appeared in China in the late Zhou Dynasty (3,000 years ago), saying however, We can only raise reliable evidence to support the first occurrence of a trademark in the Song Dynasty, i.e. about 800 years ago. The design of the mark is a white rabbit and the goods on which the mark was used were needles manufactured by Master Liu of Jinan, Shangdong Province. (1987: 21) In a similar way, according to Peter K. Yu, records and history confirmed that during the Song dynasty, certain symbols associated with imperial or royal families were highly protected, for instance, ‘guild regulations, clan rules, and local laws protected producers of tea, silk, cloth, paper, and medicines by registering their brand names and symbols they had developed’ (2002: 5). The first case of trademark infringement was found in the mid-Qing Dynasty (1736) when ‘the local government of Suzhou Prefecture (Jiangsu Province) decided to punish a cloth manufacture, Huang You Long, for selling his goods under another’s trademark’ (Zheng and Pendleton 1987: 21). On the contrary, the record of copyright in China could be traced to a much earlier time, to the Xuanzong of Tang Dynasty (AD 704–751) when a Chinese version of a Buddhist sutra (written work), having the printed year,

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Table 6.1 Six legislative developments in trademarks and well-known marks between 1993 and 2003 Legislative development

Date of issue/in effect

Trademark Law of PRC (first amendment) Implementing Rules of Trademark Law of PRC Provisional Rules on the Recognition and Administration of Well-known Trademarks Trademark Law of PRC (second amendment) Interpretations on Several Issues Concerning Hearing of Civil Disputes over Trademarks Rules on the Recognition and Protection of Well-known Trademarks

22 February 1993 (issued) 28 July 1993 (issued) 14 August 1996 (in effect) 27 October 2001 (issued) 16 October 2002 (in effect) 1 June 2003 (in effect)

Source: Browning and Wang (2004: 39).

was discovered in the Sakyamuri Pagoda in Chungju, South Korea (Zheng and Pendleton 1991: 11). Trademark registration is one of the most important indicators of recognition of IPR. From 1979 to 1992, there were more than 370,000 trademark registrations in China; and in 2002 alone, trademark registrations reached 370,000 items as compared to 170,000 in 1999. From 1979 to the end of 2003, there were about 2,000,000 trademark registrations, making it the most important IPR issue in China (An 2004: 6). Nevertheless, registration of trademark is actually dominated by domestic companies. According to Zhongguo zhishichanquan nianjian 2006, domestic registration accounted for 593,382; while foreign applications only accounted for 70,635 (combining country and Madrid applications).

Protection of trademarks in China In general, trademark protection is mainly the responsibility of State Administration for Industry and Commerce (SAIC), the Trademark Office and Provincial Administration for Industry and Commerce (AIC). The Trademark Office handles trademark registration. More importantly however, SAIC and AIC are effectively two crucial government bodies providing supervision and trademark enforcement. Andrew Mertha clearly pointed out that:

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Dynamics and trademark development Specifically, the SAIC’s responsibilities include supervising the growing local market economies and ensuring that pricing and other related behaviours remain legal and above board; managing all administrative aspects of enterprise and business registration whilst . . . the AIC has sole responsibility for trademark enforcement. (2005: 175 and 184)

Chinese right holders don’t necessarily take their cases to court however. According to Tim Browning and Carol Wang from Rouse & Co, ‘Despite low fines which did not have much deterrent effect, and the fact that authorities often needed pushing to act, or follow through, the administrative system was in essence the only realistic means of IP rights enforcement’ (2004: 38). Yet, they nevertheless concluded that China had established some major legislative development in relation to trademarks between 1993 and 2003. As can be seen from Table 6.1, there were some major legislative developments between 1993 and 2003 as far as trademarks and well-known marks are concerned. Legal enforcement is increasingly used as an effective means of protection of IPR, trademarks in particular. Increasingly, the Chinese government has been trying to develop general guidelines for trademark holders through the well-known mark protection after its acceding to the Paris Convention in 1985. Well-known marks (chiming shangbiao) ‘are widely known to the relevant section of the public and enjoy relatively high reputation in China’ and they are protected directly through the legal legislations (China Patents and Trademarks 2004: 62). Another category of ‘famous marks’ (zhuming shangbiao) is basically just a matter of honour. In general, the major laws and regulations protecting wellknown marks are the Chinese Trademark Law, the Implementing Regulations of the Trademarks Law, the Provisions on the Establishment and Protection of Well-known Marks, and the three interpretations of the Supreme People’s Court (China Patents and Trademarks 2004: 59). The three Supreme Court interpretations are the Interpretation Relating to the Scope of Jurisdiction over and Application of Law to Trial of Trademark Cases, the Interpretation of the Issues Relating to Pre-trial Cessation of Acts of Infringement of Exclusive Right to use Trademarks and Evidence Preservation, and the Interpretation of Several Issues Relating to Application of Law to Trial of Cases of Civil Trademark Disputes (ibid.). More on well-known marks can be learnt from Zhongguo zhishichanquan nianjian 2001/2002 (The Almanac of Chinese Intellectual Property Rights 2001/2002). In 2001, 196 trademarks were identified as wellknown Chinese brands (2002: 502–506). Among these well-known brands were goods such as wine, household appliances, daily necessities, medicines, writing goods, clothes, furniture, tobacco, restaurants, drinks,

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Table 6.2 Numbers of famous trademarks in Chinese provinces, municipalities and autonomous regions 2001 Provinces/municipalities/autonomous regions*

No. of famous trademarks

Beijing municipality Tianjin municipality Shanghai municipality Hebei Shanxi Inner Mongolian autonomous region Liaoning Jilin Heilongjiang Jiangsu Zhejiang Anhui Fujian Jiangxi Shandong Henan Hubei Hunan Guangdong Guangxi Zhuang autonomous region Chongqing3 Sichuan Guizhou Shaanxi Gansu Qinghai Ningxia Hui autonomous region Xinjiang Uygur autonomous region

