SOE taken to court in China by European company
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Barun Mitra
Mar 27, 2014, 6:20:54 AM3/27/14
to Citizens-Initiative
The Day the Chinese SOE Went to Court
The first IP lawsuit by a foreign firm against a large state-owned
enterprise tests Beijing's reform mettle.
By JOSEPH STERNBERG
Asian Wall Street Journal, March 26, 2014 11:18 a.m. ET
Leaders in Beijing say they are keen to reform China's large
state-owned enterprises, and their commitment is about to get an early
test from an unexpected quarter in a Beijing courtroom.
European chemical company Ineos last week sued several units of
state-owned China Petroleum & Chemical Corp. , known as Sinopec, for
breach of Ineos's patents. Ineos also filed an arbitration case
against another Sinopec unit in Sweden. The European firm says the
Chinese petro giant, with which it has a joint venture, has misused
Ineos's patented manufacturing process for acrylonitrile, a component
in carbon fiber products and other plastics. Ineos says Sinopec is
building unauthorized factories based on the technology, with one
plant already running for a year. Sinopec says the factories use
technology it developed.
This appears to be the first time a foreign company has sued a Chinese
state-owned enterprise in a Chinese court over an intellectual
property dispute--or anything else. Foreign executives who believe
they've been wronged typically are wary of angering a Chinese
company's patrons in Beijing. Foreigners are also pessimistic about
the fairness of China's courts. Many joint-ventures, the source of so
much business conflict, try to bypass Chinese courts by providing for
overseas arbitration.
Elements of the Ineos case make one wonder whether this might be due
for a change. For Ineos, China's sheer scale has driven it to court.
China has the means to radically alter the global market for
acrylonitrile by ramping up production. "If they build a half-dozen
copy plants, they'll destroy the acrylonitrile business," Ineos CEO
Jim Ratcliffe tells me.
The implication is that the bigger China grows, the more damage it is
able to do through IP abuse or other corporate mischief, and the more
likely that foreign companies' survival instincts will trump their
political squeamishness about taking strong action. State-owned firms
will be a logical target since their scale makes them particularly
dangerous.
China may also be ready for such a case. By most accounts, its courts
have grown increasingly sophisticated in handling commercial matters.
IP theft remains rampant and the legal system is by no means as
effective as more experienced foreign counterparts. But the Beijing
court in which Ineos has filed its case is developing a reputation
among intellectual-property lawyers for fair handling of highly
technical disputes between private parties, including foreigners suing
Chinese firms.
The Ineos case is a test of whether Beijing recognizes that fairly
applying the law is good both for China and the state-owned companies.
State-owned enterprises won't act like market companies until they're
forced to, and strictly honoring commercial agreements and IP
protections is one way to force them. They will have to abide by the
law the more they invest abroad, so it's better to start learning at
home.
A less obvious benefit concerns China's access to technology, and thus
its ability to move up the value chain. One oddity of the Ineos case
is that the European company gave Sinopec access to its most
up-to-date technology. Because IP theft is common, foreign companies
often are willing to deploy only slightly out-of-date technologies in
China. (Mr. Ratcliffe notes that its joint venture was formed by BP,
whose chemical business Ineos acquired in 2005.)
Beijing has long acted from a conviction that a technology is only
valuable to China if a Chinese company has acquired it. That
mercantilist logic ignores the benefits of siting high technology--such
as the most up-to-date acrylonitrile plant--in China no matter who owns
it. Those benefits include high-productivity tech jobs and new
opportunities for upstream and downstream firms.
IP mercantilists in Beijing also overlook the risk that if Beijing
does not respect foreigners' IP rights, foreigners will bring less
intellectual property to China. Mr. Ratcliffe is emphatic that Ineos
would like to do more work in China, but only if the company is sure
its intellectual property will be protected.
When leaders in Beijing promised to reform state-owned firms, they
probably didn't have a lawsuit like this in mind. But here we are. The
thing to watch is not necessarily the outcome. It's hard for a
non-engineer to say if Ineos has a provable case. Rather, the question
will be whether the Beijing court proceeds in a manner that outside
observers would conclude is fair, and delivers a ruling that persuades
technical experts that it got the case right. A lot of economic
reform--and investment and growth--is riding on the answers.
Mr. Sternberg edits the Business Asia column.
