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U.S. Clean Technology, IP Rights, and China

Posted on the 06 April 2011 by 2ndgreenrevolution @2ndgreenrev

U.S. Clean Technology, IP Rights, and China**  This question and answer session comes courtesy of an intellectual property expert in the private sector. The first topic is intellectual property in the clean technology sector. Next week we’ll feature comments on genetically modified organisms (GMOs). **

Question) Will US companies that make agreements with the Chinese to share technology in order to get access to the increasingly lucrative Chinese market eventually regret the decision when the same Chinese company becomes a rival with technology based on what the US company originally shared? How do US companies with great clean technology protect that technology while selling and sharing their products in a China (which clearly needs clean tech and is a huge market) with lax enforcement of intellectual property (IP) rights?

Answer) When U.S. companies seek to expand their business in China, most are well aware of the threats to their investment in the short term, but see the greater threats of inaction in the long term. All businesses, including green tech, take a variety of risks into consideration when investing in new operations or Research and Development (R&D); intellectual property rights is just one of those considerations and a lack of protection may not be enough of a deterrent if a new market is sufficiently sized or the cost of losing a strategic foothold in the emerging market is too great. Sometimes, the first mover advantage may be worth more than the initial losses due to lack of enforcement of IP rights or other unfair practices. Consider that a patent’s life-cycle is complete in 20 years. What sort of competitive advantage could be lost by staying out of the Chinese market for the same period of time?

The issue of weak IP enforcement and trade barriers erected against foreign firms in China is a serious one which deserves the strong focus of the U.S. government, and although the opportunities currently outweigh the risk equations for some companies, many are losing out on that market because of those policies. A comprehensive overview of these challenges can be found in a study published in November 2010 by the United States International Trade Commission (USITC), “China: Intellectual Property Infringement, Indigenous Innovation Policies, and Frameworks for Measuring the Effects on the U.S. Economy (PDF Link).” They conclude that IP enforcement remains a problem and thus widespread infringement is taking place in China. Additionally, they find that China is implementing indigenous innovation policies that U.S. and foreign firms view as potentially reducing business opportunities in China’s fast-growing economy. Firms should be able to invest in any WTO member country knowing that the rights guaranteed to them under TRIPS (trade-related aspects of intellectual property rights) will be respected.

To it’s credit, China began a focused campaign against counterfeiting and piracy in 2010 and has committed at the US-China Joint Commission on Commerce and Trade (JCCT) to not use Indigenous Innovation Policy to discriminate against technologies based on the origin of the intellectual property in government procurement contracts, or for selection of industrial equipment suppliers. There is a long way to go, but maybe it is useful to recall that other countries in the region which are now strong supporters of IP rights, such as Japan and South Korea, were often accused of IP theft in the 1980s and 1990s respectively. With the number of Chinese patents filed on the rise, the stage seems to be set for moves in the right direction.

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