5 ms·

China Corporate Espionage Boom Knocks Wind Out of U.S. Companies (2012)

43 points by kumarski 12y ago

AustinDev 12y ago
I actually had a discussion with someone who holds a masters of law in China and recently started attending law school in the US for their JD. The issue of intellectual property came up when we were discussing possible career paths after graduation and I was quite astounded when she told me that she didn't think the industrial espionage was that big of a deal and couldn't be costing US companies that much money. I was very surprised by the dismissive attitude toward IP. I'm all for more sane patent laws but outright source code theft seems to be far past the line... Is this attitude common among educated Chinese or was my experience just a one-off anecdote?
- analyst74 12y ago
  Traditionally, there is no such thing as "stealing knowledge", and to the extreme, there is old saying about stealing books is not real theft. IP law was enacted quite recently, heck, even the rule of law itself (as opposed to rule of men) was fairly recent transformation of the society. I feel this wikipedia entry describe it fairly well: https://en.wikipedia.org/wiki/Legal_culture#Chinese_legal_culture https://en.wikipedia.org/wiki/Legal_culture#Chinese_legal_cu.... So yes, IP and patents carry no where near the level of respect as United States or similar countries.
  - jobu 12y ago
    There was a great article on Ars Technica years ago (decade+) that talked about weak property law in general and intellectual property in particular being a necessary part for developing countries to succeed. As they grow the value of all property increases to the point where property law becomes much more important and strict. It was a really good read, but it doesn't seem to be available online anymore. Also, from the article: "In the 1870s, American textile companies would send employees to work in British factories. They would take notes on textile equipment and bring back the information. The Russians and East Germans stole U.S. computer and chip designs during the Cold War."
  - rayiner 12y ago
    IP law of some form has existed about as long as the technology to engage in mass copying has existed. The idea that it's wrong to steal other peoples' ideas is not just something you have to be a lawyer to appreciate. One of my family friends is a musician, and I was surprised that when I talked to him recently (after many years), he expressed concern about how easy the internet is making it to rip off peoples' work.
- BryanBeshore 12y ago
  I know that Guanxi - http://en.wikipedia.org/wiki/Guanxi http://en.wikipedia.org/wiki/Guanxi - is embedded in the Chineese culture, and it seems possible that this would play right into the web of Guanxi. Another reference to this, as it relates to Guanxi and corporate espenioage would be: http://www.stratfor.com/weekly/china_guanxi_and_corporate_security#axzz39eFu48AU http://www.stratfor.com/weekly/china_guanxi_and_corporate_se...
- autokad 12y ago
  if you were astounded, perhaps you should read more about 'mandate of heaven' that permeates chinese culture, and think about why its totally ok to do something like IP theft on grand / brazen scales and think nothing of it. its one of the many reasons china industrialized so late and also why anyone trying to compare business practices in korea/japan to china must have no idea about the cultures.
  - arjie 12y ago
    What is the mechanism by which IP theft restrains industrialization? Surely if you're stealing all your technology you can grow rapidly without needing R&D.
    - autokad 12y ago
