A Tale of Many Watersheds

Joseph Sternberg of the Wall Street Journal reported a few days ago that a European company, Ineos, has decided to bring a law suit against a Chinese State Owned Enterprise, Sinopec, for patent infringement involving its patents for manufacturing acrylonitrile, a product used to make carbon fiber. Sinopec is allegedly building unauthorized factories based on the technology. The article is entitled “A Watershed for Chinese Patent Theft – The first IP lawsuit by a foreign firm against a large state-owned enterprise tests Beijing’s reform mettle.”

While this case may be path-breaking, concerns about state owned enterprise or government supported infringement are not new. The 1995 MOU on Intellectual Property between the US and China for example, required that “public entities in both countries shall not use unauthorized copies of computer software in their computer systems and legitimate software will be used…[A]dequate resources shall be provided to permit the acquisition only of authorized computer software.” Legalization of government and SOE computers has been a theme in bilateral IP relations more or less since then. Concerns about state involvement and support of infringement are also found in the publishing sector, especially piracy of scientific and technological journals at Chinese universities and research organizations.

Chinese rightsholders also pursue cases against the government of China for copyright infringement. Perhaps the most notable instance was the piracy of five of the works of the late Professor Zheng Chengsi, one of China’s leading academics on intellectual property. These five works were compiled into a “Complete Book of Intellectual Property”, which was published by the Supreme People’s Procuracy (China’s attorney general) way back in 1992. Prof. Zheng’s efforts to secure royalties were unavailing.

Is the defining problem whether a company is foreign, or whether it is well-connected with the State? We have little data to compare how foreigners fare in Chinese court compared to Chinese entities. However, the analytical data for Shanghai, analyzed by Profs. Xin He and Su Yang , show that “When the litigants are classified by their organizational and social status, government agencies or government-related companies are the biggest winners.” In short, farmer’s don’t win cases – SOE’s do. However, this data gives little guidance to a foreign technology company. To me the data does, however, suggest that one might wish to avoid bringing a litigation against a large state owned enterprise where that enterprise is headquartered or enjoys significant “organizational and social status”, i.e.- don’t get ‘home-towned.”

Sternberg also notes that Beijing is also developing an especially strong “reputation among intellectual-property lawyers for fair handling of highly technical disputes between private parties, including foreigners suing Chinese firms”. I am personally awary of generalizations of this nature. It is unlikely to me that any particular venue in China is always the best for complex technology IP cases. For example, the CIELA database on civil IP litigation in China shows that Beijing is not one of the top 10 cities where one is most likely to win a patent case.  CIELA also reports that it was number 3 in average damages awarded, at about 180,000 RMB or 30,000 USD – hardly enough to pay a foreign lawyer’s complex patent litigation retainer. As for invention patents in the chemical and biological sector, CIELA reports only seven cases in Beijing, with damages being awarded that averaged 100,000 RMB, and a 100% incidence to date of a complete loss or partial loss for the plaintiff.

China has the laudable goal of developing innovative state-owned enterprises, private enterprises and research organizations. Understanding the relationship between China’s innovation policies, and the motivations it may provide for those tasked with developing new technologies to acquire needed foreign technology is likely be an increasingly critical issue. These state technology policies may give the litigants additional “social status” and thereby also tilt the balance of justice.

Will plaintiffs or defendants tasked with implementing China’s technology policies also become the “biggest winners” in IP battles in China in the future? To me, this is both an IP and rule of law “watershed issue.”

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