The End of Intellectual Property

Challenges beyond the “China Model”*

Feng Xiang**

Abstract

A new reef the luxury cruise ship “Rule of Law” has hit, called the unenforceability of intellectual property rights. This article argues that instead of the often misnamed and misunderstood scapegoat, the “China model”, it is two global trends, the internet and outsourcing, that have led to the historical clashing and overcoming of the law. As a result, important revisions to our conception and use of the law and a new faith in universalism must be contemplated.

Key words: intellectual property; rule of law; internet; outsourcing; revisionism; universalism.

I

Intellectual property is demising. Or at least, that form of intellectual property rights (IPR) as taught at our law schools and propagated by powerful state machines – a complex web of statutorily defined property and moral rights, entitled to official respect and protection in all “civilized nations”, according to a long list of treaties and international conventions signed into effect by members of global trade communities such as the World Trade Organization (WTO) – has come to its end.

The fact is undeniable. Today, few people in good conscience can conduct normal business or enjoy a day of leisure without breaching a commandment of intellectual property by, for example, running a computer program, choosing a branded handbag or sharing a song with friends on the internet. This is so not only in China and other emergent economies, but increasingly in the United States and developed markets in general, as amply documented by academic researchers and industry analysts. The situation of IPR in China, therefore, is essentially no different from elsewhere on this over-wired blue planet, though for various reasons, there is often more media attention paid to it, in China as well as in the west, than deeper economic and social problems, such as what triggered the “Occupy Wall Street” demonstrations.

A couple of months ago, I remember, the BBC reported a case in the city of Kunming, Yunnan Province, southwestern China, in which 22 fake Apple stores were shut down in a crackdown by the local industry and commerce administration. The tips came from a foreign tourist who discovered some alterations in the layout and “signature” features in one of those “Apple stores” (BBC news, 12 Aug 2011). Given the freewheeling business environment, however, we may reasonably expect that similar bootleg operations will soon mushroom to fill in the void, right there or in nearby towns. The consumer market demands that.

So, who would purchase “genuine” software at exorbitant prices under a lawyer-drafted license in mysteriously tiny print, when there are countless free downloading sites of the same on the internet? Greed is no longer a valid justification, for open and free access to “pirate” copies has become “our daily bread” (Matthew 6:11). Let “genuine” goods and services be a luxury for the law-abiding upper classes, a marking of social status of the well-to-do. But even there, the attitude is changing. At Xiushui Street in Beijing, that pageant of piracy, western tourists as well as Chinese white-collar flock in to select their favorite counterfeit international brands, from Swiss watches to Italian shoes to French couture, what not. There, fashion-conscious consumers are having a good time, a carnival of sacrificing IPR.

The demise of intellectual property is testified to by the relevant industries themselves. According to the US International Trade Commission (USITC) statistics, in 2009 alone, the US copyright and software industry suffered losses in revenue of $48 billion due to IPR infringement in China, and as a result or in connection therewith 2.1 million jobs were lost in the United States, with $500 million additional costs on US companies dealing with the said infringement (SSTN news, 19 May 2011). Similar allegations against China by US trade groups, politicians and mass media have been commonplace for over two decades.

Academic researchers tend to dismiss such claims as tactics of trade negotiation and market access battles, seeing them as driven by domestic or electoral politics rather than as accurate data that indicate any meaningful trend. These claims, after all, are based on the absurd assumption that users and consumers in China (and other developing societies) are able and willing to pay the same prices for software, movies, music, video games and other copyright material that apply on the US market. Even so, I think we should allow the claimants the benefit of doubt, for as a matter of fact IPR violation is indeed widespread in China, as in many markets, east and west. What I mean to say is: such unverifiable statistics, if true, show precisely that efforts to enhance IPR protection in China and elsewhere amount to beating a dead horse.

