NAVIGATING THE INTELLECTUAL PROPERTY JUNGLE IN CHINA: HOW DOES IT COMPARE WITH THE U.S.?

By LUC M. BERLIN UNKAP ROBIN KUEHNE MICHELLE KAUFFMAN

May 13, 2011

Abstract
Despite its rapid ascension to economic stardom, China is far from being an ideal business expansion target for many corporations. In addition to adapting their business practices to Chinas intricate culture, many corporations and individuals are faced with the rigorous challenge of navigating Chinas Intellectual Property (IP) jungle, at their own risk of course. Chinas lack or rather inability to successfully implement strong Intellectual Property laws that reflect their economic status is no longer a problem just for the rest of the world, but most importantly for the Chinese government as they seek to grow domestic innovation to fuel the countrys economic growth. This paper examines how China handles intellectual property issues domestically and with foreign corporations, and compares Chinas IP protections with the western world, notably the United States and in some cases the European Union.

Luc Berlin is an avid fan of global business management and macroeconomics. He has held critical business roles with innovative technology and ecommerce organizations and consults with visionary companies on developing international expansion strategies. A passionate globetrotter, Luc has lived in three continents, speaks fluent French, English, moderate Spanish, and is learning Mandarin. He is also the founder of www.miigle.com, an online platform that allows people to share, develop, and fund ideas from around the world. He has been a recipient of the ACS scholar award and a Finalist at the 2011 American Business Awards for Best Marketing Campaign in Computer Software. Luc is a graduate of Pepperdine Universitys Graziadio School of Business and Management. You may contact him at luki.berlin@me.com.

NAVIGATING THE INTELLECTUAL PROPERTY JUNGLE IN CHINA: HOW DOES IT COMPARE WITH THE U.S.? Preface Despite its rapid ascension to economic stardom, China is far from being the ideal business expansion target for many corporations. In addition to adapting their business practices to Chinas intricate culture, many corporations and individuals have to face the rigorous challenge of navigating through Chinas Intellectual Property (IP) jungle, at their own risk of course. Chinas lack or rather inability to successfully implement strong Intellectual Property laws that reflect its global economic status is no longer a problem just for the rest of the world, but most importantly for the Chinese government as they seek to grow domestic innovation to fuel the countrys economic growth. Chinese representatives have publically committed to extend better protection for foreign intellectual property. An online editorial by the New York Times reported last December that Chinese officials, at the Joint Commission on Commerce and Trade in Washington promised not to discriminate against foreign intellectual property in government procurement, and talked about improving how they award patents, allegedly to prevent the proliferation of parasitic patents of little merit.1 An important question foreign governments fail to ask at least publically is if its in Chinas best interest to implement strong IP rights protections. As the article by the New York Times further reads, many countries in history have pursued technological progress by first trying to piggyback on foreign inventions tweaking and improving
1 Editorial

(2010). NY Times. China and Intellectual Property. Retrieved on May 8, 2011 from http://www.nytimes.com/2010/12/24/opinion/24fri1.html

before blazing their own trails.2 One thing the world must have certainly learned about China by now is that the Chinese government does not deviate from the path to its own personal interest. Additionally, Chinas enforcement of its existing IP laws has been found bias against foreign corporations. As Mr. Yitai Hu stated during his presentation on IP and Legal Environment of Doing Business in China at Fudan University in Shanghai, foreign corporations have found it very difficult if not practically impossible to win IP related litigation cases against Chinese companies.3 However, the same has not been true for Chinese companies suing foreign corporations. For example, Microsoft lost an IP case over fonts for its Windows Operating Systems against Beijing-based software company Zhongyi Electronic in Chinese court in 2009.4 Such occurrences of IP protection infringement rulings in favor of Chinese companies against foreign corporations and not vice-versa have certainly contributed to the lack of confidence towards the Chinese government. This paper examines how China handles intellectual property issues domestically and with foreign corporations, as well as compares Chinas IP protections with the western world, notably the United States.

