China loses billion through poor IP protection

China claimed that it has lost US$1 billion in disputes overintellectual property (IP) rights since it joined the World TradeOrganization (WTO) in 2001.

Science and Technology Minister Xu Guanhua told the state-runXinhua News Agency Thursday that IP disputes have been a”devastating blow” to parts of the Chinese economy. Disputes haveinvolved products including televisions, MP3 players and digitalcameras, he said.

Xu claimed that 99 percent of Chinese companies don’t apply forpatents for their inventions, according to the report. As a result,”Chinese firms have to pay 20 to 40 percent of the price of everymobile phone or computer to an overseas patent holder,” hesaid.

The statement may be an exaggeration. Mobile phone manufacturingroyalties typically run 5 percent to 7 percent of the wholesaleprice.

Xu’s remarks represent the Chinese government’s first attempt tomake a public case for encouraging “independent innovation,” or thedevelopment of products that do not depend on technologies fromforeign companies, said David Wolf, chief executive officer of WolfGroup Asia Ltd., a Beijing-based technology consulting firm.

The call for independent innovation is included in the latestFive-Year Plan, in which China’s government outlines its goals forthe coming years.

“Minister Xu is outlining China’s IPR strategy in the comingfive years: research heavily, patent aggressively, use localinnovations when you can, and foreign innovation only when there isno other choice,” Wolf said.

The new strategy has implications for foreign businesses. Chinahas attempted to introduce its own technology standards in order toavoid paying royalties for foreign patent holders, including WLAN(wireless LAN), optical disc formats, and mobile phone systems.

So far these efforts have been largely unsuccessful, althoughthe TD-SCDMA (Time Division Synchronous Code Division MultipleAccess) mobile system is still under consideration for adoption asa 3G (third generation) technology in some markets.

“Foreign IPR holders are facing a new battle, one where theywill be forced to fight harder for mere adoption of theirtechnology,” Wolf said.

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