Were it not intellectual property, would Uncle Sam, or for that matter any world power, tolerate such damaging attacks to its leading industries and job market? No, obviously. Instead of patient negotiations and repeated warnings and threats of “super 301” sanctions, stealth bombers and cruise missiles would have been launched, and criminal infringers and counterfeiters named as international terrorists. The fact that the United States has no effective means to lure or force China and other “notorious markets” into submission, and this has been going on since the 1990s, shows that the current international IPR regime is basically unenforceable. The relevant industries, politicians and USITC are all keenly aware of this: over the IPR issues, an all-out trade war with China is not an option, for it will only hurt the two largest economies in the world and US consumers, as well as important geopolitical interests and cooperation.

What is more, a large number of infringers and counterfeiters in China are manufacturers and service providers outsourced from the United States, Europe and Japan, or their suppliers and subsidiaries. These companies are simply being rational in the age of outsourcing by moving to China, taking advantage of the much lower IPR cost there, or what I call “lower forms of rule of law” (di fazhi). Through outsourcing, the gap in technology, management and marketing know-how is much narrowed, so that cheap and even quality imitation and generic production become industrially and commercially viable. And thereupon gathers the international investment, the so-called “venture capital”, with first-class legal expertise in its service. As the saying goes, “Wherever the corpse is, there the vultures will gather” (Matthew 24:28).

II

The question is therefore: why IPR protection is such a difficult business, and why do the laws tend to stay on the books and not be followed in real life? There are several explanations, specifically directed at China, as if loose enforcement were a uniquely Chinese phenomenon and hence worth our consideration here.

Is IPR protection a matter of economic transition and development? The accepted wisdom for some commentators is that, when eventually China turns into a sophisticated market economy with more advanced technology, Chinese enterprises and proprietors will demand stricter IPR protection, and law enforcement will be in better shape. This optimistic expectation, however, has nothing to bear it out. China today is much more of a market economy than two decades ago, being full of entrepreneurship, technical innovation and private proprietorship (70% of the nation's gross domestic product, GDP, is now created by the private sector). Yet piracy and passing-off are flourishing as never before. There is no indication that such activities will abate any time soon. In fact, as discussed below, the market seems quite comfortable with IPR violations. Business operators and chief executive officers (CEOs), authors and publishers, innovators and proprietors alike, must be ready for even fewer IPR barriers and monopolies to come.

Moreover, this hypothesis of economic transition is a circular argument. It is based on an untested assumption of “natural” symbiosis between higher IPR protection and advanced economic development, and from there it reaches sweeping conclusions on China and other emergent economies. So the argument is better viewed as ideological propaganda. As such, it wields tremendous power and is crucial to the sustenance of the dominant “rule of law” (fa zhi) ideology embraced by both the Chinese government and its critics. But it has nothing to do with the reality of market competition or technical progress.

Another common problematic explanation has to do with certain cultures and values. In the case of China, the traditional culture, or more specifically the nation's political culture, is said to be hindering full commitment to modern intellectual property. This verdict can be applied to all non-western societies where IPR protection is held not up the WTO rules (TRIPS Agreement), for instance. True, since China “bade farewell to revolution” in the 1980s, a good range of traditional values and practices have revived, including, for example, the de facto polygamy among many businessmen and cadres – I use the term “polygamy”, because the “female companions” concerned are widely accepted not as sexual partners in an extramarital affair, which is not a crime, but as family members of an illegal but socially recognized status called “er nai” or second wives, namely concubines, just as before the revolution. Indeed, rarely has the criminal law intervened, testifying to a recovered social sensibility that harks back to traditional family ideals and institutions.

Can China's weak IPR regime be categorized as an entrenched cultural attitude? The difficulty is two-fold. For one thing, public or state ownership of certain types of expressions, names, brands and innovations is more of socialist practice than traditional values. Since China by and large has abandoned socialism to embrace capitalism in the name of modernization, resistance to private ownership of abstract objects should have declined, rather than continuing or growing. Secondly, it is not clear to what extent traditional values in China are uniquely unadaptive to modern intellectual property. In other words, it is easier to argue that traditional societies in general have difficulties with IPR, because as a matter of historical fact, intellectual property grew out of modern western capitalist societies, before they were transplanted elsewhere, in the wake of colonial conquests, unequal treaties and worldwide “free trade”. It is much harder to consider, without detailed documentation, how in our post-colonialist age, in a fast-changing society such as China, traditional values and practices find ways to come back to resist IPR.

