Impact Of Ipr Policies On The Global Business Economics Essay

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Intellectual Property Rights, better known as IPR, in a short period of time have travelled the distance from being yet another jargon in the vocabulary of elite technocrats and managers to a part and parcel of a commoner's life. Designed to protect the original work of creation of the mind [2] by giving creativity the status of property which can be owned, and hence sold, The central idea of any IPR system is to provide the creator of intellectual property 'a monopoly period of exclusive commercial use of the IPR.' Intellectual Property Rights have been instrumental in incentivising originality and innovation. However, Intellectual Property Rights regime is also simultaneously blamed by a few, particularly in the third world countries, for creating a mechanism to prevent cheaper access to goods and services.

The aim of our study is to try and understand the various factors which led to the genesis of the Intellectual Property Regime as we know it today and its implications on International Business particularly in the Chinese context. We chose China as a subject of this study because apart from being a major player in world business, the manufacturing powerhouse of the world, China also provides with a stark comparison vis-à-vis the open Western economies in the field of Intellectual Property as it has the maximum number of reported Intellectual Property infringements. We have made an attempt to understand the context of the IPR regime from the viewpoint of multiple stakeholders by studying the role and standpoint of global bodies like the World Trade Organisation (WTO) while at the same time taking a perspective of the Chinese Business Environment using the PESTEL framework. The study also looks at a few real life cases from selected sectors to help the reader understand the ground level impact and growing importance of IPR in the global business scenario. The WTO and WIPO online resources have been liberally cited for factual information references and as secondary research sources.

Intellectual Property

Intellectual property (IP) refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce. Intellectual Property is divided into two distinct categories:

Industrial Property: This includes inventions (patents), trademarks, industrial designs, and geographic indications of source.

Copyright: These includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. Rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs. [3] 

There is a subtle difference between the two categories. Industrial Property deals with the protection of inventions and ideas and the copyright law protects the form of expression of ideas, not the ideas themselves.

Content of IPRs

IPRs are a set of comprehensive legislations which are broadly defined for each of the following categories


Industrial Designs



Copyright in Computer Programmes

Geographical Indication of Goods ( GI )

Trade Secrets

Traditional Knowledge Systems ( TKS )

Internet - Domain Name Disputes

Semiconductor Integrated Circuits & its Layout Designs

IPR Timeline

While the laws related to protection of property were always well defined and refined over centuries of human existence, the concept of 'Notional property' and the need to evolve legal regimes for the protection of such notional /intellectual property is a fairly recent phenomenon. Stated below is a timeline of the evolution of the IPR regime to its current format


While each of these events had important implications on the Intellectual Protection Rights movement the two path breaking milestones were the formation of The World Intellectual Property Organisation (WIPO) Convention (1967) and the Trade Related Aspects of Intellectual Property Rights ( The TRIPS Agreement ) (April, 15, 1994),Marrakesh [Morocco]


The World Intellectual Property Organization (WIPO) is a specialized agency of the United Nations. WIPO was established by the WIPO Convention in 1967 with a mandate from its Member States to promote the protection of Intellectual Property throughout the world through cooperation among states and in collaboration with other international organizations. [5] The WIPO has played a stellar role in acting as the primary agency responsible for setting up strategic goals for all its member nations to encourage and protect the IPR regime on a worldwide basis. Quoting the organisation's website, the primary tasks performed by WIPO are [6] 

Developing international IP laws and standards

WIPO is responsible for promoting the balanced evolution of IP legislation, standards and procedures among its Member States. It has around 24 international treaties under its purview and also looks into new IP areas in traditional knowledge.

Delivering global IP protection services

WIPO provides fee-based services, which enable users in member countries to file international applications for patents (PCT), and international registrations for trademarks (Madrid system), designs (Hague system), and appellations of origin (Lisbon system). WIPO's Arbitration and Mediation Center offers dispute resolution services to businesses and individuals, including in the area of Internet domain names.