152 161 198 326 194 27 172 240 197 336 981 294 241 207 282 (226 (2001) + 56 (2000))2 183 205 155 170 85 172 109 99 106 89 (37 + 52)4 61 105 (60 + 45)5 30

Source: Zhongguo zhishichanquan nianjian 2001/2002 (2002: 506–619). Notes * Hainan, Yunnan had begun the identification of famous trademarks process, but they were not able to provide those identitied famous trademarks before Zhongguo Zhishichanquan Nianjian 2001/2002 went to press. Tibetan autonomous region has not started the identification process. 1 The table of Zhejiang is the only one which also provides the images of each trademark. 2 The table of Shandong province provides an aggregation of trademarks that were identified in 2000 and 2001. 3 Chongqing City, merging with Fuling, Wanxian, and Qianjiang, became the fourth municipality after the National People’s Congress on 14 March 1997. 4 The table of Gansu is divided into production goods (37) and living goods (52). 5 The table of Ningxia Hui autonomous region is divided into living (60) and production (45) goods.

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automobiles, etc. These trademarks are widely accepted across the whole country. These well-known brands are those receiving the most protection from the Chinese government. From 1985 (the year China acceded to the Paris Convention) to 2004, there were only 384 well-known marks established, of which only 16 were foreign. The rest were all Chinese brands (China Patents and Trademarks 2004: 61). It is virtually impossible for foreign trademark holders to apply for ‘well-known marks’ status (Browning and Wang 2004: 38). Even among Chinese brands, the granting of well-known mark status has always been a complicated legal issue, with many resulting in lawsuits. For example, in the case of Inner Mongolia Little Fat Sheep Restaurant Chain Co. v. the Inner Mongolia Huacheng Science Trade Co. Ltd, it took five years (September 1999 to December 2004) before Little Fat Sheep was granted the status of being a wellknown mark (Ye 2005: 59). As can be seen from Table 6.2, each Chinese province, municipality and autonomous region will register a number of famous trademarks. Beijing, Tianjin and Shanghai registered a number of famous trademarks, 152, 161 and 198, respectively. However, in 2001, it was Jiangsu which registered (336) the most famous trademarks in China. The distinction between well-known brands and famous brands is necessary in the case of China to assess what level of enforcement is needed. It also allows the AIC to better perform its function of enforcement because its power of enforcement penetrates from provincial to prefecture, municipal, county and urban level (Mertha 2005: 176). Although the AIC is given extraordinary power from the central to provincial level, the enforcement of trademark is not necessarily a one-way street from the central government. The local provinces and cities are effectively those who also demand more law enforcement, especially for those famous brands because the 1993–1994 tax reform, introduced from the third plenum of the Fourteenth National Congress in November 1993, effectively changed the relations between the central and local government through a new system of tax sharing (Cheung 1997). The level of trademarks enforcement and protection in different provinces is proportionate to the growth and economic development of individual provinces (Loo and Chow 2006). According to Li Ling, With the development of a market economy, more and more domestic private sectors have become trademark owners such as, Jianlibao (drink), Wahaha (drink), Sanxiao (tooth brush), Yuanda (air conditioner) and Lining (sport attire) etc. They are often important sources of local revenue and employment. Thus, these trademark owners are able to have good connections with both local and national adminis-

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trations, and have become an important force for the enforcement of trademark law. (Li 2003: 991; emphasis added) For foreign countries investing in China, the best way to protect their trademarks is to have joint ventures with local Chinese firms. Li added, The joint venture model could create the immediate economic incentive for Chinese enforcement of IP because the Chinese partners will certainly defend their mutual IPRs. The Chinese partner is more likely to have a better understanding of the nuances of political life in China, be more aware of impending upheavals, and maintain proper government contacts to safeguard joint venture’s investment. (Li 2003: 992) Nevertheless, when a company chooses the joint venture option, that company’s profiles, strategies and even business secrets will have a high probability of being copied, if not taken outright by that company’s chosen Chinese partners (Pearson 1991: 146). This is a real business dilemma. We have discussed before that progressively more and more joint ventures will be replaced by FDI in the cases of Guangdong, Beijing, Zhejiang and Fujian. Enforcement of IPR therefore becomes an imperative from the investor’s points of view.

Case study: trademark infringement: Andy Lau or Huazai? Andy Lau is a superstar in Hong Kong. Lau acted in many TV soap operas before becoming a movie star. He is also a well-known singer. Because of his TV and movies, Lau has fans all over Hong Kong and Greater China (including Taiwan and Mainland China). ‘Huazai’ has long been the nickname of Andy Lau. The following trademark case is not presented as an attempt to argue for one side of the dispute or another or whether the compensation is enough to deter similar infringement cases from happening. This is only one case (amongst many similar cases) that may help illustrate the complicated issues between trademark and culture in relation to the usage of language in understanding intellectual property rights infringement in China. This court case was filed in December 2004 by Andy Lau’s agent (plaintiff) to sue three toiletries companies (defendant) in Guangzhou of infringing his trademark ‘Huazai’ and his photo image (Beijing Youth Daily 28 April 2007: C7). These three companies (Hao Yi Mei, Li Qian and Yi He) have been using ‘Huazai’ as the product’s name and also

