Russia’s Invasion of Ukraine Reiterates Why Companies Must Rethink Their China IP Strategies

“Is there anything that China can do that would result in corporations rethinking their China strategy? What will it take for American companies to diversify away from China?”

China strategy - night for the last six weeks, the world has seen images and videos of the Russian military laying waste to Ukraine in what can only fairly be characterized as a medieval campaign of destruction. The Russian military has annihilated entire cities, targeted civilians, murdered women and children, and is preventing the American Red Cross from delivering food and medical supplies to civilians trapped and unable to escape.

Nearly the entire world has condemned the atrocities committed during this unprovoked Russian war of aggression against its sovereign neighbor. China, who has entered into a no-limits cooperative agreement with Russia, is a notable exception. Rather than condemn the massacre of Ukrainians, China has inexplicably blamed the United States for Vladimir Putin’s decision to invade the Ukraine. Of course, China is walking a bit of a tightrope between becoming too embroiled in the war, which would possibly raise the ire of the West, and condemning Russia for doing precisely what many foreign policy and national security experts believe China would like to do in Taiwan.

Serious Questions

China’s refusal to condemn the annihilation of a sovereign nation and the targeting of civilians should be disconcerting to corporations around the world with interests in China. China may have been inching forward with respect to the adoption of intellectual property laws, for example, and the establishment of courts, the granting of injunctions, and even the implementation of more meaningful damages. But when the slaughter of innocent women and children is something that a government refuses to condemn because of some greater geopolitical ambitions, serious questions should be asked.

At what point does the refusal to publicly condemn the razing of Ukraine and the murder of civilians cross over into condoning the behavior? And if China is condoning Russian aggression, is there really a stable rule of law that anyone should be relying upon in China?

For years, corporations have turned a blind eye to intellectual property theft by China, often sanctioned by the government. Indeed, China has stolen intellectual property for many years; they have forced the transfer of intellectual property in exchange for market share; and 75% of dangerous counterfeits come from China and Hong Kong. Still, corporations line up like lemmings to do business in China because of the market size and the potential of nearly 2 billion Chinese. But the loss of intellectual property isn’t just lost once, or over a day, it is lost in perpetuity and compounded. The cost of what is lost is never considered against any alleged “savings” corporations show on their books and convince themselves they have made. But ultimately, they just wind up competing against themselves in the global marketplace with their own technologies. What a deal they get doing business in China.

There is No Certainty in China

And for years in the United States, those in various pro-patent coalitions have talked about how this ruling of the Supreme Court, or that piece of legislation, or that regulation has made it harder for innovators to succeed. Without exaggeration, in some cases, decades of well-settled law has been erased overnight, new legal expectations put in place, entirely new responsibilities and obligations expected, and the community cries about the unfairness associated with uncertainty and changing the law retroactively. Businesses need certainty, we say, and we are told repeatedly. This refrain is, of course, a legitimate and unfortunate criticism of the shift in U.S. intellectual property law. Yet, there seems to be no similar concern for uncertainty—or complete arbitrary and capriciousness—in a country where the President and his ruling party can unilaterally decide term limitations found in the Constitution no longer apply and free speech can be squelched.

Is there anything that China can do that would result in corporations rethinking their China strategy? What will it take for American companies to diversify away from China?

What Will it Take?

Supply chain inefficiencies brought to light during the COVID-19 pandemic, and global semiconductor shortages that Barrons predicts will continue for the next two years, have caused Intel to seek to expand manufacturing capacity in the United States, so perhaps not all is lost and at least one corporation has learned the importance of a plan B that includes production in democratic, not autocratic, countries. But will other corporations similarly rethink their China strategies? If they have not already and do not soon, one can legitimately wonder whether there is anything that will cause other corporations to rethink China, regardless of the true costs of doing business after intellectual property theft is considered in the equation, and regardless of the uncertainty of autocratic regimes.

In the meantime, God help Ukraine. And as the war recedes from the headlines, prudent actors in the West should prepare for some type of increased turmoil with China—the one superpower that no one seems willing to confront in any meaningful way, regardless of their transgressions.

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Join the Discussion

8 comments so far.

  • [Avatar for Dan Harris]
    Dan Harris
    April 11, 2022 07:41 am

    So true. Please check out this upcoming webinar on this exact topic. All of us will (from very different angles) be pushing the need for companies to leave China, or, at minimum, reduce their footprint there.

