News broke yesterday of an audacious violation of Apple Computer’s intellectual property rights (IPR) in China. This expat blogger posted photos of three sham Apple Stores she discovered in the city of Kunming—the stores have been set up by some entrepreneurial chap hoping to capitalize on the company’s Chinese popularity.

The story was slightly amusing, especially in light of Apple’s recent earnings announcement. (“They totally did it again,” said one analyst. It was also revealed that Apple now sits on enough cash in hand to buy 100% of Goldman Sachs at its current market value.) It seems that the Apple brand is now so valuable that the Chinese are counterfeiting the company’s retail outlets to sell Apple’s own products at full price. As one employee of the fake store said when reached by the Wall Street Journal,

It doesn’t make much of a difference for us whether we’re authorized or not. I just care that what I sell every day are authentic Apple products, and that our customers don’t come back to me to complain about the quality of the products.

But that’s precisely why Apple’s IPR must be protected. The company is one of the most innovative ever—their graphical user interface, popularization of the computer mouse, iPod music player, and touch-screen devices have dragged the technology sector forward, to say nothing of their design contributions—and that innovation would not have been supported without protections for the company’s intellectual property.

The U.S. Constitution justifies the establishment of IPR in giving Congress the power

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.

As David H. Carey explains in his Acton monograph The Social Mortgage of Intellectual Property,

If allowing some techonology to be patented benefits society in the long run more than it costs society temporarily to forego unrestricted use of that technology, then such patents are morally defensible.

The Apple Store “experience” is tightly bound up with the company’s products (remember how miserably Dell stores failed?), and part of allowing Apple temporary exclusive use of its inventions is allowing it to sell them as it sees fit.

There is also the question of trademark, which exists primarily for the protection of consumers, so that when I buy a tube of Crest toothpaste from a CVS I know that I’m not getting a Chinese imitation accidentally laced with cyanide, stocked by a shyster posing as a reputable franchisee.

Whatever employees of these fake Apple Stores may say—and according to the blogger who broke the story, none of the stores’ sales force realized at the time that they weren’t working for Apple—it’s China! Would you buy an iPhone from one of the fake stores? The Chinese government has a responsibility to its citizens to enforce Apple’s trademarks and protect its citizens from fraud.

By pure coincidence, I can illustrate the importance of protecting IPR in China: Yesterday, about the time this story was hitting the internet, my father went to the Apple Store in Dallas (an authentic one) and purchased an iPad. While he is away for a week on a theology course, Apple’s device will give him access to email and other business tools, so that he can grow in virtue and keep his business running at the same time (and once they debut the iSpankings app, he’ll be able to keep his kids in line, too). He chose an iPad over any number of other devices because his IT guy—who doesn’t like Macs, as IT guys never do—told him it would do the job best.

Except for the U.S.’s protection of IPR, that market solution wouldn’t have been possible.

  • Timdbrose

    If IRP is not protected, companies have less incentive to develop cutting edge technology, IMO.

  • http://pulse.yahoo.com/_GYY3TFY76TFZHG3WYLJRXC755U Vichy Fournier

    Intellectual ‘property’ is a scam that logically leads to total control of another person’s minds and bodies. Don’t be absurd. This article is nothing but the silly rhetoric of a man who obviously has made no effort to realise that the enforcement of IP ‘laws’ is actually a crime, and the government that perpetuates it nothing more than a criminal gang.

    • http://blog.acton.org/archives/author/kspence Kenneth Spence

      Well it can’t quite be total control if there’s a temporal limitation on the patent, right? Do you have a specific response to the quotation of Professor Carey?

      • http://twitter.com/CapitalismHeals Vichy Regime

        Do principles mean anything to you? Have you heard of consistency? Do you know what property is? Have you ever bothered to read Stephan Kinsella?

        This is a joke. IP is utter nonsense. You don’t have a right to abstract concepts and anyone who tries to enforce such a ‘right’ is a gangster and deserves to be treated as such.