2 Editorial

(2010). NY Times. China and Intellectual Property. Retrieved on May 8, 2011 from http://www.nytimes.com/2010/12/24/opinion/24fri1.html 3 Hu, Y. (2011). Lecture at Fudan University, Shanghai. IP & Legal Environment of Doing Business in China. Notes from April 20, 2011 4 Kolakowski, N. (2009). eWeek. Microsoft Loses Intellectual Property Battle in Chinese Court. Retrieved on May 8, 2011 from http://www.eweek.com/c/a/Windows/Microsoft-Loses- IntellectualProperty-Battle-in-Chinese-Court-887118/

Part I. Understanding Intellectual Property Rights and Why They Matter

1. What is Intellectual Property? It is imperative for one to understand the meaning of intellectual property (IP) to grasp the possible impact of IP fraud and violation on a society. Simply accusing China of fostering IP fraud is pointless if the resulting damages are not made evident. Why does IP protection matter? Well, the answers lie behind its definition. The World Intellectual Property Organization (WIPO), a specialized agency of the United Nations, describes IP as creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce.5 IP is divided into two categories: Industrial property, which includes inventions (patents), trademarks, industrial designs, and geographic indications of source; and Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. Rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs.6 As previously stated, Intellectual Property is comprised of patents, trademarks, industrial design, trade secrets, and copyrights. We will further define
5 World Intellectual Property (2011). What is Intellectual Property? Retrieved on May 8,

2011 from http://www.wipo.int/about-ip/en/ 6 Ibid

the big three: patents, trademarks, and copyrights and explain why their protection is necessary. Patents are exclusive right granted for an invention, which is a product or a process that provides a new way of going something, or offers a new technical solution to a problem.7 A patent protection means that the invention cannot be commercially made, used, distributed or sold without the patent owners consent, at least for a limited period, generally 20 years.8 A trademark is a distinctive sign, which identifies certain goods or services as those produced or provided by a specific person or enterprise.9 Just like patents, trademark protection is meant to promote initiative and enterprise worldwide by rewarding the owners of trademarks with recognition and financial profit.10 Copyrights are the body of laws that grant authors, artists, and other creators protection for their literary and artistic creations, which are generally referred to as works.11 These laws give the creators of works exclusive right to use or authorize others to use the work on agreed terms.12

7 World Intellectual Property (2011). What is Intellectual Property? Retrieved on May 8,

2011 from http://www.wipo.int/freepublications/en/intproperty/450/wipo_pub_450.pdf 8 Ibid 9 Ibid 10 Ibid 11 Ibid 12 Ibid

2. Why Is Intellectual Property Rights Important? The importance of IP protection is tied to its ability to spur innovation by offering recognition and material reward to peoples creativity and inventions.13 IP protection offers a special incentive for people to solve problems and be recognized for their achievement. Problem solving leads to innovation, which then leads to the manufacturing of these inventions and jobs to produce the final goods. Therefore society and the economy directly benefit from strong IP protection laws.

3. Why do Developing Countries Lack Strong IP Protection Laws? It is well documented that most developing and emerging countries like China do not have strong IP protection laws but very few times are we told why. The answer is both political and cultural. Unlike Western countries, many developing countries do not have a social infrastructure that rewards individualism. These countries are usually evolving from Communism or some sort of community-based system that promote views that are at odds with capitalism. Another reason is that the processes to file intellectual property or any other personal property for that matter in developing countries are usually lengthy, convoluted, and cumbersome. As a result, people prefer to do without. This is a phenomenon well explained in Hernando de Sotos book The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else. One could also argue that in developing and emerging markets, the lack of IP laws actually fosters innovation, though slower. Because of limited access to education, technology, resources, and the high risk of failure, imitating an invention
13 Ibid

or product that works rather than creating a new one is usually a more attractive proposition in these societies. Dont we often use Charles Caleb Coltons quote, Imitation is the sincerest form of flattery? This couldnt be any truer in these societies, especially in the Chinese culture where stroking the ego of one another is highly favored. These trends will eventually change as China continues to open its doors to foreign savoir-faire and capital to fuel its growth. Ultimately, the changes will be more about protecting Chinas domestic innovation than foreign ones.