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attached the picture of Andy Lau to one of the shampoos. The plaintiff demanded 200 million yuan of compensation and asked the defendant to publish open letters of apology in two of the major newspapers in Guangzhou, People’s Daily and Nanfang Daily. After the first trial, the judgement from the Guangzhao Baiyun Court was that first, Hao Yi Mei and Li Qian were not involved in the infringement; second Yi He should destroy Andy Lau’s photos on all their products including shampoos, tissues and leaflets; third, that an open letter of apology be published in Nanfang Daily. Nevertheless, the court disputed the financial compensation of 200 million yuan demanded from the plaintiff by reason of not having enough evidence (ibid.). The plaintiff disagreed with the verdict and further appealed that Huazai should not be used as the brand of their products because it also infringed on Andy Lau’s long established image. Yi He defended that ‘Huazai’ has been registered as trademark from May 2003 to May 2013, and it was a legal trademark. That argument was supported by the Court during the first trial. The case was still in progress by the time I finished the draft of the book. The case is interesting in the sense that it involves not just an obvious infringement (the photo) but also less obvious, but more important, knowledge of language. Trademark battles are mostly about language. Increasingly, trademark battles involve linguistic interpretation. Roger W. Shuy has long been studying trademark and linguistics. His discussion on the battle of linguistics and law is very useful in understanding the legal as well as linguistic meaning behind trademark cases. Trademark battles conventionally begin with two parties claiming the right to use certain words or expressions. Such cases end either with one party gaining the legal right to use the words and expressions and the other party being prohibited from doing so, or with both parties authorized to have full access to the marks. The authority of law is then granted accordingly. Experts, including linguists, are commonly called upon in such trials to bring the knowledge of their fields to bear on the outcomes of the cases. Such expertise also carries the authority of their respective disciplines. Linguistics is based on the truth about how language works. Such knowledge is especially important in trademark cases, since trademark disputes are largely about language. Differences in where authority comes from and how it should be used bubble beneath the surface. Since knowledge about how language is structured and how it changes is important, even essential, to trademark attorneys, it is useful to address these differences about where authority comes from at the outset. It can be

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equally helpful for linguists who are asked to work on such cases to have some level of understanding about how the field of law views and uses its authority. (2002: 1) There are two relevant linguistic points that can be further investigated in the above case of Andy Lau and Huazai. First, Huazai has been pronounced in Cantonese by their fans to draw a close association/affection between the fans and their idol. Hua is his name and zai is equal to junior or boy. Second, both Hong Kong people and people in Guangzhou speak Cantonese, and because of the geographical proximity, Guangzhou people also watch Hong Kong television programmes and share very similar cultural relations (having congee, for instance). In the 1970s, in most of the stores in Guangdong, there were banners asking people to speak in the official language (Mandarin). It says Tongzhimen qingjiang putonghua (Comrades please speak in putonghua (Mandarin) ). In other words, although formal language has been adopted by the PRC, in practice, Guangzhou people speak Cantonese as their mother tongue. Huazai, therefore, gives rise to the same sort of cultural affection between the people in Hong Kong as well as those in Guangzhou. The use of Huazai as a brand targets consumers with such cultural affiliation and affection. Has the court also taken into consideration the language meaning behind a key infringement case? Did the court fully consider the circumstantial, cultural and linguistic meaning behind this case? These are questions that should be considered in relation to many disputes and legal litigation. These questions are not easy to answer. Besides, across the whole of China, if language has been employed into the trademark cases, the diversity of language and geographical differences will certainly complicate the whole notion of the legal mechanism. Yet, they are crucial in the current IPR protection system in China.

Interview with Michael Pendleton On 28 November 2007, I paid a brief visit to Professor Michael Pendleton, who is currently Associate Director (research) of the School of Law at the Chinese University of Hong Kong. Professor Pendleton has published widely on IPR and worked closely with Professor Zheng Chengsi, who was the previous head of the Intellectual Property Rights Bureau in China, on many projects. Professor Pendleton has also trained many judges in China on intellectual property rights. The following summarizes the major questions of the meeting:

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CHEUNG:

As a legal professional, what are the typical jobs regarding IPR infringement in China? PENDLETON: We do both teaching and practicing. I practice with deacons. I have taught six sitting Hong Kong High Court judges and given guest lectures to judges in China. CHEUNG: As far as I am concerned, the Chinese government has already revised many IPR laws: patents, copyrights and signed on to lots of international agreements through bilateral and multilateral means. Do you think they are enough? What can be done further? PENDLETON: It is like putting on new clothes without really understanding what is the meaning of legal system and the rules of law. They will take literally whatever fits and revise. This is also about self-interest. China is gradually developing its own intellectual property and needs a system to protect it. It is about self-interest in having laws to protect its own IP. The problem of the Chinese court is that it has no status. The Court is no different from other Chinese bureaus. A judge’s status is low and is equal to the status of a private lawyer. Their knowledge of IPR is increasing, but the level of that knowledge is low. The Chinese constitution is not designed to constrain the government. There is no independent judiciary. Thus the legal system is window dressing for what remains a dictatorship. CHEUNG: In those three areas, patents, copyrights and trademarks, which area received the most concern? PENDLETON: For sure trademarks. Most cases in China are about trademarks. Interestingly, the first trademark law in the world was established in Hong Kong in 1873. By Britain, of course, but before they had a true trademark law in Britain itself. CHEUNG: I was in WIPO working on the research for this book in September 2006. What are the crucial measures that WIPO can facilitate in responding to the infringement in China? PENDLETON: WIPO has been sidelined after the TRIPS agreement of the WTO. It is not that WIPO defined the IPR too narrowly but that it has no administrative role. TRIPS/WTO has overriding power. But, WIPO has made a comeback to facilitate more roles in the area such as domain names applications and legal assistant. CHEUNG: Do you think China does not care about other countries except the US in facing with IPR questions? What pressure can other countries give to China in protecting IPR? PENDLETON: Previously yes. But, the EU is coming and demanding a lot of IPR protection nowadays. The whole game has changed. Something such as face saving has not been so successful. EU is showing its muscle.

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CHEUNG:

Finally, would you like to give some comments on the future of IPR in China and the implications? PENDLETON: Having 1/3 of the population in the world, China should be developing a real legal system not just an administrative system called a legal system. Every country, not just China, will benefit from having a legal system. When it comes to moral principle, Confucianism is fine. Self discipline is the essence of Confucianism, Judeo Christianity and lots of other moral and religious systems. When it comes to the constraint of power, especially government power, Confucianism only makes abuse more likely. The Western legal system, based on judges independent of the government, grew out of challenging the powers of the Church and the King and the legislature. Individual rights, which in actual cases the exercise of which are against majority wishes by their very definition, can only be protected by an independent judiciary. Confucianism and other moral systems cannot constrain the abuses of individual rights by government (and all governments from time to time abuse individual rights), only an independent judiciary can.