Promoting a better understanding of IP

WIPO provides a wealth of public outreach material aimed at encouraging creativity and innovation; and increasing understanding of how to protect and benefit from the resulting IP. Seminars and information products also target specific groups, such as creators, small and medium-sized enterprises, research institutions and policymakers. Other awareness-raising activities contribute to Member States' efforts in the area of building respect for IP, including enforcement of IP rights. [7] 


The WTO's Agreement on (TRIPS), negotiated in the 1986-94 Uruguay Round, introduced intellectual property rules into the multilateral trading system for the first time. [8] 

The agreement covers five broad issues

How basic principles of the trading system and other international intellectual property agreements should be applied

How to give adequate protection to intellectual property rights

How countries should enforce those rights adequately in their own territories

How to settle disputes on intellectual property between members of the WTO

Special transitional arrangements during the period when the new system is being introduced

The WTO came into life on the 1st of January 1995 and simultaneously deadlines and guidelines were provided to member countries to conform to TRIPS norms. While the developed countries were given one year to ensure that their laws and practices conform to the TRIPS agreement the developing countries and transition economies were given five years, until 2000. Least-developed countries had 11 years, until 2006, now extended to 2013 for most of the sectors, and to 2016 for pharmaceutical patents and undisclosed information.

For product patent protection if a developing country did not provide patent protection for a given technology at the time the TRIPS agreement came into effect for it i.e. 1st Jan 2000, it had up to five additional years to introduce the protection. But for pharmaceutical and agricultural chemical products, the country had to accept the filing of patent applications from the beginning of the transitional period (i.e. 1 January 1995), though the patent did not need to be granted until the end of this period. If the government allowed the relevant pharmaceutical or agricultural chemical to be marketed during the transition period, it had to provide an exclusive marketing right for the product for five years, or until a product patent was granted, whichever was shorter. [9] These guidelines ensured that all members of WTO had to abide to IPR protection, and hence also became a signatory to the TRIPS agreement forcing it to introduce IPR into its domestic markets which were until then insulated from legal punitive actions on IPR infringement. The implications and ramifications of this step are studied further in this report.

Impact of IPR policies on the Global Business

After developing IPR worldwide and regulations posted by WTO there is big question about positive and negative effects of IPR on Global business .If that was a success or there are many loopholes for exploiting the developing countries. Who got more benefits: developed countries or developing countries? There are both sides of these IPR and different countries tried to benefit from it in their way and not countries various business organization framed their strategies according to IPR regulations.

International Trade- different countries are having different IPR standards. Developed countries are having more rigid standards compare to developing countries so it make difficult to maintain uniformity in trade across the countries. After WTO's implementation there are no tariffs and quotes permitted to any country so now many of the countries use IPR as trade restriction by imposing stringent IPR regulation they try to protect domestic industries from the fierce competition.

Weak IPR itself can distort the international trade. There can be higher or lower trade depending upon the country. High protection promotes the illegal practices in market like collusion to reduce the competition between the firms which is bad for the customer.

Licensing- due to IPR regulations many of the time exporting firm don't change its procedure and product which may require huge cost and they found way as licensing to domestic firm for their products.

Effect on business components

Price- strength of IPR standards raise or reduce the price in the exporting country if IPR are strong this price will be added to price of the product. Weak IPR has to pay high royalties which adds to price of the product

We can study the impact of two important aspect of business broadly -FDI and Technology

Impact on FDI

Multinational adopt different ways to adopt in foreign markets like joint venture, equity alliances and non equity alliances, subsidiary, franchise, licensing, exporting etc.IPR played a significant role in the decision of multinational companies to enter in the foreign market.

IPR is an important aspect in deciding taxes, investment regulations, production incentives, trade policies, competition rules and other marketing regulations. Two main things required for FDI are capital and technology. Finance can be get from host country also but technology transfer is done by home country which is most affected by IPR.

Strong IPR- Strong IPR encourages holders of Intellectual Property to trade and invest, as adequate protection of IPR assures foreign investors that their technology will not be leaked to competitors. Strong IPR attracts advanced technology available in the international market otherwise which could be difficult to get into local market. MNEs feel safe to invest in such conditions compare to other countries where IPRs are weak.

Weak IPR- FDI decreases and licensing reduces because there is greater risk of losing out technology to other or illegal use of information by other person which make difficult to maintain the standards and use technology for preparatory use. Some of the literature said that weak IPR infect helps in the growth of trade in developing countries.

