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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USITC: "China's IP and Indigenous Innovation Cost U.S. 48,2 billion dollar"

Photo Danny Friedmann
"Maybe we need more resources for IP enforcement?"

The U.S. International Trade Commission report (ITC), commissioned by the U.S. Senate has been published. The title of the ITC report is: China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy. One of the effects, according to the writers, is that IP infringements and preferential treatment for indigenous innovation cost the U.S. economy in 2009 48,2 billion dollar. We have to be patient for the 2010 result.  I have glanced through the whole thing. It is nice that they refer to an article of mine “China: China’s National IP Strategy 2008; Feasible Commitments or Road to Nowhere Paved with Good Intentions?" on biblio-page 7.

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Intellectual Property and Indigenous Innovation, Two Opposite Roads For Foreign IPR Holders

Photo Danny Friedmann
IP and indigenous innnovation
roads going in opposite directions?

The US-China Economic and Security Review Commission will hold hearings on China's intellectual property  and indigenous innovation policies on May 4th. Emphasis will be given on the consequences of these policies for the film, broadcast, and software industries.

Programme:
8:30 am – 8:45 am: Hearing Co-Chairs’ Opening (Commissioners Dick D’Amato and Dennis Shea);
8:45 am – 9:15 am: Panel I: Congressional Perspectives by Senator Slade Gorton (R-WA) - retired;
9:15 am – 10:45 am: Panel II: Film and Broadcast Industry by Mr. Richard Masur, former President, Screen Actors Guild;
11:00 am – 12:30 pm: Panel III: Business Software by Mr. Michael Schlesinger, Of Counsel, Greenberg
Traurig, and International Intellectual Property Alliance and Mr. Ken Wasch, President, Software & Information Industry Association;

1:15 pm – 2:30 pm: Panel IV: China’s Indigenous Innovation Policy by Ms. Thea Lee, Deputy Chief of Staff, AFL-CIO and Mr. Alan Wm. Wolff, Of Counsel, Dewey & LeBoeu.

Information about location here.

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Joint-venture with technology transfer no panacea for market access to China's aviation industry

China's 12th Five-Year Plan (2011-2015) states that the general aviation industry's development will be
promoted, reform the airspace management system as well as increase the efficiency of the allocation and utilization of airspace resources. Bright sky for China's aviation industry. But what about foreign aviation companies, will they be able to takeoff or will they stay grounded.

Like all governments the Chinese government is giving its national aircraft corporation, the Commercial Aircraft Corporation of China, Ltd. (COMAC), support. The government made it obligatory for foreign aviation companies that want to supply to China to partner with COMAC and establish joint-ventures to get technology transfer via the ARJ21 and C919 projects. No company, including Western companies wants to give its intellectual property away without compensation. Therefore those Western companies that agreed to the terms of technology transfer for the C919 did so with old versions of their technology.

飞机

Cliff, Ohlandt and Yang write in their report 'Ready for Takeoff' sponsored by the U.S.-China Economic and Security Review (USCC) that joint ventures per se do not guarantee effective market access, but that the inverse, “those that do not provide access to coveted technologies or—even more problematically—are perceived to compete against domestic producers are not likely to receive preferential treatment and may indeed face severe obstacles.”

Read Roger Cliff, Chad J.R. Ohlandt, David Yang, Ready for Takeoff, China's Advancing Aerospace
Industry RAND National Security Research Division, sponsored by the U.S.-China Economic and
Security Review Commission, 2011, available here.

Wonderful characters 飞 fei 机 ji mean literally "bird machine" = airplane

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32 Senators Urge Vice-Premier State Council to Fix IPR and Indigenous Innovation Policy in China

32 U.S. senators have sent an open letter to Wang Qishan, China's Vice-Premier of the State Council. They urge him to use the U.S.-China Joint Commission on Commerce and Trade (JCCT) to address the problems U.S. companies face in regard to:

• Intellectual Property Rights in China;
• China's policy to favour indigenous innovation and not signing the World Trade Organization's Government Procurement Agreement.