The original article is available here.
http://online.wsj.com/news/articles/SB10001424052702304418404579462650869691592
The first IP lawsuit by a foreign firm against a large state-owned
enterprise tests Beijing's reform mettle.
By JOSEPH STERNBERG
Asian Wall Street Journal, March 26, 2014 11:18 a.m. ET
Leaders in Beijing say they are keen to reform China's large
state-owned enterprises, and their commitment is about to get an early
test from an unexpected quarter in a Beijing courtroom.
European chemical company Ineos last week sued several units of
state-owned China Petroleum & Chemical Corp. , known as Sinopec, for
breach of Ineos's patents. Ineos also filed an arbitration case
against another Sinopec unit in Sweden. The European firm says the
Chinese petro giant, with which it has a joint venture, has misused
Ineos's patented manufacturing process for acrylonitrile, a component
in carbon fiber products and other plastics. Ineos says Sinopec is
building unauthorized factories based on the technology, with one
plant already running for a year. Sinopec says the factories use
technology it developed.
This appears to be the first time a foreign company has sued a Chinese
state-owned enterprise in a Chinese court over an intellectual
property dispute--or anything else. Foreign executives who believe
they've been wronged typically are wary of angering a Chinese
company's patrons in Beijing. Foreigners are also pessimistic about
the fairness of China's courts. Many joint-ventures, the source of so
much business conflict, try to bypass Chinese courts by providing for
overseas arbitration.
Elements of the Ineos case make one wonder whether this might be due
for a change. For Ineos, China's sheer scale has driven it to court.
China has the means to radically alter the global market for
acrylonitrile by ramping up production. "If they build a half-dozen
copy plants, they'll destroy the acrylonitrile business," Ineos CEO
Jim Ratcliffe tells me.
The implication is that the bigger China grows, the more damage it is
able to do through IP abuse or other corporate mischief, and the more
likely that foreign companies' survival instincts will trump their
political squeamishness about taking strong action. State-owned firms
will be a logical target since their scale makes them particularly
dangerous.
China may also be ready for such a case. By most accounts, its courts
have grown increasingly sophisticated in handling commercial matters.
IP theft remains rampant and the legal system is by no means as
effective as more experienced foreign counterparts. But the Beijing
court in which Ineos has filed its case is developing a reputation
among intellectual-property lawyers for fair handling of highly
technical disputes between private parties, including foreigners suing
Chinese firms.
The Ineos case is a test of whether Beijing recognizes that fairly
applying the law is good both for China and the state-owned companies.
State-owned enterprises won't act like market companies until they're
forced to, and strictly honoring commercial agreements and IP
protections is one way to force them. They will have to abide by the
law the more they invest abroad, so it's better to start learning at
home.
A less obvious benefit concerns China's access to technology, and thus
its ability to move up the value chain. One oddity of the Ineos case
is that the European company gave Sinopec access to its most
up-to-date technology. Because IP theft is common, foreign companies
often are willing to deploy only slightly out-of-date technologies in
China. (Mr. Ratcliffe notes that its joint venture was formed by BP,
whose chemical business Ineos acquired in 2005.)
Beijing has long acted from a conviction that a technology is only
valuable to China if a Chinese company has acquired it. That
mercantilist logic ignores the benefits of siting high technology--such
as the most up-to-date acrylonitrile plant--in China no matter who owns
it. Those benefits include high-productivity tech jobs and new
opportunities for upstream and downstream firms.
IP mercantilists in Beijing also overlook the risk that if Beijing
does not respect foreigners' IP rights, foreigners will bring less
intellectual property to China. Mr. Ratcliffe is emphatic that Ineos
would like to do more work in China, but only if the company is sure
its intellectual property will be protected.
When leaders in Beijing promised to reform state-owned firms, they
probably didn't have a lawsuit like this in mind. But here we are. The
thing to watch is not necessarily the outcome. It's hard for a
non-engineer to say if Ineos has a provable case. Rather, the question
will be whether the Beijing court proceeds in a manner that outside
observers would conclude is fair, and delivers a ruling that persuades
technical experts that it got the case right. A lot of economic
reform--and investment and growth--is riding on the answers.
Mr. Sternberg edits the Business Asia column.
The original article is available here.
http://online.wsj.com/news/articles/SB10001424052702304418404579462650869691592
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