U.S. producers build Chinese walls for protection

By James B. Kelleher

NEW YORK (Reuters) - U.S. manufacturers that have set up shop in China are adopting a variety of strategies to protect their copyrights and intellectual property, from building extra walls in their plants to removing the hard drives from plant computers.

Some have taken their disputes to Chinese courts and prevailed -- a sign officials there are beginning to take the problem of infringement seriously -- while others have decided to try to outrace the pirates, introducing new products and improving processes faster than they can be copied, executives told the Reuters Manufacturing Summit in New York this week.

"As a company, you just have to move and create fast enough to stay ahead of the competition," said Jim Griffith, chief executive of Timken Co. (TKR.N: Quote, Profile, Research, Stock Buzz), a Canton, Ohio-based maker of bearings and alloy steel.

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The mania among U.S. companies in recent years to get into China has been moderated by their fear of that country's reputation as a place where products of all types -- from movies to software, from pharmaceuticals to sophisticated manufacturing processes -- get copied by rivals with near impunity.

In the rush to get into China in the 1990s, many companies did what Timken did, only exporting its lowest technology products to the country, which was struggling to catch up with the industrialized West.

But as China's fast-maturing industrial economy has become more and more sophisticated, many companies have decided they have to put their best products into the market.

"Protecting it is a challenge," Griffith said of intellectual property, or IP. "But sharing it creates the opportunity."

Dinesh Paliwal, the head of ABB Ltd.'s (ABBN.VX: Quote, Profile, Research, Stock Buzz) North American operations, agreed. His company often introduces new technology in China even before it debuts in Europe.

But not everyone is so easygoing. Carlos Cardoso, the president and chief executive of Kennametal Inc. (KMT.N: Quote, Profile, Research, Stock Buzz), said the Latrobe, Pennsylvania-based industrial toolmaker has gone to extraordinary lengths to protect itself from IP theft.

Among the measures: The special tungsten-based powder that the company uses to make its tools -- its No. 1 trade secret -- is formulated outside China and shipped in; computers inside its Chinese facilities have no hard drives; and most dramatically, the company has built sight-blocking walls between parts of its Chinese plants.

"In most of our facilities in the western world, what we want is an open facility, where you can see from corner of the factory to the other," Cardoso said.

"In China, we have the opposite. We want walls in the factory so that no one person really knows the whole process."

SUITS

Although for many years, Western companies felt like they had no recourse in Chinese courts against the pirates, that's changed as Chinese officials have realized that the fast-industrializing country has as much to lose as gain.  Continued...