Conclusion This chapter has been trying to illustrate the development and changes of the trademark regimes in China with a view to looking at the ways in which protection can be provided, again with lots of Chinese characteristics, especially in reflecting the notion of ‘grasping the large and letting go the small’ philosophy. Trademarks are symbols of trust. They also help reduce the information cost for the producer and the consumer. The rampant IPR infringement in China is however counterproductive, especially in terms of bridging of trust and enlarging the gulf between the producers and consumer. To honour the goodwill, trademarks must be protected equally compared with other IPR. The fact is that trademark is just a testing point to determine whether a genuine market economy can be maintained after 30 years of economic reform in China, amongst other important market ingredients.

7

Conclusion

If the global political economy of IPR tells us one thing it is that the world is far too insufficiently globalized for the imposition of a global legal settlement that does not allow for divergent national social developmental interests to be recognised (and acted upon). (May, Third World Quarterly)

Before I conclude, I would like to first tell a story of how the Chinese protect their own IP product. If counterfeiting is so rampant in China, making films in China can be a very risky business because the counterfeiters will try every channel to make counterfeit copies. In October 2002, a big hit, Hero, was about to release in Shenzhen. According to the producer Zhang Wei-ping, the first seven days were crucial. If they could protect the film from being counterfeited within the first seven days of release, it was considered winning a war. He recalled how they won the war.1 We took the copies of Hero every night to the cinemas with extreme care, with three men a team for carrying every copy. Even so, we were stalked for three nights. . . . During the first seven days of the release, almost all the global counterfeiters were gathered together in Shenzhen. The ceilings of those cinemas were quietly removed during the night. We reckoned some audiences kept staying in the cinemas until two o’clock in the morning when we finished the procedure of checking the cinemas. Ever since the discovery of the ceiling, we had to send more people to do the checking to see if there was anyone recording on the ceiling every day. In one occasion, a man went into the bathroom and never came back. We tried our best to search for him without any sign of him (we did check the ceiling!). After a while, someone discovered that the man sneaked away from a secret passageway in the bathroom.

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For extra security, in showing Hero, we installed security gates in front of the cinemas. It was perhaps the first time of using such kind of security measure to the audiences of a film. . . . Apart from security guards outsides the cinemas, we also employed specialists who could check, by using visual observation, individual audiences to see if anyone had brought any pin-hole cameras into the cinemas. Basically, during the first seven days of showing, every worker was counting the hours. They went to sleep at 2:00 am and woke up at 6:00 am to begin the checking process . . . Mr Kong, the investor of this movie, knew completely about the counterfeiters. Had they not been able to get the copy of the film, they would very likely to break into the cinemas to snatch eventually. In the last two days, workers began on 24 hours shift to protect the copies. They all looked like counterfeiters in the end of the week. (Luo 2005: 43–44) The lesson behind this story is that IPR infringement in China is rampant and not only foreign companies/countries suffer from the infringement, domestic Chinese firms and products are at the mercy of infringement at any time under any IPR categories. As far as the film industry is concerned, ‘China is an extreme example of the challenges pirates pose to film companies’ traditional ways of doing business, one where intellectual property rights are only patchily enforced and state censorship adds to the difficulty of marketing foreign films’ (Dickie 2006: 28). According to Guo Zilong, Chairman and President of Zoke Culture Group (China’s biggest legitimate DVD producer), DVD’s should be released as soon as the film has been released to cinemas. Otherwise, it will be at the mercy of counterfeiters (ibid.). One should take piracy as the norm and be alert all the time because counterfeiting is a lucrative business from the supplier’s points of view. The rampant counterfeiting and almost unstoppable piracy and fake culture are attributed to the socially, economic and politically constructed demand side and the notion of consumer culture. We have demonstrated that the demand side of counterfeit products, coupled with the increase of GDP and wages, contributes to the burgeoning counterfeiting industry. After Deng Xiaoping opened the Chinese economy, and the call for ‘getting rich is glorious’, China has gone through a stage where moral values or socialist ideology mismatch with the thrust of the ‘get rich first’ mentality. The so-called post communist personality was a culmination of the diminishing of socialist values, the increasing market liberalism, the authoritarian political system and the narrowly defined economic growth ideas. Wang Xiaoying pointed out that:

98

Conclusion As opportunities for wealth, consumption and pleasure multiplied, especially after 1989, so ‘getting rich first’ came to shed its original meaning as a moral and political reaction against the extreme asceticization of Chinese life. Thus detached from its original moral and political dimension, ‘getting rich first’ became a nationwide struggle for money alone, in which more and more people would stop at nothing as long as they believed they could get away with it. With tens of millions of people joining in this value-free struggle for material wealth, huge stretches of Chinese life have since become a moral wasteland. (2002: 14)

The moral deterioration in China today fuses many aspects, culminating in many social and economic problems. IPR infringement and piracy are somehow those highlights that bridge with international political economy where world affairs are also being jeopardized under the Chinese moral plight. Many reasons contribute to the weak enforcement of IPR and lax law implementation in China. Culturally, the Confucian tradition does not necessarily reward innovation and creation. It hails imitation and copying. The institutional designs of the Chinese executive and judiciary also give rise to the malpractice and abusive use of Chinese bureaucracy, which is very often corrupt and lacks transparency (Bender 2006: 234–235). It has almost been a cliché that we are approaching a world economy that is less reliant on finite factors of production (land and labours) and more and more reliant on infinite products such as knowledge and ideas (Kim and Mauborgne 1999: 44). Nevertheless, knowledge without systematic protection is much worse because innovation will be retarded. One of the key elements of IPR protection is legal rights and their enforcement. Imagine that ‘If these legal rights did not exist, the next person could appropriate your intellectual thought for his or her own use, significantly reducing your ability to exploit the full value of your thoughts’ (Fitzgerald 2001: 23). This is why the international economy, specifically the US, is calling for the strategic use of IPR law, especially in the area of patents, because that will significantly improve the financial performance and competitiveness of a company (Rivette and Kline 2000: 56). To conclude, this book has demonstrated a way of seeing IPR problems from the perspective of consumer culture in China. The extent of the IPR issue is influenced by the intensity of the consumer culture, which not only helps us understand the construction of the market economy in China, but also allows one to examine questions about the political and social space that is generated from the globalization, if not the Americanization process. The IPR issue, in this context, is considered to be a harmful externality

