Chinese President Hu Jintao's visit to the U.S. in early September comes amid strains between the two countries over such economic issues as the ballooning U.S. trade deficit with China, a failed bid by China's Cnooc Ltd. to buy U.S. oil-and-gas company Unocal Corp., and China's longstanding and widespread violation of intellectual property rights (IPR).
China is by far the world's leading producer of counterfeit goods — from knock-off designer-brand clothing to pirated films and books, to imitation consumer electronics and aircraft parts — a black market that costs legitimate companies in America and elsewhere billions of dollars in lost sales annually.
While some see Hu's White House visit (Postponed due to hurricane: tentatively scheduled for Sept. 14.) as an opportunity to push Chinese authorities to crack down on rampant violations of international copyright, trademark and patent protections, a new book on the issue suggests that such external pressure will have little or no impact on the crux of the problem: the central government's inability to enforce intellectual property norms across the vast reaches of China's 31 provinces.
"Recent rhetoric of those who champion direct confrontation of China over intellectual property protection reflects an astonishing degree of ignorance about the bureaucratic nature of the Chinese legal, economic and political systems," says Andrew C. Mertha, Ph.D., author of a new book, The Politics of Piracy: Intellectual Property in Contemporary China (September 2005, Cornell University Press). "Increases in U.S. pressure will only result in Beijing digging in its heels and being far less receptive to U.S. concerns."
Mertha, an assistant professor of political science and international studies in Arts & Sciences at Washington University in St. Louis, has researched Chinese intellectual property issues since 1998, and has lived and worked in the country for seven years since 1988.
Although the widespread conventional wisdom on U.S.-Chinese relations suggests there is a simple correlation between greater diplomatic pressure and better Chinese compliance with international norms and their own declared national policy on intellectual property, Mertha's research tells a different story.
"External pressure may lead to formal agreements in Beijing, resulting in new laws and official regulations, but it is China's complex network of bureaucracies that decides actual policy and enforcement," says Mertha. "The sustained pressure of international negotiations has shaped China's patent and copyright laws, but the key to gaining enforcement of those laws lies at the local level."
Mertha's conclusions are drawn from personal interviews with hundreds of people playing behind-the-scenes roles in China's multi-layered bureaucratic power structure, including local government officials and businesspeople throughout China, national political leaders, scholars, lawyers, trade representatives and veterans of private investigative agencies specializing in Chinese business disputes, as well as some of the pirates themselves.
While the existing literature on intellectual property in China focuses largely on legal issues, Mertha's book is among the first to tackle these problems from a local political perspective, suggesting that the success of current efforts to deal with street-level piracy ultimately hinges on an intimate understanding of power politics in China's local bureaucracies and government-business relations.
His book explains why policing intellectual property in China is such a daunting challenge, noting, for instance, that leaders of local government bureaucracies are often intimately involved with companies that profit from pirated goods. When a community depends heavily on piracy for jobs and income, local powerbrokers have little incentive to crack down on violations. Local governments and agencies have limited resources and anti-piracy efforts are seldom a priority. Violators also have developed increasingly sophisticated methods to manufacture and sell pirated and counterfeited goods, in some cases even copying the factories that produce them.
Andrew Mertha
Although large, international companies may be more comfortable fighting these abuses at the national level, Mertha's analysis shows that efforts to protect intellectual property are much more successful when pressure is exerted from within China. He notes, for instance, that foreign companies have achieved much greater trademark protection by using private investigative agencies to exert continuous pressure from within the communities where flagrant violators operate, sometimes going so far as to subsidize the limited budgets of local anti-counterfeiting agencies.
In his book, Mertha traces the history, cultural context and ongoing economic implications of intellectual property in China, detailing subtle but important nuances that help determine who in China really has the power to help companies successfully protect their brands, copyrights and trademarks.
From among the many dimensions of Chinese intellectual property explored in his book, Mertha offers the following summaries of three areas he considers to be the most important and least understood.
First, many people argue that China should utilize its IPR provisions within the revised criminal law to go after the pirates and counterfeiters. This is a sound strategy, but one that will take many years to show results. At present, we must acknowledge that in the short-to-medium term, China's legal infrastructure does not have the capacity or the authority to effectively handle the sheer volume of potential IPR violations. The courts are under the jurisdiction of local governments, which sometimes have a direct interest in looking the other way when it comes to IPR violations. In some cases, the violating factories are owned by the local governments in question. More often, however, local governments want to ensure social stability and this means employing as many people as possible, even if it means employing them in IPR-violating enterprises.
Second, like most Chinese right holders, we should look to China's extensive administrative enforcement bureaucracies for help. But to do so effectively, it is necessary to identify shortcomings within these institutions and to be creative in finding ways to compensate for them. For example, China's copyright enforcement apparatus is extremely weak in terms of its personnel, operating budget, and bureaucratic reach. Many Chinese copyright holders recognize this and have chosen to protect their rights by taking their claims to the far more powerful trademark and anti-counterfeiting bureaucracies by invoking laws on trademark, anti-unfair competition, and product quality.
Third, we need to recognize that intellectual property violations are based, first and foremost, on economic, not legal or "cultural," calculations. Most Chinese (and expatriates in China) buy pirated software, motion pictures, and music CDs because they are cheaper by several orders of magnitude than their legitimate counterparts. Microsoft Office costs more in China than it does in the United States, about the monthly income of most middle-class Chinese. It is no wonder, therefore, that the Chinese prefer to buy it for a dollar. By bringing the price closer to the black market price, at least temporarily, US companies can use their comparative advantage of virus-free software, product upgrades, and support services. This may mean losing money in the short run, but in the long run these losses pale in comparison to the continuation of the status quo.
"Intellectual property in China is a highly sensitive and often misunderstood policy issue," Mertha concludes. "It is embedded in a complicated institutional context, one in which change is often swift and dramatic — and uneven — and its future trajectory remains largely uncertain. If we want to curtail piracy and counterfeiting in China, we must learn the lessons of past engagement with China over the issue as well as take into account some of the basic factors of IPR violations in China that never seem to make it onto the public — and often, private — discourse over the issue. Ultimately, to be effective, we must find some way to work with national-level Chinese authorities, to help them implement laws already on the books and enforce them at the local level."
Editor's Note: To request a complimentary copy of the book for review consideration in your publication, please contact Heidi Lovette, 607-277-2338 x230 or HSL22@cornell.edu.