Fundamental Factors

In addition to basic parameters of the specific country such as the size and history of the country, there are various fundamental factors which, according to the comprehensive model of compliance being applied, may influence China’s overall compliance with the TRIPS Agreement. One of the most important categories of fundamental factors in this model of compliance is that of attitudes and values which may have played an especially significant role as much of the post-TRIPS IP system was directly imported from foreign systems. Consequently, the framework they imposed may not have necessarily fitted entrenched societal values (Qu 2002, p. ii). It has been suggested by some observers that intellectual property protection was weak in China due to the lack of a strong belief in individual rights, which was felt to exist in other jurisdictions where IP was more effectively protected. In order to examine this factor in isolation from the concepts of Confucianism and socialism, it was included as a separate factor on the questionnaire. On the whole, it was felt by respondents to be more significant than either Confucianism or socialism, but was still not ranked highly in terms of overall significance. It was scored an average of 3 on the scale of 0-6 and was thus ranked tenth out of the 16 factors overall. However, some respondents did deem the lack of the concept of individual rights to be

A fundamental factor- for example, most people will not feel guilty for buying pirated CDs.²⁰

Another respondent went further in emphasising the significance of individual rights to the functioning of the intellectual property system in China:

I think that awareness of individual rights is the driving force behind our society’s protection of intellectual property rights. Without this, it means that the car does not have enough speed and forward momentum.²¹

It is clear from these comments that the concept of individual rights was regarded as a crucial factor by some respondents. However, there may be a blurring between this emphasis on the concept of individual rights and public awareness of intellectual property rights more generally. This is evident in the quote above from respondent 05LAW29T about the importance of “awareness of individual rights” as the “driving force” behind China’s IP protection.

It has rather improbably been claimed that as the concept of intellectual property protection was “unknown to the majority of the Chinese population... many infringers simply do not know that what they are doing is illegal” (Jenckes 1997, p. 556). Although the level of public awareness of intellectual property was nowhere near as low as this comment would suggest, the lack of education regarding intellectual property was still regarded as a major problem (Kolton 1996, p. 456). Overall, respondents highlighted the lack of public awareness of intellectual property rights as the most significant factor in contributing to the IP system in China at that time. On the scale of 0-6, it scored an average of 4.44 and was ranked most significant overall out of the 16 given factors in the questionnaire. Thus, lack of awareness of IP was clearly perceived to be a serious problem in the post-TRIPS IP system and many of the respondents’ comments reflected this. For example, a common view expressed was that

People don’t see IPR infringement [as] a disgrace and a very serious problem (the

awareness is improving however).²²

This was echoed by a Chinese respondent, who felt strongly that

Public awareness of IPR is not yet widespread, which directly leads to frequent

infringements. In many places in China, the concept of IPR lacks public support.

Infringers do not feel guilty for their wrongdoings.²³

However, it was noticeable that several of the foreign respondents were sceptical about the true extent of the ignorance of intellectual property rights. One respondent went so far as to call the notion that ineffective IP protection could be attributed to cultural factors:

Complete crap.²⁴

Thus, although a lack of public awareness was emphasised by respondents as the key factor behind the ineffectiveness of the IP system at that time, this view was not unanimous.

A further factor which deserves consideration is the notion that intellectual property protection only benefitted foreigners which may have acted as a disincentive for China to enforce intellectual property rights. As China was seen as having little intellectual property of its own, there was said to be a suspicion that intellectual property protection “only fills the coffers of foreign IPR holders with Chinese funds” (Feder 1996, p. 253). Overall, this factor was not ranked particularly highly by respondents, scoring an average of 2.42 on the scale of 0-6 and ranked 14th out of 16 factors in total. However, there was an interesting contrast between the Chinese and foreign respondents when asked about the significance of this factor. Whilst Chinese respondents only scored this factor with an average of 1.53, foreign respondents scored it with an average of 3.36. Chinese respondents clearly did not consider the perception that IP only benefits foreigners to be of any significance whereas foreign respondents perhaps felt that this perception still affected the operation of the IP system to their detriment. This perception may also be linked to the potential role of domestic Chinese companies to change the IP system in China, a link explicitly made by respondent 05LAW07, who claimed that