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resulting from the general modernization and market development of China, where IPR protection should be taken from the legal framework as well as from the politics of economic relations in China. Sino–American IPR disputes have always been a bone of contention because of the poor implementation of IPR protection on the one hand and the market liberalism of American industries on the other. Yet, putting China as the first in the priority watch list in the Special 301 Reports allows the US to monitor China with an arm’s-length mechanism, which is an important measure to counteract the multilateral function of the TRIPS under the WTO. IPR problems will prevail as long as the US trade deficits with China escalate. At some point, the bilateral means of US–Sino IPR disputes do appear to be quite effective because of the national interest of the US being at risk. The argument of China being a developing country is getting less and less vocal because much of the evidence points to the fact that it is not economic growth which retards the IPR regimes. It is actually more to do with the implementation and weak administration (especially local government) that contributes to the rampant counterfeiting. As far as the US is concerned, it was further trying to target four localities: Guangdong, Beijing, Fujian and Zhejiang in the 2006 Special 301 Report for close inspection and monitoring. More cities and provinces will fall into this category later, for example Shanghai, to be investigated and examined very closely in the future for the implementation of IPR protection. It has been demonstrated that there are already many legal frameworks, domestically or globally, in China and they of course serve as a means to protect against the chronic counterfeiting in China. Other ways in dealing with IPR protection include a price mechanism and the encouragement of China to develop high quality knowledge products. It seems that the clash of IPR protection and the market economy in China is increasingly moving along the burgeoning of the market economy and will continue as long as Chinese market openness still plays an important role in its economic development.

Notes

1 Introduction 1 These are only a handful of those counterfeit ‘products’ that some Chinese people are trying to sell to pedestrians on both ends of the footbridge near Zhongguancun Street in Beijing. 2 Eventually, two people were convicted by the Chinese government in late 2005. The factory manager was jailed for seven years and fined 500,000 yuan. The chief technician was jailed for three years. Online, available at: www.zaobao.com/special/reatime/2005/12/051206_27.html (accessed 6 December 2005). 3 Report of the 17th National People’s Congress. Online, available at: http://cpc. people.com.cn/GB/104019/104099/6429414.html (accessed 15 October 2007). 2 Approaches and perspectives 1 Part of the speech in the Regional Copyright Seminar for Asia and the Pacific in Tokyo, 15–19 November 1993. 2 Interview with Michael Pendleton, 28 November 2007. 3 Interview with Chinese scholar, April 2004 in Brussels. 3 US-Sino IPR disputes 1 (See USDS 2005a: 2). 2 Beijing Review 44 (29 October 1984): III. 3 South China Morning Post, 31 October 1997: 4; Brian Knowlton, ‘China and U.S. Reach Nuclear Deal’, International Herald Tribune, 30 October 1997: 1; David Shambaugh, ‘A Framework for Future Cooperation’, Asian Wall Street Journal, 4 November 1997: 8. 4 New ‘hot spots’ of counterfeiting and Chinese consumer culture 1 Mainland Affairs Council, ‘Preliminary Statistics of Cross-Strait Economic Relations’. Online, available at: www.mac.gov.tw/english/english/csexchan/ economic/9512e.pdf (accessed 16 February 2008). 2 National Bureau of Statistics of China. Online, available at: www.stats.gov.cn/ english/newsandcomingevents/t20051115_402291343.htm (accessed 4 January 2006).

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3 Development of the southern part of China is enormous and sometimes distasteful. For instance, in Dongguan, the tourism industry has been blossoming, perhaps to the point of distortion. In a hotel, you will be eating in the restaurant where white tigers are kept in the central courtyard sealed with glass walls. 4 To a certain extent, the pirated Chinese translation book of The Third Wave by Alvin Toffler was considered as having a tremendous influence on opening up the minds of many Chinese universities’ students about the outside world after the open door policy in 1978. 5 Culture is certainly one of the major forces behind Sino-American relations in the post-Cold War era. To use globalization as an example, whether the importance of indigenous culture can be protected will greatly depend on the social acceptability, identity and the government policy (see Johnson 2000: 405–418 and Harrison and Huntington 2000). 6 Interview with scholar from Renmin University, April 2004. 7 BBC News, 12 September 2006. Online, available at: http://news.bbc.co.uk/1/ hi/world/asia-pacific/5337248.stm (accessed 12 September 2006). 5 Protecting IPR: the Chinese way 1 The Chinese delegates of this session were: Wang Jingchuan, Commissioner, State Intellectual Property Office; Ma, Lianyuan, Deputy Commissioner, State Intellectual Property Office; Wang Huapeng, Director General, Copyright Department, National Copyright Administration of China; Qiao Dexi, Director General, International Cooperation Department, State Intellectual Property Office; Dong Baolin, Deputy Director General, Counsellor, Trademark Office, State Administration for Industry and Commerce; Stephen Selby, Director, Intellectual Property Department, Hong Kong Special Administrative Region; Han Li, First Secretary, Permanent Mission, Geneva; Su Rusong, Division Director, National Copyright Administration of China and Zeng Yanni, Project Administrator, International Cooperation Department, State Intellectual Property Office. 2 Interview with Tshimanga Kongolo on 21 September 2006. 3 Again, in terms of economic analysis, the MC curve should be intersected with MR (marginal revenue). The Demand curve need not necessarily be the MR curve. But, we are now studying the policy implication; therefore the diagram is an assistant in itself. 4 Interview on 8 May 2004. 6 Case: dynamics and changes of trademarks development in China 1 Interview with Michael Pendleton on 28 November 2007. 7 Conclusion 1 The translation from Chinese to English is from the author.