Part II. Intellectual Property in China

1. The impact of Chinas Culture on Intellectual Property Laws For over two thousand years, Confucianist social and moral values have influenced China's culture. According to Geert Hofstede's Cultural Dimensions analysis, the Chinese culture emphasizes the importance of collectivism. Unlike people in the United States, who highly value individualism, the Chinese tend to identify themselves as part a group, namely their family as well as society as a whole.14 Collectivism is in part the reason why copying or imitating other people's work has no immoral connotation, and why it is rather considered a form of art and education through which knowledge is shared among members of society. As intellectual property rights only bring knowledge and prosperity to an individual, they are considered rather limiting and hindering. This is why merchants and businessmen, from a Confucianist point of view, had historically little recognition, as 14 Hofstede, G. (2009). Geert Hofstede Cultural Dimensions. Retrieved on May 7, 2011 from http://www.geert-hofstede.com/hofstede_china.shtml

they were acting in their own interest and not that of the greater good.15 In education, schools placed much focus on memorization and copying the scholarly work of others, with the goal to preserve the cultural heritage rather than encouraging the development of individual thought. In fact, the communist government during the days of Mao pushed hard to enforce state ownership, and personal ownership was considered a crime.16

2. Intellectual Property Challenges China Faces For the most part, IP laws in China are identical to those in the United States. It is the lack of their enforcement that has always been a major issue.17 The Chinese government passed patent laws in the 1990s and recognized their importance as the country transitioned from a developing to a developed nation. Intellectual Property Rights had first been acknowledged in China in 1979, and the following year, 1980, China joined the World Intellectual Property Organization.18 Chinese manufacturers requested IP protection as a result of their rapid growth, and patent suits have gradually increased in China, most of which were filed against foreign companies. The State Intellectual Property Office was established in 1998, with the goal to have a central office in China for IP enforcement that would address patent, trademark, and copyright issues. However, the office is thus far unable to efficiently handle these
15 Yu, P. (2007). Guanxi: The China Letter. Causes of Piracy and Counterfeiting in China.

Retrieved on May 7, 2011 from http://www.peteryu.com/guanxi.pdf 16 Ibid 17 Hu, Y. (2011). Lecture at Fudan University, Shanghai. IP & Legal Environment of Doing Business in China. Notes from April 20, 2011 18 U.S. Department of Commerce (2003). Protecting Your Intellectual Property Rights in China. Retrieved on May 9, 2011 from http://www.mac.doc.gov/china/docs/businessguides/intellectualpropertyrights.htm

tasks and mostly addresses patent grants and their enforcement.19 The current timeframe for trademark and patent applications typically runs 3 to 5 years.20 Any IPrelated claims have to be filed with a local administrative office, before they may or may not move on to the judicial track. The Judicial system in China today consists of the Supreme Court, the High Court, the Intermediate Court, and the Local Court. IP challenges are often handled on the local and intermediate court level. However, local law enforcement may create problems, as counterfeiting factories often employ the majority of citizens of a local community, creating an incentive for local authorities not to shut down the business under investigation. Therefore claims may either be overlooked, or another factory may be opened up down the street right after shutdown.21

3. Selective Impact: Are Some Industries Affected More Than Others? Industries across the board are suffering from counterfeit products and reverseengineered technologies. This affects foreign as well as domestic companies, and many of the products hit black markets in China as well as abroad. According to studies released by the United Nations, Chinese producers, together with organized crime networks, control the $8.2 billion dollar European market of counterfeit
U.S. Department of Commerce (2003). Protecting Your Intellectual Property Rights in China. Retrieved on May 9, 2011 from http://www.mac.doc.gov/china/docs/businessguides/intellectualpropertyrights.htm
19 20 Hu, Y. (2011). Lecture at Fudan University, Shanghai. IP & Legal Environment of Doing Business in