Impact on Technology

Technological products have very short life so IPR play a significant role in protecting technology. Strong IPR promotes the technology transfer from developed countries which in turn help to develop the business in the developing countries. Main evidence for the more technology transfer is spending on R&D has increased over the years.

Strong IPR promotes the foreign firm to produce and sell technological goods in reformed country. In the strong IPR regime firm can protect their technology and patent from being copied by other firms and use it without royalty this also preserve companies core competencies. Due to more transfer of technology domestic innovation gets affected and host country start reducing investment on R&D

In weak IPR countries find it difficult to get new technologies and companies got discouraged to transfer technology due to high risk of losing competencies. Due to all these reasons cost of advanced technology also increased. Due to higher risk companies increase the royalties also to the importing countries. One positive aspect of this is instead of transferring technology to local firm company invest in the foreign country which increase FDI.

Historical background of IPR in China

First intellectual property right were introduced for opium, China was the most favored nation after opium war. In 1903 they signed a commercial treaty with US which granted copyright, trademark and patent protection to Americans. First copyright law came in 1910, first patent law came in1912, and first trademark law came in 1923.after signing treaty china became the member of World Intellectual Property Organization (WIPO).

China made a new trademark 1982 law in and new patent law in 1984.they also joined Paris Convention in 1985. During the 1980s and 1990s USA continuously threatened China to implement IPRs through various ways and due all of this china signed MOU(Memorandum of Understanding) in 1992 and Agreement Regarding Intellectual Property Rights in 1995. China joined the Patent Cooperation Treaty in 1994. October 2001 new copyright and trademark laws and November 2001 china became a WTO member


1980 China joined the World Intellectual Property Organization

1982 First trademark law was enacted

1984 First ''modern'' patent law was enacted

1986 China and US initiated IPR consultations

1989 China joined the Madrid Protocol and the Washington Convention

September 1990 the first copyright law was enacted

1991 Regulations protecting computer software were enacted

April 1991 The US added China to a list of countries allowing piracy of copyrights, patents, trademarks and trade secrets

May 1991 The US opened a Special 301 investigation of IPR protection in China

1992 Higher people courts in several provinces and cities started establishing special IPR courts.

October 1992 China joined the Berne Convention and the Universal Copyright Convention

June 1993 China joined the Geneva Phonograms Convention

1994 China joined the Patent Cooperation Treaty in 1994

1995 The US announced its intent to impose $1.08 billion in retaliatory tariffs for trade losses due to piracy in China

1996 The US asked Beijing to close factories producing pirated CDs

1997 Raids in pirate CD factories

August 2000 The People's Congress approved amended Patent Law which came into effect in

October 2001 new copyright and trademark laws were enacted to conform to the TRIPS

November 2001 China became a WTO member

2002 Microsoft announced an investment of $750 million in China

2006 New law required local PC manufacturers to ship their products with licensed operating systems preinstalled

2006 Shenzhen-based Netac sued PNY Technologies in a US federal court for patent infringement

PESTEL Analysis of China

Political - China's political risk has improved in several ways in the past twenty years of economic transformation. China has shifted away from being a near totalitarian state with an overwhelming ability and inclination to secure society's total compliance with its commands. The Chinese state is now a more restrained one, where political intervention in ordinary economic and social life is less arbitrary and more limited in scope and some elements of pluralism are tolerated - in other words, it is now a more flexible and responsive political system than in the past.

Economic - Since 1978 when the economic liberalization began, the PRC's investment- and export-led economy has grown 70 times bigger. The PRC's success has been primarily due to it being a low-cost producer. This is attributed to a combination of cheap labor, good infrastructure, medium level of technology and skill, relatively high productivity, favorable government policy, and some say, an undervalued exchange rate

Social - Social issues in the People's Republic of China in the 21st century are varied and wide-ranging, and are a combined result of the Chinese economic reforms set in place in the late 1970s, China's political and cultural history, and an immense population. Because of the vast number of social problems that exist in China today, China's government has faced considerable difficulty in trying to remedy the issues.

