US gaming giants drawn to China despite IP concerns

Activision Blizzard's showcase at last year's E3 Electronic Entertainment Expo in the US. Blizzard sued China's Lilith Games in 2015 over copyright infringement. The complaint was eventually dismissed.
Activision Blizzard's showcase at last year's E3 Electronic Entertainment Expo in the US. Blizzard sued China's Lilith Games in 2015 over copyright infringement. The complaint was eventually dismissed.PHOTO: BLOOMBERG

World's second-largest economy has online population of 850m, making it hard to spurn

WASHINGTON • When the American maker of the popular World of Warcraft video game sued a Chinese company for copying designs and story lines, little did anyone know the dispute would later illustrate one of the biggest sticking points in the United States-China trade war.

The case involved California company Activision Blizzard, which sued China's Lilith Games in 2015 for the type of copyright infringement that the Trump administration says is rampant in the Asian nation.

The complaint - which was eventually dismissed - did not stop Blizzard from increasing its presence in China and extending a partnership this year with China's NetEase.

If US technology firms are the moth to China's flame, game-makers are the classic example.

The world's second-largest economy boasts an online population of 850 million and will remain the world's largest video game market through at least 2021, according to industry research firm Newzoo.

US President Donald Trump's trade war is designed to protect companies like Blizzard, which are caught between accessing a massive new market in China and protecting their own secrets.

An investigation by the US Trade Representative's Office last year into China's violations of intellectual property (IP) formed the basis of US tariffs on some US$250 billion (S$340 billion) of Chinese goods.

 
 
 

China's treatment of IP is at the centre of the current round of negotiations to end the trade war, with Mr Trump suggesting a deal could be reached soon.

Technology "is probably our single biggest competitive advantage and why we'll be No. 1 for a long time if we protect our intellectual property", US Trade Representative Robert Lighthizer said in a congressional hearing last Wednesday.

China, he said, "knows full well that it's the key. Technology is what's going to determine who rules the future".

Mr Lighthizer is leading US efforts to negotiate a trade deal with Beijing that would allow American companies to operate in China without local partners.

It is nearly impossible for foreign tech companies to enter China without licensing their games to domestic firms, though no such restriction exists on Chinese companies operating in America.

Not surprisingly, the current licensing deals have been a boon to Chinese companies. China's Tencent has become the world's largest gaming firm in terms of revenue.

Meanwhile, Chinese firms have been behind 70 per cent of gaming industry acquisitions since 2015, according to a report last May by the US-China Economic and Security Review Commission, which the US Congress created.

The study also says piracy of American-made video games is widespread.

China has publicly denied US charges that it is soft on IP theft, insisting that it has lived up to the commitments it made when it joined the World Trade Organisation in 2001, including the establishment of special courts.

But the investigation by Mr Lighthizer's office alleged that China's IP and joint-venture policies have caused the US billions of dollars in damage.

Mr Lighthizer's office has identified the gaming industry as a victim of Chinese infringement practices.

But Beijing may be reluctant to further tighten laws until it sees its own companies as the victims of IP theft, according to Mr Scott Kennedy, a China expert at the Centre for Strategic and International Studies.

"The government still views its market as an IP consumer rather than an IP creator," he said.

"Until this changes, it's going to be hard to get China to enforce foreign IP rights."

A version of this article appeared in the print edition of The Straits Times on March 04, 2019, with the headline 'US gaming giants drawn to China despite IP concerns'. Print Edition | Subscribe