Chinese Legal System Hinders IP Protection Efforts

It's not just the intellectual-property pirates that make doing business in China difficult. The legal system makes pursuing pirates and getting indictments-let alone convictions-a struggle. (

If finding a software pirate is as simple as walking down the street and looking around for wheelbarrows, why is China—home of the largest authoritarian government on the planet—having problems catching these guys?

One reason could be that its arresting them thats hard; its keeping them locked up thats the problem.

Local bureaus of the AIC (Administration of Industry and Commerce) raid shops and prosecute commercial infractions.

But before they will act, complainants must prove that they specifically—and not a distant and often foreign software company— are entitled to relief.

Once standing is established, it is up to the complainant, not the state, to collect and present evidence of wrongdoing.

The requirements make it difficult for commercial software companies to recover damages.

Companies whose intellectual property is pirated but not sold on the street—U.S. companies whose proprietary software or data is copied and reused by Chinese contractors or employees, for example—have an even harder time making their cases.

Lovells Shanghai is a law firm that bills $4 million a year on piracy cases.

Forty percent of that goes right to investigators who, in effect, do all the work that the police would be doing in any other country.

"If you have strong evidence, you bring it to the local AIC," said Geoffrey Lin, an attorney with Lovells Shanghai. "Then they initiate a raid."

Courts also dont compel disclosure in most cases, Lin said.

"If the defendant says, This is all I have; I dont have anything else, then the court usually accepts that," Lin said.

In addition, rules of evidence are weighed and applied differently.

In the United States, a receipt is sufficient to prove that a product was purchased from a certain place.

In China, a notary must accompany the plaintiff as he purchases the illegally sold product for the product to be accepted as evidence, Lin said.

As a result of the effort it takes to successfully bring a case, only the biggest companies like Johnson & Johnson and Proctor & Gamble have been able to achieve court victories in trademark infringement.

Otherwise, civil prosecution success is rare, said Lovells Shanghai IP attorney Douglas Clark. "No ones getting anywhere," he said.

Software companies that sell products with broad appeal—as does Microsoft—are the easiest victims of pirates.

But any company that operates in China is at risk of having trademarks or privately developed software pirated, and having patents or copyrights violated.

Chinese authorities do investigate criminal infractions themselves, but they rarely prosecute, Clark said.

And although the thresholds for criminal sanctions have been lowered, they are still high.

Though the threshold beyond which an activity would be considered criminal varies by business category, it takes about $6,000 in revenues or $3,600 in profit to qualify.

Pirate copies of Windows often sell for as little as the equivalent of 50 cents; it takes a lot of 50-cent sales to make that much money.

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