Technological - China over the last few years has made the transition from a manufacturing-based economy to an innovation-based one and the National People's Congress have approved large increases in research funding, developing proprietary software, semiconductor and energy industries, including renewable energies. China currently has the most cell phone users in the world with over 700 million users in Jan 2010 It also has the largest number of internet and broadband users in the world

Environmental - As a result of China's booming economy, severe pollution problems appear out of control in the country. In order to preserve the natural resources for economic grow in the long run, China has to put in more effort to save the nation's environment by strengthen the pollution law, set higher standards for potentially pollution industries, and nevertheless, educate public on environmental issues.

Legal - China is not famous for its strong willed judiciary in most cases related to IPR. However there have been some instances and indications that this is about to change (Schneider 2007)Two IP Enforcement Systems take care of all IP issues in China - Administrative IP enforcement system and Copyright administrative enforcement system. This system has its advantages in terms of saving time and efficiency however it does require constant efforts for maintaining coordination among the tow bodies.

IPR and the Software industry

For the purposes of this report, the most helpful way of categorising computer software (vis à vis ownership, use patterns and possibilities, and their intellectual property implications) is to divide it into two categories: Proprietary software & Open Source Software. As its name implies, proprietary software is software that is owned as private property by a company (or occasionally by an individual software developer). Its 'private propertiness' is protected by various ntellectual property laws and regimes. The largest software piracy from among the entire world losses occurs in China, where entertainment software alone was pirated to the value of $568 million last year, according to IIPA

Software in China

With the support of government incentive programs, China's software industry has been expanding steadily in terms of scale and is becoming a new growth point for the country's overall economy. In 2009, the Chinese software industry generated revenues amounting to RMB 580.0 billion, increasing by 21% from the previous year. Losses due to entertainment software piracy is estimated to represent about just one-quarter of piracy losses, with the balance coming from piracy of business software. Lets now look at tow of the giants of Software industry and see two different approaches of tackling the IPR issue in China.


As one of the most dynamic and booming economies in the world, China has seen its demand for adoption of information technology increase rapidly and it is one of most important and strategic markets for Microsoft. Microsoft's strategy and goal in China is to be fully integrated with the local market through its collaboration with industries and to create outstanding software products and solutions that meet the needs of its customers and the market in China. The company aims to help individuals and businesses realize their potential, thus making its solid contributions to the development of China's knowledge economy and the IT industry for a win-win solution.

Microsoft, an international player within China's software market, has been mired by the country's software piracy issue. In a bid to minimize the narrowing of profit margins in an emerging market like China, Microsoft has inked several agreements with domestic firms to ensure the installation, distribution and sales of its licensed software within the country. Microsoft has since entered into a deal with Gome Electrical, a leading electronic retailer in China, and Lenovo and Founder Technology, the two largest personal computer makers within the country. As a result of anti-piracy campaigns for software products, Microsoft estimated a 20.0% increase in their sales within China.

Microsoft made Shanghai a global center to respond to customer e-mails. It began extensive training programs for teachers and software entrepreneurs. It worked with the Ministry of Education to finance 100 model computer classrooms in rural areas. Microsoft put its money on the line, even inviting officials to help decide in which local software and outsourcing companies it should invest. At the same time, the Chinese government started thinking more like Microsoft: It required central, provincial, and local governments to begin using legal software.  In another boost for Microsoft, the government last year required local PC manufacturers to load legal software on their computers. Lenovo, the market leader, had been shipping as few as 10% of its PCs that way, and even U.S. PC makers in China were selling many machines "naked." Another mandate requires gradual legalization of the millions of computers in state-owned enterprises. In all, Gates says, the number of new machines shipped with legal software nationwide has risen from about 20% to more than 40% in the past 18 months.

Microsoft's China strategy is clearly paying off. More than 24 million PCs will be sold this year, adding to the 120 million already in place. Although the company's China revenues average no more than $7 for every PC in use (compared with $100 to $200 in developed countries), Gates says those figures will eventually converge.


