China's squeeze play on US software industry

WAPO story by way of WPR's Media Roundup.

Subject is China's squeeze play on American software providers:

Nearly four out of five software applications running on PCs in China have been stolen instead of paid for, the market research firm IDC has found. China has made commitments to the U.S. government to reverse this trend by enforcing intellectual property rights, but IDC data show no discernable progress. Indeed, between 2005 and 2009, the commercial value of stolen personal computer software in China doubled, to $7.6 billion. Roughly half that amount should have been paid to U.S. companies, which could have used the money to hire more U.S. workers and invest in research and development for new products.

With most of this rampant theft occurring in Chinese businesses, the economic impact reaches far beyond the software industry. Software is a critical tool for production in every sector of the economy. Stealing gives Chinese companies an unfair cost advantage over their paying American counterparts.

Beijing late last year compounded matters for the software industry and several others -- from makers of clean-energy technology to producers of telecommunications equipment -- by instituting a heavy-handed "indigenous innovation" strategy that excludes foreign companies from important segments of the Chinese market, such as government procurement, and tries to compel transfers of intellectual property rights for key technologies as the price of market access. This squeezes us at both ends -- shutting many of our innovative products out of the market and stealing the rest.

The industry is fighting mad and pushing the Obama Administration for a generalized get-tough stance that avoids the past tactic of complaining about one trade obstacle, only to have it removed and replaced by a new one two steps over.

The hope?  Correcting the relationship like we did with Japan previously:

In Japan, for example, software theft was pervasive in the early 1990s -- accounting for two-thirds of all PC applications. In little more than a decade, however, thanks to public education and a strong judiciary system, the piracy rate there has dropped to 21 percent, a level on par with that of the United States.

So a discouraging and encouraging message at the same time. Nice piece.