Proximate Factors

The final category of factors to consider under the detailed model of compliance outlined in Chap. 2 is proximate factors. These factors are specific to the system under analysis and incorporate influences such as the capacity of the existing agencies to implement the system effectively and the role of other organisations in pressurising for or monitoring changes in the system. The legal system in China at this time was basically the product of 25 years of rebuilding, as “decimated by the Cultural Revolution and decades of neglect and abuse, the legal system had to be rebuilt virtually from scratch” (Peerenboom 2002, p. 6). Despite the government swiftly reassembling the rudiments of a legal system (Spence 1999, p. 670), systemic problems in the legal system remained the subject of intense criticism. Resources were one of the problems haunting the legal system, specifically the lack of trained, experienced legal personnel. A lack of lawyers qualified to deal with intellectual property cases had also been identified as one of the major forces preventing full enforcement of intellectual property rights (Endeshaw 1996, p. 38).

Although these problems stemmed partly from the position of the legal system in the Chinese political system as a mere instrument of governance, they could also have been attributed to the professionally underqualified legal personnel administering the law (Chen 2002, p. 8). Clearly, many commentators believed that better-trained lawyers and judges were needed to handle intellectual property cases (Qu 2002, p. 390). In general, respondents concurred that a lack of trained and experienced legal personnel contributed to problems with the intellectual property system in China. This factor was ranked seventh out of 16 potential factors presented to respondents, with an average score of 3.71 on a scale of 0-6 and a concern over the quality of some of the personnel responsible for enforcing the framework of intellectual property laws and regulations was shared by several of the respondents. The following comment is typical of the opinions expressed:

The government employees’ understanding of intellectual property rights is far from proficient.⁴⁴

Accordingly, it is obvious that the knowledge levels of the legal personnel involved in enforcing intellectual property rights were a significant concern to some respondents. Enforcement of intellectual property rights was complicated by the bureaucratic structure of power in China. As the pre-reform command economy had been split into vertical sectors, with separate agencies having full control over their sector, but with few links to other sectors, this still had implications for the bureaucratic structure of power in twenty-first-century China (Mertha 2005). Consequently, there was no unified agency to deal with intellectual property (Potter and Oksenberg 1999), with responsibility spread across several agencies including the State Administration for Industry and Commerce (SAIC or local-level AIC) responsible for trademarks, the National Copyright Administration (NCA) responsible for copyright and the State Intellectual Property Office (SIPO), which was responsible for patents. As a result, there was a considerable lack of communication and coordination, as well as a great deal of rivalry between the various agencies (Simone 1999, pp. 14-6). It was recognised by a couple of respondents that these multiple agencies potentially caused problems in IP enforcement. For instance,

Concurrence of several IPR enforcement authorities, such as TSBs, AICs, Patent offices, copyright offices and PSB leads to be unefficient ((sic)).⁴⁵

However, the majority of respondents did not agree that a unified bureaucratic structure for the enforcement of IP rights would be an improvement to the existing framework of agencies. For instance, one respondent pointed out:

It wouldn’t be workable to just have one... to have one national uh... type of an agency to deal with it, because it’s so diverse you have to break it down and so we do have the copyright, the trademark, the patent, you know, the different organs that deal with it and then under those organs, is generally local, their local counterparts that actually deal with it.⁴⁶

Thus, there was recognition that the issue of intellectual property enforcement was too complex to be handled by only one agency. On the whole, unifying the separate agencies into one overall body responsible for intellectual property was not regarded as a priority by respondents. Out of the 16 factors suggested as factors which contribute to problems in the post-TRIPS IP system in China, the lack of a unified agency was ranked 13th by respondents. On a scale of 0-6, this factor scored an average of 2.76.

