The Intellectual Property Conundrum in China

By James F. Paradise

This review was originally published by AsiaMedia on November 21, 2005. Republished by permission 

Andrew C. Mertha, The Politics of Piracy: Intellectual Property In Contemporary China
Cornell University Press (2005): 241 pp., $32.50.

Over the past two and a half decades or so, China has taken a number of important actions to protect intellectual property: it has enacted legislation on patents, trademarks, copyrights, integrated circuit design layout and computer software; it has joined international conventions such as the Berne Convention for the Protection of Literary and Artistic Works; it has negotiated memoranda of understanding and other agreements with the United States; it has built state capacity to carry out the implementation and enforcement of domestic legislation and international agreements.

This capacity-building has included the creation of special courts or divisions within courts for dealing with intellectual property issues and the establishment of domestic organizations such as the Working Conference on Intellectual Property Rights. The increase in capacity has facilitated the carrying out of action plans and other agreements and has been used for highly publicized campaigns --including activities such as raids and educational programs -- for clamping down on intellectual property rights violations.

In spite of these activities, theft of intellectual property remains a major problem in China. According to the Office of the United States Trade Representative (USTR), copyright piracy alone is estimated at between $2.5 billion and $3.8 billion a year, and infringement levels in virtually all categories of intellectual property were 90 percent or higher in 2004.

The issue is of such concern to the United States government -- and groups such as the Motion Picture Association of America and the Recording Industry Association of America -- that in October the USTR requested that China prove that it is taking measures to deal with intellectual piracy by utilizing a provision in the Trade-Related Aspects of Intellectual Property agreement of the World Trade Organization, of which China is a member. In November, during U.S. President George W. Bush's visit to China, Chinese President Hu Jintao pledged that China would fight intellectual piracy more vigorously.

To make sense of this conundrum, of the discrepancy between China's seemingly proactive measures for cracking down on intellectual property theft and the continuing widespread existence of pirated products -- books, movies, music recordings, computer software and so on -- a good place to turn is The Politics of Piracy: Intellectual Property in Contemporary China by Andrew C. Mertha. According to Mertha, a professor at Washington University in St. Louis, the problem is not just a lack of resources for dealing with the problem, or corrupt government officials, though those factors may contribute to theft of intellectual property. Rather, the problem is rooted in the fragmented nature of political authority in China.

Mertha, who is very interested in why foreign pressure does not necessarily produce results at the enforcement level, writes: "External pressure may have succeeded in getting Beijing to promulgate satisfactory IPR-related laws and regulations, but the enforcement of intellectual property, as with most policy in China, falls within the domain of China's complex bureaucracies and local government officials. And very often the priorities of these front-line enforcement agencies (or their immediate superiors) compete with, even run counter to, the imperatives of IPR protection."

In making an argument of this type, Mertha is focusing on institutional factors, not cultural or historical ones. However, Mertha does mention that many developing countries have a different attitude toward the payment of royalties than developed countries, and that the socialist attitude toward intellectual property assumes "that it is impossible to separate the inventor's activity from the society of which the inventor is a part."

The book also has little to say about legal or judicial issues -- in other words, what goes on in the courts. Instead, the bulk of the analysis is concerned with political and organizational issues. Here, Mertha has detailed chapters on the evolution of the patent, copyright and trademark and anti-counterfeiting regimes in China. These chapters explain how jurisdictional cleavages and relations between local governments and the national government affect policy formulation and intellectual property enforcement actions.

An important part of the book explains variation in protection of different types of intellectual property. According to Mertha, trademarks in China have generally fared better than patents or copyrights. This, he explains, is due to the fact that two organizations have been involved with trademark enforcement -- the Administration for Industry and Commerce (AIC) and the Quality Technical Supervision Bureau (QTSB) -- and their administrative reaches extend deep into localities, to the county level in the case of the QTSB and to the township level in the case of the AIC.

Another important factor is that foreign actors often play an important role in the enforcement process by doing groundwork on counterfeiting activities by employing foreign and Chinese investigation agencies. In so doing, they are able to apply pressure within China -- a kind of lateral pressure -- and strengthen relations with local enforcement agencies, in part through the provision of side payments.

In contrast, the organizational and administrative structures of the copyright and patent bureaucracies are such that they are less conducive to effective enforcement, Mertha argues. Enforcement has also been hampered by less interaction between foreign companies and local authorities.

At the policy level, Mertha's analysis points to doing more at the local level. Since local bureaucracies play a critical role in enforcing laws and regulations, it is important to win their support. In some cases, the problem may be a lack of resources to carry out adequate enforcement, and in others, there may not be incentives for local governments to crack down on pirated and counterfeited goods. The national government has an important role to play as well. But one should not think that more foreign pressure on the national government will automatically translate into better implementation and enforcement.

Mertha's identification of the importance of lateral pressure, pressure exerted within China by foreign actors, as a factor for better enforcement, is an interesting idea. But one wonders how realistic it is to require that foreign companies, or the proxies that operate of their behalf -- law firms, private investigative agencies and consulting firms -- take responsibility, or at least partial responsibility, for seeing that Chinese companies or individuals do not illegally manufacture or sell products based on their intellectual property. It might be asking too much when side payments go beyond the mere entertaining of local officials to the payment of bribes. The mere fact that foreign companies are playing a role in enforcement in a country that insists so greatly on national sovereignty is itself an amazing fact.

Reading the book, I also wondered why Mertha did not focus more on taking action at the national level, either through the allocation of more resources by the Chinese government or by restructuring the bureaucratic framework. On the later issue, Mertha is quite clear: "consolidation of patents, copyright, and trademark management and enforcement under one 'superbureaucracy'" is not likely to happen anytime soon because of bureaucratic opposition. In focusing so much on the local level, however, one gets the impression that to some extent the national government is being let off the hook.

To be sure, carrying out enforcement of laws and regulations in a country as big as China, with inadequate infrastructure in some areas and with some degree of political decentralization, is a major challenge. But the national government would seem to have a critical role as well in ensuring the smooth implementation of domestic laws and in generating constructive solutions to unanticipated -- or worse-than-anticipated -- problems. Measures it might take include increasing penalties for non-compliance with intellectual property rights laws and closing loopholes, or reducing ambiguity, in laws and regulations --  e.g. in the area of software -- that have been enacted. 

In the final analysis, the motivation to protect intellectual property will need to come from a realization that doing so is in China's own interest. To begin with, protecting intellectual property will help China avoid sanctions, which might be seen as necessary -- in the U.S. and elsewhere -- in coming years.

But beyond that, protecting intellectual property will benefit China's own creators of intellectual property. Intellectual property theft is not only bad for foreign companies, it is bad for Chinese companies as well. Foreign companies could also help their cause by pricing products at levels that Chinese consumers can afford. That way, the motivation to buy pirated versions of movies, books, computer operating systems and so on will be somewhat reduced.

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James F. Paradise is an AsiaMedia writer and advisor. He has more than a decade of experience reporting from Asia and is currently researching China’s participation in the World Trade Organization. AsiaMedia provides daily coverage of media trends and policies.