May 14, 2004

The grille looks familiar (The Ottawa Citizen, Friday, May 14, 2004)

When the RABO S-RV hit China's roads in 2003, Honda suffered whiplash.

The injury was understandable: The sport-utility built by Shuanghuan Auto Co. had sheet metal that closely mimicked Honda's CR-V, and a name that was downright Honda-esque.

"If you look at the outward design, it is clear it is a copy of our CR-V," Honda spokesman David Iida told Automotive News Europe.

Honda approached Shuanghuan with its concerns, and when the Chinese manufacturer didn't respond, filed a lawsuit. The case has yet to go before a Chinese court.

Vehicles like the S-RV weren't part of the auto fantasy when China's market opened in 1993. Dreamers saw a vehicular Valhalla where more than one billion people without cars were hungry for Chevrolets, Hondas and Volkswagens -- and were on the cusp of being able to afford them.

Skip ahead a decade. The car-clogged streets in Shanghai, Beijing and Guangzhou show that China has exceeded even the rosiest expectations, becoming the fastest-growing car market in the world.

But for outside automakers, there's a problem: Honda, General Motors, Volkswagen, Toyota, Nissan and many others have been bitten by piracy of their logos, parts, trademarks, technologies, and even entire cars.

"People ask me how they can protect their technology in China," says Peter Theut, head of the international-law department at Butzel Long, a Michigan-based firm that counsels American car manufacturers. "My standard answer is, 'You don't.'"

He says auto technology -- the expensive, research-intensive knowledge of how to build cars and make them better -- is a tug-of-war between the West and China.

Global carmakers want to get into China's market and employ its cheap labour; the Chinese want access to the West's latest technology. When they get it, it can be "blatantly" copied, he says.

Theut has been to China more than 45 times in the past eight years. His international experience has shown him that piracy is a problem in all developing countries but one that's "absolutely rampant" in China.

To build cars in China, foreign car companies must partner with a Chinese manufacturer and can own no more than 50 per cent of the resulting joint venture.

A single manufacturer can build cars with several different foreign companies. And foreign companies can partner with several domestic manufacturers, too.

The mixing of partners is a headache for companies trying to keep secrets from global competitors. Theut says these situations can lead to technology theft.

When it leaves, technology is copied or reverse-engineered, a skill at which the Chinese are "absolutely brilliant," he says.

Many feel that's how the Chery QQ was born. Upon its release in 2003, the Chinese-made QQ looked very much like the Daewoo Matiz, which GM builds as the Chevrolet Spark in China with its joint partner, Shanghai Automotive Industry Corporation. SAIC also builds cars with Volkswagen.

Because SAIC bought a large stake in Chery in 2001, it didn't surprise many when the Spark-knockoff QQ appeared, or when other Chery models were found to be using VW-knockoff parts, such as brake discs.

"It is a common practice that a company absorbs good features of others when it develops new products from the start," Jin Yibo, deputy general manager of sales for Chery, told the state-controlled China Daily when the controversy erupted in mid-2003. GM has not ruled out taking legal action against the company.

Nissan recently saw its Paladin SUV mirrored -- it's "exactly the same," said Nissan executives -- in the Great Wall Automobile Holding Co.'s Sing model. Great Wall is China's largest privately owned automaker. Nissan is still considering legal action.

And last year, Toyota took action against Geely Group, another Chinese manufacturer, after the company's Merrie sedan appeared with a logo that looked very similar to Toyota's. Toyota lost the court case.

When competitors help themselves to intellectual property in the West, lawsuits fly. But in China, says Theut, lawyers must struggle to protect technology in a system that's still developing.

While the laws do exist, Theut says enforcement often does not: "At the moment in China, the judicial system has not caught up to the laws on the books."

China is bowing to foreign pressure to reduce piracy. It has recently been setting up tribunals with other countries, including Singapore, to resolve disputes.

"We find these tribunals to be quite fair," says Thuet. "The tide is beginning to turn, judicially, in China."

Toyota, despite its encounter with Chinese piracy, wants to take advantage of China's incredible size in pursuing eco-friendly auto technologies.

"Hybrid vehicles are not yet at a critical mass, but with this technology, scale will be important," Toyota president Fujio Cho told The Times of London. "Once you have the scale, the motors and batteries would have to become cheaper."

Toyota is working with the government-sponsored China Automobile Technology Research Centre, and plans to start selling its Prius hybrid car in China.

The partnership could see China leading, not copying, the West in environmentally friendly cars.

The Ottawa Citizen

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