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Index

Accord of Intellectual Protection (1995) 33 Action Plan (2007) 36 Adede, Adronico O. 12–13 administrative regulation, patents 27–8 Africa, FDI 44 Agreement on IPR Development and Cooperation Mechanism in Six Central Provinces (2004) 34–5 Alford, William 20, 31 Alikhan, Shahid 65 Ambler, Tim 57 American Chamber of Commerce in China 25 American culture 60 Amin, Ash 58 An, Qinghu 87 appropriation position 19–20 art products 68 Asia: FDI 44; infringements 27 Atallah, Gamal 10 audiovisual infringements 65 Australia, FDI 44, 50 Austria, FDI 48 baby milk powder 1–2 Bader, Jeffrey A. 33–4 Bai, Benjamin 75–6 Bainbridge, David I. 7, 83 Barboza, David 1 Barnet, Richard J. 30 Beijing: counterfeiting 46–8; infringements 40–1; legal training 32; patents 72 Bender, Tobias 98 Bently, Lionel 9, 84

Bermuda, FDI 44 Berne Convention (1992) 5, 31, 74 bilateral trade agreements 16, 31, 33 book plan 4–6 books 68 border protection 35 Browning, Tim 88, 90 Budapest Treaty 74 Buoye, Thomas M. 21 bureaucratic redundancy 39–40 Cai, Fang 61 Canada, FDI 44, 48, 50 Cannon 72, 73 Cantonese 93 Cao, Jianming 66–7 Cavanagh, John 30 Cayman Islands, FDI 44 Chaharbaghi, Kazem 18 Chang, Wen 77 Checkel, Jeffrey T. 15 Chen, Leo K. 27 Chen, Tony 75–6 Cheung, Gordon C.K. 3, 81, 90 Cheung, Steven N.S. 13 China Intellectual Property Training Center (CIPTC) 65 China’s Implementation of its WTO Commitments: Mixed Results after Two Years report 33 Chinese Communist Party (CCP) 24–5, 40 Chinese context, IPRs 20–2 Chinese Patent Office (CPO) 65 Chinese regime, trademarks 86–7 Chow, Sin Yin 90

Index 113 Coase, R.H. 13, 78 coffee culture 59–60 computer patents 75 Confucian tradition 20, 21–2, 95, 98 Constitution of the People’s Republic of China 24–5, 94 consumer culture 55–61, 97–9 consumer markets, evolution/ development of 55–8 consumption as freedom 58–61 consumption revolution: China 24–5, 61; Fujian province 52, 54; Guangdong province 41–2; Zhejiang province 50–1 Copyright Law (1990) 66, 67 Copyright Treaty (WCT) 73, 74 copyrights management 67–8 Cornish, W.R. 9 Council for Mutual Economic Assistance (CMEA) 28 counterfeiting: Beijing 46–8; Fujian province 51–5; Guangdong province 41–6; Zhejiang province 48–51 Cripps, Sandy 18 cultural affiliation 93 cultural historicism 21–2 currency 29–30 Czechoslovakia 28 Daniel, C. 59 danwei 56 Davenport, Thomas H. 18 Davis, Deborah 40, 57–8, 62 defensive issues 27–8 definitions, trademarks 84–6 Defrancesco, Edi 20 developing countries: China as 99; infringements 25–8; and TRIPS 8–9; weak protection 18–19, 21 Dickie, Mure 97 dishonest behaviours 66–7 domestic brands, counterfeiting 77 domestic patent applications 69–73 Dongguan, counterfeiting 42 Drahos, Peter 17 Dutfield, Graham 12 Dyer, Geoff 74 earnings: Beijing 46–7; China 57–8;

Fujian province 52; Guangdong province 42; Zhejiang province 50–1 Eastern Europe 28 Eckhoff, Robert A. 18 economic development 3–4, 55–61 economic growth 20–1, 60 economic liberalization 16 Europe, FDI 44 European Community (EC) 28 European Union (EU) 94 Evenson, Robert E. 22 explicit consent 14, 15–17 famous marks 88–90 Feinberg, Robert M. 13, 80 Feinerman, James V. 16 Feng, Peter 20 fines 77 Fink, Carsten 8 Finland, FDI 44 Fisher, Matthew 18 Fitzgerald, Brian 98 Food and Drug Administration (FDA) 2 food consumption 56 food safety 1–2 foreign capital utilization: Beijing 48; Guangdong 45 foreign direct investment (FDI): Beijing 48; China 2, 60; Fujian province 51, 52, 54; Guangdong province 44–6 foreign patent applications 69–73 foreign patents 75 Foreign Protection of Intellectual Property Rights and the Effect on US Industry and Trade report (1988) 26 France: FDI 44, 48, 50; patents 72 Franklyn, David J. 9–10, 85 freedom, consumption as 58–61 Fruin, Mark 76 Fujian province: counterfeiting 51–5; infringements 40–1 Gao, Lulin 66, 82 GDP 61; Beijing 46–7; Fujian province 52–3; Guangdong province 41–2; Zhejiang province 48–50 General Administration of Customs (GAC) 35

114

Index

General Agreement on Tariffs and Trade (GATT) 12–13, 15 Germany: FDI 44, 48, 50; patents 69, 72 Ghosh, Shubha 19–20 Giles, John 61 Ginsburg, Jane C. 9, 86 global phenomena, infringements as 25–6 global protection, IPRs 73–6 Goodman, Peter S. 2 Gourevitch, Peter Alexis 15 government failure, regulation of 80–2 Greater London Development Plan (1973) 14 Greider, William 31 Grossman, Gene M. 7, 13, 15, 31 Guangdong province: counterfeiting 41–6; infringements 40–1; patents 69, 72; violence and IPR 21 Guangzhou: counterfeiting 42; cultural affiliation 93; legal training 32 Hamilton, Gary 55 Hao Yi Mei 91–3 He, Xin 81–2 Hero (film) 96–7 Holtermann, S.E. 13, 14 Hong Kong Trade Development Council 16 Hong Kong, FDI 44, 48, 54 Hongqiao 32 Huazai 91–3 Hubei, patents 72 Hung, C.L. 4 Hungary 28 IBM 73 income equality 61 individuals, role in global protection 73–6 Indonesia, FDI 50 information gathering 58–9 information technology, effect on US growth 22 infringements: case study 91–3; developing countries 26–8; interview with Michael Pendleton 93–5; and US national interests 28–32 infringers, identification of 80

