BDFM Letter from China 30 June 2014

LETTER FROM CHINA: IPR Developments Will Catalyse

Innovation in China

Inadequacy in Chinas intellectual property rights (IPR) protection regime is one of the key
challenges faced by foreign firms operating in and considering entry into Chinas market. The
worlds second-largest economy has a first to file system and is notorious for protecting local
firms over foreign ones in disputes.

However, recent developments - such as a deal with the Motion Picture Association of
America (MPAA), the central governments creation of a slew of IPR courts, and the
emergence of intellectual property (IP) financing techniques - demonstrate Chinas intentions
to foster the innovation-oriented business environment it sees as leading future economic
growth.

The MPAA, the key enforcer of film copyright issues in the US, signed a deal with Shenzhen
Xunlei Networking Technologies, a Chinese video hosting website to prevent unauthorized
access to MPAA member copyrighted works.

The two groups have a history of involvement. In 2008, MPAA sued Xunlei for supposedly
providing illegal access to its members works. The CNY 7-million suit was later dropped.

This deal comes shortly after Chinese authorities cracked down on Xunlei competitor, QVOD,
for copyright issues and after Xunlei applied to go public in the US for the second time. Its
initial IPO application in 2011 was revoked due to copyright issues.

This unique deal represents an innovative response to the Chinese authorities recent
crackdown on instances of copyright infringement. Chinese authorities have identified
bolstering IPR protection as a priority issue in 2014. In fact, Chinese Premier Li Keqiang
recently stated that, "protecting IPR is protecting innovation."

To provide for greater protection of IPR in China, Beijing is establishing new IPR courts. At a
recent press conference, Tao Kaiyuan, Vice President of the Supreme People's Court,
announced that Chinas highest judicial body is currently reviewing IPR courts abroad.
Following this research tour, judicial authorities will embark on the creation of Chinas new
IPR courts.

Analysts assert that other judicial reforms, from increasing the courts capacity to grant
preliminary injunctions (a vital tool for the protection of trade secrets from defendants) to
awarding larger damage awards and bringing simultaneous actions against infringers, are
also helping plaintiffs protect their IP in China.

One reason Beijing is pushing greater IPR protection is in the hope of fostering the
technological innovation seen propelling other economies with leading IPR protection regimes.
The Partys recent policy toward indigenous innovation has become one of the key drivers
of the economy.

Beijing also aims to increase the perceived value of IPR through the countrys IP financing
initiative. Earlier this year, Shandong-based Quanlin Paper reported to the State Intellectual
Property Office that it had secured a $1.3 billion loan against a portfolio of 110 patents and 34
trademarks, most of which are based in China. This is one of the largest sums produced from
an IP portfolio and may demonstrate confidence in Chinas IPR regime.

Chinas leaders have recognized that Chinas future economic growth will be driven, not
solely by heavy industry or manufacturing, but with private technology companies leading the
way.

BDFM Letter from China 30 June 2014

Beijing seeks to support these Chinese technology companies, which are heavily reliant on
IPR protection and who have become increasingly relevant to Chinas economic growth.

China is rapidly catching up to international high-tech leaders. Proper IPR protection is a
prerequisite for attaining greater growth and not losing future competitiveness in this key area
of the economy. Foreign firms in Chinas economy will benefit from this development by
minimizing the risk of losing their intellectual property to their competitors in Chinas crucial
market.

Van der Wath is group MD of The Beijing Axis. He can be reached at
kobus@thebeijingaxis.com