      it goes beyond just IP theft, but western societies are heavily influenced by the golden rule. this makes business a much friendlier arena. in MOH however, its a very unfriendly environment. sure, chinese company X does great by stealing US company Y's technology, but they exist among other companies like them. any advancement or innovation they try to make will be stolen by their chinese competitors for example.
  - jbattle 12y ago
    I thought the mandate of heaven 'theory' was similar to the divine right to rule in european political science. The emperor (of China) has the right to rule given by some supernatural force. This right is assumed to be in force BUT natural catastrophes (floods, etc) are demonstrations that heaven or whoever has revoked the right. How does this apply in a business context?
maerF0x0 12y ago
tag this [2012]
- kumarski 12y ago
  sorry.
jgroszko 12y ago
Since this article is 2 years old, the follow up is that China's Supreme Court has ruled in favor of AMSC, but the lawsuits are still bouncing around Chinese courts: http://www.bloomberg.com/news/2014-02-19/china-supreme-court-ruling-favors-amsc-in-two-sinovel-suits-1-.html http://www.bloomberg.com/news/2014-02-19/china-supreme-court...
- mbreese 12y ago
  If my brief reading is correct, the ruling was that the case should be heard by lower courts and not sent into forced arbitration. So, while this was a "win" it isn't even close to being over. Meanwhile, the Chinese company was being sued in US courts as well... I think that the biggest risk for Sinovel to come out of this is that Sinovel will have no international export market. It wouldn't surprise anyone if they manage to get away with this in their home market, but if they try to export anything, they'll have to contend with international courts. Which means that they will have very few prospects for export sales.
wlesieutre 12y ago
Off topic, but "an industrial computer the size of a couple of cigarette cartons" seems like an awfully strange comparison to make. Surely I'm not the only one who has no idea what size boxes are used for cases of cigarettes? I know how big a pack is, but I'd have to look up how many packs make up a carton. Why not something more universal like shoe boxes?
- ertdfgcb 12y ago
  Amusingly, even though I've never smoked or even bought cigarette, I still have a pretty good idea how big a cigarette carton is because everyone always uses them for comparison.
fspeech 12y ago
"The arrangement was working the way it was supposed to: China would turn out the commodity hardware -- the turbines -- and a U.S. company would retain control of the high-margin intellectual capital-end of the business." "AMSC’s products accounted for about 12 percent of a Sinovel turbine’s cost in 2008, according to public filings. By 2011 they made up 18 percent, said Schwartz, the U.S. consultant." "Even if Sinovel wanted to renege on its contracts, all its existing 1.5-megawatt turbines were powered by AMSC electronics. If the company wanted the upgraded LVRT software, Sinovel would have to come to the table." Is it that hard to see that this relationship was not sustainable?
- deleted 12y ago
  [deleted]
- fspeech 12y ago
  With the help of hindsight we can now see that Sinovel got itself into a bad deal (actually a series of bad deals with other suppliers as well not just AMSC). It likely acted more out of desperation than greed. It is not even in the top tier of Chinese wind power manufacturers any more.
quizzas 12y ago
When innovation is not a driving force in the economy, it makes sense that the platform which protects and incentivizes innovation is not taken seriously.