Inner Mongolia Little Fat Sheep Restaurant Chain Co. v. Inner Mongolia Huacheng Science Trade Co. Ltd. 90 intellectual capital (IC) 18; management of 76 intellectual property rights (IPRs): Chinese context 20–2; debates and controversies of 17–20 intellectual property, legal meanings/ theoretical development 9–11 International Federation of the Phonographic Industry 41 international legal agreements 15–17, 73, 74 International Union for the Protection of New Varieties of Plants (UPOV) 74 Internet infringements 34, 52 INTERPOL 31 Interpretations on Several Issues Concerning Hearing of Civil Disputes over Trademarks (2002) 87 Italy: FDI 44; patents 72 Japan 15; FDI 44, 48, 54; patents 69, 72, 73 Jefferson, Thomas 9 Jiangsu: infringements 36, 52; patents 69, 72 job security 61 Joint Commission on Commerce and Trade (JCCT) 34, 35 joint ventures 45, 69, 91 Jorgenson, Dale 22 Kanwar, Sunil 22 Keidel, Albert 30 Keng, Kenneth 61 Keohane, Robert O. 15 Keon, Jim 85 Kerr, William A. 22 Kim, W. Chan 98 Kline, David 98 Klotz, Audie 15 Knight, John 61 knowledge development 2–5 knowledge products 58–9 Korea: FDI 44, 48; patents 69, 72, 73 Kraus, Richard 29

Index 115 Kroeber, Arthur 2 Landes, William M. 10 Lanham Act (1946) 85 Lanjouw, Jean O. 18 Lardy, Nicholas 60, 61 Lash, William 24, 32 Latin America: FDI 44; infringements 27 Lau, Andy 91–3 lawsuits 66–7, 76–7, 90, 91–3 learning process, IPR protection as 76 Lee, Ching Kwan 60 legal aspects, IPR protection 66–73 legal meanings, intellectual property 9–11 legal means, IPR protection 18–20 legal professionals, training for 32 legal system 93–5 legal tradition, lack of 20 legislation, trademarks 87–91 Leibold, Marius 18 Lessig, Lawrence 20 Levi Strauss & Co. 77 LG 73 Li Qian 91–3 Li, Conghua 25, 56 Li, Ling 90–1 Li, Shi 61 Liaoning, patents 72 linguistics and trademarks 92–3 Locarno Agreement 74 Locke, John 17–18 Loo, Becky P.Y. 90 Loppacher, Laura J. 22 Lu, Han Long 55, 56, 58 Luo, Han-cheng 65, 66, 96–7 Macao, FDI 44, 54 McCarthy, J. Thomas 9–11, 85, 86 McKinnon, Ronald I. 28 Madrid System 74, 85–6 Mainland Affairs Council (MCA), Taiwan 52 Malaysia, FDI 44, 50 Maniatis, Spyros M. 17 mark protection 88 market economy 24–5 market forces 2–5 marketization 55–61

Mauborgne, Renée 98 May, Christopher 7, 18, 33, 96 Mayer, Peter 15 media products 67–8, 79–80, 96–7 Memorandum of Cooperation on IPR Enforcement, EU–China (2007) 37 Memorandum of Understanding, US–China (1992) 5, 25, 16, 31, 33, 39 Menil, Georges de 28 Merges, Robert P. 9, 86 Merrills, J.G. 17 Mertha, Andrew 2, 8, 39–40, 87–8, 90 Microsoft 76–7 Ming Dynasty 55 Miyagiwa, Kaz 27 mobile communication patents 75 modernity 55–8 Montan, Nils Victor 20 moral right position 19–20 Mossinghof, Gerald J. 7 Muson, Steven 80 national interests, US 28–32 national security 31 National Trade Estimate Report on Foreign Trade Barriers (NTE) 35 ‘natural rights’ theory 17–18 Naughton, Barry 24 Netherlands: FDI 44; patents 72, 73 Nice Agreement 74 ‘non-nationals’ intellectual property 33–4 norms proliferation 14–15 North America, FDI 44 Norway, FDI 44 Oceania, FDI 44 offensive issues 26–7 Olympic Games (2008) 2, 41 Oman, Ralph 7 Organization for Economic Co–operation and Development (OECD) 28 Pahre, Robert 8 Panasonic 73 Paris Convention (1985) 5, 11, 16, 74, 88 Park, Albert 61

116

Index

patent applications 68–76 Patent Cooperation Treaty (PCT) 74 Patent Law (1984) 66, 67 patent laws 27–8 Pearson, Margaret 16, 45, 91 Pendleton, Michael 21, 83, 86–7, 93–5 Performance and Phonograms Treaties (PPT) 73, 74 pharmaceuticals patents 75 Philippines, FDI 54 Philips 73 Phonograms Convention 74 Pigou, A.C. 13 Pilling, David 2 Plamenatz, J.P. 15 Poland 28 policy implementation, IPRs 76–82 political environment 60–1 Pomeranz, Kenneth 55 Ponte, Stefano 59 Portman, Rob 35 Posner, Richard A. 10 price mechanism, use of 77–82 Primo Braga, Carlos A. 8 product life cycle 79–80 protection, IPRs: 1990s efforts 64–6; global protection/role of individual 73–6; legal aspects of 66–73; policy implementation 76–82 protection, trademarks 87–91 provinces, famous trademarks 89 provincial level enforcement 34–5, 36–7 Provisional Rules on the Recognition and Administration of Well-known Trademarks (1996) 87, 88 public domain position 19–20 Putnam, Robert D. 14–15 Qing Dynasty 21, 55, 86 Reflective Material Factory, Shenzhen University 76–7 Report of the Growth and Development of Chinese Enterprise 2002 65 reputation, incentive to invest on 31 Richards, Donald G. 7, 8 Righini, Marilou M. 16 Rittberger, Volker 15 Rivette, Kevin G. 98 Rothkopf, David 60

