China’s Progress on Intellectual Property Rights (Yes, Really)

China has long been seen as the “world’s factory,” churning out low-quality manufactured goods and imitating products and business models from abroad. Whether it is due to heavy-handed government interference or some cultural argument about Confucian educational values, China — or so the story goes — is a land of copycats incapable of innovation with no respect for intellectual property rights (IPR).

This, of course, is not accurate.

Yet many U.S. companies still believe this story. According to a 2017 survey conducted by the American Chamber of Commerce in China, member businesses are split on their views of China’s IPR laws and regulations; however, more than half of the respondents remain largely skeptical that laws protecting intellectual property will be properly enforced in China.

Foreign firms have long complained that enforcing their intellectual property rights in China is difficult due to local judicial protectionism, challenges in obtaining evidence, small damage awards, and a perceived bias against foreign firms.

However, over the past decade, China has become increasingly innovative and has demonstrated a serious resolve to enforce an effective IPR regime. Indeed, as Chinese firms focus on global expansion abroad and high-tech innovation at home, they have increasingly demanded effective IP protections from the government. In fact, many of the concerns raised by foreign companies operating in China have been addressed by legal reforms and new enforcement mechanisms.

Local Judicial Protectionism

One major complaint levied against China’s IPR regime is that cases brought to an intermediate court (at the municipal level) will suffer from local judicial protectionism. Long and Wang found in their 2015 study that in IP cases between Chinese firms, plaintiffs litigating in their hometown are significantly more likely to win. However, they also found that when cases are appealed to the higher courts (at the provincial level), plaintiff location no longer has a significant effect on case outcome.

As summarized in a white paper from the Supreme People’s Court, China has taken important steps to eliminate local judicial protectionism and ensure a fair adjudication process in IP cases. In October 1995, the Supreme People’s Court established its Intellectual Property Division to oversee national cases. In 2014, Beijing, Shanghai, and Guangzhou set up their own intellectual property courts. In early 2017, Nanjing, Suzhou, Chengdu, and Wuhan launched specialized intellectual property tribunals.

Because these courts have first instance jurisdiction over all IP cases in their respective provinces, not only will the negative effects of local protectionism be mitigated in a more systematic way by removing cases from local jurisdiction, but the courts will also be able to better provide judges and technical investigators with the required expertise to deal with the complex nature of their caseloads. This will ensure that both domestic and foreign litigants receive fair treatment.

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