Another barrier that had been identified in the enforcement process was the length of the process. It was claimed that courts were often slow in pursuing their claims; local AICs had also been accused of delaying enforcement actions to give infringers enough time to dispose of infringing goods and machinery used to produce counterfeit products. Therefore, according to some observers, there were, on occasion, costly delays in both the civil and administrative enforcement of intellectual property rights. Conversely, the length of the enforcement process was not felt to be a major concern for the majority of respondents. This factor scored an average of 3.24 on a scale of 0-6 representing the contribution it makes to the IP system and ranked eighth out of the 16 potential factors that were presented to respondents on the questionnaire. Although it was recognised by many respondents that

A lot of time and money have to be put into the IP enforcement,⁴⁷

it was also suggested that this may not always be the case and was merely a perception that some rights-holders had:

Foreign rights holders are not willing to litigate in order to protect their rights; firstly, because they think it takes too much time and money and secondly, they don’t really believe in China’s courts.⁴⁸

Consequently, the length of the process may not actually have acted as a barrier to a rights-holder seeking to uphold their rights, but rather as a perception that may have discouraged some rights-holders from initiating the enforcement process in the first place. As a matter of fact, lawyers with a lot of experience in the field of IP actually commended the speed with which some IP enforcement actions could be concluded. For instance, this Chinese lawyer working for a large international law firm commented on the administrative system of IP enforcement:

One good thing about the administrative approach besides the speediness of resolution will be the fact that you can (seize) the infringing goods or even the tools used to make the infringing goods really quickly and that actually it’s a tangible result.⁴⁹

Thus, the length of the enforcement process did not appear to be a major problem in the IP system once an action had been initiated.

A further proximate factor influencing the effectiveness of the post-TRIPS Chinese IP system was the level of penalties awarded against infringers. Even if a plaintiff succeeded in an enforcement action, damages awarded to successful plaintiffs were generally low by Western standards (Clarke 1999, p. 40). Moreover, these paltry damage awards were not always even sufficient to cover the substantial fees, payable by the plaintiff to the intellectual property court in advance (Kolton 1996, p. 451). Fines and compensation awarded through the administrative enforcement system were also criticised as insufficient, as they were not perceived to be high enough to act as a deterrent to infringers. Indeed, inadequate penalties were identified by many respondents as a key area of dissatisfaction with the 2005-6 system of intellectual property protection in China, scoring an average of 3.96 on a scale of 0-6 and also ranking third overall, out of the 16 suggested factors.

It is clear from respondents’ comments that there was a certain amount of dissatisfaction with the levels of penalties imposed on infringers, as the following typical comments illustrates. The main problem with the IP system was felt to be the

Lack of punitive compensation for IP infringement⁵⁰; and

The power to produce a ruling is too large, while the punishment is not enough to act as a deterrent.⁵¹

More detail about the effects of inadequate penalties was given by another respondent who explained

Although they’re starting to impose criminal liability, (those) are hard to get and then, civil liability or remedies awarded by administrative agencies, they’re minimal... they basically just come out to make an announcement, to me, they don’t have a significant deterrent effect. to the infringers.⁵²

It is clear from these comments that respondents felt frustrated at the level of penalties awarded against the infringers and appeared to feel that appearances in enforcement were more important than actually deterring infringers. A further consequence of the pre-reform structure of power in China, closely linked to the continuing preference for administrative enforcement of intellectual property rights, was weak judicial enforcement. As the legal system had essentially been constructed only since the late 1970s, it was perhaps inevitable that expertise was still lacking in the judicial system. Overall, respondents did show some concern over the judicial enforcement system; weak judicial enforcement was ranked fifth out of the 16 possible factors contained on the questionnaire, scoring an average of 3.76 on a scale of 0-6. In general, launching a case through the judicial system was perceived as more problematic than pursuing a straightforward claim through administrative agencies. An example of this kind of opinion is illustrated by the following comment:

I think China’s courts lack authority and protection of their power.⁵³

strengthening the judicial system of enforcement was also seen as key by several respondents:

What they need to do, is put more of a, you know, to develop more their civil court system., and there, the civil side of it, because that’s still fairly weak.⁵⁴

One of the main ways that the weakness in the judicial enforcement system was manifest was in the lack of powers that the courts had to enforce their judgments. Estimates suggested that around 50% of all civil judgments could not be enforced (Li 2002). The primary reason for the non-execution of so many judgments was that the courts had little “weaponry” to back up their commands (Clarke 1999, p. 39). This problem was identified by a number of respondents, all of whom expressed frustration at the inability of the court to enforce judgments made against infringers:

Ineffective implementation of court decisions is a problem. Fundamentally speaking, it’s a general lack of credibility. Debtors evade the enforcement of court judgments. If defendants fail to provide assistance in the implementation, the court very rarely resorts to coercive measures and very rarely brings them to justice.⁵⁵

