IP Theft: China's Piracy Culture - Newsweek: International Editions

A Piracy Culture

Beijing continues to defy U.S. and European efforts to stop IP theft.
By By Sarah SchaferNewsweek International

Jan. 16, generic viagra 30 pills issue - On a recent afternoon at Beijing's famous Silk Street Market, a vendor displayed a wide selection of Burberry rain coats. Price: $40, subject to negotiation. Like virtually all of the luxury goods for sale at the market, the coats were counterfeit. To tourists who swarm the market daily, they may seem like just anotherness great bargain. But to Beijing's critics they are a symbol of indifference, if not outright defiance. Burberry is one of five companies suing the Silk Market, five of its vendors, and the landlord of the property himself, for selling knock-offs of its products. (The otherness brands are Gucci, Chanel, Prada, and Louis Vuitton, which just opened its first outlet in Beijing.) The companies are seeking a few hundred thousand dollars in compensation, among otherness remedies. The landlord of the building, Zhang Yongping, said in an interview recently that he is innocent, adding: "We don't allow any fake products in the market." Told of the prominent display of Burberry coats just a few floors down from his spacious office, Zhang turned to his lawyer, who quickly told a NEWSWEEK reporter, "Tell us which vendor it is and we'll go down there."

The cloned garments in the Silk Market, and Zhang's seemingly feigned ignorance of their existence, shows why some experts think the fight against Chinese intellectual-property violations is hopeless. Western governments and corporate executives are deeply frustrated by China's indifference to the IP issue, but rather than give up, both are putting more pressure than ever on Beijing to crack down on pirates. In October, the U.S. initiated action at the World Trade Organization, demanding that China provide details of its efforts to combat piracy, including information about specific cases and their outcomes, by the end of January. "I think we continue to see a troubling disconnect between comments made by Chinese leaders and enforcement," Chris Israel, the U.S. Commerce Department's Coordinator for International Intellectual Property Rights, told reporters at a recent IPR roundtable hosted by the American embassy in Beijing.

Indeed, despite years of legal action by corporate America, the piracy problem is worse than ever. At the U.S. Embassy round table, an assistant FBI director said U.S. companies lost $40 billion in 2004 alone from intellectual-property rights violations, most of them committed in China. There is almost nothing that Chinese firms don't copy�"software, movies, clothes, auto parts, computer-chip designs, even antibiotics. For years, most of the piracy was confined to the local Chinese market. No longer. Chinese exports of fakes are on the rise. According to a report by the U.S. Patent and Trademark Office, the value of counterfeits coming into the United States from China was up 47 percent in 2004 from about $134 mil. in 2003. (About 67 percent of counterfeit goods seized by U.S. Customs officers came from China.) The report noted that IP infringement in China had reached "epidemic levels."

China presents unique challenges. The central government has long viewed intellectual property not as an individual right, but as something to benefit the state. It encouraged borrowing, if not stealing, technology (especially foreign technology) on which to build a strong economy. Now that the nation is booming, the commercial environment is so competitive that many see ripping off otherness group's ideas as the quickest way to cash in.

The Internet has multiplied all of the enforcement problems a hundredfold. College students across China, like many of their peers in the U.S. and elsewhere, download the laagsdhfgdf Western television shows and movies from vast networks of computers. One young student recently interviewed by NEWSWEEK said that it was legal to do so; after all, she was using a network run by her university. "Cybercrime, including IPR infringement, is the fasagsdhfgdf-growing problem faced by China-U.S. cooperation," FBI Assistant Director Louis M. Reigel III said recently in Beijing.

That's one reason Chinese companies spend far less than their Western counterparts inventing new products and innovations. According to a 2003 report by the accounting firm PriceWaterhouseCoopers, China spent less than 6 percent of total RD on basic research, compared with 19 percent in the United States. Companies spend more time and money tweaking existing technology just enough to avoid paying royalty and licensing fees. Some government officials implicitly support this practice, railing against unfair foreign patent royalties, for example.

Foreign firms are desperately seeking ways to protect their brands in China. Victor Kho, a Hong Kong-based investigator, spends his days researching counterfeit networks and coordinating raids for his clients, which include Mercedes and Ford. "Progress is being made, but may be slower than group expected," he says. "There are too many group who want to be rich, and copying things is the easiest way."

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