On the whole, an insistence on cultural values does not aid the cause of intellectual property. Rather, it can easily become an excuse of cultural particularism whereby China, or any alleged “traditional” society, may claim immunity from IPR rules. For one cannot expect a “traditional” culture to evolve quickly enough to catch up with the international IPR regime. Granted that all cultures are equal in the eyes of the law, and there is no legitimate reason to demand a society change its culture in order to accommodate an IPR rule, it would in practice be impossible for the laws to keep their integrity.

Therefore, the prevailing criticism in the west of China's IPR protection is a nebulous all-in-one package of moral judgments. The package is often dubbed a “liberal” view, because it can be safely applied to any “non-liberal” state or economy with an equal measure of political correctness. I think the following passage from an astute observer of Chinese law, Prof. Randy Peerenboom, is a good summary of this kind of liberal complaint about the Chinese legal reform, including its intellectual property system (Peerenboom, p. 72):

The biggest obstacles to a law-based system in China are institutional and systemic in nature: a legislative system in disarray; a weak judiciary; poorly trained judges and lawyers; a low level of legal consciousness; a weak administrative law regime; the lack of a robust civil society; the enduring influence of paternalistic traditions and a culture of deference to government authority; rampant corruption; large regional variations; and the fallout from the unfinished transition from a centrally planned economy to a market economy, which has exacerbated central-local tensions and resulted in the fragmentation of authority.

Thus viewed, the sorry state of IPR in China is only a small part of a larger, “systemic” problem, namely the nation's failure, judged by western standards, to attain a higher form of the “rule of law”. Until these standards be met, the argument continues, IPR protection will not succeed. The various items on the complaints list, however, are contradictory. While “a culture of deference to government authority” is counted as an obstacle to the “rule of law”, “fragmentation of authority” is regarded as equally bad. The legislature is said to be “in disarray” and the judiciary and administrative law “weak”, and yet the “influence of paternalistic traditions” remains strong. Further, it is not clear why “large regional variations” must be eliminated for the sake of a “law-based system”, as if in contrast, the west has achieved regional unity or monotony. What is more, historically, some “failures” are nothing but inevitable outcome and by-products of the ongoing “rule of law” project – I mean official corruption, labor unrest, financial scandals, pornography and prostitution, and the like, as well as IPR infringement and counterfeiting. These “obstacles” will not disappear in a “law-based system”, as China's many neighbors have demonstrated, but under a western style “rule of law” regime, they are now legalized and protected.

Therefore, a better moral judgment, I suppose, is that of St. Paul's: “For I was alive without the law once: but when the commandment came, sin revived, and I died” (Romans 7:9-10). The commandment of IPR came from a system of many a sin revived, aka, capitalism Chinese and global.

III

Officially, and sometimes constitutionally, intellectual property is meant to help promote the arts and sciences (copyright, patents, etc) and, ostensibly, fair competition on the market (trademarks, trade secrets, etc). In the real world, however, intellectual property is used mainly as “a property form that allows private hands to capture important abstract objects” (Drahos, p. 1). Thus it is closely connected with modern capitalism and serves to justify the latter vis-à-vis competing social and economic systems.