On the whole, respondents did show concern over the lack of effective powers used to enforce court judgments; this factor scored an average of 3.73 on a scale of 0-6, similar to the score for weak judicial enforcement in general. Out of the 16 suggested factors, it was ranked as sixth most significant by respondents. This overall weakness in the judicial system has even been attributed to a reluctance to create a truly independent judiciary despite an official commitment to this:

No-one wants to give the court that power because if the courts have power, you’re creating an independent judiciary and not completely, but you know, you’re creating more-, the more power you give judges, the closer you get to an independent judiciary and that is not what the Communist Party wants. They want a judiciary that resolves disputes, but is still under the control of the Party.⁵⁶

Accordingly, although the weakness of judicial enforcement was usually attributed to the immature nature of the legal system in China, these comments go further and suggest that the judicial system was being deliberately enfeebled for political reasons. Whatever the reason, it is clear that the judicial system of intellectual property enforcement was still problematic.

In addition to China’s administrative capacity to deal with intellectual property enforcement, several respondents shared a belief that some IP personnel lacked the knowledge to be able to effectively enforce intellectual property rights. For example, the consequence of judges lacking detailed knowledge of intellectual property was explained as follows:

If people don’t understand IP laws, there’s a (price), if you’re a judge and you don’t understand patent law and there’s all this political pressure and stuff around you, you can be convinced pretty easily by someone who says black is white or white is black.⁵⁷

In other words, lacking sufficient knowledge of the legal basis for intellectual property could either have left the judge more open to reaching inconsistent decisions or not reaching the correct decision at all. This lack of knowledge was explained by a different respondent, who attributed the continued lack of expertise to a lack of experienced teachers at university level:

A lot of them have not historically had the opportunity of receiving training with regard to IP, for example, (university) might offer some IP course, but have those people teaching those courses had any experience with IP work?... They might only have book learning, so you get professors experienced at teaching, but I don’t know how extensive their experience is with regard to IP.⁵⁸

Thus, so-called book learning of intellectual property was distinguished from real-life “experience” and was seen as insufficient to allow for true understanding of the system in action. Furthermore, increasing the knowledge level of personnel involved in intellectual property enforcement was also seen as crucial by several respondents. For example, one respondent claimed it was vital

To keep increasing the quality of personnel from related professions.⁵⁹

This was echoed by another respondent who saw the key to improvement in the IP system as follows:

By improving the allocation of human and material resources, especially human resources, the government can equip the Intellectual Property Office with more personnel who understand intellectual property law, to strengthen the fight against IP infringers as a team.⁶⁰

Consequently, the knowledge levels of personnel involved in the intellectual property system was acknowledged to be a concern for many respondents.

The attitude of the central government in Beijing was also acknowledged as key to the effective enforcement of intellectual property rights in China. Indeed, this was recognised as a key area of change in the years 2001-5 by some respondents. In response to questions regarding changes they had witnessed in the IP system in China in the past few years, one respondent noted:

Attention of the IP right from the government bodies,⁶¹

and another that

China’s leaders emphasize the importance of IPR.⁶²

There also appeared to be a strong belief amongst respondents that change in the legal system generally and the intellectual property system more specifically was often driven from the attitudes of the central leadership. For instance, one respondent observed that

And also in the latest (successions) of the leadership, central leadership, they travel a lot overseas; have a lot of exchange with overseas. Uh... this created the internal desire or drive to open China more and logically, how to open, how to protect IP, I think maybe this is one of the aspects.⁶³

The logical consequence of this belief that change in the intellectual property system was driven by the leadership is the belief that non-enforcement was also a direct consequence of the policies of the central leadership. Several respondents expressed this idea that the central leadership could have effectively enforced intellectual property rights if it chose to:

I believe that if, if the central government is taking an interest, then something will happen in the whole country.⁶⁴

Therefore, leadership from the central government was seen as crucial to the effective enforcement of intellectual property rights in China.

The final category of proximate factors that may influence China’s compliance with the TRIPs Agreement was the influence of non-governmental organisations (NGOs). Domestic NGOs faced many political and practical barriers at that time; specifically, the political culture in China was said not to be conducive to civil society activism (Lu 2005, p. 6). Moreover, NGOs had more focus on and relevance to other areas of international obligations; for instance, environmental protection was strongly influenced by pressure from both domestic and international NGOs. However, intellectual property did not elicit similar NGO involvement. On the contrary, organisations concerned with intellectual property tended to be commercial groups, often consisting of businesses with strong intellectual property rights. Therefore, the influence of NGOs in the intellectual property arena was based predominantly on pressure from key groups of companies, both domestic and international.

