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
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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)