Tag: legal

Copycat cars

greatwallcoolbear.jpgAnother in our occasional series on strange-looking cars that you will only see on the roads of China.

Actually, the Great Wall Coolbear (pictured left) bears more than a
passing resemblance to the equally strange-looking Scion xB (pictured
below) which you will only see on the roads of the US. Toyota has been
selling the Scion in the US market for a few years.

According to specialist website Justauto.com,
the Great Wall Coolbear “looks like a pretty straightforward rip-off”
but so far Toyota has not been tempted to call in the lawyers.

Dave Leggit, MD of justauto.com, says Chinese carmakers' propensity
to “borrow”designs from others is pretty widespread. Its not hard to
see why.

The practice slashes product development costs and if, as is usually
the case today, the copycat car is only going to be sold in China , the
foreign company that has had its IPR infringed will probably not want
to object too strongly. Leggit says:

Even if it does decide to do something about it, that means
negotiating the arcane Chinese legal system, which will take time and
might not yield a meaningful result anyway. It could also cause
political difficulties and many firms, understandably, decide on a
do-nothing strategy.”

Western OEMs expect that the more blatant rip-offs will gradually
disappear as Chinese carmakers develop the technology, design skills —
and confidence — to come up with their own original designs.

scion-xb.jpgAlternatively, they could short-circuit the learning curve and hand the task over to European car designers — read this EngagingChina story to see how famed Italian design houses Pininfarina and Giugaro are making inroads into China.

Nevertheless, I suspect that “reverse engineering” of foreign
designs is here to stay and few foreign carmakers are prepared to
jeopardise their participation in the world's second largest car market
by complaining too loudly about the practice.

Imitation, as they say, is the sincerest form of flattery.

Elsewhere on the automotive front:

  • Many western firms have horror stories about their Chinese JV
    partners. The latest involves Italian carmaker Fiat whose CEO, Sergio
    Marchionne pulls no punches in criticising its partner Nanjing
    Automotive in this
    Justauto.com story. Their JV has failed to meet production targets and
    Marchionne believes Nanjing is deliberately sidelining the JV because
    it is now more interested in developing the MG brand, which it acquired
    from the receivers when UK carmaker MG Rover went bankrupt — see this EngagingChina
    story for background. Divorce seems inevitable and Fiat is now looking
    around for another partner, possibly SAIC or Chery Automobile, with
    which it already has relationships.

  • Chinese carmaker Geely plans to open
    an R&D centre in Jinan city, Shandong province, its third such
    centre in China. Foreign research centres from seven countries have
    expressed an interest in collaborating with the new centre, according
    to AutoChina.


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Symantec trips up on update

symatec_logo.jpgSymantec,
the US security software firm, has incurred the wrath of Chinese
businesses by releasing a flawed anti-virus signature update that has
caused their PCs to stop working.

The problem only affects those who use the Simplified Chinese
version of its anti-virus scanner on PCs running Windows XP SP2, which
is probably why the bungled update has not made much of an impact in
the west.

But it has in China. According to ZDNet Asia, Symantec's enterprise customers are now seeking damages for losses as a result of the error –damages which are could top 1m yuan in some cases.

The story is interesting on two counts. First, Symantec's China
operation apparently does not enforce the rigorous testing of product
updates that is now second nature for software companies in the west —
we rarely hear of fatal flaws in Symantec software released for western
markets.

Second, Chinese businesses have learnt quickly from lawsuit-mad US
and now threaten to sue western vendors who supply them with faulty
goods. If only it was so easy for western customers to sue Chinese
vendors…

Symantec's Greater China representative apologised to affected
customers last week but stopped short of indicating if the company will
pay damages.

Happier news for Symantec in China:

  • Symantec is to create a JV with Huawei, the Chinese telecoms
    equipment maker, to develop and distribute security and storage
    appliances for telecommunications carriers — Huawei's core market.
    “Appliances” are a new fast-growing category of IT products that are
    dedicated to a particular function and combine both software and
    hardware. The JV, 51% owned by Huawei, will be based in Chengdu.


