“Cracking Down on Counterfeit Goods”: Toyota Corporation’s Policy for the Chinese Market

By Han Jingyi, China IP,[Unfair Competition]

In recent years, competition in the international markets has become increasingly fierce. It goes without saying that both for enterprises and nations, an IP protection system plays a very positive role in the market economy. In view of this, some countries raise IP protection to the level of national economic strategy and pay unprecedented attention to it. Japan is a typical example of this. In March 2002, it established the "Strategic Council on Intellectual Property", and on July 3 promulgated the "IP Strategic Outline", which listed becoming an "IP-based Nation" as a national strategy. On November 27 of the same year, the Japanese Parliament passed the "Basic Law on Intellectual Property" promulgated by the government, which provided legal security for the "IP-based Nation" strategy. Toyota Corporation, as a representative of Japanese enterprises, can be rated as first class in the world in its sales volume, sales value and popularity. Its advanced technology and high quality are highly praised by people all over the world. According to the latest statistics, Toyota Corporation had a global sales volume of 4,710,000 cars in the first half of this year, 4,000 cars more than GM's global sales volume in the same period. Moreover, the Wall Street Journal estimates that Toyota Corporation will beat GE in the volume of car sales this year.  
 
The strong competitiveness of enterprises is the result of good marketing achievements. For Toyota Corporation, competitiveness is inseparable from its unremitting efforts in IP protection. Why does Toyota Corporation pay such great attention to IP protection? How does it carry out its IP protection work in China? With these questions, this journalist visited Mr. Hiroshi Kamo, Director of the Intellectual Property Division of Toyota Motor Technical Center (China) Co., Ltd.

Toyota Corporation's first overseas IP Division is in China
  China is the first country in which Toyota has set up an overseas IP division. Succeeding China, Toyota sent specialists to the United States in April 2005 to deal with IP work there. Before this, only Toyota Corporation's Japan headquarters had an IP division. In the eyes of Toyota Corporation, China and the United States enjoy the highest importance for IP issues. Job content may differ in these two locations, but specialists must be there to undertake their tasks.

  According to Mr. Hiroshi Kamo, Toyota Corporation has only one IP division in China, and he is the first permanent representative in China engaged in this work. To be more precise, his arrival at the Beijing office of Toyota Motor Technical Center (China) Co., Ltd. symbolized Toyota Corporation's commencement of IP work in China, with "cracking down on the counterfeiting of goods" being the working focus. After more than one year of constructive work, the Beijing Office greatly improved itself with respect to its personnel systems. In January 2006, the Intellectual Property Division of Toyota Motor Technical Center (China) Co., Ltd. was formally established, and its main tasks are to deal with intellectual property issues.

  At present, there are five members in the IP Division, whose main efforts are: to crack down on  counterfeit goods, to coordinate the relations between Toyota Corporation and relevant patent / lawyer firms , to stay in tune with updated revisions of Chinese law, to make an analysis, and to submit its findings to Toyota Corporation's head office for reference.. Before the establishment of its IP division, Toyota Corporation mainly carried out IP work in the following way: the head office in Japan directly entrusted local agencies in China, such as law firms and IP agencies to deal with the work. When necessary, the head office would send staff on business trips to the agencies and firms handling the work.    

  As for the reason why the IP division was set up in the technical center, Mr. Hiroshi Kamo figured that from the perspective of the working content of the technical center, it is designed to support production. Also, in Toyota Corporation's head office in Japan, the IP Division is in the technical center, similar to China. This is done to form a consistent system, and to increase the familiarity among the staffmembers to facilitate their work.   

 "Cracking down on counterfeit goods" is the core of Toyota Corporation's IP protection in China 

  Speaking of IP strategy, Mr. Hiroshi Kamo said, "Toyota Corporation's IP strategy is made by its head office. The function of the IP Division in China is to put the set strategy into practice. When we make strategies, we collect relevant information in China, report it to the head office and assist our superiors in developing strategies".

