Patent theft and China: All relative?

IHT: "Each shift, 200 workers, most of them women in smocks and bibs, labor in a factory tucked away in hilly farmland outside this city assembling a single product: one-inch hard drives.

As China's emerging industrial centers go, Guiyang is an obscure outpost, bearing little resemblance to the booming factory towns of the east coast. And yet this hard-drive assembly may be at the front line of an intense global struggle to dominate high-tech manufacturing.

The tiny storage device this factory churns out is the heart of one of the world's hottest consumer electronics items, the miniature version of Apple Computer's iPod. Sales to Apple represent a huge triumph for GS Magic Stor, an offshoot of a struggling state-owned carmaker that is so obscure that even in China few are familiar with the name. The problem with this ringing success story, according to a better-established rival, Hitachi Global Storage Technologies, which has factories in China and also supplies miniaturized drives to Apple, is that the Chinese company stole crucial elements of the design.

GS Magic Stor denies this charge, which Hitachi has made in a suit filed in U.S. District Court in Northern California. In a recent online forum, the company's president ridiculed Hitachi's claim, likening it to someone's asking carmakers to pay design rights to the inventors of the horse and buggy. A Hitachi official, who refused to comment further, said GS Magic Stor could characterize the Hitachi patents however it wished, "but the plain and simple matter is they haven't expired." Hitachi's highly technical complaint specifies several areas where it says its designs were infringed by Magic Stor.

Apple, which was not named in Hitachi's suit, would not comment.

Even if Hitachi wins the suit, that would do nothing to stop Magic Stor from continuing to produce its miniature hard drives in China, although some analysts say Apple would be forced for image reasons, if nothing else, to drop Magic Stor as a supplier.

For Western companies competing with China as well as those doing business here, the issue goes well beyond the fate of one obscure company or of a single technology, however valuable. In one sector after another, companies warn that China's swift industrial rise is being greased by brazen and increasingly sophisticated theft of intellectual property.

The issue of intellectual property theft has been a fixture on the trade agenda between the United States and China for years, with visiting American officials routinely stopping at the Silk Market in Beijing to highlight the sale there, like all over China, of cheap knockoffs of toys, clothing, software and DVDs.

The Chinese government has recently razed the market, but the counterfeit activity has been moving relentlessly upscale, with companies like General Motors, Cisco, Sony and Pfizer complaining that their designs or formulas for everything from cars and PlayStations to routers and Viagra have been violated.

Like many people involved with this issue here, Zhang denied that China was a leading violator of intellectual property rights, which she acknowledged was still a relatively new concept in China. She also said the country's efforts at improving enforcement, though steady, would require more time to reach the standards of intellectual property rights in many advanced industrialized countries.

One of the most problematic areas, experts say, are joint ventures between foreign and Chinese companies, which are legion. When the joint venture dissolves, or sometimes even while it remains active, the Chinese party makes use of the technology or manufacturing processes illegally. A perennially told war story in business circles here involves the foreign factory owner who makes a wrong turn while driving to his plant only to discover an exact copy of his factory on the other side of the mountain."