Protection of Intellectual Property Rights in Software Products and How to Accomplish a Technology Transfer Transaction in China

Fordham Intellectual Property, Media and Entertainment Law Journal, Dec 2007

By Felix Miao, Published on 01/01/07

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Protection of Intellectual Property Rights in Software Products and How to Accomplish a Technology Transfer Transaction in China

Technology Transfer Transaction in China Fordham Intellectual Property, Media and Entertainment Law Felix Miao 0 Recommended Citation 0 Felix Miao, Protection of Intellectual Property Rights in Software Products and How to Accomplish a Felix Miao - China China currently needs to import a large amount of its software technology. This presents a golden opportunity for many American software companies. 6 In 2002, the software market in China grew by 19.5 percent to reach $1.98 billion.7 "The steady growth of the economy, rapid improvement in IT (information technology) infrastructure and increasing demand from private enterprises will see the market grow at a CAGR (compound annual growth rate) of 25.8 percent up to 2007, when it will be worth $6.24 billion." 8 Therefore, many foreign companies have made great efforts to penetrate the Chinese market; for example, Microsoft "disclose[d] its entire source code to the Chinese government" to dispel security fears from high officials. 9 China is well positioned to realize the benefits of technology transfers with several important factors working in its favor. The national domestic market for goods and services is fairly large and has been expanding.' 0 Foreign investors also have access to the extensive regional markets. Due to the sheer size of the domestic market, China can attract competing horizontal foreign investments, counteracting to some extent its own economy's tendency towards monopolies.11 Therefore, consumers can benefit from the availability of foreign-technology-dependent products in tnhaetuCrahlinreesseoumrcaerskeat.ndFuartlhaergrmeoproeo, lCohfineaduaclsaotepdoslosews-swesagseignlaibfiocra.n'2t The domestic industries have enormous manufacturing capabilities. 13 Meanwhile, because China encourages foreign investment to export products, the domestic market serves as a extemal/CPProfile.asp?PTYPE=CP&CCODE=CHN (last visited Sept. 10, 2007). 11 WILLIAM MILBERG, Trade and Competition Policy 6 (November 2002), available at http://www.newschool.edu/cepa/research/workingpapers/021 lTradeandCompetitionPoli cy.pdf(last visited Sept. 14, 2007). 12 See generally NATIONAL BUREAU OF STATISTICS OF THE PEOPLE'S REPUBLIC OF CHINA, CHINA STATISTICAL YEARBOOK - 2006, ch. 1 (2006), available at http://www.stats.gov.cn (last visited Sept. 10, 2007); BANISTER, supranote 3, at 20. 13 See generally World Bank - China Data Profile, supranote 10. base for regional distributions and is likely to attract vertical foreign investment. 14 With increases in foreign exchange, China has had surpluses in capital reserve to purchase "IPRs [intellectual property rights] from abroad... [and] invest[] extensively in domestic R&D [research and development], making it the highest investor in R&D in the developing world."'15 "[I]n addition to both the size of [China's] home market and accessibility to other markets in Asia, [the extent of its domestic R&D facilities] makes [it] a logical place for MNCs [multinational corporations] to invest in R&D."' 6 If the trend continues, "this source of foreign exchange will permit China to continue purchasing IPRs, engage in R&D and undertake the capital investment necessary to further its economic development."' 17 However, the legal regime governing the importation and sale of software in China differs from that of the United States. Without a thorough understanding of the prevailing laws and regulations of China's legal system, an importer of software technology might incur both huge financial loss and legal liability. I. PROTECTION OF INTELLECTUAL PROPERTY RIGHTS IN SOFTWARE PRODUCTS IN CHINA'S LEGAL SYSTEM A. China'sLegal System Has Been Reformed to Meet InternationalStandardsofIntellectualPropertyProtections Because English has become the "lingua franca of the world and the fact that computer programming language is predominantly in the English alphabet, China has been, and it is likely that China will remain for many years, a net importer of intellectual 14 See China's Economy, THE ECONOMIST, Nov. 13, 2006, available at property. ' 8 Against this backdrop, before the 1990's China was preoccupied with how to import technology rather than how to protect intellectual property (IP).' 9 An effective intellectual property system is the precondition for successful technology transfer. "With one of the highest economic growth rates in the world, a population of 1.3 billion, and the fastest growing domestic market for goods and services," as of 2003, China was "one of the largest recipients of foreign direct investment (FDI) in the world.",2 1 "[F]oreign investment enterprises or multinational corporations (MNCs) are wary of transferring new and awdveaankc.,e2d2 technology to countries ... where IP protection is "China's failure to enforce IPRs ...has the potential to severely limit [its] ability to maintain its current rate of economic growth as it reaches higher levels of technological advancement., 23 Countries that offer better protection (...truncated)


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Felix Miao. Protection of Intellectual Property Rights in Software Products and How to Accomplish a Technology Transfer Transaction in China, Fordham Intellectual Property, Media and Entertainment Law Journal, 2007, pp. 61, Volume 18, Issue 1,