Ghost Shifts and IP Rights in China

By Lael S.

   There have been  many news articles discussing intellectual property issues in China and how the chines IP laws do not comport with American standards. The truth is the intellectual property laws in China are generally sufficient to protect IP rights. The problem is not the law but the implementation of the law.

   There is so much outsourcing to China for production; but, it is hard for companies to regulate conduct there. In the process of contracting out production to Chinese manufacturers, a company often entrusts their trade secrets, production methods, material sources and such to the factory in China. (Of course, if a company has reason to think their IP may not be protected, the company may instead choose to do business elsewhere.)

   The problem of the implementation of the laws in China has affected many industries. The automotive, phone, pharmaceutical and software industries have all been affected by a lack of IP enforcement in China.

   The lack of implementation that results in “ghost shifts” is responsible for much of the infringing products. A “ghost shift” is the shift that comes into the factory once it’s closed down for the night and which manufactures out even more of the product off the books. The factory may sell this “ghost shift” slot to someone else to produce a related but completely different product the factory is producing. Or it may be the same product the factory has been licensed to produce with cheaper materials substituted. However, sometimes “ghost shifts” even produce the exact same product but sell it out the back door for much less than the retail price. Many times, “ghost shifts” start when the contracting company orders the Chinese factory to stop production...and the factory doesn’t. The licensee factory will still have the molds, instruments, and know where to get the materials so they can still make the product without the licensing company ever knowing. Often times, the real product is indistinguishable from the “ghost shift” product.

   Many American companies have seen counterfeit goods trickle into the American marketplace. While there are procedures to get an injunction preventing the sale of these goods here, it is not so easy to get the Chinese courts to enforce injunctions abroad.

To deal with the problem, companies have begun to implement procedures to aid in the regulation of their production overseas. These new procedures include: inserting invisible ink dyes into the materials they use, auditing materials and costs more rigorously, or utilizing new software that monitors tagged parts on contracted orders.

   In January, President Obama and the president of China, President Hu, issued a joint statement agreeing that China will begin to enforce intellectual property rights. Future goals include taking steps to address piracy, cracking down on landlords who rent space to counterfeit rings, and working to eliminate indigenous innovation. Hopefully these new measures begin to solve the problem and ultimately provide for a stronger and more unified marketplace.

Original Newspaper Source