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Bootleg Brains?

Written by Brian Hicks
Posted January 3, 2006

Anyone who has visited China knows the scene: row upon row of American and other foreign films, their artwork laser-printed nicely on cardstock with a flimsy plastic sleeve inside holding a normal-looking DVD. It may say "Munich" in English and Chinese, or just as likely, "Munch," as the manufacturer likely wasn't very concerned with spelling.

I use the brand-new Steven Spielberg film "Munich" as an example here because in China, as on many street corners in New York City or Washington DC, there is no lag from theatrical release to illegal appearance.

The difference is that in China each of these vendors who would be relegated to the sidewalks and subway stations of an American city actually occupies a storefront. The CDs, DVDs, and VCDs (the most popular movie format in China) are lined up in racks as if they were the genuine article.

These pirated versions sell for about 24 yuan, or 3 US dollars apiece.

For the sake of academic evaluation, of course, I purchased a few of these bootlegs. I can tell the difference between a copy made from a DVD and a copy made by placing a stationary camera in a movie theater, and I can tell you that these were the latter. So, at the very least, Chinese movie piracy involves 5 steps:

1. Record the movie
2. Copy the artwork
3. Insert subtitles (a sign that this operation is clearly not oriented toward Chinese consumers alone)
4. Distribute (burn, print and ship)
5. Sell

What a Waste...

Standing in one of these stores, full of ill-gotten merchandise being sold at rock-bottom prices, I couldn't help but wonder, "Could such an elaborate operation shift to legitimate use?"

It's the same thing I asked myself when my car stereo was stolen last month, the wires stripped perfectly and the frame of my dashboard left with a gaping hole where music used to live. I felt wronged, but I wished I could send the thief to trade school so he could work with electronics for an honest living.

But the question remains, in Beijing as in Baltimore - does it pay to play it straight?

A report issued this week by China's State Intellectual Property Office indicates that a whopping .03 % of Chinese companies actually own intellectual property rights on their key technologies.

That means that out of every 10,000 Chinese firms, only 3 actually sell their own ideas!

This is awfully discouraging to those of us who want to see China build name brands to compete in the global marketplace. But consider this statistic as well:

99% of Chinese enterprises have never applied for patents. To my eyes, this figure is the most telling.

The Sam Hopkins Precedent

China only established its patent procurement and enforcement mechanism two decades ago. In the United States, a man named Samuel Hopkins (yes, it's a great coincidence) was issued the first patent in 1790.

Two hundred years of intellectual property precedent means that American inventors file patents for the minutest adjustments to existing products. Commercials on CNBC and other networks beckon inventors to register their ideas with the government through specialized quick-fix patent firms.

In China, the process barely has legs, and who knows how many ingenious ad-hoc devices could be brought to the government for official stamps if the average Chinese were familiar with the system.

Half of the 130,000 invention patents filed in China in 2004 were submitted by multinational corporations. Of patents filed by Chinese individuals or companies, 18% were for inventions. By comparison, 86% of those filed by multinationals were for inventions.

I have said it before and I will continue to say it: The Chinese market is maturing in every way. The methods pursued by savvy MNCs when they hit China should be copied by Chinese observers. That does not mean knocking off foreign media -- it means familiarity with the evolution of an idea.

China's admission to the World Trade Organization in December 2001 meant that from that point on, China would only get away with whatever the rest of the world's economic powers allowed it. Therefore, American firms cannot act surprised at the proliferation of pirated goods (over half of the world's counterfeiting is done in China, by some estimates) while they do not hold China's feet to the fire over those violations.

During Bush's recent trip to China, he had the opportunity to lay down the law. "China will see a significant decrease in American foreign investment until such time as the Chinese government takes serious action to curb intellectual property violations," he could have said. But, as has been American policy for years, profit was placed over principle.

Ultimately, it will be up to the Chinese to decide how their economy will move into the future. The Waking Dragon and those who aim for rock-solid investments in China should root for the international community to buck up and push for a massive crackdown before Olympic fever floods Chinese streets with millions more dollars in losses for foreign companies.

- Sam Hopkins


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