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China won't protect IP until it gets its own IT

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Internet Security Threat Report 2014

Comment This comment from a recent edition of Fortune magazine probably summarises the basic proposition underlying progress of IP protection in China. How will China acquire its own IP? How long will this take?

Since the early 1990s China has been an alluring consumer market. Initially products and, subsequently, services have been exported to China by enterprises keen to exploit the volume sales opportunities in that market. Patience and realism have frequently been shattered by vicious price competition. In part this derives from copying of the products and imitation of services by Chinese companies, many of which involve violation of intellectual property rights.

Experience has shown that whatever legislation may nominally exist in China over Intellectual Property rights are unenforceable without the power of the gun or active intervention from the Chinese State Authorities. When they can supply imitation goods and services so cheaply to the mass of the population and seemingly show that scale of economic progress in so doing, there is very little incentive for the Chinese State Authorities to take action against Intellectual Property pirates. Protests by foreign governments and importers have had very little impact on a Government whose objective is to build a world competitive economy as long as it does not threaten the monocratic power of the Communist Party.

Within the technology sector we have seen technology equipment such as PCs and mobile phone handsets cannibalised as domestic companies have copied, overproduced and slashed prices in competing with technology importers. IBM have, for example, sold their PC equipment making business to a Chinese manufacturer, in part because extensive copying and imitation, to focus on the software and service market in China.

How will those, which provide software-based products and services, fare combating the imitators and pirates? How immune are they to IP theft? Probably only highly sophisticated proprietary technology has any degree of immunity to copying and imitation at least for a while but long enough to see a return on the investment?

That may be a difficult and troublesome call to make. The Chinese State has "clamped down" in areas of software imitation and copying, where the copiers or imitators are perceived as a threat to the State. Technology enabling internet traffic to circumvent the State's oversight and control and technology enabling hacking or unauthorised access to State Organisations are such examples.

Microsoft is helping China to build its own software industry through "Wisecroft", in anticipation that "China will protect Intellectual Property when its has built its own IT industry." One must assume there is a vested interest in Microsoft's behaviour, not merely making their own contribution to alleviating third world hardship. On-going licensing and reciprocal software licensing arrangements are obvious opportunities. There is an absence of sensitivity to perceived anti-competitive issues in China. The company is unlikely to encounter problems of this nature. On the other hand overactive attempts or exercises in litigation is unlikely to succeed as a way of maintaining and protecting competitive advantage in China without the complicity of the Chinese State.

Encouraging China to build and own its own technology businesses is a pragmatic way of approaching the subject, though some foreign government may become uncomfortable where China builds technology businesses which are perceived to be an economic or security threat. Progress in protection of IP will be slow; measuring progress will be difficult. The time and pace of it are hard to determine.

© IT-Analysis.com

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