Lessons From WikiLeaks About Apple's Intellectual Property Enforcement in China

Mark Milan of CNN has read the Wikileaks cable from the U.S. Beijing embassy on Apple, read here, see original text here.

WikiLeaks cored Apple in China

The Wikileaks suggest that Apple, in regard to the enforcement of intellectual property in China dealt with the following challenges:

• It seems that Apple realised there was a serious problem quite late and only in 2008 it formed a security team, experienced in the protection of Pfizer, that took action; Lesson: assess the markets, have a budget and a team to enforce ready before you do business.
• Like many companies it does not want to start high profile raids; Lesson: It can be an effective deterrent to potential counterfeiters if you are known as an aggressive enforcer. 
• Like many companies enforcing their intellectual property rights in China, Apple experienced that its product categories are no priority for Beijing (unlike medicines); Lesson: it takes time, effort and money to lobby via U.S. government or EU politicians with Beijing for your particular industry to be noticed. 
• Apple like many other companies tried to scare consumers away from buying counterfeit products (don't know whether batteries really blew up. Then again I personally have come across phony phones with high level of radiation that gives you a headache after a mere two minutes if your skull is less than 1 inch thick); Lesson: transparency about health and safety issues can work. 
• That it can be hard to close down factories which manufacture infringing goods, because this could lead to unemployment, which on its turn could have a negative influence on the local economy, which increases the possibility of social instability. Typical example of local protectionism; Lesson: become part of local communities and economies to really have some influence. Choose your battles wisely: do forum shopping to sue infringers in those courts that you trust.  
• That to close down shops in malls can be difficult because the authorities do not want to disturb the shopping in the mall. Another example of local protectionism (sometimes called localism). Lesson: be innovative. Use for example contractual solutions, such as the landlord liability schemes.

UPDATE August 31, 2011:

Philip Elmer-DeWitt published for Forbes the full text of the U.S. Beijing embassy cable here.

UPDATE September 1, 2011:
Chenfei Zhang of Newsy, pointed me to their "multisource video news analysis" about the subject. Thanks Chenfei.

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Wrong Reasons, Right Conclusion: Why China Imitates Western Brands

Global branding, local marketing
Genuine IKEA in Hong Kong offers "lucky bamboo"
Photo: Danny Friedmann

Panos Mourdoukoutas, professor of economics at Long Island University, gives four reasons why China imitates Western brands. See his Forbes article here. Since I do not agree with all of them, I have given my comments below his assertions:

Mourdoukoutas: 1. "A get rich quickly mentality. After suffering for many decades from the failures of communism, some Chinese people have been trying to improve their standard of living, but they have yet to grasp the meaning of modern capitalism: a system of wealth creation within certain social norms, including respect for other people’s property."
Friedmann's comment: The countries of Eastern Europe also suffered for decades from the imposed plan economies when they were satellite states of the Soviet Union. However, after the wall fell, the intellectual property rights were not as widespread infringed as in China. Precisely because Chinese completely "grasp the meaning of modern capitalism" they make use of every leeway possible. Especially so, since a sufficient safety system by the state is lacking.

Mourdoukoutas: 2. "The belief that intellectual property is a social good. Coming of a communist rule, where many commodities belong to society, and therefore, could be shared among all society members, some Chinese people believe that intellectual property, including brand names can just be shared for free."

Friedmann's comment: See my comment above. Mr Mourdoukoutas does not mention the evolution from trademark counterfeiting to copying design and business methods. This shows that a growing number of Chinese companies understands the value of brands and are starting to develop them.  

Mourdoukoutas: 3. "Weak enforcement of property rights. Intellectual property receives little protection in China, especially when it comes to prosecuting and punishing violators."

Friedmann: Intellectual property and enforcement in China has improved significantly over the years. One can argue that the authorities have a duty to enforce on their own initiative. But China is compliant to article 41 (5) TRIPs when it has other priorities to spend its resources on (see page 46 of my thesis). Therefore the proprietors should take the first step to enforce their IPRs. There are enough possibilities: enforcement via customs, the courts, administrative route or even criminal route, see here.   

Mourdoukoutas: 4. "A supply side approach to entrepreneurship. In western countries, developing a new brand is a form of demand side entrepreneurship that begins and ends with the consumer; it involves a great deal of consumer research and engagement that require the commitment of great deal of human and non-human resources—and that’s what makes western brands so successful. In China, brand development is a form of supply side entrepreneurship that begins with supply, with abundant labor and financing, but little market research and consumer involvement—and that’s why Chinese brands flip."

Friedmann: I do not agree. Chinese approach entrepreneurship from the demand side. As I pointed out in my article about 11 Furniture, the IKEA clone, see here, Chinese entrepreneurs in second and third cities are listening to what the consumers want. In these second and third tier cities they want high quality, safe goods (Shaun Rein even asserts that Chinese assume Western fast food is healthy, see here) that can be bought in a comfortable way. Many Chinese perceive that these product attributes are provided by Western brands.

UPDATE August 8, 2011:
Professor Mourdoukouras was interviewed by CTV and he argues that Chinese counterfeiters cannot replicate service of Western brands. Again I do not agree. See here.

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Video Copyright Enforcement/Anti-Piracy in China Comes of Age

Andy Greenberg wrote two great articles for Forbes about video copyright piracy in China.

In 'Video Piracy's China Syndrome' he writes that "[a]ccording to date from copyright-fingerprinting start-up Vobile, the number of copyright-infringing videos on some Chinese sites like Ku6 and Youku has jumped more than six-fold between September 2007 and September 2008 [..]"

In 'Sinking China's Video Pirates' Greenberg gives an introduction of Vobile and the service deals it struck with 56.com and Pomoho to check whether their users have uploaded content that infringes copyright. Greenberg writes:

"Even as sites like YouTube, Dailymotion and Veoh have purged the vast majority of their infringing content in recent years, Asian user-generated video sites like 56.com, Tudou, Youku, Ku6.com and Megavideo have become frustrating black holes for intellectual property. A second layer of sites like Alluc.org, MovieTVonline.com and Sidereel.com--all based in the West-- have made a business of cataloging pirated clips on those sites and linking to them for a global audience."

Read more of Greenberg's article here.

Interlingua Publishing's China Piracy Reports has a good report 'Famous Video Streaming Website Punished for Copyright Infringement' on a relevant 2008 case: Sifang Yuanchuang International Film, Yingyi Entertainment and China Warner Film Corp. as plaintiffs and Tudou.com as defendant for copyright infringement by streaming the video 'Crazy Stone'.

"Shanghai No. 1 Intermediate People's Court ordered Tudou.com to delete the film from their server, and pay damages in the amount of RMB 50,000."

Tudou.com tried to defend itself by saying that they had a computerised system in place, but that it did not have the characteristic code and the copyright holder did not file any notification.

Despite this, the judge decided that the "amount of financial and human power investment and the popularity of the film, Tudou.com should have been aware that the copyright holder was not likely to offer free viewing service of the film online."

Read Interlingua Publishing's report here.

Read also JLM Pacific Epoch's article 'Youku Sued, Claims Its Inundated by Content'.

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"Eli Lilly Lobbies on Counterfeiting And Regulatory Issues Involving China"

Eli Lilly, a US drugmaker, lobbied for 3.3 million dollar in the third quarter of 2008 on issues, which include counterfeiting problems and regulatory reform in China, according to the Associated Press. Read the AP article via the site of Forbes here.

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