Herein lies the very raison d'être of building a modern IPR system in China, a centerpiece of the “reform and opening up” policies pursued in the country since early 1980s. In March 1983, a centralized system of registered trademarks was set up to replace the old regionally and departmentally designated brands for goods and services, so that the new market-oriented economy could start to function. Soon, in April 1985, a tripartite patent system (invention, utility model and design) was put in place to help dismantle the socialist work unit and organizational structure, namely, to turn these into “simple” labor and employment relationships, in which research and inventions may be reclassified as “work for hire”. And finally in June 1990, copyright or author's right was revived as a means of rewriting modern Chinese history and saying farewell to the revolution. For, despite the textbook principle of non-retroactivity, copyright subsists retroactively in all qualified works created before the new copyright regime, and claims and defenses in relation to such works necessarily have to rely on the doctrines and rules of the new law. Since these pre-copyright works were produced under circumstances reflecting ideals and ethics of the socialist revolution, the retroactive application of copyright in many widely reported cases in effect forced people to re-imagine history and accept the revival of private property in ideas, expressions and the work unit relationship (for detailed discussion, see Peter Feng, p. 69 ff).

So it is not a co-incidence that, of all areas of Chinese law, intellectual property provides by far the best duplicate of international conventions, is closest to mirroring western standards, and is least marked by “Chinese characteristics” – on the books. The statutory imitation in its current form and formality was driven mainly by the Sino-US trade negotiations and by China's effort to join the WTO. But in substance, as a justification for the revived capitalist market and concomitant social relations, the establishment of IPR in the 1980s and early 1990s spearheaded China's legal and economic reform. Most significantly, this happened before China was ready to systematically code its laws of contract, torts, property and persons – the Chinese civil code is yet to be drafted.

Unfortunately, or fortunately from the point of view of global competition, the process of instituting IPR in China coincided with the rise of internet and with the great industrial movement known as outsourcing. Combined, I think, these ushered in a series of profound social changes that contribute to the decline of intellectual property, not only in China but worldwide.

Unlike the “liberal” complaint about the “China model” discussed above, the internet and outsourcing are global forces that have affected many economies, reshaping both developed and developing societies. To better understand the challenges facing the current international IPR regime, and to approach the reality of global capitalist competition, I think we have to let go of the holy grail of the “China model” and the myth of the “rule of law”.

In the parlance of business researchers, both the internet and outsourcing belong to a kind of paradigmatic breakthrough, called “disruptive innovation”. Disruptive innovation has occurred in many industries, from accounting, computer and communications to music and entertainment. In a recent issue of Harvard Magazine, two authors describe it as “the process by which products and services that were once so expensive, complicated, inaccessible, and inconvenient that only a small fraction of people could access them, are transformed into simpler, more accessible and convenient forms that are also, ultimately, lower in cost” (see Christensen & Horn, p. 40 ff).

Disruptive innovations typically begin simply, as they aim to capture markets by offering people whose alternative is literally nothing at all (that is, current non-consumers) a stripped-down product or service that may well appear primitive as judged by the old performance metrics. But disruptive innovations predictably improve year by year and ultimately transform the world as people in the mainstream migrate to the new products or services because they are delighted with a solution that they find simpler, more accessible and convenient, and lower in cost. Over time, continuing waves of disruption progressively reinvent the market.

Now IPR industries are no exception. They are not immune to disruptive innovation; rather, in this digital age, they are particularly vulnerable. For if intellectual property is a law-constructed intangible property form, a legal fiction of registered or state-sanctioned monopoly, it can only survive competition in societies where means of duplication and imitation are limited and expensive; otherwise IPR goods and services are free for taking or passing-off, in a typical capitalist economy.

In the “good old days” before the photocopying machine, as I recall, making a copy of a book was a very arduous task. The best way to make multiple copies was by mimeograph, though that would need a very skillful hand and a lot of patience. At such high cost and low quality of duplication, IPR in printed materials (books, magazines, newspapers, etc) are effectively a bunch of privileges, and the competition (including unauthorized duplication or piracy) was limited to a small number of business entities. But digital technology, with computer networks and the internet, changed all that. Today unauthorized use and duplication of copyright materials, whether downloading a movie or sharing a book, is a matter of touching one's cell-phone or notebook computer or i-something. IPR violation has become “our daily bread”, as said earlier, at minimal cost, a compulsory way of life in the consumer society, and a ritual for all people of good conscience.

