Michael Barbella09.17.12
Officers with the Chinese State Administration for Industry and Commerce (SAIC)—conducting a rare crackdown on counterfeit goods—entered Building 2 at 805 10th St. in Beijing’s Haidian District on the morning of July 23 and made a beeline for the warehouse. There, they spotted cartons of various models of fans, all bearing the brand label of ebm-papst Mulfingen GmbH & Co. KG, the world’s leading manufacturer of motors and fans. The Mulfingen, Germany-based company develops and manufactures the drives for various industries, including medical; its products are used in diagnostic devices, incubators, centrifuges, and drives for operating tables.
The operation inside fan dealer Beijing Longwei Shengda Technology Co. Ltd. looked legitimate, but the officers knew better. They questioned the company’s owner about the fans and he insisted they were originals. But when SAIC agents found 10,000 labels and matching counterfeit printing plates inside the warehouse, the owner admitted purchasing the fans from South China, labeling them himself and selling them as authentic ebm-papst products both domestically and internationally. Since the ebm-papst brand is protected in China, the SAIC agents confiscated the fans, labels and printing plates, and gave the dealer a warning.
ebm-papst officials consider the mid-summer raid at Beijing Longwei an important victory in the company’s eternal battle against brand piracy. Besides removing a bogus product from the market (which, incidentally, saved ebm-papst a potential fortune in future legal and public relations expenses), the raid was representative of China’s newfound respect for intellectual property rights (IPR).
“Ten or 15 years ago, most people in China saw IPR protection as something only U.S. or foreign companies cared about, but that is changing as more and more Chinese entities are creating intellectual property of their own,” Gary Locke, U.S. Ambassador to China, said during an IPR roundtable event in China this past spring.
Indeed, China and other developing nations with reputations for intellectual property theft and rampant brand piracy gradually are discovering the benefits of IPR enforcement. Shenzhen-based telecommunication equipment manufacturers ZTE Corporation (formerly Zhongxing Telecommunication Equipment Corporation) and Huawei Technologies Co. Ltd. are two of the world’s largest holders of international patents. In addition, patent filings and intellectual property lawsuits brought by Chinese firms are growing by double digits, and the number of issued patents is expected to rise by two-thirds over the next three years, according to some estimates.
While the spike in patent filings and IP lawsuits partially is due to government inducements to file patents, the increase also can be attributed to an improved legal system that features judicial training in patent and copyright law and better damage awards. Earlier this year, a Chinese court awarded 22 million yuan ($3.5) million to Ashland Inc., a Covington, Ky.-based specialty chemicals firm that accused an auxiliary company in Suzhou of infringing upon its patent for water-in-water polymer dispersion. That total dwarfs the estimated $30,000 the courts are accustomed to giving patent piracy victims.
“More Chinese rights holders have come to realize that IPR protection is not a diplomatic issue. It’s an issue concerning their own growth,” noted Yan Xiaohong, China’s national copyright administration vice minister, told The Christian Science Monitor. “We must take this road to achieve future development. It is in the best interest of our country to build good and prosperous IPR relations.”
It certainly is. Domestic solvency finally has motivated the Middle Kingdom to change its approach toward patents and corporate trade secrets. More companies now are willing to pay license fees for online music and video; over the last three years, in fact, online video sites in China have experienced a 10,000-fold increase in license fees for television dramas (the prices have jumped from $158 to as much as 1 million yuan each). “Hollywood should be very happy,” Internet portal Sohu.com CEO Charles Zhang quipped to The Monitor.
Universal Music, Warner Music and Sony Music certainly are ecstatic about their deal with Baidu Inc. The Chinese search engine, having long been criticized for hosting links to pirated songs, agreed last summer to pay the three record companies for music downloads on its site. Locke referred to the agreement during the IPR roundtable event, crediting Baidu with recognizing the link between intellectual property and jobs.
The Chinese government has acknowledged that link as well. Its contribution to improving (and repairing) IPR relations with the rest of the world includes such measures as shortening the country’s trademark examination period to 10 months and the review periods for trademark opposition and dispute cases to 18 months. Both criteria now are on par with international standards.
The government also is creating more intellectual property courts (officials recently announced the addition of a court in Zhongguancun, a technology hub in Beijing) and adopting laws that make it difficult for local companies to file dubious patents based on overseas inventions.
Last year, China agreed for the first time to establish a permanent State Council-led leadership structure headed by a vice premier to lead and coordinate IP enforcement within its borders. Politicians also agreed to eliminate by Dec. 1, 2011, any “indigenous innovation” product accreditation catalogues or other measures linking innovation policies to government procurement preferences.
In addition, China is one of 17 countries that have established a formal interagency team of U.S. government personnel stationed there to help improve the country’s protection and enforcement of intellectual property (IP) rights.
Other developing countries are following China’s lead. Brazil, India and Russia—the missing trio of the BRIC brethren—are among the nations that have formed interagency teams of U.S. government personnel to assist with IPR enforcement. Brazil has held a forum to tackle the growing problem of digital age IP theft and Russia is embracing the STOP! (Strategy Targeting Organized Piracy) program, a U.S. government effort to work with “like-minded countries to halt the worldwide trade in pirated goods.”
Despite such valiant efforts though, IPR protection remains a significant challenge in emerging markets. Apple has spent years in Chinese courts defending its creative connection to the iPad and former basketball star Michael Jordan is ready to battle Chinese sportswear chain Qiaodan Sports Co. over the use of his name. And pharmaceutical conglomerates have declared war on both the Chinese and Indian legal systems over their decisions to allow local drug makers to make cheap copies of medicines still under patent protection (Novartis AG appeared before India’s Supreme Court last month to seek patent protection for its blockbuster cancer drug Gilvec).
Still, there is no denying the progress emerging markets have made to better protect IPR. As Locke said: “There is still much work to be done, but progress is occurring here in China. We applaud that progress.” — M.B.