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China strives, west stifles

A wonderfully perceptive article, China’s New Economic Model, from Joseph Stiglitz, Nobel laureate in economics, should be required reading for anyone interested in China’s new economy.

In a few broad brush strokes, Stiglitz neatly summarised the challenges facing China as it seeks to evolve from the traditional economic model that has served it so well in the recent past but is now
being questioned — and not just by hawkish politicians in the west.

China knows that it must change if it is to have sustainable growth. At every level, there is a consciousness of environmental limits and the realisation that the resource-intensive consumption patterns now accepted in the US would be a disaster for China – and for the world.”

In order to restructure China’s economy away from exports and resource-intensive goods, China must stimulate domestic consumption.

Away from the shopping malls of Shanghai and Beijing, there are countless millions in China’s remote regions who are too poor to register on the PowerPoint slides of western consumer good companies as what little disposable income they have is hoarded as savings.

Stiglitz visited one such village in in the mountains of Quizho, one of China’s poorest provinces, miles away from the nearest paved road. He was impressed that the villagers now took for granted such recent innovations as electricity, TV and the internet.

stiglitz.jpgIncomes had risen as well, thanks to remittances from migrant workers in the
coastal cities, but also because of progressive government policies to support farmers by selling high-grade seeds with a guaranteed rate of germination.

Providing better social services would reduce the need for Chinese to save so much and help reduce the huge trade surplus. More access to finance for small and medium-sized businesses would help, too. Stiglitz is also in favour of “green taxes” – such as carbon emissions – to shift consumption patterns and discourage energy-intensive exports.

His most controversial proposal is in the area of intellectual property. As China moves away from export-led growth, it must create its own “dynamic innovation system” to reduce its dependence on western markets and know-how. Stiglitz argues that the only way China can do that is by resisting pressure by western governments to adopt “unbalanced intellectual property laws” that favour western firms and “stifle innovation”.

He says China needs to adopt a different approach to IP if it is to develop own solutions to its own problems posed by its rapid development. It needs to making advances in knowledge more widely used and less on restrictive IP regimes that seek to monopolise knowledge.

This issue of IP couldn’t be more topical, of course. Earlier this week, China sought to demonstrate its determination to stop commercial piracy by releasing an IP “action plan” comprising 14 laws on IPRs. That does not go far enough for some western hawks who say China is not doing enough to protect predominantly western IPRs, particularly in areas like film and music — the industries mentioned in the two complaints that the US has presented to the World Trade Organisation.

China, meanwhile, seems to be increasingly exasperated at the hard line being taken by the US over the piracy dispute and says it could harm relations between the two giants. More in this Reuters story.

You may not agree with everything that Stiglitz writes and many readers in the west will accuse him of being too soft on China and falling for its politicians’ rhetoric. For example, despite China’s
professed concern for sustainable development, it has postponed indefinitely an “action plan” for the environment — see this story yesterday for more.

Nevertheless, the article is a cut above the countless newspaper oped columns that pontificate on China’s economic ills.


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Faking it

cdsfake.jpgChina has gone on the counter-attack over its increasingly bitter piracy dispute with the US.

The US said on Monday it would file a case at the World Trade Organisation (WTO) over widespread copyright piracy in China that it claims is costing US businesses billions of dollars a year.

It also planned to lodge another complaint at the WTO accusing China of restricting distribution of foreign music, films and books.

The Chinese government says these complaints could damage trade relations between the two countries because Washington had not fully taken into account China's efforts to fight copyright piracy. China's commerce ministry expressed “great regret” at the US moves and said the US did not understand the huge problems China has enforcing copyright.

In recent years, China has issued a raft of regulations to fight piracy.

Under new rules issues last week, anyone who produces more than 2,500 discs of movies, music or computer software is now regarded a serious offender and can be jailed for seven years, down from the previous cut-off level of 5,000 discs.

But as any visitor to China will confirm, counterfeit goods of all types are still readily obtainable, although the fake wares are no longer so blatantly advertised and much of the trade has gone underground.

