Academic journal article Management International Review

Enforcing Intellectual Property Rights in Weak Appropriability Regimes: The Case of De Facto Protection Strategies in China

Academic journal article Management International Review

Enforcing Intellectual Property Rights in Weak Appropriability Regimes: The Case of De Facto Protection Strategies in China

Article excerpt

Abstract:

* Many emerging economies are characterised by weak appropriability systems and absent legal systems to punish imitators. This places foreign firms' intellectual property rights at risk, because existing appropriation methods, such as patents or secrecy, cannot function effectively. This concern especially applies to China, the empirical context of this article. Such adverse conditions force managers to devise new strategies to safeguard their firms' intellectual property rights. Yet no evidence describes whether strategies exist, which forms they take, how they have evolved or how they get implemented.

* This article addresses this knowledge gap and explores strategies that managers have developed to achieve de facto protection, despite China's weak appropriability system. The analysis systematically explores 13 eases of foreign firms with wholly owned subsidiaries in China.

* The findings confirm that de facto strategies exist, describe how they work and detail how they were achieved. The findings suggest implications for both managers and academics.

Keywords: Intellectual property rights * China * Appropriability regime * De facto protection strategies

Introduction

Emerging economies often contain weak appropriability regimes, such that the country's legal system provides little or no effective protection for the intellectual property rights (IPR) of a foreign firm, and the enforcement of a foreign firm's IPR is difficult if not impossible. (1) In such countries, firms from more developed economies often cannot protect their IPR using the same appropriation measures that they would commonly use at home.

This concern especially applies to China, one of the most risky environments with regard to IPR protection, especially for enforcing foreign firms' IPR in markets and before the courts (European Commission 2004; United States Trade Representative 2005). Yet many foreign firms have invested in business operations in China, including research and development (R&D) activities (United Nations Conference on Trade and Development 2005). Were the impact of China's weak appropriability system truly disastrous, foreign firms would have exited the market, either voluntarily or because of the loss of vital IPR and the subsequent loss of competitive advantage. Yet this exodus seemingly has not happened.

In accordance with recent exploratory contributions (Anand and Galetovic 2004; The Swiss-Chinese Survey 2006), we presume that managers create strategies that can protect their firms' IPR in China, despite the shortcomings of IPR enforcement. We refer to such strategies as de facto protection strategies, defined as follows: A strategy crafted by local managers of a foreign firm, active in an emerging economy, that successfully can protect the firm's IPR without using the legal system, formal litigation or lawsuits.

Virtually no analyses investigate if these strategies truly exist and how they might be implemented. Extant theory about how firms protect IPR remains limited to samples from developed economies, such as the United States (Cohen et al. 2000; Levin et al. 1987), Japan (Cohen et al. 2002), Germany (Blind et al. 2006) and Switzerland (Harabi 1995). To the best of our knowledge, no systematic discussion considers how firms protect IPR in emerging economies in which the actual enforcement of IPR is difficult, if not impossible. Yang et al. (2004) focus on reactive strategies to fight product piracy if counterfeits have appeared in the market, but no research analyses which, if any, measures firms might take to prevent IPR infringements.

This article represents an attempt to shed light on these questions. Specifically, we attempt to (1) develop a theoretical understanding of how a firm can protect its IPR in an environment in which the enforcement of IPR is difficult or impossible, (2) inform managers about de facto strategies and how they are applied and (3) discuss how de facto strategies identified in the specific context of China might apply to other emerging economies. …

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