China. Notes from April 20, 2011 21 Karau, D. (2007). Minnesota Trade Offices Seminar on The China Practicum: A Compact Course on China. Protecting Intellectual Property in China: An Overview of the Changing Landscape. Retrieved on May 7, 2011, from http://www.fredlaw.com/bios/attorneys/karaudean/index.cfm

products.22 The main industries affected by this are the fashion industry (name brand products), the high tech sector (hardware and software), the movie and music industry, as well as the pharmaceutical industry. But even common products such as soft drinks and bottled water can be found in their counterfeit version, which affects multi-national companies such as Coca-Cola but also local Chinese brands. One of the most visible industries affected is the garment and fashion industry, especially prestige brands such as Louis Vuitton, Chanel, and Prada. Even though the luxury-good-craving Mainland Chinese customers with much disposable income have become the most favored of customers in the boutique stores of Hong Kong and Macao, black markets in China are still flooded with fakes. Many of these fake products also enjoy extensive worldwide distribution. The movie industry is another sector that is heavily affected by counterfeiting. DVDs from China are traded on black markets in and outside of China. Besides the high profit margins and ease of duplication of the movies, the demand for foreign films is also particularly high in China due to government censorship. Only about 20 foreign films are approved for distribution in China per year, which creates a high demand of such products on the black market.23 The Chinese auto industry is another interesting sector to evaluate, especially considering U.S. billionaire Warren Buffett's investment into Build Your Dreams (BYD) Motor Company in 2008. BYD has been particularly famous for their reverse engineering techniques, and blunt copying of several car models and technologies
22 Tirone, J. (2010). Toronto Star. Chinese producers control $8.2B knock-offs market.

23 Yu, P. (2007). Guanxi: The China Letter. Causes of Piracy and Counterfeiting in China.

Retrieved on May 7, 2011 from http://www.peteryu.com/guanxi.pdf

from manufacturers such as Toyota and Mercedes. The BYD F3 for example looks almost identical to a Toyota Corolla, but is offered at a much lower price. BYD is a "proud master copyist", and CEO Wang Chuanfu is known to even have asked his engineers to disassemble his personal Mecerdes Benz S300, which in turn resulted in another BYD model that looked like an identical twin to the Mercedes. Reverse engineering has saved the company about 33% of development cost, and enabled the company to move forward quickly.24 A second strategy has been to replace machinery with cheap labor wherever possible, an approach that had proven successful already when BYD was focusing on Lithium-ion battery manufacturing.25 BYD has come a long way since it's beginning and is now on the forefront of electric car and battery manufacturing, which included the introduction of their own car designs and technologies. Other examples that are not further discussed include scandals involving food items such as baby products, as well as counterfeit prescription and over-the-counter drugs, the latter often being ineffective or containing potentially harmful ingredients.

4. What Does The Future Hold? China is potentially surpassing the United States in the number of patent filings in 2011. China's National Patent Development Strategy, according to British inventor and entrepreneur James Dyson, involves the aim to reach 2 million patent filings by 2015. Dyson is concerned with this, as he believes China is not just patenting new
24 Chinacartimes.com (2010). The truth about BYD replication, cost cutting,

and car production. Retrieved on May 7, 2011 from http://www.chinacartimes.com/2010/02/11/the-%E2%80%98truth-about-byd- replication-cost-cutting-and-car-production/ 25 Ibid

breakthrough innovations but also reproducing and patenting the existing work of others.26 While this may be a valid concern Dyson raised, on the other hand it may result in China's pushing forward to enforce patent violations more strictly. In the past, China's government did not have much incentive to address issues such as counterfeiting and "reverse engineering", as these have sped up and driven Chinese innovation and thereby China's economy. As China emerges as a nation of innovators, and moves away from the stigma of cheap labor and counterfeit products, the Chinese government and leading companies will continue to have a growing interest to enforce intellectual properties in China and abroad. According to a study quoted in Bloomberg Newsweek, the Chinese government already increased raids in Macau and Mainland China, and will continue to do so as China's own movie industry keeps growing.27 All other sectors and industries discussed above will likely experience similar enforcements, especially those with increased Chinese IP investment. What this means for foreign companies doing business in or with China is that they should follow the Chinese protocol in order to legitimately protect their own IP under Chinese law. Infringement will eventually be prosecutable, and filing a claim in China will have a better chance of success than dealing in international courts.

