In China IP issues still loom large

Helping to fuel the West-to-East shift in technology consciousness raising, in a addition to the VC funding flow, are press reports like EBay's interest in acquiring Skype — a company that looks like a Silicon Valley shooting star, but is actually based in Estonia, founded by a Swede and a Dane.

The soaring valuations of deals such as Yahoo’s $1 billion stake in Chinese e-commerce firm Alibaba.com and the successful U.S. stock listing of China’s search engine leader Baidu.com also help stoke perceptions that the Valley may be loosing some of its allure for startups.

A Davos-style China Business Forum and recent government industry summits in Beijing’s Zhongguancun Technology Zone focused on innovation and technology venturing don’t do anything to dispel the notion that Silicon Valley may be on the way out — as China and India wait in the wings.

In China at least, the gating factor that’s likely to hold back full scale technology development isn’t the challenge of innovation, VC funding or a shortage of skilled management teams, but lingering questions about something everyone in Silicon Valley, and Europe and India for that matter, take for granted — intellectual property protection.

Intellectual property issues were surprising absent from the published agenda of the just-concluded World Economic Forum’s 2005 China Business Forum. Absent despite the fact that in Geneva, where the World Economic Forum based, and throughout Europe — and the U.S., IP protection in China is an issue that will not go away.

A report by Jamil Anderlini, Beijing correspondent for the South China Morning Post quotes European Trade commissioner Peter Mandelson, in Beijing for trade negotiations on textiles, as saying that “intellectual property rights protection remains, together with transparency, my biggest concern.” Today it’s our issue Mandelson said, but “tomorrow and the day after it’s going to be China’s issue. Only 21 percent of European Union firms regard Chinese intellectual property protection enforcement as effective, the report claimed. The intellectual property issue cuts a wide swath across Chinese industry and hangs like a cloud over the music, film and entertainment industries as well as the electronics and IT and communications sectors.

“In the past six years, Chinese authorities have made gestures of conciliation to the foreign film industry, raiding more than 100 factories making fake DVDs. But the flood of fakes continues. A single assembly line can stamp 3.5 million disks per year. Hollywood estimates that 95 percent of DVDs sold in China are pirated, even though legitimate copies are priced at less than $5 in an effort to make the real thing affordable for those with emerging market wages.

“If Beijing fails to solve piracy soon, we will not deserve to host the Olympics in 2008,” Feng Xiaogang, a Chinese filmmaker commented recently.

Similar piracy rates are often quoted for computer software industry executives in the U.S. But Chinese officials have taken issue those who claim there is limited protection for software in China.

In an exclusive interview with EE Times last week in Beijing, Hua Ping Lan, the vice chairman of the China Software industry Association said “the real situation in China is misunderstood.”

Hua did not dispute high piracy rates in the PC sector, especially among students, but he asserted that organizations in China are starting to toe the line and are enforcing strict practices with regard to software licensing.

“We’re aggressively fighting piracy and educating people to use legal software. Today all government bodies use licensed software,” Hua claimed, noting that while currently a small market, China has ambitions about growing its own domestic software production industry—and hence needs to take strong actions against copyright violations and pirating.

In addition, the government is reportedly subsidizing local companies and entities to apply for software patents, Hua observed.

“We feel that in the West opinion about this issue is somewhat biased and we would like to see better, more accurate statistics quoted beyond that “95 percent of all software in China is pirated.”

Hua noted that a special divisional court has been set up in Beijing’s Haidian District to prosecute software copyright violations. At the national level, Hua said, the enforcement of software copyrights and piracy prosecution is the responsibility of one of China’s highest ranking officers, vice-premiere Wu Yi, a member of the Politbureau, whose authority outways even the powerful State Council. Wu is on record as as having said that country regards software as an industry with strategic importance and it is formulating effective policies in areas including anti-piracy and anti-monopoly, to encourage its development.