AuthorKogan, Lawrence A.
PositionPart 3

(509) "Just like the United States and Japan before it, China is using all the usual means--licensing, theft, piracy, intimidation, spies, and cooperation--to get the technology it needs. China has also adopted a system of joint venture, an old and established tool for securing foreign intellectual property, and has elevated it to an art form. With joint ventures, China reduces its need to steal or expropriate foreign intellectual property because foreign corporations share it as a condition of doing Business there ... In 2002, economists at Lehman Brothers ... projected that China would have the world's second largest economy by 2030. But that projection will not be realized unless China can continue to: a. [G]et the basic foreign technology; b. [C]reate the capacity to develop proprietary technology domestically; and c. [C]ontrol these core technologies worldwide." Ibid., at pp. 170 and 172.

(510) "For decodes China has been targeting Western technologies, initially seeking military and other secrets, but more recently concentrating much of its effort on technologies and intellectual property designed to drive its rapidly expanding economy ... Thousands of American companies are among those attracted by China's cheap labor and growing market for consumer goods. Based on population, China's market is three times larger than the European Union and four times the size of the United States. It economy is growing at an average of 8 percent a year. Many of the products are particularly vulnerable to reverse engineering, design infringement, and counterfeiting due to inadequate protections in China of intellectual property rights ... It has been said that the right to counterfeit goods is engrained in China's culture. Former premier Deng Xiaoping promoted the philosophy of: 'Let foreign things serve China.' This perspective continues today and China generally views counterfeiting and other violations of intellectual property not as a serious offense, but as a major source of income, taxes, and employment." See "The Developing U.S.-China Relationship: Analysis of China's Weak Intellectual Property Rights Protection and Enforcement", Written Testimony of Dr. Neil C. Livingstone, at pp. 1-2, Before the U.S.-China Economic and Security Review Commission, Hearing on Intellectual Property Rights Issues and Imported Counterfeit Goods (June 7-8, 2006).

(511) "China is now our third-largest trading partner. Last year American firms exported $42 billion in goods and services to China, and exports rose 40% in the first quarter of this year, with high-tech products such as medical and scientific equipment and semiconductors among the fastest-rising major products ... We have seen some small indications that the Chinese government is taking intellectual property more seriously. There has been progress--a very tiny amount--but not nearly enough. The truth is that China has no strong tradition of protecting intellectual property rights. Until it does, the abundant rewards of trade with China will always be tempered by equally abundant risks. The concerted effort begun by the Chinese government in recent months to encourage homegrown innovation and lessen the country's economic development reliance on imported technology is in some ways a double-edged sword. On the one hand, it is encouraging that the government wants China to develop its own commercial technologies, because the most effective way to foster true enforcement of IPR protection is for domestic entrepreneurs and small businesses to have a real stake in the system. It is impossible for someone to take enforcement seriously if they have nothing of their own to protect. Encouraging innovation rather than mandating technology and standards is a definite step in the tight direction of lowering non-tariff trade barriers ... As a new market and an ever more important trading partner, China holds great promise. But there are still many challenges that U.S. companies face in doing business there. Sometimes the opportunities outweigh the risks; other times, firms run into serious trouble in China. In every case, the Chinese market will never meet its full potential until it is governed by a sound and transparent legal system, particularly in terms of intellectual property rights." See "Testimony of the Honorable Dave McCurdy, President and CEO, Electronic Industries Alliance", before the U.S.-China Economic & Security Review Commission Hearing on China's Enforcement of Intellectual Property Rights and the Dangers of the Movement of Counterfeited and Pirated Goods into the United States" supra, at pp. 1 and 4.