26 Dyson, J. (2011). BusinessWeek. China: The Intellectual-Property Battleground. Retrieved

on May 9, 2011 from http://www.businessweek.com/innovate/content/feb2011/id20110214_105656.htm 27 Dyson, J. (2011). BusinessWeek. China: The Intellectual-Property Battleground. Retrieved on May 9, 2011 from http://www.businessweek.com/innovate/content/feb2011/id20110214_105656.htm

Part III. A Comparison of IP Laws and Protections between the U.S. and China

1. Intellectual Property Rights in the U.S. vs. China After looking at the intellectual property laws, protections, and limits in China, how does this differ from law in the United States? The legal system in the United States is very complex even when looking at just one area of law such as intellectual property. The legal system in the United States is split between the federal system and the state system. Almost all intellectual property issues with foreign business would fall under federal jurisdiction as it deals with commerce between nations and across international borders rather than interstate commerce. However, in specific cases, especially with trade secrets, it may apply in the state system. In the United States it is very common to have a case that is tried and then appealed until it gets to a higher level of court. Intellectual Property Law in the United States is broken down into patent law, trademark law, copyright law, Trade Secrets Act, Economic Espionage Act and Antitrust Law. 28 The nuances and differences between the different types of intellectual property determine the types of acts and laws surrounding them. Precedence plays a large part in the shaping of laws. In the United States, patents, trademarks, and copyrights are all registered with the Federal Patent Office and the patent holder then retains all rights for the life of the patent. This persists even if the patent is not produced or sold. For trademark
28 Mallor, Barnes, et al., Business Law: The Ethical, Global, and E-Commerce Environment,

14th ed., (2004), McGraw-Hill Publishing.

law, The Trademark Act of 1946, or Lanham Act, and the subsequent Trademark Law Revision Act made it easier for companies to register new trademarks in the United States. On top of these laws, the precedent system of United States law makes patent and trademark protection very sound as it relies on previously decided cases with a strong history of upholding protections for registered patent and trademark owners. 29 What makes U.S. law more complex is the fact that different commissions, government bodies, and agencies regulate and enforce different sectors of intellectual property laws? For example, the U.S. Federal Trade Commission is the agency that enforces antitrust laws. The way in which intellectual property law is dealt with and enforced in China is very different. The Chinese legal system does not differentiate between federal court and state courts but still has a tiered system similar to the United States where cases can be tried locally but unlike the United States, the Chinese system has a court specifically to address intellectual property cases called the Third Civil Division. The biggest issue in China is not the existence of the legal system but the enforcement of the legal system. In 2007, the Office of the United States Trade Representatives put China on a priority watch list with other nations for violations of intellectual property rights.30 The United States also filed a World Trade Organization case against China to try to change the operating standards to comply with WTO laws in terms of

29 Warren J. Keegan & Mark C. Green, Global Marketing (2011), Publisher: Prentice Hall 30 Reuters, China, Russia Top U.S. Piracy List (2007). Retrieved on May 8th, 2011.

http://www.reuters.com/article/2007/04/30/us-usa-trade-piracy- idUSN3041927620070430

international copyright law.31 These both point to the distrust from the United States of Chinas government to enforce the treaties and laws that it has committed to enforcing in the realm of intellectual property. One of the challenges is the fundamental cultural difference between China and the United States. During his lecture at Fudan University in Shanghai, Intellectual Property attorney Yitai Hu discussed the difference between laws being the primary determinant in the structure of business in the United States clashing with the relationship driven business in China. This fundamental difference in the view of how law protects citizens or is used as a last resort can help explain why government commitments are slow to take hold and be put into practice in China, leading to frustration and cases being brought to the WTO from the United States. In the US, bringing a patent infringement case or suing for the rights to produce a product happens all the time and is no big news. However, in China the courts are a last resource and would be considered a huge offense essentially insuring that the two parties would never do business with one another again. From Will Boyds lecture, law in China is a tool in the hands of authority and thus allocates power. Whatever is good for the party will then determine how the law is shaped. This greatly differs from the United States foundation of freedom and individual rights, coupled with a culture of capitalism and money hungry business where laws are used to protect these rights and freedoms. In the United States, the culture of big business and the capitalist market, greatly affects the strong push for intellectual property protections as these are seen as key to making money.
31 Reuters, China, U.S. trade barbs over WTO piracy case (2009). Retrieved May 8, 2011.

