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Intellectual Property (IP) can be considered among the most valuable corporate assets, contributing to the establishment of companies’ competitive advantages. In that regard, the infringement of Intellectual Property Rights (IPR) can be considered one of the main concerns of the company, for which the majority of nations established laws for protection of IP, such as “patents, copyrights, trade secrets, trademarks, and plant varieties, following the first recorded patent law in 1474 in the Republic of Venice” (Chapa and LeMaster 567). For multinational enterprises (MNEs), such problem is more important, as the problem takes an international scale. Such scale can be specifically evident in China, where the issue for MNCs is twofold. On the one hand, “China’s new prominence as a manufacturing power has been beneficial to multinational companies seeking to leverage its low-cost labor force and seemingly unlimited capacity” (PricewaterhouseCoopers 1). On the other hand, IP management is a major concern for MNEs in China, because of the lacklustre performance of the Chinese government in dealing with IPR infringements, mainly due to “serious deficits in different areas of Intellectual Property Right (IPR) protection” (Han, Zhao and Voelpel). In that regard, such situation places a great burden on MNEs themselves to manage the issues of IPR infringement in China, using various types of strategies. Thus, this paper presents an overview on the issue of IPR infringement in China and various strategies of MNEs reaction.
First of all, it should be noted that the reasons for such IPR infringements can be seen in through the tension that exists between developed and developing countries. Accordingly, such cases can be seen when a developing country is not ready to change its economic behaviour, where strings demands for IPR protection might turn into legal failure (Shi 2). Additionally, it can be stated that generally litigation approaches might not be the most appropriate, not to say ineffective in dealing with IPR infringements, taking long time, they essentially fail to protect the market place value of the product (PricewaterhouseCoopers 9). Thus, other approaches are used or proposed to be used in the case of MNEs.
MNEs Strategies and Actions
One of the aspects that MNEs might undertake is to manage their IP protection, taking control of the controllable factors, i.e. the factors which are not dependable on the environment (Han, Zhao and Voelpel). IP is one of the controllable aspects that the company can manage to deal with. Although controlling IP will not totally prevent the risk of infringements, such risk diminishes if the company takes certain actions toward ensuring solid ownership in China. The list of actions includes the following (Han, Zhao and Voelpel):
- Securing IP locally – such process is rationalized by the fact foreign patents are protected in China, unless filed locally or via a Patent Cooperation Treaty (PCT) (Han, Zhao and Voelpel 8).
- Having a robust patent – with more than 30 percent of patents invalidated, the robustness of the patent is one of the essential factors of IP protection.
- Preventing IP leakage – such step implies controlling the internal and external channels through which an IP might be leaked as well as the periods during patent applications.
- Controlling IP disputes -such process is largely linked to potential disputes that might arise between the company and its employees, or between the company and cooperation partners. Accordingly, the clarification of such issues might prevent IRP infringements, and contribute to IRP protection.
The aforementioned actions are mainly concerned with direct managerial processes that the company can undertake to reduce the risks of infringements. With such actions being performed by the companies internally, and directed toward the company’s own IP, there are other strategies that can take large scales and although the rationale is protecting their own IPs, the impact is on the infringement phenomenon in general. Common anti-piracy strategies can be differentiated into three categories, administrative supports, judicial actions and corporate approaches (Yang, Fryxell and Sie, p. 323).
Administrative supports imply certain corporate actions that seek support from government organisations to curb piracy. Such strategies are mainly political, in which the government power shape the industrial environment of a specific country. An appeal to such organisations as World Trade Organisation (WTO) and World IP Organisation (WIPO) lead to a pressure from these organisations on the respective governments that obligates them to “enhance their IP environments, i.e. to ensure enforcement and administrative procedures in place against IP violations” (Yang, Fryxell and Sie 323). The engagement in such political strategies can be seen as a prerogative of large firms, rather than small ones. In addition to the aforementioned actions the dependence of government policies implies following procedures similar to the steps mentioned previously, related to IP protection. An additional procedure that falls within the category of administrative supports can be seen through providing training to personnel, in order to increase IP awareness (p. 324).
Judicial actions can be through taking civil and criminal actions against piracy and IPR infringements. The importance of such strategies can be seen more in their long terms influences, rather than their instant effect. The scope of judicial actions can be seen in that “[f]rom 1996 to 1998, 9,531 IP civil cases were presented to the Chinese people’s courts, and 9,018 were decided” as compared to only “100 cases [that] were heard and decided in America in one year” (Chapa and LeMaster). The long terms effect can be seen through the contribution of judicial actions to the overall development of the legal system in the respective country in the issue of IPR infringement, China in this case. A review of the Chinese IP protection history reveal that China ratifying different treaties and improving the IP system through revisions of IP laws is a demonstration of gradual improvements, in which judicial actions have a lot to do with it.
Corporate approaches include proactive measures that organisations undertake to handle piracy. Such measures include actions such monitoring and reporting approaches, media exposure and campaigns to increase public awareness, education, sponsorship of anti-piracy campaigns, and others. Such strategies can be described as having more of a long-term impact, which benefits might also include improving firm-consumer and firm-government relations (Yang, Fryxell and Sie, p. 326).
It can be concluded that the issue of IPR infringement is a serious matter for MNEs. The attractiveness of China for foreign direct investments and the prevalence of IPR infringement there put a great responsibility on MNEs for reaction. In that regard, it can be stated that the contributions of MNEs might be translated to improving the IP system in China in the long run. The strategies identified in this paper show various ways MNEs might achieve such objectives.
- Chapa, Olga, and Jane LeMaster. “Chinese Intellectual Property Rights? Know before You Go.” Thunderbird International Business Review 49.5 (2007): 567-90 pp.
- Han, Zheng, Chunli Zhao, and Sven Voelpel. “Uncertainties of Intellectual Property Management in China.” 15th International Conference on Management of Technology, 22 May, 2006, Beijing, China. Ed.: International Association for Management of Technology. Print.
- PricewaterhouseCoopers. “Redefining Intellectual Property Value: The Case of China“. 2005. PricewaterhouseCoopers International Limited. Web.
- Shi, Wei. Intellectual Property in the Global Trading System. New York: Springer, 2008. Print.
- Yang, Deli, Gerald E. Fryxell, and Agnes K. Y. Sie. “Anti-Piracy Effectiveness and Managerial Confidence: Insights from Multinationals in China.” Journal of World Business 43.3 (2008): 321-39 pp.