Nintendo, the Japanese games company, was quick to endorse the tough US stance.

It says it has been particularly hard hit by piracy, with millions of counterfeit Nintendo products seized from retailers and manufacturing plants in China through the years. But there has only been one criminal prosecution, the company complains, and numerous factories, where tens of thousands of counterfeit Nintendo products were seized, “escaped with only trivial fines or no penalty at all.”

Often these production sites continue to operate after products are seized. In order to avoid punishment, many counterfeiters are sophisticated and keep stock levels below the criminal thresholds and avoid keeping sales records.

Perhaps more worrying, the counterfeiters are moving up market and practicing their skills on sophisticated electronics goods and industrial parts and equipment.

For more on the problems policing China's counterfeits, see this BusinessWeek article


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Piracy killed the video star

piracy.jpgAround 126m video disks were sold in China in 2006, but as many as 2bn counterfeit discs were in circulation at the same time.

Understandably, piracy rates of around 95% create a “major
challenge” for any company trying to make a profit in China's film and
home entertainment market, according to Screen Digest, the London-based media analysis firm.

Major western titles are often available to the Chinese home movie
fan a month before their official release, at far less than the
relatively high cost of purchasing a legitimate DVD. Pirated copies of
the latest James Bond film Casino Royale were available over a month
before the film's scheduled release date.

Nevertheless, Screen Digest finds some positive developments for the
film industry. First, China's authorities are taking “meaningful steps”
to address the country's severe shortcomings in IPR enforcement.

Second, the government is supporting a strategy to bring cinema to
both rural Chinese and also even more urban areas to help the film
industry expand its market.

Screen Digest forecasts that by 2010 the Chinese will be spending in
excess of $500m on DVDs. But the market will continue to fall short of
its true potential and remain unattractive to western investors because
of the issues of piracy and disputes over DVD royalty payments.


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Pfizer fights copycats

bluepills.jpgChinese police recently busted
an underground factory making fake Viagra pills, showing that the
ingenuity of China's piracy industry now stretches far beyond cheap
Louis Vuitton bags, mobile phones and DVDs.

According to Xinhua, police found nearly 2,000 fake copies of the
blue pills in a factory in eastern Beijing, along with machines,
packing materials and trademark logos, together worth an estimated 2.5m
yuan.

The raid came just days after US pharma giant Pfizer, the maker of
the wonder drug, lost a court battle to prevent a Chinese rival,
Welman, using one of the Chinese names for the drug.

Pfizer sells Viagra in China as “Wan Ai Ke,” but argued that it is
widely known as “Wei Ge,” which means “Mighty Brother”. This is the
same name that Welman has been using for its anti-impotence drug since
1998, when it first registered the name. Pfizer gained its Chinese
patent for Viagra in 2001.

The US giant won a trademark suit versus Welman, over the shape of
the rhomboid blue pills at the end of last year, and prior to that, it
successfully sued Welman over the active ingredient used in its drug.

Pfizer's dogged pursuit of Welman through the courts shows that even
if western firms are now increasingly likely to win IPR battles in
Chinese courts, they can still end up losing the war.

Pfizer has filed an appeal against the decision.

Elsewhere on the pharma front:

  • London-listed Phynova Group is
    to work with the Hong Kong Jockey Club Institute of Chinese Medicine to
    develop drugs for the treatment of cancer. Phynova develops medicines
    from Chinese botanical drugs and recently got its first candidate drug,
    for the treatment of chronic hepatitis C, approved for clinical trials
    by the FDA of the US. the loss-making company sees big potential in
    Chinese medicine and has sufficient funds to carry out it development
    programme into 2008.

  • Nasdaq-listed Beijing Med-Pharm and Alliance Boots, the UK-based healthcare group, have formed a 20:80 JV to acquire 50% of Guangzhou Pharmaceutical Corporation,
    the third largest pharma wholesaler in China. The deal gives BMP a
    bigger footprint with distribution operations in Beijing, Shanghai and
    now Guangzhou. It also gives it a heavyweight western partner, Alliance
    Boots, which in return gets a low-risk strategy to enter China.

