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Example: China raises taxes to higher levels, then allows companies to lower the taxes down to the original lower rates by transferring IP and technology to China corporations from elsewhere. They provide overwhelming incentives in this way, basically forcing the transfer of ownership of IP from US companies to China companies...which make it totally under control of China. When your subsidiary, to which you transferred patents, is nationalized, what can you do?

Patents have to be transferred, but in order to get the tax benefits, the patents have to cover a technology which you use in China. I can't just transfer a patent to get the tax benefit...I have to show the tax authorities how the patent is used on an actual manufacturing line in China. It is not enough to sell a technology product there; you have to make it there...which trains your competitors, given the speed of movement of labor there.

ANd, that secret mixture the company has?...you can try to do half in the US, and half in China, but at least some of it has to go to China, where you lose control of your trade secrets. Some have suggested to me that if you have good technology, it is safe to say that more than one of your IT guys gets two paychecks, one from you, and one from the PRC.

And, when employees disappear with your trade secrets in the old fashioned way (without government enabled espionage), what do you do? Litigation is always a 3 party process. Your patent being infringed by a China competitor?...sue them, and you will discover that there are 3 parties in the courtroom, not two: you, the infringer, and the PRC government. Even if you have a 100% rock solid case, if that case goes against the long term interests of the PRC, you will lose. A factor is whether it is in the interests of the PRC to allow you to recover damages, or to allow their local company to continue infringing. There are crazy decisions in China courts...decisions that totally disregard IP law. Yes, there have been some prominent wins by Western companies against PRC corporations, but I am convinced that this is on purpose, for the media splash...just to give the West a case or two to talk about so that people can credibly (apparently) argue that things are changing, and the PRC protects the interests of Western companies.

And, by the way, law firms have government agents in their offices...there is no privileged conversation under China law. Have an IP problem? The files of every law firm are open to the PRC government as a routine matter, no warrent or official investigation required...mere nosiness can be used to justify opening up your files. Government agents can literally sit in on internal meetings at the law firm after you leave.