Chinese companies’ growth is going to gradually change such situation.²⁵

A further cultural element that may have affected the operation of the intellectual property system was the influence ofguanxi or the use of informal networks or relationships to achieve specific aims. Guanxi generally refers to “interpersonal connections,” but more specifically often carries a more pejorative meaning, especially to foreigners, of the unethical use of someone’s authority to obtain political or economic benefit (Fan 2002, p. 546). Although guanxi was not explicitly identified by most respondents, there were several references made to “relationships.” For instance, one respondent directly attributed his dissatisfaction with the IP system in terms of these “relationships”:

Generally the efficiency is not very uh... satisfying. I couldn’t understand the reasons, but sometimes it is because China is a (city), is a society full of relationships. OK? So in some of the cases, like IP cases, we could say the legal enforcement people are also, let’s say, indulged with this kind of relationship.²⁶

Benefitting from an informal connection with an official could be seen as an initial step on the slippery slope to corruption as another respondent made clear:

the temptation to corruption is huge and it starts very (simply) I’m sure, (...) a friend who’s a private lawyer, you’re a judge, he’s making a hundred thousand or whatever, and you’re making ten or whatever it is, they’re going to of course treat you. to dinner and take you out and say don’t worry about it (...), but it comes to a very fine line of when it crosses to corruption. If you can’t afford a (house) and they say we’ll lend you the money, we’ll work it out later on, you know, and the Chinese are very good at building relationships in that way.²⁷

This further mention of relationships exemplifies the underlying attitude of many respondents that these “relationships” were at the heart of many interactions throughout the legal system, including the IP system, and indeed, many respondents seemed resigned to this fact.

Turning to political and institutional influences on the IP system, a major factor to consider is the role of law in China generally. Despite committing to establishing a rule of law state in a Constitutional amendment in 1999 (Chinese Government Network 2004), there was still evidence to suggest that China followed a rule by law, rather than rule of law system even following WTO accession. A legal system based on rule by law sees law as a means by which the state’s policies may be implemented, rather than as an end in itself; “law then becomes a tool of the Party to be used to serve the interests of the people and to attack the enemy” (Peerenboom 2002, p. 10). The implications of this instrumentalist model are that “the line between law and policy in China is often said to be blurred” (Clarke 1999, p. 32), as the law is simply seen as a mechanism for implementing Party policy (Potter 2013). However, respondents in the 2005 phase of the study did not explicitly refer to the overall status of law in China and this characteristic of the legal system may be largely academic rather than a concern to the end-users of the post-TRIPS IP system.

Nevertheless, this blurring between official policy and law may have had multiple influences on the operation of the intellectual property system in China at this time. Firstly, the lack of a clear hierarchy of legislation led to a lack of transparency in the intellectual property system generally. Overall, respondents had mixed feelings about the continuing influence of a lack of transparency on the intellectual property system in China. On a scale of 0-6, lack of transparency scored an average of 3.11 and was ranked ninth out of the 16 suggested influences. There were two noticeable opinions on transparency amongst most respondents’ more detailed comments. Several respondents cited greater transparency as one of the improvements they had noticed in the IP system in the past few years, in response to question 10 on the questionnaire. These respondents included one member of the Quality Brands Protection Committee (QBPC), who cited the main change observed as:

More transparency on legislation

and another multinational respondent who simply cited an important change in the IP system as:

Increased transparency.²⁸

One of the legal respondents based in Hong Kong gave more detail on the improvements in transparency they had witnessed:

Lack of transparency, I think is OK, I mean, the legal system is getting more transparent especially with the Trademark Office now publishing their internal guidelines, they’re making an effort there... It is getting better.²⁹

In contrast to those respondents who cited transparency as an area of improvement, other respondents claimed a lack of transparency was still harmful to their interactions with the IP system and that increased transparency would be a considerable improvement. These respondents included a lawyer based in Shanghai who stated that a system of watchdogs would improve the system greatly.³⁰

Another Shanghai-based lawyer went further and said that

“I think the biggest thing people don’t do and the argument about it is I think there needs to be more openness about these problems,” because “transparency in every system improves enforcement.”³¹

Consequently, whilst it was generally acknowledged that transparency in terms of the legislative framework was much better following WTO accession in

December 2001, transparency in the implementation of this framework was still alleged to be poor.³²

The role of law as an instrument for implementing Party policy could also have led to the overall preference for public rather than private enforcement mechanisms. This remained true for the enforcement of intellectual property even after TRIPS implementation, as “IPR enforcement remains largely a government, rather than a private-sector matter” (Potter and Oksenberg 1999, p. 117). For example, in 2004, the number of IP cases dealt with through administrative enforcement totalled 62,997 (with a further 385 criminal cases initiated by the state), with only 8332 cases brought to the civil courts by individual rights-holders (Chinese Government Network 2005). This emphasis on administrative (and criminal sanctions) for IP infringers reinforced the government’s central role in enforcement, rather than empowering economic actors to enforce their own rights. Greater use of private enforcement was strongly advocated by several commentators, “because such a system would not rely... on government policy priorities at any given moment” (Clarke 1999, p. 31) and it was hoped that greater consistency could be introduced in the protection of intellectual property.

