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How To Protect Intellectual Property In China

In a study of ten multinationals competing in intellectual property-sensitive industries (including consumer electronics, medical equipment, pharmaceuticals, semiconductors and software), McKinsey and Company discovered that many companies are losing the battle to protect their intellectual property (IP) rights. "The most successful companies, however, take strategic and operational action to protect their IP before that happens, thus lowering their litigation costs and improving the odds that their IP will remain safe" explains Meagan C. Dietaz, Sarena Shao-Tin Lin, Lei Yang, authors of the study.

In a Feb. 24, 2006 article in The McKinsey Quarterly, the authors suggest that in addition to registering trademarks and patents with local authorities and prosecuting violators with appropriate vigor, operational action is also critical. They report that while most companies use surveillance equipment or firewalls, to prevent large file transfers companies, companies who are successful at IP protection, "cultivate an awareness of IP and screen all job candidates for high ethical standards."

The authors warn that, "litigation is no substitute for strategy. The best companies reduce the chance that competitors will steal their IP, by carefully selecting which products and technologies to sell and manufacture in China." The report cites one large equipment manufacturer that designs and develops hardware in China but produces the related software abroad. The software, with its source code hidden, is delivered to Chinese engineers ready to plug into the system.

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