CHINA’S ATTITUDE TO IP BECOMES WORLD NORM

Western ideals seem unable to shape the future
Mindbullet dateline: 12 September 2015

To a time-traveling visitor from 2005, this week’s Auto Show in Frankfurt would seem like a very strange place.

Chinese, Korean and Indian firms are openly showing off clones of GM’s and Nissan’s latest cut-price cars. Auto manufacturers are handing out brand name watches and clothing as gifts to anyone prepared to invest even minimal time on their stands.

All the give-aways are of course ‘replicas’ of the real thing manufactured somewhere in the world at the ‘China price’.

The term ‘replica’ has replaced talk of ‘pirated’ products and ‘copycat’ manufacturing. ‘Replica’ has even taken on a modicum of respectability. Today, replica products are said to represent half of the world industry in clothing, movies and ‘luxury’ goods.

Spawned in China, this approach to ‘open market’ commerce has now taken root everywhere. Because of China’s enormous economic power, no-one has dared challenge their business practices. Tacit approval has spawned legal judgments that have used the Chinese marketplace reality as a precedent for judgments in other jurisdictions.

Business will never be the same again, and it’s all our own fault. In the immortal words of Pogo on a poster for the first Earth Day in 1970 “We Have Met The Enemy and He Is Us”.

As consumers, we have been seduced by the opium of cheap prices and don’t seem able to kick the habit.


ANALYSIS >> SYNTHESIS: How this scenario came to be

“We have met the enemy, and they are us”

The New Dictionary of Cultural Literacy defines this as “Evil or upsetting forces exist within, not without”, and attributes its origin to a twist on Oliver Hazard Perry’s words after a naval battle: “We have met the enemy, and they are ours.”

The updated version was first used in the comic strip ‘Pogo’, by Walt Kelly, in the 1960s and referred to the turmoil caused by the Vietnam War. The version “We Have Met The Enemy and He Is Us” was first used on a poster for first ever Earth Day in 1970. The poster is shown in the MindBullets image above. In 1971, Walt Kelly did a two panel version with Pogo and Porky in a trash filled swamp. This is the only known example with a speech balloon, showing Pogo responding to Porky with “YEP, SON, WE HAVE MET THE ENEMY AND HE IS US.”

Since then, this cartoon, and words associated with it, have entered American cultural history.

The World Trade Organization (WTO)

The WTO is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.

The WTO is based in Geneva, Switzerland and was established on 1 January 1995 after the Uruguay Round negotiations (1986-94). Its membership extends to 148 countries. Its head is Pascal Lamy (the Director-General).

At the heart of the system — known as the multilateral trading system — are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody’s benefit.

Over three quarters of WTO members are developing or least-developed countries. The agreements were negotiated and signed by governments. Their purpose is to help producers of goods and services, exporters, and importers conduct their business.

The stated goal is to improve the welfare of the peoples of the member countries. In effect, many of the large trading nations are accused of using the WTO agreements primarily as a way of protecting their own industries.

What are intellectual property rights?

As the WTO defines them, intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time.

In the WTO, IP rights are customarily divided into two main areas:

A: Copyright and rights related to copyright.

The rights of authors of literary and artistic works (such as books and other writings, musical compositions, paintings, sculpture, computer programs and films) are protected by copyright, for a minimum period of 50 years after the death of the author.

Also protected through copyright and related (sometimes referred to as “neighboring”) rights are the rights of performers (e.g. actors, singers and musicians), producers of phonograms (sound recordings) and broadcasting organizations. The main social purpose of protection of copyright and related rights is to encourage and reward creative work.

B: Industrial property.

One area can be characterized as the protection of distinctive signs, in particular trademarks (which distinguish the goods or services of one undertaking from those of other undertakings) and geographical indications (which identify a good as originating in a place where a given characteristic of the good is essentially attributable to its geographical origin).

The protection of such distinctive signs aims to stimulate and ensure fair competition and to protect consumers, by enabling them to make informed choices between various goods and services. The protection may last indefinitely, provided the sign in question continues to be distinctive.
Other types of industrial property are protected primarily to stimulate innovation, design and the creation of technology. In this category fall inventions (protected by patents), industrial designs and trade secrets.

The social purpose is to provide protection for the results of investment in the development of new technology, thus giving the incentive and means to finance research and development activities.

A functioning intellectual property regime should also facilitate the transfer of technology in the form of foreign direct investment, joint ventures and licensing.

The protection is usually given for a finite term (typically 20 years in the case of patents).
While the basic social objectives of intellectual property protection are as outlined above, it should also be noted that the exclusive rights given are generally subject to a number of limitations and exceptions, aimed at fine-tuning the balance that has to be found between the legitimate interests of right holders and of users.

The status of intellectual property is disputed by various factions in India, China and other developing nations. The United States and the United Kingdom are the only two nations who consistently receive net balance of payment benefits from intellectual property, and are amongst the chief supporters of intellectual property systems.