Rousslang, Donald J. 13, 80 Rules on the Recognition and Protection of Well-known Trademarks (2003) 87 Runge, C. Ford 20 Russia 28, 30 Samhat, Nayef H. 15 Samsung Electric 73 Samsung SDI 73 savings 61; Beijing 47; Fujian province 54; Zhejiang province 50–1 Scandizzo, Stefania Emma 18–19 Schankerman, Mark 18 Schechter, Roger E. 9–10, 77, 85 Seiko 73 Select Committee on Trade Marks (1862) 84 Sell, Susan K. 33 semi-conductor patents 75 Sepulveda, Claudia Paz 8 Shandong, patents 72 Shanghai Rongshuxia Company 77 Shanghai: infringements 36, 52; legal training 32; patents 69, 72 Shapiro, Carl 7, 13, 15, 31 Shaw, M.N. 16 Shenzhen, counterfeiting 42 Sherman, Brad 9, 84 Shirk, Susan 3 Shuy, Roger W. 92–3 Singapore, FDI 44, 48, 50 single-child phenomenon 25 Slater, Don 58 So, Alvin Y. 60 social cost approach 78–82 social status 56 socialist countries 28 software 35 Song Dynasty 86 Sony 73 Spain, FDI 44 Special 301 Reports 5, 25, 36–7, 40–1, 46, 48, 52, 69, 99 (USTR) special economic zones (SEZs) 40, 42 Special Provincial Reviews (SPWs) 25, 36–7 Starbucks 59, 60 State Administration for Industry and Commerce (SAIC) 87–8

Index 117 state-owned enterprises (SOEs) 61 state-owned units (SOUs), Guangdong province 42 Strasbourg Agreement 74 Strategic Economic Dialogues (SED) 26, 37 strong recognition, IPR 14 Sunrise International Trading Inc. 77 Supreme People’s Court 88 Sweden: FDI 44; patents 72 Switzerland: FDI 44; patents 72 tacit consent 13–15 Taiwan Copyright Law 27 Taiwan: FDI 44, 48; patents 72 Tang Dynasty 86–7 tax sharing 90–1 technical training 32 technological development/transfer 20–1, 27 technological gap 22 textbook counterfeiting 52 Thailand, FDI 44, 50 theoretical development, intellectual property 9–11 Thrift, Nigel 58 Thurow, Lester C. 20, 27, 63, 77–8 Tianjin, patents 72 Toshiba 73, 76 Trade Act (1974) 33 trade disputes, US–China: developing countries infringements 26–8; implications of social cost approach 78–82; overview 5, 15, 16–17, 32–7; US national interests and infringement 28–32 trade figures, US–China 29–30 trade liberalization 15 Trade-related Aspects of Intellectual Property Rights Agreement (TRIPS): Article 15(1) 85; Article 30 31, 19; Article 41 12; infringements 82; compliance with 4; and developing countries 8; IPR protection as enforcement of 11–13; multilateral function 99 trade secrets 10 Trade Secrets and Intellectual Property Management 10 trademark infringement 91–3;

interview with Michael Pendleton 93–5 Trademark Law 41, 66, 67, 87, 88; Implementing Rules (1993) 88, 87 Trademark Law Treaty (TLT) 74, 87 Trademark Office and Provincial Administration for Industry and Commerce (AIC) 87–8, 90 trademark protection 87–91 trademark registration 87 trademarks development: Chinese regime 86–7; rationales and definitions 84–6 traditional knowledge 19–20 UK: FDI 44, 48, 50; legislation 9; patents 72 unemployment 61 unfair competition 10–11 United Nations (UN) 27 Universal Copyright Convention (1992) 16 Universal Declaration of Human Rights 8 urban collective owned units (UCUs), Guangdong province 42 US: effect of IT on economic growth 22; FDI 44, 48, 50; food safety 2; patents 69, 72, 73 US Chamber of Commerce 52 US Customs and Border Protection (CBP) 3, 37 US Department of Homeland Security 37 US Department of State 31, 35 US General Accounting Office (GAO) 39 US International Trade Commission 26 US–China Joint Commission on Commerce and Trade (JCCT) 25 US-Sino IPR disputes: developing countries infringements 26–8; implications of social cost approach 78–82; overview 5, 15, 16–17, 32–7, 99; US national interests and infringement 28–32 Vaver, David 18 violence and property rights 21–2 Virgin Islands, FDI 44

118

Index

Voelpel, Sven C. 18 Vogel, Ezra F. 28–9 Wan, Guang-hua 56 Wang, Carol 88, 90 Wang, Xiaoying 97–8 Warner Music Group 77 Washington Treaty 74 Wayne, E. Anthony 31–2 weak protection 18–19, 20–2 welfare loss 14–15 welfare tax 78–82 well-known marks 88–90 Wenzhou, counterfeiting 50 Western commodities 55 Western consumption patterns 57–8 Western legal system 95 Western Samoa, FDI 44 wireless communication patents 75 Witzel, Morgen 57 Wong, Peter 75–6 Wong, Xiang 75–6 World Cup (2006) 46 World Intellectual Property Organization (WIPO): Asian Regional Seminar on Industrial Designs (1994) 64–5; and China 73; Copyright Treaty 28; crucial

measures 94; infringements 82; Internet-related treaties 34; membership 16, 74; performance 33; trademark definition 84; workshops 20–1 World Trade Organization (WTO): China’s commitments to 33–4; compliance 13; dispute settlement mechanisms 36; membership 2, 4, 11–12, 31; Report to Congress on China’s WTO Compliance (2004) 34 Wriston, Walter B. 27 Yardley, Jim 1 Ye, Mark L. 90 Yeh, Andrew 34 Yi He 91–3 Yu, Peter K. 83, 86 Yu, Peter Y. 32 Zhejiang province: counterfeiting 48–51; infringements 40–1; patents 69, 72 Zheng, Bijian 3, 59 Zheng, Chengsi 83, 86–7 Zhongshan, counterfeiting 42 Zhou Dynasty 86 Zurn, Michael 15