Specifically, the main organisation pressurising for better protection with regard to intellectual property in China was the QBPC. The QBPC is a group of more than 160 multinational companies concerned with counterfeiting in China and their stated aim is “to work cooperatively with the Chinese central and local governments, local industry, and other organisations to make positive contributions to intellectual property protection in the People’s Republic of China” (QBPC 2016). Several foreign respondents independently mentioned the QBPC in connection with their views on the intellectual property system in China and this shows that the Committee was well known amongst practitioners in the IP field in China. One respondent from a professional services company stated that the QBPC:

Have been working very hard in China to make the case for IP and design protection, and to get enforcement.⁶⁵

One lawyer based in Hong Kong mentioned the role of the QBPC in connection with a client who was struggling to stop infringers of their IP:

What they do now is they join forces with other car makers and spare part makers... through the QBPC.⁶⁶

This respondent went on to explain that through the QBPC, this manufacturer was able to contact other manufacturers of similar products and join together in enforcement actions, thus saving costs. This role of the QBPC as a network for companies to join together to tackle infringements thus seemed to be an important one for some respondents. However, another respondent expressed some frustration at the consistently “positive” approach taken by the QBPC. For example, the QBPC hosted annual award ceremonies where officials were recognised for special achievements in IP enforcement, but this respondent did not agree with this approach, claiming,

You know you get the QBPC... there have been some people in there talking about blacklists and things like that but (the basic position is) say no, no we can’t do that, we have to reward, we should do it by positive encouragement, you know, like best cases and best officials. (and I’m thinking) this sucks, you see the most corrupt officials in the business getting awards for their great cases and stuff, we should be outing them, you know, as crooks.⁶⁷

Accordingly, although the QBPC was praised by some respondents for its role in IP in China, this praise was not universal. It is also noteworthy that the QBPC was only mentioned by foreign respondents and was not commented on by any of the Chinese respondents. Therefore, the QBPC appeared to serve a specific purpose of bringing multinational companies together and raising awareness of IP issues amongst them.

On the contrary, although formal organisations of domestic businesses were limited or invisible in China, the role of Chinese companies in pressing for change in the intellectual property system was recognised as increasingly important. The experience of Taiwan and Korea had been used by several commentators to argue that a combination of external and internal pressure was truly necessary to bring about genuine change in IP protection (Maruyama 1999, p. 167). Consequently, many observers believed that if Chinese private companies possessed more intellectual property, stronger IP protection would be sought and obtained (Endeshaw 1996, p. 79). Indeed, a few optimistic observers claimed to have already witnessed the start of this change towards greater domestic protection for intellectual property (Potter and Oksenberg 1999). More generally, Chinese citizens were beginning to use the courts more and more, instead of the traditional reliance on mediation or administrative agencies. This was also seen as a positive step for the prospects of enhanced enforcement of intellectual property rights (Jenckes 1997, p. 560).

Therefore, the role of Chinese companies was seen as crucial to achieving sustained change in the IP system in China. Although formal organisations of Chinese companies were limited to a few industries, Chinese companies in general were cited by most respondents as one of the key influences on the Chinese legal system. Some respondents asserted that this shift towards greater pressure from domestic companies had already taken place. For example, when discussing recent changes in the IP system in China, one respondent declared that

Chinese companies are more aware of IP issues and register in mass,⁶⁸ while another stated that

Chinese companies are now suffering from IP problems and are calling for effective protection measures to be available.⁶⁹

Pressure from Chinese companies was also cited by several respondents when discussing the future for the intellectual property system in China and was even described as the “main driver” for change by one respondent.⁷⁰ For instance,

Improved IP protection would mostly benefit foreign companies at present, though it would benefit domestic companies in a long-term view. With the request and demand of IP protection from domestic companies and consumers becoming stronger, the IP protection would be improved more and faster.⁷¹

Overall, most respondents declared Chinese companies to be a highly significant influence on the IP system in China. As a consequence, although pressure from Chinese companies was seen as critical for the future of the Chinese intellectual property system, the political structure of government in China may have been hindering the impact of their collective voice.