2004: International firms prosecute in China
Toyota takes a small Chinese auto manufacturer to court for using the Toyota logo on their cars (which do not resemble the Toyota models at all, apart from the logo. Chinese courts conclude that “China does not recognize the Toyota logo” – which just happens to be the second most recognized logo in the world.
At the Shanghai Auto Show GM launches a new $9000 compact (their ‘China Car’) and find a ‘replica’ Chinese version on the floor at $6000. GM launches court proceedings and the courts rule: “GM has no evidence for the case.”
Despite all the public posturing around the WTO, Chinese IP laws prove to be exceptionally difficult to enforce in practice.

2005: China sets the de facto rules
Eamonn Kelly, CEO and president of Global Business Network, addresses a large business audience with his views on the role of China in a networked world:

“The rules are going to be changing, and particularly the rules China will be establishing. China is already ahead, almost invisibly, creating relationships everywhere. China is emerging as a leader with tremendous political influence across Asia. It is developing extraordinary links right across Latin America: trade linkages, cultural linkages, political linkages, and alliances around scientific collaborations of a sort that, frankly, the US no longer enjoys with its southern neighbors.
“It is also making a very strong foray into being the partner of choice for Africa. China recently committed to train, at its own expense, another 10,000 Africans as technicians in Chinese solar power because it recognizes Africa as an enormous future market and wants to have the relationships in place to exploit it.
“And very importantly, along with Brazil and to a lesser extent India, China is trying to reset the rules about intellectual property and proprietary technologies. We have spent some years trying to translate the traditional notions of economics based on ownership, property rights, possession, and transfer that were developed in the physical economy into the intangible world of ideas and intellectual property. The emerging powers are not going to play that game. They are quite explicitly making a decision not to go there. It’s all going to be about open source, open methodologies, open databases. That’s the future of science and technology when China is setting the rules.
“Although the U.S. enjoys unparalleled and unchallenged military power at the moment, I think that its hegemonic economic and cultural influence in the world will continue to fall into greater and greater decline in the decades ahead.”

2007: Western firms continue to move factories to the East
Despite the fact that most of their products sold in the region are now copied, companies such as Microsoft, Polo, Armani and Cisco continue to move most of their manufacturing to China, Cambodia and Vietnam. It proves to be impossible to compete in open world markets without ‘the China price’ as a part of your value chain.
Microsoft earns the reputation of being China’s ‘most pirated’ with 90% of their software running on Chinese computers being pirated.
The music and movie industry gives up on trying to persecute the Chinese bootleggers.
Manufacturing companies are faced with a massive dilemma: they are fully appraised of the Chinese attitude to IP but simply have to manufacture there to be competitive. One Paper Industry CEO puts it this way: “We know that the architect’s drawings and engineering designs for our new plant in China have been pirated from European firms, but the fact is that our Chinese operation can be built at half what the same plant would cost in Germany. What would YOU do?”

2009: China surpasses US in GDP
The World Bank reports that China has surpassed the US in terms of GDP as measured by Purchasing Price Parity (PPP) – a full year earlier than many had expected – making it the world’s largest economy, at least by this measure.
China starts flexing its economic and political muscle within the WTO and other organizations. It engages support from other Asian producers to mount an assault on the ‘old’ WTO rules.

2010: WTO hosts massive East-West bust-up
Pascal Lamy, WTO Director-General, storms out of a meeting designed to create “common ground” for trade in intellectual property.

China, India, Taiwan, Korea, Indonesia, Vietnam and Cambodia bluntly refuse to continue discussions on the matter and threaten to leave the WTO if their views are not seriously considered. They assert that because they represent almost 60% of world consumer manufacturing and 50% of markets, their views should carry the majority power. The ‘old’ countries disagree and lobby for more IP protection and the serious implementation of laws in the ‘new’ countries.

2012: Lenovo in trouble with IBM
As per the sale agreement of December 2004, Lenovo had the rights to use the IBM logo on their PCs for five years.
In February, a Lenovo subsidiary in Beijing is found to be producing PCs containing the IBM logo. IBM immediately starts massive legal action targeted to shut down Lenovo operations in the US, and eventually, world-wide.
The US Congress intervenes on grounds of “national security” stating that IBM’s actions are in fact “anti-US” as they threaten the ongoing trade with China plus a major pull-out of Chinese investment in US Treasury Bonds.
China does not react. The Wall Street Journal headline reads: “The Chinese Economic Dragon Licks Its Lips – who has the courage to tell it to change?”

2015: Will we ever kick the habit?
It’s astonishing that, although it’s been a decade since business started seriously adopting network principles to actively harness the relationship power of people world-wide, we as individuals have not yet understood the power of the system in which we live.

Our continued unbridled consumerism is denuding the future and fueling the ‘Chinese Model’ of economic growth – profit and consumerism – creating a runaway fire that is threatening to engulf the few remaining ethical business foundations of the West.

IP is hardly ever mentioned. It seems the war has been all but lost.

Each participant in a network must not think “What can I get from this?” but “What can I bring to this?” Wolfgang Grulke, 2004

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Warning: Hazardous Thinking at Work

Despite appearances to the contrary, Futureworld cannot and does not predict the future. Our Mindbullets scenarios are fictitious and designed purely to explore possible futures, challenge and stimulate strategic thinking. Use these at your own risk. Any reference to actual people, entities or events is entirely allegorical. Copyright Futureworld International Limited. Reproduction or distribution permitted only with recognition of Copyright and the inclusion of this disclaimer. © Public domain image.

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