Assessing Coherence of the Intellectual Property Rights Regime in China

Maskus, Keith, Indian Journal of Economics and Business

In this article I discuss China's recent and ongoing legislative reforms in intellectual property rights (IPRs). These reforms combine to achieve a legal framework for protecting intellectual property that is comparable to that in most developed nations. However, there are structural impediments to the effective use of IPRs arising from weaknesses in China's administration and enforcement policies. At present these difficulties raise significant costs for both foreign and domestic enterprises, largely offsetting any stimulus from legal reforms. I also consider the coherence of China's emerging IPRs regime, in conjunction with other development policies, for promoting both innovation and key social objectives.

1. INTRODUCTION

Infringement of intellectual property rights (IPRs) in China remains a major irritant for developed countries that export new technologies and goods. (1) For example, at the World Trade Organization (WTO) the United States, Japan, and Switzerland recently requested detailed information from China regarding its IPRs enforcement activities from 2001 to 2004. (2) Many observers describe this action as a precursor to a WTO dispute resolution panel in which China would be accused of failing to meet its enforcement obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

As this article describes, recent legislative changes in China have achieved a legal framework for registering and protecting IPRs that is comparable to many advanced economies and is consistent with requirements under TRIPS. However, despite some improvements in administrative and judicial systems, the enforcement system suffers from a number of structural difficulties. Trademark counterfeiting, piracy of software and digital electronic goods, and infringement of patents and trade secrecy continue at high levels. Coping with such activities is costly for both international and domestic enterprises operating in China.

In this context, China is at a crossroads. On the one hand, the profits from infringement of IPRs are great, while the likelihood of incurring significant penalties for doing so is small. There are gains for Chinese consumers and firms from such activities, at least in the short run. On the other hand, many domestic Chinese enterprises are making increasing use of advanced production technologies, while consumer demand within the growing middle class is shifting toward higher-quality goods and services. Thus, there is a growing emphasis on developing brand-name recognition and engaging in product innovation.

These issues are complex and evolving, making any full assessment based on a current snapshot difficult and questionable. Based on interviews and observations in China, I believe that problems with infringement are growing worse and raising increasing roadblocks to domestic innovation and product development. At some point this situation could become debilitating for Chinese enterprises (Maskus, et al 2004).

The government therefore has a difficult balancing act to pursue. Continued laxity in enforcement will achieve consumer gains while further irritating major trade and investment partners. Over time, however, it will limit incentives for domestic innovation. The Chinese central government recognizes the need for a workable IPRs system that will promote dynamic structural change. Support is also growing among innovative Chinese enterprises, which suffer losses from trademark and copyright infringement and also understand that their access to foreign technologies depends partially on IPRs.

To date, the government's response to this challenge has been to undertake significant reforms of its intellectual property legislation, even as it permits enforcement problems to fester. Since 1990 the government has updated its laws covering copyrights, trademarks, patents, and trade secrets (or "anti-unfair competition") and has adopted protection for new plant varieties and integrated circuits. Beijing has joined nearly all major international IPRs conventions and is a member of international agreements on classification of patents and trademarks and the deposit of microorganisms. China made further revisions in conformity with the requirements of TRIPS in its accession to the WTO (Maskus, 2004). With full implementation of these reforms the country will have a modern IPRs structure comparable with those of most developed economies.

Like most developing countries, China relies on a mix of administrative and judicial mechanisms for enforcing IPRs. The administrative system comprises a number of central government and provincial agencies. These range from police and customs authorities at the operational end, through the copyright administration and patent and trademark office and related registration services, to high-level administrative commissions at the policymaking end. These various agencies are responsible both for implementing regulations set by legislative action and for undertaking enforcement actions, which may be done either on behalf of complainants or self-initiated. The judicial regime includes municipal, provincial, and national courts that hear civil and criminal cases that cannot be dealt with strictly through administrative procedures. The courts increasingly are used for litigation among parties. These systems are described more fully in the following section.

Despite education and training programs to raise awareness and upgrades of its administrative and legal systems, significant structural problems remain, including weak penalties, delays in administrative and court procedures, and 'local protectionism" that make enforcement difficult in certain provinces and cities. As I argue below, these problems raise significant barriers to business development and innovation on the part of both foreign and domestic enterprises. Reducing these structural barriers to rights exploitation, arising from weak enforcement, is the primary remaining challenge with respect to the IPRs regime itself.

Finally, to be fully effective the system must be recognized as a component of broader development strategies. The ultimate objectives of IPRs are to increase dynamic competition through technology acquisition and innovation and to encourage firms to place their products on the domestic and export markets. Strengthening IPRs improves such incentives, but the system needs to be developed within a broader set of policies, including development of the financial system, expansion of educational opportunities, and means for encouraging active competition. Also important is improving the …

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Publication information: Article title: Assessing Coherence of the Intellectual Property Rights Regime in China. Contributors: Maskus, Keith - Author. Journal title: Indian Journal of Economics and Business. Publication date: September 2006. Page number: 175+. © 2008 Indian Journal of Economics and Business. COPYRIGHT 2006 Gale Group.

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