China's enforcement of intellectual property laws remains lacking at times but the rise of innovative Chinese companies creates a new opening to build significant support for reform within the country, according to the top American diplomat in China.
Speaking at a June 23 forum on intellectual property in Shenzhen, U.S. Ambassador Jon Huntsman Jr. said that the rise of Chinese firms that want to protect their home-grown IP is an opportunity for foreign firms to press their case.
“We have a very unique opportunity that is rather unprecedented with the coming forward of a new generation of Chinese entrepreneurs who all of the sudden care about this issue,” Huntsman said after the conference. “It is not unilateralist driven by the United States, but rather with multiple stakeholders represented by the future of China's economy as well.”
Still, he said U.S. officials continue to have concerns, particularly with the enforcement of existing laws.
One U.S. manufacturer speaking at the Innovation and Intellectual Property Forum, which was sponsored by the American Chamber of Commerce in South China, offered a more critical take on the state of IP laws in China.
David Hon, general manager of Los Angeles-based Dahon Group, one of the world's biggest makers of high-end folding bicycles, said he was pulling his company's research and development out of Shen- zhen because he could not protect intellectual property rights there.
Hon said the company, which developed the world's first foldable bike in 1982, was relocating R&D back to the U.S., Taiwan and Europe because leaks of trade secrets from Chinese offices were “almost legally unstoppable.”
Hon claimed that half of the folding bicycles made in China infringe on his company's patents, and he said Chinese trade shows fail to protect IP adequately, with the exception of the huge Canton Fair held in Guangzhou.
Hon, who moved some R&D work to Shenzhen 15 years ago in a decision that he admits was questioned at the time by some of his own shareholders, said the lack of IP protection hurts China's drive to move away from low-wage industries.
“A solid IPR system will lay the foundation for a sustainable Chinese economy,” said Hon, who also is deputy chairman of China's Guangdong Bicycle Association and former chairman of a Shenzhen city IPR committee. “The development of innovation must be bundled with the protection of intellectual property.”
Huntsman, who attended the forum, said at a news conference afterward that Dahon's situation is serious and shows the need for much stronger enforcement.
But he also said he did not think Dahon was representative of most U.S. companies.
“I think the sense is this may be somewhat isolated [because] I visited a couple of businesses yesterday that are in a relatively high level of research and development of technology, and the sense is there is incremental progress that is being made and the trajectory has been pretty good over the last many years, but enforcement has lagged behind,” Huntsman said.
Those companies, he said, “say there is enough progress year over year to keep them here and increasingly they are finding a listening ear at the local government level.”
He said the debate over IPR will shift more to local and provincial governments in China. He praised Shenzhen for creating a new city agency to bring patent, trademark and copyright matters under one roof, the first time that's been done in China.
Huntsman said Shenzhen companies like BYD, which attracted a $230 million investment from Warren Buffet in 2008, and telecom equipment maker Huawei Technologies Inc., are becoming world leaders and innovators.
He said Huawai, for example, filed the second highest number of patents in the world in 2009 under the World Intellectual Property Organization patent cooperation treaty.
Executives at Huawei and another Chinese firm at the event, NASDAQ-listed medical-device maker Shenzhen Mindray Medical International Ltd., said they thought the local intellectual property laws were improving.
Mindray CEO Xu Hang said local governments are getting better and “we also see hope.”
Mindray has research centers in China, the U.S. and Sweden, and said it spends about 10 percent of its revenues on R&D.
Huawei Chief Legal Officer Song Liuping said China has laws to protect against IP problems, and he said, speaking through a translator, that while criticisms were raised “what I want to say is constructive suggestions are more important.”
An American intellectual property lawyer in China, David Buxbaum, however, told the conference that Shenzhen needs to make its IP laws stronger.
“The city is an amazing success but its intellectual property protection and its institutions in the legal field and the administrative field lack a great deal,” said Buxbaum, with the New York firm of Anderson & Anderson LLP. He was the first American lawyer invited to China to represent American business in 1972 and handled one of the leading IP cases in China, involving Microsoft Corp.
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