However, although respondents did raise some problems with the system of criminal enforcement of IP, specifically the thresholds used to decide criminal liability, there was strong praise for the public enforcement mechanisms overall. This was reflected in the results regarding the possible influence of overreliance on public enforcement mechanisms; this factor was ranked 12th out of the 16 suggested factors on the questionnaire and scored an average of 2.76 overall for its contribution to the IP system, on a scale of 0-6. Thus, the overall preference for criminal and administrative enforcement in the IP system was not seen as a problem by respondents in this study. On the contrary, the operation of the administrative system, particularly the Administration for Industry and Commerce (AIC) responsible for trademark infringements, was expressly commended for swift enforcement actions.³³

Another consequence of the lack of a clear distinction between government policy and the law may have been a lack of consistency in the implementation of the system of intellectual property protection in China. Enforcement actions were often praised as “waves of coordinated actions, each targeted on specific types of infringement activities.”³⁴ Although this style of IP enforcement followed a typically Chinese model of enforcement of “crackdowns,” it was at odds with the basic rule of law concept that laws should be enforced consistently. Symbolic crackdowns were also frequently highlighted in the media when intellectual property protection was under international scrutiny, leading to the suspicion that IP rights were only respected when absolutely necessary for geopolitical reasons (Endeshaw 1996, pp. 44-5).

On the whole, most respondents in this study did show concern about the impact of inconsistency in the IP system. Out of the 16 suggested factors included in the initial survey, lack of consistency was ranked fourth and scored an average of 3.8 on a scale of 0-6. Thus, consistency was clearly of interest to many of the respondents and was frequently expressed in terms of frustration with infringers not being pursued consistently:

Relevant agencies work hard to achieve something during certain period, and thereafter loose up, and this gives the infringer a misleading signal that after the periodical “fire”, their life would become easy.³⁵

This concern was echoed by a Chinese lawyer who painted the following picture of IP enforcement in China:

“You could say that enforcement is mainly focused on those big cities now, for the middle and smaller cities are not very much to feel this enforcement and sometimes we can also feel that enforcement are not become day-to-day work or day-to-day operation, it’s just a few times in the year.”³⁶

Hence, lawyers and business-people alike shared concerns about the impact of inconsistent enforcement of the IP laws and regulations, particularly in terms of strongly enforcing IP rights at certain specified times and not at others. Generally, enforcement problems were widely seen as arising from the transition from a centrally planned to a market economy (Lagerqvist and Riley 1997, p. 3). This was due to the economic system in place before the start of reforms, when “most Chinese enterprises did not heed intellectual property rights because the absence of market competition under a centrally planned economy made the protection of intellectual property rights dispensable” (Tian and Lo 2004).

Despite reforms which had introduced market forces into the Chinese economy, the government still had a significant role to play in economic development with “multiple roles as regulator, entrepreneur, and law enforcer,” with the clear potential for conflicts of interest (Chow 2000). With such a large degree of control over the commercial sector, it is little wonder that intellectual property protection concerns took a back seat to the economic aims of the government and thus, economic factors affecting China’s TRIPS compliance cannot be ignored. The government’s control over the economy “undermines private property rights—especially the intangible kind. This creates economic instability that makes it difficult for innovation by domestic companies to be rewarded, and thus be sustained” (Stevenson-Yang and DeWoskin 2005). Furthermore, as government ownership of the loss-making state sector still dominated the economy, it can hardly be surprising that the government aimed to protect these enterprises at all costs (Endeshaw 1996, p. 151). As one commentator succinctly put it, “the instinct to protect what you own is basic” (Stevenson-Yang and DeWoskin 2005).

