Government Is Not the Solution To Chinese Piracy

by: David Wolf
Shaun Rein fired me a link to his recent BusinessWeek op/ed about how it is possible to win the piracy battle. It's worth a read.

He and I are often in general agreement, and I enjoy reading his stuff. In this article, he's touching on one of my favorite themes: an economic approach to reducing the size of the piracy problem will beat a moralistic approach any day.

For the sake of advancing the argument rather than denigrating Shaun's excellent piece, I want to call out one issue that his article brings to light.

We Got 99 Problems But The Law Ain't One
Shaun's article is broad, covering almost the entire issue of IPR theft in China, including pirated software, counterfeit luxury goods, knockoff pharmaceuticals, tainted food, bootleg DVDs, and fake consumer electronics. It is a perfect example of one of the unspoken reasons we have not managed to solve the IPR issue in China yet: We have collectively failed to recognize that each of the manifestations of IPR theft is a separate, distinct problem with its own causes and solutions causes us to search for simple solutions.

We need to recognize that China does not have one gigantic IPR problem, but several quite large IPR issues that each need to be addressed separately.

For a simple example, let's compare bootleg DVDs and knockoff pharmaceuticals. Consumers are complicit in the first. They are unwilling victims of the second. What drives these two issues are quite different: in the case of DVDs, it is a combination of price arbitrage ("It's too expensive to buy the real thing") and failed distribution ("I want the real thing, but there's no place I can buy it.") In the case of knockoff pharmaceuticals, the problem (as I understand it) is a combination of lack of awareness, profiteering medical administrators, and a distribution system that mixes the real with the fake.

The problems are different, the solutions should be as well.

The old saw about how to eat an elephant ("one bite at a time") applies here. Fix the problem by breaking it up into its component parts. Create solutions for each type of piracy one at a time.

Your Mercedes or My Life
As an aside, we must also recognize that some piracy issues are more serious than others. Motion picture and software piracy are bad things, and we focus on those issues in The Hutong because they're close to our heart. Pirated copies of Windows VISTA and Terminator 3 on the other hand, are not likely to kill people the way, say counterfeit aircraft parts, pharmaceuticals, or batteries might.

As we disaggregate the piracy problem, we could all start spending a little more time focusing on the parts of the issue that are potentially lethal but not quite as glamorous.

Where The Law Does Matter
As Shaun himself appears to grant in the last paragraphs of his article, engaging on the legal/moral side does have value. There are two important qualifications to that. First, the victories Shaun cites are Chinese companies suing Chinese pirates. These cases, which cannot be framed in "us vs. them" nationalistic terms, are superb examples of why the battle in the courts is best framed with Chinese as the plaintiffs rather than foreign ones.

Second, these victories come not to companies who abstain from full participation in the market, but those who focus first on gaining full and legitimate access to their customers in China. Apart from the fact that this makes great business sense, it recognizes a often overlooked phenomenon: when a foreign company builds access to its customers in China, it automatically enlists a host of de facto allies in its fight to defend its IPR: Chinese companies who serve as partners, suppliers, distributors, retailers, promoters, developers and the like.

Legal and commercial tools to protect IPR march hand in hand. But the commercial means must be applied first, the law second.

Hollywood, take note.

Our Greatest Ally
At the core of Shaun's argument - and mine - is that we have to look beyond the government for solutions. Even if the government woke up Monday morning and said "Okay, let's fix the IPR thing," they would not be able to achieve a solution via fiat. They will turn to industry - us - and say "Okay, given the limitations on our police resources, how do we create a lasting solution to the issue?"

We'd better have some smart, specific, commercial answers, and we be ready to mobilize our greatest assets in each fight: the ordinary Chinese who are being hurt by each specific form of piracy. Consumers, businesses with their own IPR, filmmakers, and the companies who rely on legitimate foreign IPR or IPR-based products for their livelihood. The battle can only be won on the streets, and only then will the politically controlled police and court systems recognize the value of consistent, vigorous enforcement.