Evidently the trade organisation that was created to advance the interests of the software industry Business Software Alliance (BSA) was quite successful in putting their case on the agenda:

"The United States has been raising this issue for many years, and China has repeatedly committed to take steps to address U.S. concerns. For example, in 2006, China committed in the JCCT to ensure that Chinese government agencies and state-owned enterprises use only licensed software. But China has failed to implement this commitment. We urge China to implement this commitment on a timely basis, and in a transparent manner that allows IPR holders to verify the legitimacy of the software used by these entities."

Read the bipartisan letter on the Fair Currency Coalition Blog here.

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China Launched 10-Year National Patent Development Strategy

During the 4th China Patent Week China launched the National Patent Development Strategy (2011-2020). The strategy focuses on:

• International cooperation in patent protection and utilisation;
• preferential policies to encourage R&D by high-tech companies, research institutes and colleges;
• Overseas IP websites so that foreign companies can check patent info;
• Establishment of organisations for patent trading in big cities.

To have a long term vision of a decade (the life-span of a utility patent and also design patent and half the life-span of an invention patent) is praiseworthy, although we have to see what the preferential policies exactly entail.

Read Hao Nan's China Daily article here.

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November 17: USCC Report about Indigenous Innovation, WTO and Disclosure Requirements

U.S.-China Economic and Security Review Commission (USCC) will release its 2010 Report to Congress at a press conference Wednesday, November 17.

Among the topics in the 316-page report will be about:

National defense and foreign affairs and energy and environmental issues.

But also about economic, trade and censor issues:

• China's 'indigenous innovation' policy to promote favored industries and limit imports;.
• China's past and future role in the World Trade Organization;
• How China's revised state secrets laws may conflict with U.S. disclosure requirements and put U.S. investments in Chinese firms at risk.

UPDATE November 18, 2010: report has been released, read more about it here.

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Indigenous Innovation in China: Soup Will Not Be Eaten As Hot As Cooked

Will Freeman and Tom Miller assert for the Financial Times that China's economic nationalism is exaggerated:

"The State Council began to promote “indigenous innovation”—a plan to support the creation and commercialization of domestic technology—in 2006. Then in November 2009 a handful of ministries announced they would implement rules limiting government procurement to products with entirely home-grown intellectual property, trademarks and brands. Two weeks ago, MOST [Ministry of Science and Technology] backtracked on the most contentious elements of this plan. Intellectual property can now be licensed for use in China from abroad. Accreditation no longer requires that trademarks and brands are first registered in China. And eligible products no longer need to have technology that reaches or surpasses international standards."

Read messrs. Freeman and Miller's article here.

UPDATE:

May 1 Anonymous commented on this post. I will post it integrally below:

"If indigenous innovation were only limited to those issus, then the proposition would be partially accurate. However, even the MoST revised comments are problematic, as it leaves open the question of where R&D needs to be conducted, and it also leaves open the kinds of warranties of non-infringement/lack of controversies that are necessary for government procurement to be obtained. Moreover, many Chinese officials have recently been trying to backtrack and remove the "indigenous" from "innovation" - something that has been discused for years but never occured.

However, we are still left with a bundle of issues: (a) standardization rules that contemplate compulsory licensing; (b) extensive compulsory licensing possibilities (although none yet applied); (c) interest in third world type IP issues - folklore, genetic resources, traditional knowledge; (d) extensive exemptions from infringement, including a so-called "naked Bolar" and research and non-commercial use exemptions; (e) tax subsidization of domestic R&D which may be limited to domestically capitalized companies; (f) subsidies for patent and trademark filings; (g) local rules that protect locally established companies and give enhanced enforcement for them - typically under local "famous mark" provisions; (h) lots of low quality, unexamined patents coming from non-service Chinese inventors which may be receiving local subsidies; (i) limited remedies for TM "squatting" or patent "hijacking"; (j) low incidence of foreign related enforcement by admin agencies, and low incided of foreign related civil cases; etc. etc. Not all of these are necessarily terrible, but they do suggest government management of innovation and of IP, and not an orientation towards private rights."

Comment by Anonymous

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