(512) "The foreign investor puts up the capital, patents, copyrights, trademarks, know-how, and overseas distribution. In most circumstances, the local Chinese partner keeps half the equity in the new enterprise. Any improvements in technology and any new patents, trademarks, or copyrights developed in China by the joint venture belong to the new enterprise. In exchange, China contributes an unlimited supply of low-wage, competent, compliant workers. The foreign corporations are allowed to serve their markets from Chinese-based factories that operate under the most limited public regulation of labor, production, pollution, and health and safety standards. Products from these ventures are often banned in China, leaving that market to state or locally-owned enterprises. Despite China's invitation to foreign companies to come and invest, the Chinese government has reserved entire sectors of its economy for state-owned enterprises. Other sectors belong to China's private entrepreneurs. Foreign investors can participate in the rest on terms that China dictates. See Pat Choate, HOT PROPERTY: The Stealing of Ideas in an Age of Globalization, at p. 178. Foreign corporations also use local managers and engineers to operate their factories, teach the Chinese how to apply their technology, and follow the government's economic dictates. Through this, China gains know-how quickly." Ibid., at p. 172. "... As foreign companies become increasingly dependent on Chinese manufacturing for their worldwide production, they will come under correspondingly more pressure to make available and then share ownership of their foreign distribution systems. Eventually, just as the Japanese and Koreans did, the Chinese will establish brand trademarks that become known worldwide, which they will sell through these joint distribution networks. Finally, the Chinese, just like the Japanese before them, will no longer need foreign corporations or their networks." Ibid., at p. 183.

(513) "... [T]he [Electronic Industries Alliance] EIA published in April [2000] a best practices guide entitled Protecting Intellectual Proper(v Rights in China and sent it to senior executives at each of our nearly 1,300 member companies. The guide was a collaboration between EIA and the China Alliance, which is a partnership of four North American law firms ... with a collective team of legal experts on China ... I think the most important message of the guide ... is that in many ways there are no markets in China" (italicized emphasis in original) (boldface emphasis added). See "Testimony of the Honorable Dave McCurdy, President and CEO, Electronic Industries Alliance", before the U.S.-China Economic & Security Review Commission Hearing on China's Enforcement of Intellectual Property Rights and the Dangers of the Movement of Counterfeited and Pirated Goods into the United States" at pp. 3-4, supra.

(514) Some who have studied the lack of success experienced by large U.S. law firms in China have labeled the promise of Chinese market share 'fool's sold'. See, e.g.,: Jason Lohr, "Gold Mountain or Fool's Gold?", Asia Business Law (4/4/06), at: (http://asiabizlaw.blogspot.com/2006/04/gold-mountain-or-fools-gold.html); Kelly Schmitt, "Law Firms Pressured to Serve China on the Cheap", The Recorder (12/14/05), at: (http://www.law.com/jsp/article.jsp?id=1134468312985).

(515) See Pat Choate, HOT PROPERTY: The Stealing of Ideas in an Age of Globalization,, at p. 174.

(516) "China offers more than an enormous pool of cheap labor light manufacturing. It has a large pool of engineers and technicians available for more advanced work, many educated in the United States. The Chinese Academy of Engineering reports that as of the late 1990's China had more than 2.1 million trained engineers, including 600,000 senior-level people. This is a significant reservoir of technical talent. Most of these engineers are available at roughly 10 percent of the salaries of their American, Japanese, or European counterparts." Ibid., at p. 173.

(517) "Angela Merkel, German chancellor, will ... urge China to drop rules that force foreign companies to transfer proprietary technologies and designs to Chinese competitors. These 'forced transfers' top a list of complaints that German business has asked Ms. Merkel to raise with Wen Jiabao, the Chinese premier, during her first visit to Beijing. The complaints, to be published today [May 22, 2006] by BDI, the industry federation, include the difficulties foreign companies face in obtaining redress before Chinese courts in intellectual property infringement cases." See Bertrand Benoit, "Merkel To Grill China On 'Forced Transfers', Financial Times (5/22/06) at p. 1.

(518) See Pat Choate, HOT PROPERTY: The Stealing of Ideas in an Age of Globalization,, at pp. 171-172. "China is developing its capacity to import raw materials and export finished goods. COSCO, the Chinese state-owned shipping company is now working with port authorities on both the west and east coasts of the United States to expand their capacity to handle far greater imports and exports with China. In 2002 ... COSCO opened a route to Boston. Within one year, the volume of goods shipped from the Boston port to Asia doubled, while the import volume from Asia to Boston increased fourfold. Equally significant, China has replaced the United...

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