In early 2006, search-engine giant Google struck a deal with the People's Republic of China and launched, a version of its search engine run by the company from within China. Launching required Google to operate as an official Internet Service Provider (ISP) in

China, a country whose Communist government requires all ISPs to self- censor, removing content that is considered illegal from search results. From a financial perspective, China represented for Google a dynamic and fast-growing, though increasingly competitive, market. Google's decision to self-censor attracted significant ethical criticism at the time. The company's motto is "Don't Be Evil," and prior to entering China, Google had successfully set itself apart from other technology giants, becoming a company trusted by millions of users to protect and store their personal information. The choice to accept self-censorship, and the discussion and debate generated by this choice, forced Google to re-examine itself as a company and forced the international community to reconsider the implications of censorship

Another important concern related to user interests is the importance of user privacy. In early 2006, just as Google was planning to launch, it became known that Yahoo! China had turned over private user e-mail data to the Chinese government and that this had led to the ten-year, eight-year, and four-year prison sentences of Chinese cyber-dissidents Shi Tao, Li Zhi, and Jiang Lijun. In addition, Microsoft had recently (in 2005) shut down the blog of famous Chinese political blogger Michael Anti (a penname for Zhao Jing) at the request of the Chinese government.

Clearly any decision made by Google to enter China would have to take into account concerns about user privacy and government surveillance the House Foreign Affairs Committee unanimously voted in favour of the Global Online Freedom Act of 2007, which prohibits U.S. companies from disclosing to foreign governments the names and information of specific individuals using a given company's services

Controversy started on January 12, when Google revealed it experienced a "targeted attack on our corporate infrastructure originating from China." While Google was vague about the origins of the cyber offensive, it prompted an unprecedented Google corporate blog post announcing the company was reconsidering "the feasibility of our business operations in China." In an apparent retaliatory move, Google said it would investigate how to "operate an unfiltered search engine within the law," in China, indicating it was going to play hardball with the People's Republic of China government. Google said the e-mail accounts of Chinese human rights activists were the primary target of the attack, which occurred in December.

China confirmed this week it would renew Google's operating license, ending the month-long censorship standoff it held with the search engine giant, at least for the time being. Google, in turn, agreed to no longer provide "lawbreaking content." In effect, Google agreed to automatically stop rerouting users of, the Chinese version of Google, to its site in Hong Kong, which was not subject to China's online censorship. Search requests now made from take an extra click in order to visit the Hong Kong site.

Last year, the search engine market in China was worth an estimated $1bn and analysts previously expected Google to make about $600m from China in 2010.

Money talks, but apparently, so does China's need for access to the world's largest search engine.

Entertainment and IPR

Record companies and movie and television studios have fought copyright infringement on many fronts, hoping to find ways to prevent their products from being distributed free on the Internet. Most vulnerable by far are the major music-recording labels. Legitimate physical sales of music (LPs, cassettes, CDs, DVD audio, and so on) have been falling or remaining stagnant this decade and the $29.3 billion in worldwide sales the industry raked in last year is expected to fall 61% to $18 billion by 2009, according to estimates by Soundbuzz, a Singapore-based digital music provider. In China, about 350 million knock-off CDs are in circulation and these in turn are being ripped, burned, and transferred to PCs and MP3 music players, according to IFPI data. It is by far the biggest black market for pirated CDs, which cost the recording industry more than $400 million in lost sales per year-and the mainland is also a growing player in online fraud. Getting the right distribution and pricing strategies for Asia's fast-growing digital music market will be a critical challenge for the global music industry. Most young consumers in Asia think pilfered music is a victimless crime and hardly worthy of condemnation.  A recent USTR report said China's top Internet search firm, Baidu Inc, was associated with between 50 percent to 75 percent of illegal music downloads in China.

Piracy is the biggest threat to the U.S. motion picture industry. The major U.S motion picture studios lost $6.1 billion in 2005 to piracy worldwide. Piracy rates* are highest in China (90 percent), Russia (79 percent) and

Thailand (79 percent). The U.S. motion picture industry's access to China is severely limited. China limits the number of foreign films allowed in theaters each year to 20, and imposes a number of restrictions on the distribution of home video products. By contrast, pirates operate unfettered and outside the law.

Warner Music Group

In 2000, the Warner Music Group announced the opening of Warner Music China with intentions of being actively involved in the creatively important market with immense potential for future growth. This was the first time an international music company had been given the honour to operate a record company inside China. The company's strategy in China was to work with the local Chinese partners and the local artistic community. Before this, Warner Music International had been operating in China for the past 10 years through various license agreements with the official China National Production Importation and Exportation Corporation and other state-owned distributors. Through this opening, the company intended to invest in local Chinese repertoire and also market and promote international repertoire throughout China.