  • [Avatar for Patrick]
    April 9, 2022 04:38 am

    It’s starting to dawn on companies that China has become the “single point of failure” in their supply chain. Covid-19 signaled this situation, and China’s position on Russia and Ukraine confirms it.

  • [Avatar for James Videbeck]
    James Videbeck
    April 8, 2022 12:16 pm

    Your discussion is Russia (A) invades Ukraine (B) Therefore what about IP in China (C). My question is what about IP relations with Russia (B)?
    For example, What if we are prosecuting a US patent application for a Russian company not on the OFAC list? What about Russian applications for an American client? A seminar on this would be worthwhile.

  • [Avatar for Yenrab 315]
    Yenrab 315
    April 8, 2022 11:44 am

    Russia needs Alaska for its vast resources, and for being Russian territory (prior to Seward’s Folly post our civil war). They don’t have the technology to drive their antiquated tanks and trucks over the polar icecap and across the Bering straits. With all their military blunders and lack of a cohesive military strategy, they seem to be limited to some sort of heavy fisted war of extermination. What I am getting at is there seems to be a lack of thinking it out on the part of Russia’s leadership. This makes them look like fools. But who is the bigger fool: the Fool-in-Chief, or those foolish enough to continue to follow him? Or those countries pretending that they perhaps need to.

  • [Avatar for PeteMoss]
    April 8, 2022 11:10 am

    CN has a comprehensive global expansion policy that involves buying public support in target countries, exporting sympathizers to target countries and buying compromised politicians in target countries. Why? Because it is so much easier to just walk in to a target country, invited, than to kill people and break things. I wonder out loud: How may Communists are in the Taiwan government right now? How many sleeper cells, not limited to CN, enter the US every given day through the gaping US southern border? How many Chinese restaurants, per capita, does the US really need? CN is quietly, persistently, and incrementally taking over the world while Americans preoccupy themselves with instant gratification, short-term profit reports, cheap housecleaners, histrionic selfies and politicians who are uber idealistic about everything but the long-term national security of the US. CN is to Rocky what the US is to Apollo Creed. We all know how that movie ends.

  • [Avatar for maxdrei]
    April 8, 2022 03:23 am

    It’s complicated, isn’t it? Putin’s court philosopher whispering in his ear has explained to him that there will be in future 3 + 1 powers ruling the World. The three are USA, China and India (between them, China and India have 40% of all humankind, right?). Which is the fourth? That’s a toss-up between Europe and Russia. Putin has decided it shall be Russia, not Europe. Hence his push westwards.

    India is in a permanent nuclear stand-off with Pakistan, and buys all its weaponry from Russia. It needs to secure its supply chain of spare parts. No chance then, of its being critical of Russia.

    China’s weapons industry is green with envy. Everybody else is trialling their murderous kit in Ukraine, while China still has no idea how well its weaponry will perform in battlefield conditions.

    Russia needs Ukraine for its endless plains of wheat, to maintain an income for the oligarchs once the world has weaned itself off Russian oil and gas. It needs no cities or workers in Ukraine, for robots can sow and harvest the wheat. We await to see if Europe has the staying power to save Ukraine from Russia.

    Unlike China, Russia never did have anything to patent. Never will have, as far as I can see.

    Will democracy survive this century? Can’t say I’m optimistic.

  • [Avatar for Pro Say]
    Pro Say
    April 7, 2022 06:46 pm

    The bottom line for those operating — and indeed embracing — the atrocities-denying Communist China is this:

    Money. Over. Morals.

    But they are not alone, as one of the world’s biggest producers of a wide range of products including medicines — also refuses to condemn the Russian atrocities: India.

    This from a country claiming to be the largest democracy in the World.

    Sorry India, but great democracies don’t put money over morals; standing by as atrocities are being committed.

    While our very own Congress — who should be standing up to Big Tech and others who steal with impunity the innovations of others — do nothing to restore the American patent system to its former World-leading position.

    And yes: May God help the innocent, peaceful people of Ukraine.

    Putin can go to hell. Which is exactly where he most assuredly will spend eternity.

    Who wouldn’t kill this Hitler-like monster given the chance?