Chinese businesses pay for lack of IPR awareness

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Last updated at: (Beijing Time) Friday, October 24, 2003

Chinese businesses pay for lack of IPR awareness

Chinese businesses are worrying that a multi-million-dollar intellectual property rights (IPR) war is looming after a spate of lawsuits over alleged infringements inrecent months.

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Chinese businesses are worrying that a multi-million-dollar intellectual property rights (IPR) war is looming after a spate of lawsuits over alleged infringements in recent months.

Late last month, the Beijing-based New Oriental Education Group, China's leading private English language school, was ordered by a local court to pay 10 million yuan (1.2 million US dollars), in compensation to two US plaintiffs for copyright and trademark infringements.

In mid October, the China Music Copyright Society lodged a claim against TCL, one of the country's largest mobile phone manufacturers, for 12.8 million yuan (1.55 million US dollars) for the unauthorized use of music under copyright protection. The case has yet to be decided.

Meanwhile, the Guangdong-based Kelon Electric Appliances Co. has decided to take legal action against Haier and Xinfei, both name brands in the Chinese home appliances market, for copying the patented designs of its refrigerators. Kelon is seeking 10 million yuan (1.2 million US dollars) in compensation.

This case, the first of its kind in China's refrigerator industry, is scheduled to go to court in Foshan city of south China's Guangdong province in November this year.

"As an imminent IPR and patent war is looming large, domestic companies should learn to do business in the long term," said Prof. Zhang Chu, a noted Beijing expert in IPR law. "You may make some money by infringing upon others' copyrights and patents in the short term, but sooner or later you will have to pay dearly for it.

"Many local enterprises lack IPR and patent awareness, and have ignored the protection of patents and copyrights for years," said Zhang.

In January 1997, industry and business administrators in the Chinese capital confiscated from the New Oriental Education Group illegal copies of original test questions of the US-sponsored TOEFL, GRE and GMAT exams. The group confessed to its copyright infringement in a written document, but failed to stop the practice.

Some prestigious Chinese law experts acknowledged that it is quite common for businesses at home and abroad do business with the unauthorized use of copyrights, patents or trademarks, though they know it illegal.

Chinese manufacturers of DVD players have to pay additional 4.5US dollars for each DVD player they produce to Hitachi, Matsushita, Toshiba and other Western firms which own patent rights on essential technologies.

To date, they have paid a total of 3 billion yuan (some 360 million US dollars) in patent licensing fees.

Quite a few domestic firms have incomplete and incorrect understandings of the law. In New Oriental's case, the most controversial point lay on the issue of whether used test questions should enjoy the copyright protection. Law experts noted that it is legal to acquire public information via public channels, nevertheless it will involve copyright infringement to use exclusive, private and other non-public information, such as test questions, for profit-making purposes.

TCL also voiced dissent on related legal problems in its case. The company held that it only illegally used episodes of musical pieces as its cell phone rings, which should be differentiated from the piracy of whole songs on CDs. And it argued that the claimed compensation should be below 500,000 yuan (about 60,500 US dollars).

Patents, a major form of intellectual property rights, have aroused increasing attention from overseas investors.

"Multinationals, such as Matsushita, IBM and Nokia, have all flocked to apply for patents covering fields of wireless telecommunications, photoelectricity and information technology on the Chinese mainland since 1999," Yuan Jianzhong, a member of a Taiwan-based institute for the information industry.

Experts on IPR are concerned that foreign firms may wage a new round of patent warfare against domestic companies later this year or next year.

"China should intensify the IPR awareness among the whole society and further improve the enforcement of laws in protection of the legal rights and interests of intellectual property owners. Domestic enterprises are encouraged to innovate technologies on their own and to apply for patents quickly," said Zhang Qin, deputy director of the State Intellectual Property Office.

Zhang stressed that the building of policies and regulations on IPR protection in China should be strengthened to meet the common international standards.

Enterprises should incorporate a sensitivity to IPR into their own operations and management, Zhang noted, adding that companies with big market shares were likely to be caught in lawsuits if they copied the main technologies on market without their own patent.

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