Friday, October 05, 2007

Human Resources And Intellectual Property Management Inseparable

Heidrick & Struggles, one of the two licensed foreign executive search firms in China, have published an interesting series called China Perspective about important aspects of Human Resources for international, multinational and transnational companies doing business in China. See here. Hat tip to Dan Harris of China Law Blog, who is tipping his hat to All Roads Lead to China (yes, the community of China bloggers is extremely polite).

IP Dragon read all 36 pages intently looking for Heidrick & Struggles take on Human Resources and intellectual property in China. On page 25 and 26 IP Dragon was rewarded. In a Q&A Mr Steve Mullinjer, managing partner of Heidrick & Struggles rightly answers product imitation as one of the major challenges for US and European companies operating in China. Mr Mullinjer gives the example of Duracell batteries and says that imitation is generally linked to the formative stages of an emerging economy and the evolution of technololgy that is copied.

Mr Mullinjer asserts that: "A large number of these imitators have been propped up by soft loans from the Chinese government and also have the homefield advantage of being able to navigate the regulatory environment more flexibly than their Western competitors."

Mr Mullinjer gives some reasons that "threaten the viability of Chinese imitators down the road" thanks to the reform that the WTO will ultimately force upon Chinese state-owned companies and collectives:
  • Soft loan support will disappear;

  • many of these companies lose their structural advantages and preferential regulatory conditions they once enjoyed.

Mr Mullinjer is pretty optimistic that the imitators' opportunities will vanish eventually: "The combined effect of sustained and powerful lobbying by foreign MNC's, the development of a more robust legal and regulatory structure, and the impact of the WTO will significantly constrain the activities of Chinese imitators in the future."

IP Dragon can concur with Mr Mullinjer, however, IP Dragon is not that optimistic about the impact of WTO when it concerns the WTO case of the US against China for alleged insufficient IP enforcement based upon alleged non-compliance of TRIPs. This is because the articles 41, 46 and 61 TRIPs are ambiguous and TRIPs is intrinsically weak because of its low ambition level. Especially article 41 (5) TRIPs can be considered the Achilles heel of this treaty. Article 41 (5) TRIPs states that members do not have to put in place a judicial system for the enforcement of intellectual property rights that is distinct from the enforcement of law in general. This means that if for example the enforcement of tax is lax, so can be the enforcement of IP. Read more about it in Chapter (pg. 46) of IP Dragon's thesis, here.

In Chapter 10.2.2 of the thesis IP Dragon gives reasons why it is not wise to file a WTO case against China. Professor Peter K. Yu [of the Michigan State University] gives five reasons:

1. There is no clear definition for effective enforcement. This can also be said about the terms effective deterrent and deterrent.

2. A complainant country needs to have sufficient evidence. IP Dragon: Companies seem unwilling to submit complaints, since they are afraid of losing business in China because of disturbed relations with the government.

3. Almost all of the existing WTO cases focus on more specific provisions, rather than a lack of general enforcement, so there is no clear precedence.

4. An adverse WTO ruling should be taken into account.

5. China needs guidance to help it make the transition to full compliance with WTO rules. More specific non-compliance cases are better for this purpose.

IP Dragon adds:

6. Even if China will get reprimanded by a WTO panel decision and the complainant countries retaliate with unilateral sanctions, this will not automatically result in adequate IPR enforcement in China and acceptable IPR infringements levels originating from China. Because of decentralised power bases, the central government in Beijing might be not powerful enough. Read Chapter 10.2.2 (pg. 85) of IP Dragon's thesis here.

As the Heidrick & Struggles series implicitly points out intellectual property protection and Human Resources Management are inseparable. When operating in China you need to build a loyal team of employees. You do not want to train future competitors and employees who give away your business secrets. So next to registering your IP rights, your HR management is key.

Read Heidrick & Struggles' China Perspective here.

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