Monday Mythbusting: IP Edition

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See which myths and/or conventional wisdom run counter to this bit of news:

One leading home appliances manufacturer Midea lost a patent lawsuit to one of its archrivals, being ordered to stop the infringing act and pay a fine.

Myth #1: China does not recognize intellectual property rights, and the victim is usually a foreign company. Well, sometimes it is a foreign IP owner, but most cases involve Chinese infringers as well as infringees. If you put a random selection of victims of China IP infringement in a room together, the majority of them would be Chinese.

The Guangdong Provincial Supreme People’s Court upheld the verdict made by the Zhuhai City Intermediate People’s Court, settling the three-year intellectual property dispute between Midea Electric Appliances and Gree Electric, both being listed in the Shenzhen Stock Exchange.

Myth #2: Chinese companies don’t care about intellectual property. Here we have two very large, publicly-traded Chinese companies who engaged in a multi-year patent infringement lawsuit. That sounds like a lot of caring to me.

Midea is also subject to a fine of 2 million yuan ($315,000), according to the supreme court ruling.

China’s largest air conditioner producer Gree filed the lawsuit against Midea in 2008, after finding four models of Midea products copied its patented “sleep” function technology, an invention which helps adjust room temperature in users’ sleeps according to their preferences.

The Zhuhai intermediate court decided Midea guilty of the patent infringement in April 2011. Midea, however, appealed to the higher court.

During the litigation, Midea applied to the State Intellectual Property Office to revoke Gree’s patent of invention, but failed in September 2009.

Myth #3: Chinese company portfolios are just filled with “junk patents” that are used for nuisance value in lawsuits. Sometimes, perhaps, but here we have an invention patent that was sufficiently robust to withstand an invalidation challenge. Air conditioning technology may not be rocket science, but we’re talking about a lot of money here.

This case will not make the front page of the New York Times, nor will it probably hit the wire services overnight. No complaints there, it’s not that newsworthy.

Indeed, it’s a very run-of-the-mill IP suit, although the players are heavyweight corporations. But that’s the point. This is the kind of thing you (not to mention government officials) never read about, and the idea that these cases are nonexistent becomes internalized.

But hey, if the only thing you ever see is a headline like this: “Commemorative Shanzhai iPad Has Steve Jobs Rolling in His Grave,” what else are people going to think?

And that’s not a criticism of the press. That Steve Jobs/fake iPad story was interesting, and the Midea/Gree one is kind of a yawner (to most folks).

In other words, aside from writing this post, and distributing it to all three of my readers worldwide, I’m not sure how to effectively debunk these myths.

8 responses on “Monday Mythbusting: IP Edition

  1. Andeli

    @Myth #1: China does not recognize intellectual property rights, and the victim is usually a foreign company. Well, sometimes it is a foreign IP owner, but most cases involve Chinese infringers as well as infringees. If you put a random selection of victims of China IP infringement in a room together, the majority of them would be Chinese

    This one is not refuted. 100% (or close) of media/software related IP infringements are against foreign companies. The fact that there is massive IP infringements happing everyday in the center of Beijing proves this one wrong and it is foreign companies losing on this one.

    I think this “myth” is based on facts and I would say that China recognizes IPR, but does not enforce its own IP laws. Correct enforcement is 100% of the law.

    Myth 2 and 3 are debunked, but the first one is still standing. Sorry for the may 100% in this comment will cut down on them in the future.

    1. Stan Post author

      Granted, there are certainly some sectors where foreign companies figure more prominently. I was dealing with the aggregate. Moreover, the point about the foreign vs. local went to the belief that foreigners are special targets. Even with software, though, if a Chinese company develops popular programs, they are pirated as well. In other words, the “foreigner-as-special-target” is difficult, on the whole, to support.

      1. Andeli

        I think the problem for the Chinese trademark registration system is that it was not thought through.

        If one wants to trademark let us say a set of characters 爱情 in category 3301 (all kinds of 酒) than the one (in this case a private person) now owns the right to this use of this work in any relations to alcohol.

        The system effectively block the use of these two characters. Now in China the trademark owner (or IP owner) does have to show that they are using the trademark if challenged, but even if they don’t hold a license to produce or sell wine, they just have to show a bottle of wine with the words 爱情 on it to get out of it.

