The Bad euh ... Good euh ... Bad News On Indigenous Innovation in China

"The Mountains Are High, 
but you can always find a way through"
Yangsho, Guangxi Province
Photo: Danny Friedmann

• Since China announced its Indigenous Innovation policy in 2006 there were a lot of protests from foreign intellectual property rights holders that would be completely excluded from China's government procurement in certain product categories. According to the USITC intellectual property and indigenous innovation challenges cost the US economy 48.2 billion dollar in 2009, see here.
• Then this June 2011, it became clear that China's central government revoked three laws that link indigenous innovation with IP rights, allegedly because of the external pressure. See here.
• Good news for a level playing field ... but wait. Professor Stanley Lubman (University of California, Berkeley) warns IP holders to be not too excited, yet. As professor Lubman explains the question is whether provincial and municipal governments take heed to the revocations, given their opposite interests when they allow foreign competition. To stay in the playing field metaphor: there might be many smaller fields where you cannot play as a foreigner. Read professor Lubman's Wall Street Journal article here (no subscription needed).

"The Mountains Are High And The Emperor Is Far Away"

China is no monolithic state. And as the saying makes clear substantial power is shared with the governements of provinces and municipalities. So the confusing situation can exist that some revoked laws have a "second life" in the province or municipality if it can give local players preferential treatment, and foreign IP holders cannot really get a good overview of what is happening where. The central government better think twice before they promulgate regulations if there is a chance that they will revoke it later, especially if that regulation gives the local government some advantage. And if they do revoke a regulation the central government should control whether the local government is following up on their instructions.

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Chinese Courts Are Getting More Independent, But Rule Of Law Needed To Enforce IPRs Is Far Away

In my thesis 'Paper Tiger or Roaring Dragon' I come to the conclusion that the lack of effective enforcement of intellectual property rights in China can be partly explained by some extra-judicial factors, such as:

- no rule of law (where the rule of law has the supremacy, instead of the government);

- lack of transparency;

- lack of an independent judiciary;

- non-uniform application of laws;

- local protectionism;

- corruption and lack of education;

- lack of expertise in and respect for intellectual property;

- market access restrictions.

Professor Stanley Lubman has an interesting article, see here, about legal reform in which he refers to 'China's Courts: Restricted Reform', an excellent paper written by Professor Benjamin Liebman. In it Professor Liebman determines that Chinese judges are much more educated then ever before and that in case of a difficult case courts are often consulting other courts at the same level (horizontally) instead of asking advice of a higher court (vertically). This makes the judiciary more independent and less usable as an instrument to implement the policies of the government. Professor Liebman contends that therefore the government uses the media to influence the opinion of the population in some cases, so that they can mobilise popular protest against a court decision. With the result that some court decisions are overturned because of the "vox populi".

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