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The problem NZ companies have in China

Vladimir Samoylov explains why New Zealand companies can find it difficult to enforce their intellectual property rights in China 

In his book To Steal a Book Is an Elegant Offence: Intellectual Property Law in Chinese Civilization, legal scholar William Alford explains that traditionally in China the act of copying another’s work was a sign of admiration and respect for the original creator’s craftsmanship.

Although general public perception of intellectual property is evolving in China, this notion remains rooted in the culture. It is just one of the obstacles New Zealand companies can expect to encounter if they use China’s manufacturing infrastructure.

Such obstacles can and should be overcome via not only the available legal protections but also practical strategies such as those employed by companies with already established operations in China.

To ensure their products are appropriately protected, it is important for New Zealand companies to understand that copyright in the design of the products may not be as easily attained in China as in this country.

A 'work of applied art', which is how most product designs are classified under copyright law, has a significantly higher qualification threshold than other copyright works in China. Works of applied art in China must contain a substantial degree of artistic merit. The higher threshold reflects the general consensus among Chinese courts that a design patent is the appropriate intellectual property mechanism for protecting product designs in China.

One of the major weaknesses of a design patent, however, is it is granted without a substantive examination being conducted. New Zealand companies may therefore find it difficult to enforce their intellectual property rights simply by writing to the infringers and asking them to stop on the basis their design patent rights are being infringed. This is because many Chinese companies do not value intellectual property protection that is not subject to substantive examination.

New Zealand companies in such a predicament should use the very accessible judicial and administrative bodies in China to enforce their rights. For example, there are special industrial design prosecution centres set up in competitive industries specifically to reduce the duration of the dispute resolution process. Moreover, if the dispute is not resolvable via a quick process, China has several courts and collegial panels across the country that specialise in intellectual property issues.

Outside the dispute resolution bodies, New Zealand companies can also use the services of administrative bodies such as a local intellectual property office. Although it is not possible to seek damages through these bodies, they do have the authority to enforce intellectual property rights. A local intellectual property office can be used to conduct a raid and if evidence of infringement is discovered, production will be stopped and a fine imposed.

Perhaps the greatest obstacle New Zealand companies can expect in China is, as mentioned earlier, connected to the difference in culture and the attitude toward copying.

Although since 1981 the Chinese government has endeavoured to harmonise its intellectual property system with that of the West, counterfeiting is still prevalent. This is because China is not homogenous.

Supply chain expert Gene Tyndall says the economies of many regions have been underpinned by counterfeiting industries made possible through the legitimate production lines of factories established by multinational companies. New Zealand companies seeking to use China’s manufacturing capabilities therefore run the risk of having their products counterfeited.

The best way to mitigate the risk is for New Zealand companies to go into business only with local Chinese companies with whom they have a strong relationship of trust. This was the strategy used by many now hugely successful multinational companies, such as KFC, which first entered the Chinese market in the early 1980s.

The expression "Guanxi (关系)” is the idea that social networks underpin Chinese society, noted a lead industrial designer at a multinational company I interviewed for my PhD thesis. “Handshake deals are very important. We need to like and trust each other … relationships, trust … it is really important, it is super important.”

But some companies (especially in industries where products are not expected to have long lifecycles) are unlikely to have the luxury of the kind of time required to build trustworthy relationships. The best approach for such companies is to leverage the existing relationships of experienced companies with established operations in China.

Delphi Automotive is one example of a company that has allowed new entrants to leverage its relationships. New Zealand companies with no ties to experienced foreign companies in China can approach consultancy firms, which are usually able to provide direct referrals. A design consultant explained: “We do that all the time, even if it is just an introduction. Unless there is a conflict of interest, then … that is a lot of the value that we can offer to our clients. That is what it is about.”

Another strategy some companies employ is holding on to and controlling “the supply chain of critical components”, the design consultant explained.

A second multinational company employs this very strategy. It contracts companies in different parts of China to manufacture different parts of its products, therefore ensuring “each company … has only part of the picture … and no one company has too many parts”.

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