  • Sinclair Pharm, a distributor listed on the London stock exchange, has signed its first marketing agreement for China(pdf),
    which will see its flagship mouth ulcer product, Aloclair, sold there
    and in other Asian nations by Dalian-based Auroren Pharmaceuticals.
    China's market for OTC healthcare products is growing at around 7.8% a
    year


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Nokir conning people

Nokir E828.jpgOne industry issue that was not touched on at 3GSM last week was intellectual property and the growing problem of Chinese copycat phones.

With so many delegates from Chinese multinationals like Huawei and ZTE in Barcelona, I suspect the organisers felt it best not to upset the foreign visitors' sensibilities by mentioning this shadier side of China's manufacturing prowess.

However, EngagingChina talked to several brand-name manufacturers at the show and found they are less than happy at China's apparent chronic inability to do much to stem the flood of copycat phones that look suspiciously like theirs.

nokia n77.jpgIt's a problem that we have mentioned before and we don't intend to turn EngagingChina into a “Most Wanted” list of rip-off phone designs. However, the speed and ingenuity with which China manufacturers turn out reasonable imitations of ever more sophisticated brand-name phone never ceases to astound us. Take for example the cheekily-named Nokir E828G, shown above.

Nokia last year took two Shenzhen-based manufacturers to court for producing copycat versions of its popular 720 phone. But the this Nokir E828G is a cut above the usual rip-off phones, not least because it imitates one of Nokia's high-end camera phones, the Nokia N73 — see right — which was only announced six months ago. The N73 aims to take camera phones to a new level of sophistication with a 3.2 megapixel camera and a Carl Zeiss autofocus lens.

We don't have the spec sheet for the Nokir E828G, so we can't see how well it compares, although T3 magazine claims it has a 2 megapixel camera and because it has a touch screen, it actually improves on the Nokia phone.


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Ringing the changes with mobile music

onlinemusic.jpgMobile
music is so last year, we know. Particularly now that Apple has
effectively sabotaged the mobile operators' hopes for higher ARPU from
music by unveiling the iPhone, a phone that gets it music from a
computer not over the airwaves.

Nevertheless, two of the west's biggest music companies have decided
that this elusive business model can be made to work in China. Sony BMG
Music Entertainment and Warner Music Group have invested (pdf) in Access China Media Solutions, which is a JV between Japan's Access Co. and Melodeo, a US-based mobile music company.

According to the press release, Access China Media Solutions was
formed to encourage the growth of a “vibrant, legitimate” digital music
business in China. In particular, it offers a digital rights management
(DRM) system to prevent content distributed over mobile phones from
being copied without permission.

To date, the Chinese JV has only closed a deal with one mobile operator, Singapore's MobileOne.

The news follows the announcement last month that EMI Music has
agreed to make online music available on Baidu, China's most popular
search site. EMI and Baidu will share revenues from an
advertising-supported free online music streaming service in China. EMI
is the largest music company in China.

The move is an about-turn for EMI which previously was one of a
group of music companies that took Baidu to court in China for allowing
its users to download pirated music. Baidu won the law-suit but the
group, now down to trio of Sony, Warner and Universal, plan to appeal.

Music companies have long sought a secure, economically viable way
to distribute their content, not just in China and throughout the
world. Piracy of both physical CDs and online digital music has put the
music industry on the defensive and made them increasingly desperate to
find ways to “monetise” the new digital channels without cannibalising
existing revenue streams.

Mobile music is often painted as the retail channel of the future
for the music industry. It lends itself well to impulse purchases and
more importantly, it is easier to protect IPRs if music is downloaded
into a phone. Mobile music also has obvious appeal to young people, a
key demographic for mobile operators and music companies alike.

After a slow start in the west, there are signs that mobile users
are prepared pay to download music over-the-air — although Apple boss
Steve Jobs is apparently not convinced and so iPhone users side-load
music from a PC instead. (Apple apparently has no plans to launch the
iPhone in China and its not hard to understand why if if you read this article on SeekingAlpha.)

