End of the copycat? China says it is serious about taking on intellectual property pirates. But can it deliver?

 

The Chinese are voracious copycats. It's not a new observation. In the late 17th century a Spanish missionary called Domingo Navarrete noted the tendency in his memoirs.

"The Chinese are very ingenious at imitation," he wrote. "They have imitated to perfection whatsoever they have seen brought out of Europe. In the province of Canton they have counterfeited several things so exactly that they sell them in inland."

Some things, it seems, never change. Over the past two decades Chinese knock-off merchants have replicated everything from Western clothing brands, to DVDs of Hollywood movies to luxury handbags.

And ambitions are expanding. Fake Ikea and Apple stores have sprouted across the country. A Chinese man last year managed to put together a Ferrari. The vehicle was a perfect replica except that it had no engine. The Chinese government itself estimates counterfeits constitute between 15 and 20 per cent of all products made in China.

Imitation might be a form of flattery, but when it comes to business there's nothing pleasant about the experience. If someone rips off your design and makes money from it, that's a direct hit to your own bottom line. The British inventor James Dyson complained recently that he has spent $1.5m (£955,000) battling Chinese rip-offs of his bladeless fan.

China might be the market that every Western firm wants to be part of, but the copycat tendency is putting some off. Many technology and engineering businesses looking to operate in China fear their intellectual property (IP) will be purloined. And it is holding them back from investing.

Small and medium-size technology firms that lack the massive legal resources of frequent knock-off targets such as Apple or Disney are especially wary. If you're a Western firm which has, say, a new technology for laying tarmac, you don't want to introduce it to China if there's a possibility a local firm is going to replicate the technique and start using it all over the country.

But could change be on the way? The Beijing government is waking up to the Western counterfeit concerns. An international technology fair in Shanghai in May jointly organised by three ministries and the Shanghai government – hopes to allay some of those fears. Western technology businesses exhibiting at the fair will be put in touch with Chinese customers. And both parties will be linked with expert legal advisers. There will also be assurances that any intellectual property transferred in the deals will be protected in Chinese courts.

Will it work? Can Western businesses do deals safe in the knowledge that their intellectual property rights will be protected? It is difficult to say. Doubts remain about whether Beijing can deliver on its promises. When the US made a complaint to the World Trade Organisation in 2007 about copyright breaches, China took it as a national affront and accused America of making a "mistake". A string of bogus "Apple stores" in China were closed down in 2011 not because of the illegal use of the US company's name but because they lacked a proper business licence.

Chinese officials sometimes claim that piracy happens in second-tier cities in the country's vast interior, rather than the big urban centres. But walk through main shopping areas of Guangzhou or Shanghai and one is confronted with a plethora of fake brands from "Danhoil" (Dunhill) to "Teabucks" (Starbucks). Chinese officials claim that copyright breaches are by people who don't know they are breaking the law. But enforcement remains patchy, despite a new trademark law passed in China in 2011. And the suspicion is that corrupt local government officials and prosecutors often don't want to act on the problem because they have financial links with the counterfeiters.

Elliot Papageorgiou, an intellectual property lawyer for Rouse in Shanghai, says it's a mistake to think of China as a single jurisdiction when it comes to IP protection and that there's still large regional variation in enforcement.

"In Chengdu, the capital of Sichuan province, we had excellent experiences," he says. "In Changsha, the capital of Hunan province, we had a rather poor experience. There is always the risk of local protectionism. The Chinese defendant may know the local courts and judiciary very well. It may be a significant local employer. Even assuming no bias, it would be a little like taking action against Mercedes in Stuttgart."

Mr Papageorgiou adds, however, that there is a "level playing field" in the major cities of Beijing, Shanghai and Guangzhou when it comes to enforcing IP rights in the law courts. This is because the authorities there tend to be less beholden to powerful local commercial interests. They also want to attract foreign direct investmen.

"In China you have to ask: Who are you suing? Where are you suing? And when do you sue? You have to choose your battle and choose your battlefield," says Mr Papageorgiou. He points to the rising number of civil-litigation cases – up from 40,000 in 2010 to 60,000 in 2011 – as a sign China is becoming a more IP-friendly environment. The number of enforcement cases brought by the authorities has also risen in recent years.

The Chinese government certainly has an economic incentive to strengthen its IP rights regime. Its reformist wing knows China must begin innovating to rebalance its economy, which is dangerously over-reliant on investment and cheap mass production. And innovation requires a respect for IP rights. "Chinese people will not work hard developing their own technologies if they know they will be ripped off by someone," says Fred Chen, director of communications for the Shanghai trade fair. Incentives work both ways. Perhaps it's when the copycat nation finds its own bottom line ravaged by the fakers the IP protection breakthrough will finally happen.

The China (Shanghai) International Technology Fair takes place 8-10 May

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