http://www.reuters.com/article/2009/03/20/us-china-usa-wto- idUSTRE52J3T920090320

According to Boyd, the attitude towards legality in China is based upon what an individual can get away with, not the morality or ethics of law that is discussed so often in education in the United States. It is important to note that neither way is right or wrong but the differences can explain and provide insight for businesses looking to protect their intellectual property and governments working together to foster protections internationally. One of the common mistakes that foreign businesses make is not obtaining the proper protection that is applicable in China. Many companies assume that by filing in the United States, they are protected abroad. This is true for some countries due to the Patent Cooperation Treaty but not with China.32 Trademarks and patents must be applied for in China if a company wishes to be protected. Patent registration in China has been climbing over the past decade and some 314,573 applications were made for patent inventions in China last year, including 85,477 by foreign companies.33 These numbers are starting to rival the number of patents filed in the US as 520,277 patents were filed in the US in 2010. 34 The number in China is only continuing to rise and the time in which it takes to approve patents is lengthening as both domestic and foreign companies are registering as faith in the governments ability to enforce and back these protections is increasing. 35
32 Warren J. Keegan & Mark C. Green, Global Marketing (2011), Publisher: Prentice Hall 33 Cave, Andrew, Intellectual Property in China (2011). Retrieved May 8, 2011.

http://www.telegraph.co.uk/sponsored/finance/bird-and-bird/7851839/Intellectual- property-in-China.html 34 US Patent and Trademark Office, Statistics Chart (2010). Retrieved May 8, 2011. http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm 35 Kan, Michael, China renews vow to protect intellectual property rights (2010). Retrieved May 9, 2011. http://www.networkworld.com/news/2010/102110-china-renews-vow-to- protect.html?page=1

One of the main differences between the United States and China with regards to intellectual property protects is the fact that China is recreating a system. It is easy for the United States to complain about China not protecting intellectual property rights as it already has a system in place to protect it, which makes it easy for businesses to sue and claim infringement. With the rapid growth of China, infringement and protection were not issues initially for US business as the focus was on breaking into the market quickly and taking advantage of a burgeoning economy. This meant that businesses often left out thinking about the consequences of expanding into a market that did not have protections in place. This makes it that much harder for China to go back and retrace steps to destroy a system, one that has been built on counterfeit markets, that has been put in place and put in a new system with different values.36 Anytime new values are involved, it takes time to shift. Businesses in China have been able to find opportunities for money to be made and take advantage of them, however with greater awareness of enforcement and the marked increases in structure to protect intellectual property both domestically and internationally has lessened the ability of counterfeit businesses to thrive.37 A pertinent question we sometimes fail to ask is: Is intellectual property law even necessary? Just because it is used in the United States does not necessarily mean that it is a best practice. There is evidence that developed intellectual property 36 Wechsler, Andrea, Intellectual Property Law in the P.R. China: A Powerful Economic Tool
for Innovation and Development (2008). Max Planck Institute for Intellectual Property, Competition & Tax Law Research Paper No. 09-02. http://ssrn.com/abstract=1354546 37 Burkitt, Laurie & Back, Aaron, Beijing Launches Antipiracy Campaign (2010). Retrieved May 9, 2011. http://online.wsj.com/article/SB10001424052748703994904575646483654517768.html

protection systems are linked to financial success, not just of individuals but also of national economies. Japans WIPO Office conducted a study of six Asian countries, including China, and the economic impact of intellectual property systems, the conclusion indicated a positive correlation between the strengthening of the IP system and subsequent economic growth. 38 Since the Chinese economy is still growing, it allows for studies like this one to determine relevant factors that contribute to growth. With the United States having a long-standing foundation of intellectual property law, it is hard to separate financial success from legal protection as not many changes have been made in recent years. Another study concluded: strong patent rights enhance foreign exports to China in high-technology and patentsensitive industries, while more stringent intellectual property rights protection has a negative impact on low-technology and trademark-sensitive industries under the condition that China does have a strong ability of imitation.39 Considering the Chinese government wants to shift from a made in to a made by or for economy, this shift to a more strictly regulated IP system will be key. Although the differences between the United States and the Chinese law systems are complex and varied as well as the different nuances between the different types of intellectual properties being protected, the overall message is the same; the need for protections is necessary to help foster a growing economy. The cultural differences as the base of the struggles of intellectual property law as well as the
38 World Intellectual Property (2007). Measuring the Economic Impact of IP Systems