43 points by kumarski 12y ago

I actually had a discussion with someone who holds a masters of law in China and recently started attending law school in the US for their JD. The issue of intellectual property came up when we were discussing possible career paths after graduation and I was quite astounded when she told me that she didn't think the industrial espionage was that big of a deal and couldn't be costing US companies that much money. I was very surprised by the dismissive attitude toward IP. I'm all for more sane patent laws but outright source code theft seems to be far past the line... Is this attitude common among educated Chinese or was my experience just a one-off anecdote?

analyst74 12y ago
Traditionally, there is no such thing as "stealing knowledge", and to the extreme, there is old saying about stealing books is not real theft. IP law was enacted quite recently, heck, even the rule of law itself (as opposed to rule of men) was fairly recent transformation of the society. I feel this wikipedia entry describe it fairly well: https://en.wikipedia.org/wiki/Legal_culture#Chinese_legal_culture https://en.wikipedia.org/wiki/Legal_culture#Chinese_legal_cu.... So yes, IP and patents carry no where near the level of respect as United States or similar countries.
- jobu 12y ago
  There was a great article on Ars Technica years ago (decade+) that talked about weak property law in general and intellectual property in particular being a necessary part for developing countries to succeed. As they grow the value of all property increases to the point where property law becomes much more important and strict. It was a really good read, but it doesn't seem to be available online anymore. Also, from the article: "In the 1870s, American textile companies would send employees to work in British factories. They would take notes on textile equipment and bring back the information. The Russians and East Germans stole U.S. computer and chip designs during the Cold War."
- rayiner 12y ago
  IP law of some form has existed about as long as the technology to engage in mass copying has existed. The idea that it's wrong to steal other peoples' ideas is not just something you have to be a lawyer to appreciate. One of my family friends is a musician, and I was surprised that when I talked to him recently (after many years), he expressed concern about how easy the internet is making it to rip off peoples' work.
BryanBeshore 12y ago
I know that Guanxi - http://en.wikipedia.org/wiki/Guanxi http://en.wikipedia.org/wiki/Guanxi - is embedded in the Chineese culture, and it seems possible that this would play right into the web of Guanxi. Another reference to this, as it relates to Guanxi and corporate espenioage would be: http://www.stratfor.com/weekly/china_guanxi_and_corporate_security#axzz39eFu48AU http://www.stratfor.com/weekly/china_guanxi_and_corporate_se...
autokad 12y ago
if you were astounded, perhaps you should read more about 'mandate of heaven' that permeates chinese culture, and think about why its totally ok to do something like IP theft on grand / brazen scales and think nothing of it. its one of the many reasons china industrialized so late and also why anyone trying to compare business practices in korea/japan to china must have no idea about the cultures.
- arjie 12y ago
  What is the mechanism by which IP theft restrains industrialization? Surely if you're stealing all your technology you can grow rapidly without needing R&D.
  - autokad 12y ago
    it goes beyond just IP theft, but western societies are heavily influenced by the golden rule. this makes business a much friendlier arena. in MOH however, its a very unfriendly environment. sure, chinese company X does great by stealing US company Y's technology, but they exist among other companies like them. any advancement or innovation they try to make will be stolen by their chinese competitors for example.
- jbattle 12y ago
  I thought the mandate of heaven 'theory' was similar to the divine right to rule in european political science. The emperor (of China) has the right to rule given by some supernatural force. This right is assumed to be in force BUT natural catastrophes (floods, etc) are demonstrations that heaven or whoever has revoked the right. How does this apply in a business context?

maerF0x0 12y ago

tag this [2012]

kumarski 12y ago
sorry.

jgroszko 12y ago

Since this article is 2 years old, the follow up is that China's Supreme Court has ruled in favor of AMSC, but the lawsuits are still bouncing around Chinese courts: http://www.bloomberg.com/news/2014-02-19/china-supreme-court-ruling-favors-amsc-in-two-sinovel-suits-1-.html http://www.bloomberg.com/news/2014-02-19/china-supreme-court...

mbreese 12y ago
If my brief reading is correct, the ruling was that the case should be heard by lower courts and not sent into forced arbitration. So, while this was a "win" it isn't even close to being over. Meanwhile, the Chinese company was being sued in US courts as well... I think that the biggest risk for Sinovel to come out of this is that Sinovel will have no international export market. It wouldn't surprise anyone if they manage to get away with this in their home market, but if they try to export anything, they'll have to contend with international courts. Which means that they will have very few prospects for export sales.

wlesieutre 12y ago

Off topic, but "an industrial computer the size of a couple of cigarette cartons" seems like an awfully strange comparison to make. Surely I'm not the only one who has no idea what size boxes are used for cases of cigarettes? I know how big a pack is, but I'd have to look up how many packs make up a carton. Why not something more universal like shoe boxes?

ertdfgcb 12y ago
Amusingly, even though I've never smoked or even bought cigarette, I still have a pretty good idea how big a cigarette carton is because everyone always uses them for comparison.

fspeech 12y ago

"The arrangement was working the way it was supposed to: China would turn out the commodity hardware -- the turbines -- and a U.S. company would retain control of the high-margin intellectual capital-end of the business." "AMSC’s products accounted for about 12 percent of a Sinovel turbine’s cost in 2008, according to public filings. By 2011 they made up 18 percent, said Schwartz, the U.S. consultant." "Even if Sinovel wanted to renege on its contracts, all its existing 1.5-megawatt turbines were powered by AMSC electronics. If the company wanted the upgraded LVRT software, Sinovel would have to come to the table." Is it that hard to see that this relationship was not sustainable?

deleted 12y ago
[deleted]
fspeech 12y ago
With the help of hindsight we can now see that Sinovel got itself into a bad deal (actually a series of bad deals with other suppliers as well not just AMSC). It likely acted more out of desperation than greed. It is not even in the top tier of Chinese wind power manufacturers any more.

quizzas 12y ago

When innovation is not a driving force in the economy, it makes sense that the platform which protects and incentivizes innovation is not taken seriously.