Intellectual property rights (IPR) protection is one of the important determinants of R&D investment for multinational corporations (MNCs). Although many research studies have been done on IPR issues, rarely has the literature addressed the "real-world" practice of IPR protection.
This article explores how Taiwanese IT firms protect their IPR in mainland China; specifically, it examines the practices of three companies that conduct intensive R&D activities there. (see "The Three Companies Studied," next page). In-depth interviews were conducted with the top management, R&D managers and human resource managers of these IT companies. These senior executives have long employment experience in their respective companies and are familiar with the issues faced by R&D units in mainland China. The author believes that the results can be a valuable reference for those MNCs that plan to extend their R&D activities to mainland China.
The techniques that Taiwanese IT firms adopt to protect their IPR in mainland China are described in four categories: legal mechanisms, secrecy, lead time, and complementary capabilities.
Taiwanese IT firms employ three major legal mechanisms to protect their valuable IPR. These include patenting for important innovations, copyrighting for software products, and regulating the obligation of intellectual property protection in the employment agreement.
Because Taiwan's IT industry conducts design and development activities rather than research and development (1), its IT firms mainly use patents as a bargaining tool in negotiations. Applying for patents is a protective approach to accumulate bargaining power for cross-licensing. One senior R&D manager said:
There is little chance for Taiwanese IT firms to be free from using other companies' patents since the industrial standards are defined by them. My firm received many intellectual property claims from large MNCs in the past. We need to enlarge our patent pool for the negotiation of cross-licensing or for lowering the royalty fee. Once my firm owns a large number of patents, we can cross-license with those big MNCs. Hopefully, we can collect royalty from other companies in the near future.
Taiwanese IT firms know the importance of keeping track of their engineering activities when conducting new product development. R&D engineers are requested to record the details in lab notebooks or technical diaries. This kind of information is important for granting a patent under the first-to-invent rule. The key information in this engineering document includes ideas, procedures, implementations, results, and witnesses.
IT firms use copyrights to protect the benefits from their software innovations. A creative firm can protect its software innovations through copyrighting, yet as typical followers, Taiwanese IT firms adopt a "clean-room approach" to avoid claims from innovators. The reasoning behind clean-room development is that a programmer cannot infringe upon a copyrighted program if he never sees it. To prove the independent creation, a firm should take a series of actions and be able to provide the related documents when legal litigation is pursued.
A strict clean-room approach requires three independent teams: specification team, coding team and intermediate team. The specification team may extract the functional specifications of copyrighted software by any means, such as reverse engineering, or reading the functional specifications and/or the codes of programs. A functional specification for a compatible product is then generated. Any hint about the way that the original program works is prohibited in the functional specifications.
The coding team codes the programs based solely on their interpretation of the functional specifications. The members of the coding team must have never seen the actual codes of the original program. …