Retrieved on May 8, 2011 from http://www.wipo.int/portal/en/news/2007/article_0032.html 39 Plasmans, J & Tan, J, Intellectual Property Rights and International Trade with China (2004). Retrieved May 9, 2011. http://faculty.washington.edu/karyiu/confer/beijing03/papers/plasmans&tan.pdf

governments system of enforcement have been the main factors in the slow increase in protection over the last decade.40 However, with the commitments clear and the foundation set, the ease at which China will be able to continue to grow in this area is yet to be determined. The success and continued commitment from China to reform and develop their intellectual property protection will be an example for other emerging and rapidly developing economies which will in turn affect US business, expansion, and the global economy.

Part IV. Conclusion

Counterfeit products have a long history of existence and acceptance in China, and are distributed worldwide with the backing of powerful black market organizations. As long as there is a market, manufacturers will continue to copy popular brands and products. The Chinese government may slightly decrease the volume of China-made counterfeit products by continuing its hard crackdown on manufacturers. However, due to such combinations as the simple law of price elasticity of demand, low income per capital around the globe, and powerful advertisement, there will always remain a market for copied brand products, especially for the people who cannot afford to buy authentic products. These individuals want to be a part of the emerging and rapidly growing group of wealthy Chinese, the "in group", who can be observed daily lining up outside of top brand stores in Hong Kong and Macau spending thousands of dollars in single shopping sprees.
40 Maskus, Keith, Intellectual Property Right in the WTO Accession Package: Assessing Chinas

Reforms (2002). Retrieved May 9, 2011. http://siteresources.worldbank.org/INTRANETTRADE/Resources/maskus_tips.pdf

Social behaviors and traditions such as "guanxi" and "mianzi", relationship and face respectively, help explain why the Chinese people place a high value on authentic brand products, according to Kathrin Hamm of the Frankfurt School of Finance and Management (15).41 In order to build strong personal as well as business relationships, gifts are usually given as a sign of gratification. Authenticity is very important in this case, because a gift exposed as a counterfeit would cause the gift-giver to lose face, which would bring shame on the person as well as his or her family. Other IP violations such as movies, software, and patents in the high tech sector will potentially decrease with the help of the Chinese government. However, the demand for foreign films will remain, unless censorship is lessened and more films are officially released in China. In terms of high tech patents for electronics, the car industry, or emerging industries such as green energy, there will likely be stricter enforcement as the Chinese government is pushing to secure and enforce parents within these sectors. As mentioned above, protecting their patents will be a good incentive to set up the necessary infrastructure to efficiently protect IP. However, it will take some time to change the social and cultural attitudes towards IP rights, despite the tightening laws. The China Intellectual Property conundrum is going through a phase no different from other societies before it. Western countries have not always had the elaborate IP laws they have today. For example, in her paper Intellectual Property and
41 Hamm, K. (2009). China Business & Research N0. 004. Effects of Counterfeiting

on the Image of Luxury Brands in China. Retrieved on May 9, 2011 from http://www.frankfurt- school.de/content/en/ecbc/ecbc_portal/content_files/file7/CBR2009_004_Hamm_Effects_c ounterfeiting.pdf

Economic Development: Lessons from American and European History, Zorina Khan correctly points that both patents and copyrights were introduced in Europe in the form of privileges that limited access to special classes of society.42 The China we know today is not the China of ten or even five years ago. The country has a 5,000year history but its involvement in world economics has been fairly recent. It might take some time but we believe the Chinese government will continue to improve its IP protection enforcement, if not for the satisfaction of the West, for its own sake.

42 Khan, Z. (2002) Intellectual Property and Economic Development: Lessons from

American and European History. Retrieved on May 8, 2011 from http://www.iprcommission.org/papers/pdfs/study_papers/sp1a_khan_study.pdf

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