Chinese Piracy of U.S. Products China, with a population of more than 1.3 billion, represents the largest consumer market in the world. Business interests in this market and the opening of China in the 1970s have lead to China's membership in the World Trade Organization as well as increased cooperation and interaction between the Chinese government, Chinese businesses and the international political and business community. This engagement has focused attention on China's intellectual property rights and has spawned increasing pressure for China to conform its laws and regulations to global standards and to actively enforce them. The motivation has been the flagrant Chinese piracy of intellectual property that has produced vast losses in potential revenue to many firms throughout the world, particularly the United States.

In 1995, U.S. copyright industries estimated that losses stemming from China's production, distribution and export of pirated products amounted to $2.3 billion. At this time, this dollar amount reflected:

1.3 billion in losses in the entertainment software industry

488 million in losses in the business software industry

300 million in losses in the music industry

125 million in losses in the book industry

124 million in losses to the motion picture industry

The U.S.-China Intellectual Property Rights Enforcement Agreement, signed in February of 1995, was the first measure taken by the U.S. government to protect U.S. corporate copyrights. Among other things, this agreement established the State Council Working Conference on Intellectual Property Rights, created requirements for title registration of foreign audiovisual products and computer software in CD-ROM format and provided for a six-month enforcement period during which intensive efforts would be made to crack down on the major infringers of intellectual property rights. The 1995 agreement was further strengthened with a 1996 accord that included the closing of pirate plans, criminal prosecution for those who violate intellectual property regulations, improved border surveillance by custom officers and a registration system for compact disc manufacturers.

Unfortunately, intellectual property rights agreements with China do not appear to be working. The U.S. economy has lost over $15 BILLION due to Chinese piracy of its intellectual property from 1995 until 2001, according to the International Intellectual Property Alliance (IIPA). The IIPA's 2001 report documented that piracy rates in China continued to hover at the ninety percent level and reported an alarming increase in the production of pirate optical media products including DVDs by licensed as well as underground compact disc plants. The IIPA also expressed concern about the increasing sophistication in the pirate market such as the increase in Internet piracy, production of higher quality counterfeit products and piracy of computer software by business enterprise and government and ministries.

As explanations for why intellectual property agreements with China have not been a success, analysts cite multiple reasons. Some believe piracy prevails because theft of intellectual property has not been solely the province of street level criminals. The families of leading Chinese officials, provincial leaders, and even the Chinese military have been involved in the theft of intellectual property. In one case, pirates reportedly set up facilities to make illegal compact discs on People's Liberation Army bases, as a means of evading internal security police charged with shutting down pirate operations.

Others blame China's lack of commitment to protect intellectual property, emphasizing that government ministries routinely participate in piracy by illegally copying computer software for their use. Still others attribute China's piracy problem to unstoppable customer demand. They believe, for instance, that pirated compact discs sell in China because the genuine article is too expensive for most local music fans:

If the prices can be lowered significantly, then there's no need for a pirated goods market...Maybe that gives us another good reason to look forward to China's entry into the World Trade Organization, which is expected to bring us more affordable and copyrighted audio and video products."

One thing is certain. Although Chinese authorities sometimes make a show of cracking down on piracy by crushing mountains of DVDs and compact discs with steamrollers, the problem has only grown worse.

According to the American Chamber of Commerce, "The number of infringement cases handled on a criminal basis is still too low to create the required level of deterrence."

As a result of rampant piracy and little enforcement of intellectual property rights, some companies are taking matters into their own hands rather than rely on the Chinese government. Recently, movie studios are fighting back by opening films in China on the same day as in other countries in an attempt to increase their chances that people will spend their money on legitimate movie tickets than on fake DVDs. In the past, Chinese moviegoers have had to wait weeks or months for movies to come to the theater. Pirated copies usually appear in China in as little as three days after debuting in the U.S. And appear in brightly lit stores stock with a wide range of shrink-wrapped fakes.

An estimated ninety percept of software in China is pirated. Yet, a software copyright case in China's capital city, Beijing, did not occur until April 2003. In this case, A Beijing-based information technology company...

As is the case with the movie industry, business and entertainment software companies are taking their own initiatives to prevent piracy. Microsoft has convinced China to get many of its PC manufacturers to bundle Windows XP into new machines in hopes that this move will encourage more buyers to pay for the operating system, instead of getting a cheaper one with Linux and then overwriting it with a pirated version of Windows. And, Nintendo has recently unveiled a privacy-proof version of its Game Cube console for the Chinese market. Instead of an optical disc reader found in models sold elsewhere, the China version uses a flash memory card. Nintendo customers will have to bring the Game Cube card to a shop and pay for the download. The data cannot be extracted or cloned from one card to other cards, nor can a card for one console be used on other consoles.
By the end of 2001, China had virtually eliminated export piracy, but, had only made minor dents in its domestic market. Percentages of products appearing on the domestic market in China that were illegal remained very high for all sectors of the copyright industries, over ninety percent.

Despite this bad news, there are some signs of progress. China's software industry expected sales in 2000 to hit 20 billion Chinese yuan (or U.S. $2.42 billion dollars) and China had more than ten thousand software companies by the middle of 2000. Some believe that these are positive signs that China's leaders are finally beginning to recognize the possibility that Chinese creators will contribute positively to the economy and that the drive to legalize copyright uses in China will do far more than simply placate foreign trading partners.

And, of course, World Trade Organization obligations have influenced China to begin efforts to curtail piracy. Nevertheless, the respect and enforcement of intellectual property rights will be a gradual process.

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Issues on Patent and Copyright…