        This means that the system creates, promotes, protects and encourage idle IP. If the ones creating this system had really thought it through they would have based the trademark and patent system on the business licenses. This would mean that if one has a business license to create alcohol than they obtain the trademark in let us say category 3301.

        I therefore think parts of myte 3 is fact.

        1. Stan Post author

          That’s an interesting criticism, although you shouldn’t limit it to the Chinese system. I think most trademark systems have the same flaw. Ultimately, IP is about blocking use by third parties. For patent, the system creates short-term monopolies.

          One problem with a system based on business scope, though, would be the issue of similarity and trademark dilution. Many companies file for broad coverage not just because they might move into different areas of commerce in the future, but to stop would-be imitators. Let’s say you are filing on behalf of Coca-Cola. Coke files very broadly because its brand is well known. If you limited filing to whatever is part of Coke’s business scope, you’d quickly find lots of companies out there selling Coke-brand consumer products, like food and clothing. This obviously hurts the Coke brand.

          Anyway, very interesting. Perhaps worth a longer discussion/post at some point.

          1. Andeli

            I am impressed that you understood my point as I now see that I wrote it too fast and was more focused on thinking and not on writting correct English, thus a lot of mistakes.

            So just to be sure:

            If one wants to trademark let us say a set of characters 爱情 in category 3301 (all kinds of 酒) than this individual (in this case a private person) now owns the right to this use these two characters in any relation to alcohol.

            This is unique to China. I never heard of the word “love” being blocked in a whole category of goods or services anywhere. If you think about that just crazy. There are a few exceptions of course. You cannot trademark countries (so you cannot write 中国) in any category and if you go head to head with a SOE I would think you lose.

            Now the system effectively block the use of these two characters for 10 years. In China the trademark owner (or IP owner) does have to show that they are using the trademark if challenged, but even if they don’t hold a license to produce or sell wine, they just have to show a bottle of wine with the words 爱情 on it to get out of it or that they are in some way using it.

            @ “One problem with a system based on business scope, though, would be the issue of similarity and trademark dilution. Many companies file for broad coverage not just because they might move into different areas of commerce in the future, but to stop would-be imitators. Let’s say you are filing on behalf of Coca-Cola. Coke files very broadly because its brand is well known. If you limited filing to whatever is part of Coke’s business scope, you’d quickly find lots of companies out there selling Coke-brand consumer products, like food and clothing. This obviously hurts the Coke brand”

            That is true and I agree, but still…

            I have not seen Coca-Cola 可口可乐´s business license, but the system could be make so that categories very close to the core business of Coca-Cola would be blocked (like food stuff), and I am sure that Coca-Cola could get a business license to the production of clothing, jewellery etc. if needed.
            Still I think the consumers would see the copies for what they are and move on. There has never been a Coca-Cola clothing line in any of the fake stuff markets I have seen, and if some day there would be Coca-Cola 中药 no Chinese in their right mind would use it.

            Brands like Coca-Cola has the weight to burn their products brand into the minds of consumers and thereby rendering all other alternatives useless.

            Anyway my point being that it would be a better alternative to the existing system, where these IP blockers halt a great lot of possibilities for everyone else. I think this is a pretty big stone on China´s road to becoming a service and IP economy, and it tells a lot about what kind of thinking the system rewards.

            Yes please do a post if you have the time and if you put in a Big Lebowski quote It will get max points for style. Are Metallica really ass*** ?

          2. Stan Post author

            OK, it’s on my “To Do List”.

            One final point with regard to business scope. Keep in mind that yes, Coke could get a biz scope for clothing manufacturing to make sure that they could block folks that are putting the Coke logo on shoes or hats or T-shirts. But that’s very inefficient, particularly in China. First, you need a corporate entity associated with that biz scope. For Coke, that’s no problem, but for foreign TM owners with you onshore presence, that’s a huge burden.

            Second, biz scope is related to registered capital. If Coke had a WFOE, for example, that was a beverage bottler, and assuming that it could even get approved to add “clothing manufacture” to the WFOE’s business scope (probably not), it would very likely be required to increase its registered capital to accommodate the new business. Again, burdensome and inefficient. The presence system, with all its drawbacks, is still superior.