A window of opportunity

Intellectual property rights (IPR) infringement has long been a bugbear of foreign investors in China, and arguments over whether and how much it is a problem are at the center of the US-China trade dispute. However, as Xianbo Wu from North Head explains, recent events indicate that China is taking steps to improve its overarching system for IPR protection in an attempt to address some of the longstanding issues with implementation. Multinational companies (MNCs) have an important role to play in this process by ensuring that their voices are heard during this transitional period in the evolution of China’s IPR framework.

Complaints focus not so much on the lack of IPR laws on the books, but rather in their enforcement. According to the European Chamber’s Business Confidence Survey 2019, 59 per cent of respondents believed that China’s written IP protection system is either adequate or excellent, but only 35 per cent believed that enforcement is either adequate or excellent.[1] Ineffective enforcement often stems from ambiguous wording and a shortage of details in laws, and consequently arbitrary implementation based on local regulators’ willingness and capacity. MNCs are disproportionately affected by this because they often hold unique patents and run up against local protectionism.

Two key strategies for an improved IPR environment

All enforcement is local; local relationships matter

Policymakers and regulators are working to improve the system at both the local and central levels. The local level is and will continue to be an important focal area for a company’s engagement strategy. IP law enforcement still depends highly on local regulators’ subjective assessment of a case, and local level authorities will likely have a greater say in the future as the government continues its programme of delegating power to local levels and streamlining services.

However, many MNCs have little access to supplementary channels through which they could make appeals to local officials. These include ‘invitation only’ forums with local government agencies and participation in semi-official associations. This weakness becomes even more distinct when foreign companies compete with local companies with established government connections, which often results in the discrimination reported by many foreign firms.

Some MNCs have been able to buck the trend with a proactive approach. ABRO Industries, a US car care product company, has reported success in protecting its IP in China, primarily as a result of explaining the value of its IP to local regulators.[2] ABRO, and other like-minded companies, invest in fostering active cooperation, including sharing resources with local agencies and making clear how their business contributes to local development.

Direct interaction with the central government

Any significant change to the way IPR laws are enforced at the local level necessarily begins with directives from China’s central government. In this regard, MNCs also have a role to play at this level, as a window seems to be opening. Within the past year, Beijing has passed a new Foreign Investment Law, a revised Trademark Law and Anti-unfair Competition Law, an accelerated approval process for amendments to China’s Patent Law, and a memorandum co-issued by 38 ministries that links patent infringement to the burgeoning social credit system.

One effect of the US-China trade dispute is that it has increased the attention of the Chinese authorities to foreign investors’ concerns over IP, which in turn is giving foreign companies an opportunity to voice their concerns. The new Foreign Investment Law lays out IPR protections, as well as a feedback mechanism for foreign investors. At a roundtable event with European entrepreneurs in July 2018, Premier Li Keqiang asked them about their experiences with IP violations and unfair treatment from local governments. He expressed that the government was eager to solve such problems but that they still did not know “where to fight at the moment”.

Premier Li also called for the establishment of a government-business communication channel during the annual gatherings of the legislative and advisory bodies at the 2019 ‘Two Sessions’, after which the State Council issued a regulation that makes collecting enterprise opinions compulsory during the policymaking process. Although an improved communication channel does not necessarily mean the government will act on enterprise feedback, foreign companies should take advantage of this opportunity to add their views and experience to nationwide IPR policy development.

China’s changing attitude towards IPR protection is an important stepping stone in the country’s shift to a more outward-facing economy, and the government is seeking constructive input. Foreign companies can seize this opportunity to broaden their view beyond the local level and develop their advocacy at the central level for an improved IPR environment in China.

North Head is a public affairs and strategic communications consultancy based in Beijing. For more information please contact the director of our public affairs team, Mike Denison, at mdenison@northheadcomms.com.

[1] European Business in China Business Confidence Survey 2019, European Union Chamber of Commerce in China, 2019, viewed 15^th July 2019, <https://www.europeanchamber.com.cn/en/publications-business-confidence-survey>

[2] “China’s Intellectual Property Protection System Works” : Aibao Corporation’s Director of Intellectual Property, Sina, 6^th November 2017, viewed 12^th July 2019, <http://finance.sina.com.cn/roll/2017-11-06/doc-ifynmvuq8951982.shtml>