The Emperor Is Far Away: China's Enforcement of Intellectual Property Rights Protection, 1986-2006

"Deja vu all over again." Yogi Berra's classic remark seems particularly apt when discussing the status of intellectual property rights ("IPR") protection in China. It has been twenty years since, as newly appointed Assistant US Trade Representative ("USTR") for Japan and China, I set out with colleagues from USTR and other US government agencies on a six-year marathon series of negotiations with China on IPR and market access. Yet in the surveys conducted over the past several years by the American Chambers of Commerce in Beijing and Shanghai and by the US-China Business Council, US firms say that the biggest problems they face in China today are much the same as the complaints they raised in 1986, namely inadequate protection or enforcement of IPR1-copyrights, patents, trademarks and trade secrets. There is, however, an important difference between the situation in 1986 and that of today, which is neatly captured in a classic Chinese phrase, "The mountains are high and the emperor is far away." In 1986, China's problems in IPR stemmed directly from the policies, laws, and conduct of the national government in Beijing. There was little legal protection for intellectual property. The existing trademark law was weak and routinely flouted. The patent law, enacted only the year before our talks began in 1985, provided no product patent protection for chemicals and pharmaceuticals." Most importantly, there was no copyright law at all, and the central government itself was the major pirate of US software. Government ministries, particularly the Ministry of Chemical Industries and the Ministry of Electronics and Machine Building, routinely-and legally, since there was no law to bar it-copied vast amounts of foreign software without compensation and distributed the copies widely to their client state-owned enterprises.3 Today, after four bilateral US-China agreements on IPR protection (1989,4 1992,5 1995,6 and 19967) and China's accession to the World Trade Organization ("WTO"), piracy in China is no longer primarily the result of the Beijing government's own actions. Rather, the major continuing issue has been Beijing's failure to get its laws and international obligations adequately and effectively enforced. Chinese provincial authorities, "far away over the mountains," benefit financially or politically from the proceeds of piracy or, instead, turn a blind eye to powerful local interests that do. At the same time, the judicial process often fails to impose deterrent penalties against piracy. In 1986, the primary objective of US negotiators was to get Beijing to take the necessary first step: to establish the legal foundations for a Chinese IPR regime consistent with international norms. This included enacting or strengthening domestic laws (and their implementing regulations) and acceding to major international intellectual property agreements such as the Berne Copyright8 and Geneva Phonograms Conventions.9 To achieve this required strong and sustained pressure from the US government. Five issues in the negotiating environment in the late 1980's contributed to that pressure. First was the escalating friction with Japan over competition in high technology industries. The US government was acutely concerned that China not be a repeat of the US experience with Japan. Parts of Japan's IPR regime played supporting roles in tilting the competitive playing field, inducing or in some cases compelling the transfer to Japanese rivals of key US technologies. These included the government's mandated cap on royalty payments, compulsory licensing policies, and patent procedures that enabled Japanese firms to surround foreign rivals' core patents with peripheral patents as a means to compel cross-licensing. The result was all too often to deny the US or other foreign firms the competitive advantage in the Japanese market that they would otherwise enjoy based on their technology. Second, in the latter half of the 1980's the US began to run a rapidly increasing trade deficit with China, second only to that with Japan. …