China's IP Protection Improves — a Bit

For years, the attraction exerted on the semiconductor industry by China as a country with a huge market and great resources (both intellectual and material) has prompted a migration (albeit a cautious one) to its shores. An inhibitor to this transition has been the Chinese government's casual attitude toward IP protection.
 
This situation is improving. The bad news is that it is not happening fast enough.

In a conversation I had with George Scalise, president of the Semiconductor Industry Association (SIA), he was optimistic. "The Chinese government is moving from a 'Made in China' to a 'Created in China' attitude," he said. "Made in China" describes how the semiconductor industry operates there now, where a fab receives a semiconductor design and recipe scrupulously specced by a foreign client to manufacture a product. "Created in China" described a situation where the Chinese themselves design the product, prepare the recipe for manufacturing it, solve the processing problems and provide the product to the world. It is likely that until "Made in China" evolves into "Created in China," Beijing and Chinese manufacturers may not see a need for zero tolerance in matters of IP abuse until they have their own substantial portfolio of Chinese IP worthy of protection. Scalise expressed doubts that creativity and innovation will truly flourish in China until the country puts in place and actually enforces effective IP protection policies.

This optimistic perspective of the problem aside, the IP situation is improving; however, even the Chinese admit that adequate protection and enforcement of IP protection laws are still lacking. For example, authorities will not deal with a violation unless it exceeds a certain threshold. This threshold is now around $10,000. There is no issue to consider here — thresholds must be eliminated. Where IP protection is concerned, the only response is zero tolerance.

Scalise and the SIA have worked for years with the China Semiconductor Association (CSIA) on this issue. With the participation of the American embassy and the U.S. Patent Office, they have presented seminars dealing with IP issues to Chinese authorities. These excellent efforts are continuing with the CSIA. The SIA has also spearheaded the creation of a taskforce within the World Semiconductor Council (WSC), which is composed of semiconductor industries around the world, including China. Everyone must act responsibly and take action when there is evidence of any kind of counterfeiting taking place — what the form is or at what threshold is irrelevant.

Partly because of this situation, the U.S. government has embargoed certain technologies from sale to China. This has proven to be a mixed bag. Clearly, any technology critical to national security must be protected. However, most of what is under embargo — as it relates to semiconductors — translates into trade rather than national security issues, because these products, technologies and manufacturing equipment are often available from somewhere else. There is little value in an embargo under these circumstances. Cuba is an example. For years, the United States has imposed strict embargoes on that island nation with little effect since the European Union, China, Russia and others trade with Havana.

Embargoes work for things such as the systems created out of these components, and the software, hardware and architectures employed. These are of great importance, and the United States would never want to lose control over them. But what applies to the design and products used in flight control systems for a fighter aircraft, for example, does not apply to processing platforms and toolsets, which can also be bought in Europe and Japan. In this respect, the government should revist this situation.

China must eliminate all thresholds on these violations and become more aggressive in implementing the enforcement of IP protection laws. An interesting suggestion by Scalise is the extension of a program similar to that in operation in Hong Kong, principally for haute couture products. There is a "No Copy" medallion that a store can put in its window. The only way to get this medallion is by demonstrating that everything the store sells is of legitimate origin. Perhaps a similar concept could translate into a program that all companies would sign off on. Not having that certificate of compliance would mean that most companies around the world would not do business with you.

It would be worth a try.