        • http://blog.acton.org/archives/author/kspence Kenneth Spence

          I think you would like David Freddoso’s new book Gangster Government http://www.amazon.com/Gangster-Government-Barack-Washington-Thugocracy/dp/product-description/1596986484

  • Pingback: Fake iPhone Store, iPhone and iPad Spotted in China [PHOTOS] – International Business Times | Demo Site

  • Grayson Wolfe

    I don’t have a lot of sympathy for companies that exploit the benefits of being in China ( the educated, lowcost workforce) and grouse about the cost of being in China (the workforce engages in systematic theft of IP). When I walk down the main streets of London or New York or my home city of Atlanta, I find goods from luxury or high design firms being produced in Chinese manufactories. When I walk down the side streets of those same cities I find the same goods, manufactured in the same factories often, for a fraction of the price. This is the cost of this “race to the bottom” that our globalized economic system has adopted as the new norm.

    • http://blog.acton.org/archives/author/kspence Kenneth Spence

      I agree Grayson–IP rights are not somehow intrinsic to a company’s producing something. We protect them for society’s sake, however. Apple won’t innovate if it can’t make money from products–and to cover the R&D costs of something like the iPhone, that requires patent protection. It’s a prudential question, so if you’re going to attack IPR, you’ve got to attack it there.

      Cheers!

  • Grayson Wolfe

    I don’t have a lot of sympathy for companies that exploit the benefits of being in China ( the educated, lowcost workforce) and grouse about the cost of being in China (the workforce engages in systematic theft of IP). When I walk down the main streets of London or New York or my home city of Atlanta, I find goods from luxury or high design firms being produced in Chinese manufactories. When I walk down the side streets of those same cities I find the same goods, manufactured in the same factories often, for a fraction of the price. This is the cost of this “race to the bottom” that our globalized economic system has adopted as the new norm.

  • pjg9g

    Not all free market fans are fans of intellectual property “rights.” You should check out the guys over at the Freeman. I find it a tricky issue. It sounds intuitive that intellectual property rights might be necessary to encourage innovation. But on the other hand, (1) big corporations are often in a position to simply steal ideas from the real innovators–the legal system tends to favor the people who can afford the best lawyers, and (2) even temporary monopoly rights are still monopoly rights, and they stifle others from adding their own innovations to new ideas.

    Keep in mind how many instances there have been in the past couple of decades of society benefiting from the free exchange of ideas: the world wide web, Wikipedia, open source software, and so on. I’m just not convinced we need to place temporary monopoly powers in the hands of powerful corporations in order to see greater innovation.

    • http://blog.acton.org/archives/author/kspence Kenneth Spence

      I agree that the cost of obtaining and defending a patent is maybe too high–but getting rid of IPR would be an extreme response.

      Innovation isn’t free–there’s a cost to research and development. That’s what an IPR system addresses: it says we’re going to encourage you to take the risk of spending time and money on something you might or might not be able to monetize, by making it more likely you’ll be able to turn a profit in the end. & if you think “corporate interests” are favored now, imagine an open season on stealing ideas from the real innovators!

      • Brian Murphy

        Intellectual monopoly favors “corporate interests”…big companies with IP make deals with other companies to share IP with one another. The little man doesn’t have an IP arsenal to get into this cartel. 

        Intellectual monopoly stifles innovation, it doesn’t encourage it. If there was no IP people would be forced to actually compete with one another instead of sitting on decades old “innovation” and suing anyone that tries to “steal” an idea. 

        In the long run, being first to market and being the one who created the innovation is far more important than using the government to threaten anyone that tries to imitate you. Even worse is using the government to threaten someone who independently had the same idea, but didn’t beat you to the patent office.

        Its absurd to say that you own an idea. If you share it with someone else you do not lose the idea, you have given them a copy. Stealing is when you take something from someone and they no longer have it. 

  • http://naturalaw.failuretorefrain.com jurisnaturalist

    You might be right, but saying so doesn’t make it so.  Too many of your statements here are unsubstantiated.  Counterfeiting of apple products has been rampant in China for years.  Oftentimes the products are identical, having been constructed in the same factories, sometimes some of the components are from different suppliers.  Yet Apple continues to earn a hefty profit. 
    If IP protection is justified solely on the grounds that it generates innovation, then whatever level of protection, of lack thereof, Apple currently enjoys must be more than is required to motivate innovating activities. 
    In the end, what is being argued over here is surplus.  Should more accrue to the consumer or the producer?  Well, competition usually works the details of that out.  But IP protection does generate deadweight losses, something which this articles author utterly fails to consider.
    Further, most of the time when welfare calculations are made about IP, the thrust of the discussion is over losses to producers due to lack of IP protection.  Seldom are the benefits to consumers who enjoy the counterfeited goods included in the calculation.  That’s just bad analysis.
    Nathanael Snow