However, the company has been adversely impacted by the rampant piracy prevalent in the Chinese music/entertainment industry. In 2009, in the pursuit of generating revenue and making profit, the Warner Music Group was one of the many worlds' biggest record labels that planned to team with Google and offer free downloads of music inside the country.

Google, with no plans of offering the service elsewhere, hoped to build traffic and win over advertisers by allowing people in China to search for free music on its site. Record labels maintained that instead of earning money from each download, they would share advertising revenue with Google's partner in the deal, a Chinese company called It is believed that advertising-supported free downloads were just the first of several stages in the proposed deal. The partners maintained they could broaden offerings to include paid V.I.P. memberships, free concert tickets and other benefits. Thus the music company planned to make profits from advertising and marketing deals especially because the level of online advertising in China is quite mature. The music company planned for the free download offer to work exclusively in China. The site-which would eventually offer about 1.1 million tracks - was in Chinese, and only China-based Internet addresses could download free music.

In the past, leading Chinese search engine, Baidu, owing to its links to free, unlicensed music, had seen significant increase in its web traffic. With its popular searches, Baidu had managed to keep far ahead of Google in China, with a search market share approaching 65 percent. So Google planned to cut Baidu's lead by offering free, high quality music. And the music company, in addition to make profits, planned to put pressure on Baidu and other Internet companies in China to distribute legitimate tracks or risk being locked out of future deals. Thus, this deal was a strategic event towards fighting music piracy in China.

The music company struck a wide-ranging deal with China Unicom, the world's third-largest mobile operator. The agreement included the entire catalog of Warner Music China and came on the heels of a similar deal WMG signed with SK Telecom, one of South Korea's largest mobile service operators. The Chinese deal gave China Unicom's customers access to material from several popular APAC artists and also covered popular derivative products such as ring back tones, master tones, and artist greetings.

This way the company has been trying to increase its revenue contribution from China and come up with innovative ventures to deal with the issue of piracy in the entertainment industry.


Areas for Reform

There are several areas that need to be reformed in order to make the enforcement of IP protection effective in China. Merely adopting western laws has, to date, produced largely disappointing results. Reform should instead be approached by looking for answers that resonate with Chinese culture and have positive spill-over effects such as raising the profile of the consequences of IPR infringements and increasing public awareness of the problems of counterfeiting and piracy.

Effective Enforcement

Co-ordinating the approach to protecting IPR through harmonising local, state and national levels and government departments entrusted with its care, is important in ensuring fast and effective enforcement. Problems such as the failure to refer cases onward for investigation and passing cases to different departments can be dealt with by strengthening co-ordination and exchange between departmental dealing with IP.

Clearer Definitions

There is also a need for precise definitions of important terms used in China's IP law. New judicial and administrative standards and interpretations should be clear, simple and easy to apply for both judicial and administrative enforcers. They should increase the penalties available to administrative authorities such as confiscation and destruction of counterfeit goods and the machinery used to make them and clarify crucial issues such as the standards required for pursuing criminal responsibility.

Increase Penalties

China needs to increase substantially criminal penalties for IP infringement. Criminal sanctions are available only in cases considered "serious" or where sales of counterfeiters are "relatively large." These terms are defined as in excess of the equivalent of US$6000 or higher and consequently do not affect many local distributors. Penalties against repeat offenders, in particular, should be cumulatively strengthened so as to have the requisite deterrent effect.

Criminal Thresholds

Relaxing the amount of evidence required to prosecute IP infringements and more efficiently calculating the value of infringing goods would assist in lowering the prosecution's evidentiary burden. The prosecution threshold (illegal business should be at least 80 per cent of business activity of the malevolent firm) should be eliminated and the burden on police to produce evidence to demonstrate the US$6000 threshold has been met should be reduced.

IPR Training

An emphasis on training and educating more IPR specialists, scientists, judges and lawyers is needed to fill the gap between the legal framework and its enforcement. Seminars and training courses to learn about IP laws and regulations to encourage and exchange information on enforcement issues should be broadened to include various government departments, the private sector, industry associations, schools and universities.