Likewise, counterfeit and passed-off goods have flooded the market; the cost is very low and the quality sometimes even high. No established brand or well-known trademark is immune to infringement and diluting use, and no profitable patent, utility model or design can be free from imitation. The reason is simple: not only have technological levels undergone a marked leveling between western IPR exporters and economic upstarts like the BRICS countries (Brazil, Russia, India, China and South Africa), but a large number of talents in the United States, Europe and Japan have been outsourced to emergent economies since late 1990s – talents who are experienced business executives, Wall Street analysts, accountants, computer engineers, automobile designers, pharmaceutical scientists, frontline industry researchers, and so forth.

As industrial and business outsourcing intensifies, more and more IPR goods and services are moving to China, India, Brazil, etc. And since these emergent economies are generally of lower forms of the “rule of law”, with less than ideal IPR protection, by western standards, the great outsourcing of IPR production and talents must mean that global competition in the new century has little to do with strict IPR enforcement, or higher forms of the “rule of law” in general. China, I think, best exemplifies this point.

With weak IPR enforcement and a lower form of the “rule of law”, China's economy has quickly expanded since the 1980s. The competitive edge of Chinese companies and enterprises have to do with a business-friendly environment including a less regulated market, that is, laws are less regularly enforced, in particular, IPR laws. This allows easier and better imitation and innovation – counterfeiting and passing-off included. With the BRICS economies taking more markets and achieving larger scale production, one can reasonably expect that countries with higher forms of the “rule of law” will have to loosen their IPR enforcement, if not other parts of their legal systems, so as to compete on the same level of efficiency, cost and quality.

So the day has come. “And therefore”, to borrow an immortal line of the metaphysical poet John Donne (1572~1631), “never send to know for whom the bell tolls, it tolls for thee” – in this case, for intellectual property.

IV

If intellectual property, or at least the higher forms thereof, is impeding global competition in the new century, and as the regime becomes increasingly outdated due to strong “disruptive innovations” such as the internet and outsourcing, then naturally competitors in economies of looser IPR enforcement are enjoying an advantage over those tied to more rigid IPR protection. In other words, the current international IPR regime is in conflict with the very social and economic system, namely global capitalism, which its advocates purport to defend and try to justify. This conflict is most illuminating when we consider how the “international community” has criticized the poor condition of IPR in China; how numerous organizations over the past three decades have devoted their efforts and expertise to helping improve the nation's IPR laws; and also how defenders of the “China model”, for their part, have tried hard to deflect and undermine such criticism. Now that intellectual property is no longer a useful handle of New Age capitalism, perhaps it is not blasphemy to say, what happened to IPR in China (along with other emergent economies) points the way not to a particular “China model”, but to the future road of global capitalism.

Speaking of the road to future, may I recall another, in the distant past?

Once upon a time, on the road to Damascus, a Jew saw a vision. He was a well-trained Pharisee and a bitter enemy of a Galilean prophet called Jesus of Nazareth, whom the Romans crucified as a criminal in Jerusalem, but whom many believed to be God's anointed. The vision came all of a sudden, in a flashing light from heaven, and the Pharisee fell to the ground and heard a voice saying to him: “Saul, Saul”, (for his Jewish name was Saul) “why do you persecute me?” “Who are you, Lord?” he asked. “I am Jesus”, was the reply, “whom you are persecuting. But get up and enter the city, and you will be told what you are to do” (Acts 9:3-6). Thence the conversion of Saul, from Christ's enemy into a staunch follower, ever since known in the world by his Roman name, Paul, or in the ecclesiastical tradition, Saint Paul.