Despite these commentators stating that the economic priorities of the central government were to blame for problems in the IP system, opinions amongst respondents in this study regarding the significance of the government’s role in the economy were somewhat mixed. Out of the 16 suggested factors on the questionnaire, the role of the government in the economy was ranked eleventh, with an average score of 2.89 on a scale of 0-6. This would suggest that most respondents did not share these concerns. However, more detailed comments from certain respondents did reflect the notion that there was a certain amount of resentment about unequal treatment between state- owned enterprises (SOEs) and private companies. For example, one Chinese lawyer commented:

The interests of the state and the SOEs are over-protected and over-emphasised, while private rights are usually neglected. If the state or SOEs breach the IPR of an individual, often they will not be severely punished.³⁷

These comments reflected the impression of poor enforcement where SOEs were the infringers, but as another respondent notes, unequal treatment may also have applied where an SOE was the injured party:

There’ll be state-owned enterprises that are being killed and yes, they’ve got more methods for enforcing their IPR; the larger you are, the more close to government if you, if you go to your local police and say, we want to investigate this, it happens.³⁸

Thus, it would appear that although government ownership of the economy was not as problematic as suggested by some commentators, a minority of respondents perceived inequalities between state-owned enterprises and private companies, both in terms of infringements by SOEs not being pursued and infringements against SOEs being vigorously confronted.

Local protectionism could also be considered as an economic influence on the implementation of the intellectual property system in China and must be acknowledged as a major issue in the non-enforcement of intellectual property rights at this time (Finder 1999, p. 261). However, local protectionism is a complex issue and thus incorporated elements of political factors as well. Even government officials admitted that “local protectionism is the real culprit” behind problems in the post-TRIPS enforcement system (Duan 1999, p. 217). Local protectionism acted against effective enforcement in various ways, for example, “in most cases, IP owners are required to bring... proceedings in the infringer’s home court, rather than in the jurisdiction where counterfeit products have been sold. This significantly increases the risk of bias” (Simone 1999).

In addition to bias in the courts, local protectionism could also be a crucial issue in administrative enforcement. Intellectual property infringement was often an ingrained part of the local economy, as was the case in Yiwu city in Zhejiang province, where the trade in counterfeit goods played such a significant role that “shutting down counterfeiting is functionally equivalent to shutting down the local economy with all of its attendant social and political costs” (Chow 2000). Although Yiwu city represented an extreme example of the reliance of a local economy on IP infringements, there were many other places in China where intellectual property infringements did play a major role in the local economy at that time and enforcement agencies in these areas were therefore extremely reluctant to enforce intellectual property rights, at the expense of their own interests.

On the whole, local protectionism was cited by many respondents as one of the primary problems with the IP system in China in 2005-6. Out of the 16 potential factors presented to respondents in the questionnaire, local protectionism ranked second only to a lack of awareness as an influence on the intellectual property system, with an average score of 4.13 on a scale of 0-6. As the only two factors with average scores above 4, it is clear that both a lack of public awareness of IP rights and local protectionism were major concerns for respondents. Specifically, respondents used the term “local protectionism” to refer to a number of behaviours, including difficulties in initiating cases with local agencies; bias in the enforcement process and trivial penalties for local infringers. As one respondent defined the issue:

Local protectionism, I think is the code word that people use for all these different types of things.³⁹

The significance of local protectionism was also highlighted by these comments from a local lawyer in Guangdong province:

Local protectionism in the intellectual property protection system has a very negative impact. It undermines justice, not just in individual cases, but in the entire legal system. This has an adverse impact on China: it’s prejudicial to the import of foreign advanced technologies into China.⁴⁰

Two respondents both working for multinationals in China commented on the impact of local protectionism that they had experienced. The first respondent commented:

It is hard to get a good catch, and even when caught, the infringer may not be punished to the severest extent possible.⁴¹

This shows that local protectionism impacted not only on the infringers that may be targeted, but also the level of penalties awarded. The second respondent from a multinational manufacturer related the experiences of pursuing two Chinese companies for copying their designs:

Although we stopped the companies no financial compensation or costs were given. This was because we are a foreign company and the two companies were local. In general if legal proceedings are followed outside one’s own area, the legal system in another area favours their own.⁴²

This frustration with the impact of local protectionism on enforcement efforts was echoed by comments from several of the lawyers who responded. For example, one remarked on the difficulties of pursuing large-scale infringers, in contrast to individual infringers:

They have whole cities that specialise in car parts... You’re talking about a whole city you’re fighting or a whole region, then it gets really difficult.⁴³

Consequently, it is clear that for these respondents with day-to-day experience of the post-TRIPS Chinese IP system, local protectionism was a major issue.