The copyright challenge in China

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Security Bureau, with its Social Order Divisions and Economic Crimes Investigation Divisions.

There are cultural issues as well. Many Chinese see strict intellectual property-rights enforcement as a zero-sum game in which foreigners benefit and Chinese lose. Historically, the act of copying hasn't necessarily had negative connotations: In painting and calligraphy, Chinese artists sought to mimic acknowledged masters. Too, under Communism people grew up believing assets should be shared resources. "The arguments we hear from the Chinese side are, 'Please lower the prices and then we won't pirate,'" says Thomas Pattloch, chairman of the European Union Chamber of Commerce Intellectual Property Rights working group and an attorney in the Shanghai office of Schulz, Noack and Barwinkel.

Fines for counterfeiters: "Simple business expenses"
With no relief in sight, foreign companies in China are developing counterstrategies that aim at the very least to make life more difficult for wrongdoers. A recent study by McKinsey found a pharmaceuticals company withholding its most innovative drugs from China altogether, and an equipment manufacturer that designs and develops hardware in China but produces the related software abroad, to protect the valuable source code.

Other measures run the gamut, from the political (lobbying and diplomatic pressure) to the technological (tagging goods to make them harder to copy) to the instructional (training local police to spot fakes) to, at last resort, the judicial (filing lawsuits against offenders).

The diplomatic pressure has been steady. In a strongly worded January speech in Beijing, then-U.S. Commerce Secretary Donald Evans complained that in China, token fines for counterfeiters amount to "simple business expenses." He demanded stronger policing against intellectual property theft.

Evans' comments underscore one of the leading complaints about piracy in China: that the government has responded with only token (albeit widely publicized) confiscations of fake goods that fail to stop the wrongdoers.

Between 2000 and 2004, law enforcement officials seized nearly 500 million DVDs. But the MPAA, whose members lost an estimated $280 million in China revenue last year due to piracy, says that more than 99 percent of raids only result in administrative fines.

"You can now make an investment and expect a return; that's key to investing in new IP. Until the online gaming model emerged, there was no way for us to justify a major investment in China."

--Erick Hachenburg, GM, China operations, Electronic Arts

Indeed, foreign executives complain that part of the reason the piracy problem is so severe is that China rarely takes criminal action in the case of IP theft. Here, too, there's a cultural divide. "In China," says Pattloch of the EU Chamber of Commerce, "criminal measures against private citizens involve a complete loss of face; you lose your status."

Yet in the absence of criminal penalties, civil penalties are often inadequate. Fines against counterfeiters are usually too low to act as deterrents, and U.S. companies report that such fines have actually been declining. China's Administration for Industry and Commerce levies fines based on the counterfeit value of seized goods, which is usually supplied by counterfeiters themselves.

Fines typically end up being between one-fourth and one-eighth of the value that injured companies would have considered fair, according to James Haynes, co-chair of the AmCham-China's IP forum and a partner in the Beijing office of the law firm Tee & Howe. For 52 cases of copyright infringement involving the movie "Shrek 2," for example, government officials imposed total fines of $7,000, or around $134 per incident.

The upshot: Last year in China, roughly 95 percent of films were pirated--a rate unchanged from 2003, according to Mike Ellis, the MPAA's regional director in Asia. The fact that official Chinese policy is to allow in only 20 foreign films per year makes it even harder to do a legitimate business.

Over the years, counterfeiting in China has become more sophisticated. Geographic regions and even cities may specialize in particular types of fake goods, such as DVDs or shoes, with much of the production concentrated in the southern coastal provinces of Zhejiang, Fujian and Guangdong. A given factory may do legal production in the daytime, only to switch to fakes at night. Some of the most advanced schemes span borders. Bankrolled with Taiwanese money, they produce goods in China that are later exported abroad from Hong Kong.

Back on the mainland, the economic boom has carried piracy far beyond the big cities, and local authorities usually see little reason to crack down on their own constituents in order to help outsiders. Case in point: Earlier in 2005, the Business Software Alliance, an antipiracy group whose members include Microsoft, Cisco Systems and Intel, suspected that a company in the central coastal province of Jiangsu was using unlicensed copies of

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For those who care about American IT and our national security

This is a MUST reading for those who care about the future of American IT and our national security: http://www.alexanderbell.us/Initiative/IT.htm

don't be arrogant!

Piracy is a serious thing in China. But let's think of other aspects of the story: 1. the prices of software, including microsoft windows, office, are higher than these in the US. But the income of chinese is only 1/10 of that of american. is it fair to chinese customers? 2. you promote this issue to National Safety. Is it really relate to the safety of american? I just discover the arrogance, as usual, from the article. actually, piracy is a matter of business violation. Chinese software companies suffered more than american companies because they are of small size and can't bear the loss due to piracy. like movie piracy, if all americans behave well, how can the pirater get the origin of the movie to mass copy them?
3. without any evidence and generate the conclusion that 90% of chinese are using pirated software! the comment itself shows incredulity of the article.

"What goes around, comes around."

It won't be too long before China and other "patent pirates" start developing their own breakthrough inventions, processes, and technologies. Then they will desperately want protection worldwide for THEIR OWN innovations.
They need to be firmly reminded about the "...comes around" adage..and inevitability. INNOV8R

"What goes around, comes around."

It won't be too long before China and other "patent pirates" start developing their own breakthrough inventions, processes, and technologies. Then they will desperately want protection worldwide for THEIR OWN innovations.
They need to be firmly reminded about the "...comes around" adage..and inevitability. INNOV8R