The great contribution of St. Paul to the emerging Christianity is a highly “disruptive innovation”, namely a flexible view on “Torah”, the law of Moses, which Jesus intended to fulfill. The “apostle to the gentiles” was willing to compromise, in order that the good news of the kingdom of God be accepted more conveniently by gentiles as well as Torah-abiding Jews. Thus the saint brushed aside such “old” covenantal stipulations as circumcision, sacrificial rituals and kosher food. In his enthusiasm to convert gentiles and win “the weak” (Jews who accepted the good news while keeping the Mosaic law), he even clashed with the disciple Peter (Cephas), accusing him of “hypocrisy” because the pillar of the Jerusalem church showed “fear of the circumcision faction” (Galatians 2:11 ff). This compromising spirit, however, is for a new faith in the salvation “of all and for all”. It is therefore a new jurisprudence, a law without the law, as Paul described in one of his letters to gentile congregations that he founded (1 Corinthians 9:19-23):

For though I be free from all men, yet have I made myself servant unto all, that I might gain the more. And unto the Jews I became as a Jew, that I might gain the Jews; to them that are under the law, as under the law, that I might gain them that are under the law; To them that are without law, as without law, (being not without law to God, but under the law to Christ,) that I might gain them that are without law. To the weak became I as weak, that I might gain the weak: I am made all things to all men, that I might by all means save some. And this I do for the gospel's sake, that I might be partaker thereof with you.

The French philosopher Alain Badiou cites these verses as a good example of Paul's strategy of “mass line” mobilization, which gave birth to Christian universalism. I think such “mass line” is equally of value for the international IPR regime to survive global competition – for intellectual property both “under the law” and “without (ie, outside) the law”, “free” or “weak”, to attain a new universalism. Without such a universalist aspiration, our IPR jurisprudence will have to concede to numerous exceptions to the “rule of law” as developed through various national and regional models including, of course, the “China model”.

In conclusion, therefore, two observations may be in order. First, we have revealed a “liberal” bias on international IPR issues. Contrary to the cliché criticism and wishful expectation, poor enforcement of IPR laws in China and other emergent economies is not due to some unskilled or unexpected mishap in the “rule of law” enterprise; nor is it an indication of an immature legal system. Rather, the lower forms of IPR protection represent a strong and lively competitive market economy, and hence a high degree of maturity of the legal system in relation to new trends of global capitalism in the age of internet. Secondly, the rejection of the current high IPR regime by these successful economies is an unambiguous testimony that intellectual property as we know it is dying. In its stead, the emerging lower IPR forms are in need of a new jurisprudence. Just like the doctrinal innovations of St. Paul in the case of the burgeoning Christianity, the new jurisprudence will also represent a profound revision of faith in the “rule of law”. This revisionism has to proceed on the basis of a new universalism, a mission renewed “of all and for all”. Yet the current “liberal” bias in the “rule of law” dogma lacks this true universalism.

Is our IPR regime on its road to Damascus? I think so, though it has yet to undergo a Pauline conversion and hear the voice of salvation. But the future will be clearly in view, when global intellectual property is able to spread from Jerusalem to the diaspora when it is able to boast, not of the old law, but of a new faith.

September 2011

*Delivered as a keynote speech at the ILST Conference on Innovation, Competition and Regulation, 5 November 2011. The author wishes to thank the conference host National Tsing Hua University, the ILST Director Peng Hsin-yi, Prof. Liu Kung-chung of Institutum Iurisprudentiae, Academia Sinica, and especially the Honorable Justice Su Yeong-chin for invaluable comments.

**The Mei Ru'ao Chair Professor in Law, Tsinghua University, Beijing.

References:

Alain Badiou, Saint Paul: The Foundation of Universalism, Stanford University Press, 2003.

BBC news (12 August 2011), http://www.bbc.co.uk/news/technology-14503724

Clayton Christensen & Michael Horn, “Colleges in Crisis”, in Harvard Magazine, July-

August 2011, pp. 40-47.

Peter Drahos, A Philosophy of Intellectual Property, Dartmouth, 1996.

Feng Xiang, Zhengfa biji (Essays on Zhengfa or Law as Politics, with Leviticus), revised

edition, Beijing University Press, 2011.

Peter Feng, Intellectual Property in China, second edition, Sweet & Maxwell Asia, 2003.

Randall Peerenboom, China's Long March toward Rule of Law, Cambridge University Press,

2002.

SSTN news (19 May 2011), http://news.stnn.cc/guoji/201105/t20110519_1581338.html