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Published: July 3, 2007

 
 

Protecting the Company Jewels in an Unprotected Country

The Chinese court system is also working — to an extent. Pfizer successfully sued a Chinese competitor making Viagra and received an undisclosed settlement. But that didn’t actually stop the competitor, and now Pfizer is stepping up the pressure. “Enforceability is always an issue in China,” Crosbie says.

In similar litigation, Cisco Systems claimed that Huawei Technologies had copied its router technology to compete against the U.S. company in global markets with nearly identical products sold at a fraction of the price. The case resulted in an undisclosed settlement, but Huawei products distributed worldwide continue to closely resemble Cisco’s. And in a high-profile case, General Motors sued Chery Motors for imitating the Chevy Spark minivan. An agreement ostensibly restricting Chery’s actions was reached in November 2005. But Chery has nonetheless introduced another Chevy Spark knockoff, the QQ, with a slightly redesigned front end.

Very few details are available on most cases because the lawsuits are usually settled privately. But one well-chronicled incident involved Starbucks, which discovered a competitor in Shanghai that was using the Chinese name for Starbucks, Xingbake Café. It was also using a logo in the same colors and style as the American company’s. The Seattle-based company sued its upstart rival in Shanghai No. 2 Intermediate People’s Court in 2004 and the court found in favor of Starbucks in 2005. The Xingbake Café appealed, but last January the Shanghai Supreme Court upheld the decision.

Still the Chinese rival persisted, and the Supreme Court said it would have to “educate” the company by freezing its bank accounts and seizing items related to the case. Finally, in May, the Shanghai outfit agreed to change its name. Xinhua, the official news agency, reported that Starbucks and its imitator settled on a RMB500,000 penalty (US$63,000), which would be paid in installments.

If all measures fail to stop a rival from copying and the company seeks to export its products, it may be possible for a Western company to bring action in Hong Kong, where the vast majority of goods from southern China are transshipped. The former British colony has retained a Western-style legal system even though it is now officially part of China.

Working the System
Overall, there is no single surefire method to protect IP in China. The key, the experts say, is to be persistent and keep raising the cost of what an imitator is doing. The Chinese system is faster than, say, India’s, and can be made to work in a foreign company’s favor if the company has Chinese-speaking personnel and is tenacious. “A great many people from the United States are completely mystified by the Chinese system, but it is comprehensible,” says Hong Kong’s Selby.

For example, the Chinese legal system has very specific standards of proof and documentation for allegations of piracy, and foreign companies must strictly comply to have a chance of winning. “If you understand what is required, you can get what you want out of the Chinese system,” he adds. Sometimes sheer political pressure, such as lobbying against a company through a variety of governmental organizations, can help; it drives up the Chinese company’s costs because it has to expend time and resources to respond.

Chinese copycatters “go after soft targets,” adds attorney Ng. “They are not hardened criminals. In 85 or 90 percent of the cases, you can solve the problem.”

Highly publicized street raids on fake CDs and DVDs are largely political theater aimed at Washington, Ng argues. “If it’s a US$200 billion issue, then smashing $20 million worth of CDs and handbags is just for the press — it doesn’t mean anything,” says Ng.

 

Resources

  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.