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(originally published by Booz & Company)


Protecting the Company Jewels in an Unprotected Country

Other very practical steps include enforcing codes of conduct for Chinese employees and creating a climate in which workers know there is a system in place for tracking the flow of information. “You need to train your Chinese staff on ethical expectations because that is not covered in their educational systems,” says Crosbie. Product samples also must be controlled. Many companies fail to recover samples from customers after specific periods of time, giving potential pirates a leisurely opportunity to copy them.

Crosbie also suggests that U.S. and other foreign companies make it very clear that all outgoing e-mails will be scanned for key words relating to piracy, which is particularly important because of high employee turnover. “If you don’t want employees to take manuals to their next employer, make sure that large volumes of data can’t be transferred without triggering an alarm bell,” she adds.

Company-wide nondisclosure policies should be supplemented with personal agreements, experts say, because of a cultural nuance that leads Chinese to view corporate dictums as less substantive than documents with their names attached that they’ve had to sign. “A blanket corporate policy is not very effective,” says Stephen Selby, head of the Hong Kong government’s intellectual property protection division. He says that both corporate and personal agreements should be reinforced annually.

In addition, foreign companies should create legal or compliance departments inside their Chinese subsidiaries, ideally comprising Chinese and non-Chinese employees, whether Americans or Taiwanese or Hong Kong residents. And headquarters should also dispatch inspectors or other executives to examine field operations rather than relying on long-distance communications.

In addition to these efforts, companies are advised to take stern action if any employee, however prized, breaks the rules. “You have to kill the chicken to scare the monkey,” says Crosbie, employing an old Chinese expression.

Offenders May Be Prosecuted
Even as more and more companies explore novel ways to protect intellectual property rights, they are getting a smattering of help from an unexpected source: the Chinese government. Although their country is still a hotbed of piracy, a handful of very senior Chinese leaders have concluded they want better IP protection for their own companies; without this, they believe, China’s own development is impeded. “That’s the biggest incentive the Chinese have to straighten out their IP laws,” says Ng of K&L Gates. “They realize that they have to be able to protect their own rights, not just in China but also in international markets.”

At least 19 government agencies are now involved in intellectual property issues, says Hugh Stephens, senior vice president of international relations and public policy for Time Warner in Hong Kong. His company faces a particularly acute piracy issue because its movies and music can be distributed over the Internet once they exist in digital files. Stephens is a member of a Beijing-based coalition of foreign companies that is pressing Chinese leadership for change. It carries a rather awkward moniker — the Quality Brands Protection Committee of the China Association of Enterprises with Foreign Investment — but it is the leading business organization fighting for IP protection on the mainland.

Labor tribunals, which offer arbitration in a wide range of disputes between employers and employees, are one way to attempt to punish employees or former employees suspected of wrongdoing. These tribunals may summon key foreign lawyers or executives within 48 hours, so a company has to be prepared to send in necessary personnel from Hong Kong or elsewhere in a hurry. “They are willing to work with people who are trying to work with them,” says Crosbie.

Foreign entities can also bring suit at the national Trademark Bureau or a local copyright office, or seek redress at the State Administration for Industry and Commerce, which issues all business licenses. Disney brought action in Beijing’s Copyright Bureau when it discovered that Shijingshan Amusement Park was featuring large characters that looked just like Mickey and Minnie Mouse, Snow White, Donald Duck, and other copyrighted characters. Partly because the case was highly visible, the Copyright Bureau was able to force the amusement park to take “emergency measures,” which meant removing the Disney-like characters.

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  1. Business Software Alliance Web site: One of the most active trade groups arguing for better protection of software in China. Click here.
  2. Hong Kong Intellectual Property Department Web site: Details intellectual property protections and activities in Hong Kong. Click here.
  3. Quality Brands Protection Committee of the China Association of Enterprises with Foreign Investment Web site: The leading China-based foreign alliance working to improve IP protection. Click here.
  4. State Intellectual Property Office of the People’s Republic of China Web site: Information about China’s intellectual property initiatives, rules, policies, and regulations. Click here.
  5. U.S. State Department Intellectual Property Web site: A wide-ranging compendium of information about legislative and diplomatic initiatives regarding IP. Click here.
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