See You In Chinese Court

Knockoff books, pirated software, black-market videocassettes--they're at the heart of the U.S. government's trade fracas with China. But as negotiators scramble to avert the imposition of sanctions on Feb. 26, some U.S. companies are quietly pursuing plans of their own. Slowly, gingerly, they're sampling China's fledgling legal system.

In the past year, American businesses have filed as many as 25 copyright-infringement lawsuits in China's two-year-old Intellectual Property Tribunal of the Beijing Intermediate People's Court. The companies, which include Walt Disney, Microsoft, and Harcourt Brace, seek compensation for losses they have suffered because of the production, distribution, and sale in China of counterfeit goods for which they hold copyrights.

Industry officials expect little meaningful relief to come from this legal offensive. Nonetheless, they say, the moves represent an important step outside diplomatic channels for deterring piracy and spurring investment opportunities. "We never had any illusions that if we spent zillions of dollars bringing cases, we could stop the piracy," says Eric H. Smith, president of the Washington-based International Intellectual Property Alliance (IIPA). "But part of our strategy is to test the system."

STRONG TEST. Eighteen of the 25 cases have been brought in Beijing by the Business Software Alliance (BSA) on behalf of Microsoft, Lotus Development, and Autodesk. The BSA says it will file several more copyright actions within weeks in cities such as Shanghai, Shenyang, and Chengtu. The idea is to see if China's intellectual-property laws, which local officials insist are strong and effective, can really work. "It is critical to do something to provide a deterrent effect in the marketplace," says BSA President Robert W. Holleyman. A Feb. 13 IIPA report estimates that losses to American companies in 1994 because of copyright infringement were $866 million.

At first, results from the legal actions were promising. Last June, following a flurry of lawsuits, 22 Beijing officials and U.S. company representatives raided six major computer-software dealers, seizing floppy disks, computers, CD-ROMs, and business records as evidence. But since then, the cases have "crawled along at a snail's pace," says Valerie Colbourn, Microsoft Corp.'s Hong Kong-based attorney.

So far, indeed, Disney's copyright case is the only one to get a decision out of the new court. Last August, a three-member panel in Beijing ruled that two children's-publishing companies had illegally sold magazines featuring Disney characters such as Snow White and Dumbo. But the issue of monetary damages, which never have been awarded or paid in a copyright case in China, remains unresolved. Even so, says Claire Robinson, a Walt Disney Co. lawyer, "We had to test the waters. Pirates are our biggest competitors" in China.

Chinese officials say they are cracking down on counterfeiters. A recent string of raids and seizures was aimed at putting rogue operators out of business. And a chief focus of the ongoing trade talks is persuading China to simplify legal procedures available to foreign interests and to create mechanisms that would allow China's own government to bring antipiracy actions.

But two cases in the trademark-infringement area lead U.S. recording, motion-picture, and book-publishing companies to wonder just how much progress they can expect in copyright protection. Both Disney and Microsoft have won recent trademark cases in China. But the actual awards, $91 and $2,600, respectively, will hardly deter future wrongdoing. And they don't make U.S. companies any more comfortable about doing business in China.