An admittedly partisan report on mobile music commissioned by UK
operator 3 predicts that mobile could overtake computer-based music
purchases within five years. 3 is the UK's biggest mobile music
retailer with 75% of the market and its 3.75m customers in the UK now
buy over 1m audio tracks and music videos per month.

Analysis firm eMarketeer, predicts worldwide revenue from sales of
mobile music will increase from $434m in 2005 to $7.7bn by 2010, or
around 22% of total music industry revenue.

But will many of China's mobile users take to the idea of paying to download music to their phone? We remain to be convinced.


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Huawei keeps on rising

huawei logo.jpgPositively our last word on Telecom World and, unsurprisingly, that word is Huawei.

When the event was last held in 2003, China's leading telecoms
equipment manufacturer was just emerging as a potential competitor in
Europe and it was absent from the North American market. But what a
difference three years make.

At this year's Telecom World, conveniently held on Huawei's doorstep
in Hong Kong, the Shenzhen-based company attracted the sort of media
buzz once reserved for the top table of western equipment suppliers.

A sign of how times have changed came when Cisco's CEO John Chambers
gave a press conference. The burning question was not about Cisco's
product strategy or Chambers' vision of the Internet, but whether the
US giant planned to partner with Huawei. His reply was equally
revealing.

“I would love to partner with Huawei,” Chambers told reporters. “That may or may not happen in the future.”

Huawei has just ended a joint venture with 3Com of the US, so its unlikely to be in a hurry to tie the knot again — see this EngagingChina story for more.

However, Chambers' response that his door is open reveals the
new-found respect enjoyed by Huawei,which has shaken off its
traditional image as a vendor that focussed primarily on the Chinese
market and a handful of emerging countries.

Indeed, Huawei announced
at the event that in the first half of 2006 it had recorded contract
sales of $5.2bn, an increase of 29% compared to the same period last
year. The value of contract sales from international markets grew even
faster, up 36% to $3.4bn.

International business now accounts for almost two thirds of
Huawei's sales — just the sort of juicy statistic worth remembering
for dinner party debates when someone argues that China's hi-tech
companies cannot make it overseas.

Huawei reiterated its recent customer wins with leading European
operators such as Telefonica, Vodafone and BT. In the wireless space,
Huawei has secured 35 contracts to deploy 3G networks.

The company also talked up its R&D strengths, with more than
2,500 patents granted to date. It wants to increase R&D investment
to expand its patent portfolio.

This issue of intellectual property rights looks set to become the
new battleground for Huawei. While it is best know internationally for
its capital equipment, it also supplies mobile handsets to more than 70
operators around the world.

However, it is at a big disadvantage in the handset business because
it only owns around 5% of the IPRs for the components used in its
handsets — foreign firms such as Qualcomm of the US have the lion's
share.

According to this
IDG story, Huawei could benefit from China's new TD-SCDMA standard for
3G networks, as the patents for this home-grown technology are owned by
Chinese companies. More on the TD-SCDMA saga in this earlier EngagingChina story.

Of course, with so much expectation now riding on Huawei, hubris
dictates that something sooner or later is going to go wrong. But at
this point its difficult to see what.

More on Telecom World in this EngagingChina story.


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SMIC turns up heat in chip war with TSMC

chip2.jpgThe
war of words — and lawsuits — between China's and Taiwan's
semiconductor industries continues. This time its China's SMIC that is
suing TSMC in a Bejing court for alleged “unfair competition” and
“commercial defamation”.

By filing the case in Beijing, SMIC will give Chinese judges a big
voice in a politically sensitive dispute affecting two technology
champions from rival sides of the Taiwan Strait, argues the Financial Times.

The lawsuit also raises the interesting possibility that US and
Chinese courts could come to different conclusions as to who has hurt
whom.

SMIC and TSMC first clashed in the law courts over patent issues in
2004. After an uneasy truce, the dispute has flared up again this year
when TSMC sued SMIC in the US, alleging misappropriation of trade
secrets and breach of a previous settlement.

See this EngagingChina story for more.


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