With the recent U.S. filing in the WTO accusing China of failure to provide adequate protection of foreign Intellectual Property Rights (IPR), we are headed for another China/U.S. disinformation campaign on an important issue.  Many foreign companies get caught up in the confusion of the political rhetoric and conclude that there is no hope for protection of their IP rights in China. This is a mistake. China actually provides effective protection for IP in the patent, trademark and trade secrecy areas. These are the areas that are relevant to the vast majority of foreign businesses in China. The problem addressed by the U.S. WTO filing concerns pirated DVDs and media downloads. This is still a major problem in China, but is not relevant to the IP issues that confront most foreign businesses in the country. Many foreign businesses mistakenly conclude that IP protection is hopeless in China. As a result, many do not come to China, and others who do fail to take any measures to protect themselves because they feel that the process is futile and a waste of time and money. This is a mistake.

I have been arguing for years that the IPR protection situation in China has substantially improved. However, when I make these statements, I am often challenged. In addition to the negative press and government reports, my clients often point to the situation on the ground. Take Shanghai for example. Within five minutes of the door to my apartment there are five pushcarts doing a brisk business in pirated DVDs and software. When I get off the subway on Nan Jing Road to walk to my office, I am immediately accosted by vendors selling pirated watches, bags and pens. My clients say: Isn't this proof that China is "flooded with pirated products" as the U.S. reports state? If giant foreign companies cannot protect their product from such pirating, what hope is there for a small or medium size foreign firm? Isn't despair at a solution the only reasonable conclusion?

In fact, however, these surface impressions are completely irrelevant and misleading to the vast majority of foreign businesses operating in China. China has done an excellent job in establishing laws and creating an enforcement system for IPR protection. Largely for reasons of market structure and the technology of distribution, in the areas of patent, trademark and trade secret protection, the protection system has made substantial progress. While there is a lot of infringement in these areas in China, much progress is being made in combating such infringement and the registration, court and enforcement system has been reasonably effective. On the other hand, in the area of protection of media distributed on DVDs and downloadable on the internet, progress in China has not been good at all. Again, largely for reasons of market structure and the technology of distribution, there has been little measurable impact on reducing infringement in this area.

Now, let's go back to our scene on the streets of Shanghai. Why do I say that this obvious IPR piracy is not an issue for vast majority of foreign businesses? What about all those folks who are selling pirated foreign brands on the street. Think about it: first of all, these pirates have been driven from the all retail outlets and are forced to sell their products on the street. They are not even permitted to operate pushcarts. Second, look carefully at who they are selling to. They never approach a Chinese citizen. They only approach foreigners. This is because only foreigners are willing to purchase their inferior products. Chinese consumers are not that gullible. If you travel to Qingdao or Guangzhou or other cities with a low number of Western expats and tourists, you will find that street vendors selling pirated goods do not exist. This is because there are not enough foreign customers who want the product. It simply is not true that China is "awash in pirated goods." In fact, this is a problem unique to cities with large foreign and expat populations. It therefore is simply irrelevant to foreign businesses operating in China.

Pirated DVDs, however, are available all over China and are purchased regularly by Chinese consumers who would never knowingly purchase a pirated luxury product like a coat or bag. The same stigma concerning prestige and quality simply does not apply with respect to entertainment and software DVDs. Very little progress has been made in preventing the sales of such items over the past several years, in spite of major campaigns by the Chinese government. In this respect, the U.S. presentation of the situation on the ground is actually quite accurate. However, the vast majority of foreign companies are not selling a product in China that can be reduced to a DVD or internet download. Therefore, even though this issue is a major problem, it is simply not relevant to most companies doing business in China. It is a mistake to assume that China's poor record in preventing infringement of media and software DVDs extends to the more common IPR areas of patent, trademark and trade secrecy.

What is the lesson to take from all this? For most foreign businesses, their important intellectual property rights fall in the areas of patent, trademark and trade secrets. These IP rights can be quite effectively protected in China. However, the Chinese system, like the U.S. system, is a self-help program. Do not expect either the Chinese government or a foreign embassy to do the job for you. You must do it yourself. This means making the proper filings and entering into the required agreements. More importantly, it means investing the time and money to locate infringers and then prosecute them aggressively. This process is a tough one. Unlike many other developing countries, however, aggressive protection of IP rights can succeed in China. The greatest mistake is to do nothing.