  A most striking point of Toyota Corporation's IP strategy for China is the "cracking down on counterfeit goods". On this point, Mr. Hiroshi Kamo said, "counterfeiting not only harms Toyota Corporation, but also imposes an adverse effect on the entire country's industrial development. Therefore, for the protection of consumers' interests, Toyota Corporation considers it necessary to devote more enthusiasm to the cracking-down on counterfeit goods." He also said that in the automobile industry, counterfeit goods had invaded all replaceable parts. That is to say, Toyota Corporation has detected counterfeit goods for all products, including filter cleaners, fuel filters, oil filters, air filters, front glass, brake sheets, shock absorbers and clutches. Only engines, speed changers and related parts that run the cars engine survived counterfeiting. In China, most counterfeit goods are clustered in the provinces such as Zhejiang, Guangdong and Fujian. Jiangsu and Shandong Province, although presently not having many counterfeit goods, shows a tendency to possibly increase.

  Toyota Corporation's IP Division in China faces difficulty in its work because it is difficult to monitor the distribution of counterfeit goods countrywide. What they currently learn is rather limited. Sometimes, they will find an "odd circle": deeper into their investigation of counterfeit goods, more counterfeit goods are found. "We don't know whether it is because the factories formerly in Zhejiang and Guangdong provinces that we have cracked down on have moved to other areas. We don't feel any decrease in the counterfeiting of goods. Surely we can't say that they are increasing. But it is certain there is no large increase". Toyota Corporation is not very clear about the general situation of the counterfeiting market in China. Therefore it can't make an accurate calculation of the amount of losses each year. But Mr. Hiroshi Kamo has an estimated value: 20-30 billion Japanese yen, calculated by the amount of counterfeit goods impounded in China by Toyota Corporation times the sum of Toyota Corporation's authentic goods. The result is at least 2 billion Japanese yen. The conservative estimate shows that the amount of counterfeit goods presently detected by Toyota Corporation is possibly one-tenth of the total amount of counterfeit goods. Thus, a calculation of 10 times 2 billion Japanese yen, equals losses of 20-30 billion yen. Particularly, this amount does not include losses resulted from counterfeit goods exported from China to overseas countries. "Once the calculating factors are changed, the result will be quite different. If the Chinese government institutes a hard-core crackdown, more counterfeit goods will be confiscated. And accordingly, our losses will increase", said Mr. Hiroshi Kamo.

  Considering the various guises for counterfeiting goods and the losses occurring, Toyota Corporation has devoted much to "cracking down on counterfeit goods". Currently, Toyota Corporation detects counterfeit goods in two ways: on one hand, it entrusts some investigating companies to investigate within a fixed area for information on the counterfeiting of goods; on the other hand, some investigating companies will periodically send information on counterfeit goods to Toyota Corporation as a business deal. The latter will then check the authenticity and confidence level of the information, and decide whether to entrust this company to carry out further investigations. By these means, Toyota Corporation will complain to the local industrial and commercial administration or to other authorities after obtaining sufficient proof. 

  "Toyota Corporation, possibly because of its identity as an automobile manufacturer, pays much attention to the crack-down on the counterfeiting of goods. As auto parts have an important bearing on people's lives and safety, the state has attached much importance. Up to now, Toyota Corporation has never come across any complaint that can not be settled." Said Mr. Hiroshi Kamo. In some particular cases, for example, the county-level departments don't cooperate with Toyota Corporation's cracking-down activities, and Toyota Corporation will complain to city-level, provincial departments or even to the central government. However, such complaints are not made simply by one company such as Toyota Corporation, but by other organizations, such as the Japan External Trade Organization (JETRO), or Quality Brands Protection Committee (QBPC). At this point, infringement is a problem not for one enterprise, but for many. It will attract the attention of higher authorities or the central government. Besides directly complaining to local administrative departments, Toyota Corporation has another approach: reporting to the IIPPF, and complaining to the state authorities in China through it. IIPPF, short for "International Intellectual Property Protection Forum", is an organization established for governmental and non-governmetal entities in April 2002 enabling Japan to crack down on such activities in other countries of selling counterfeit Japanese products. The organization consists of 82 companies and 55 unions engaged in household electrical appliances, automobile, metallurgy, machinery, cosmetics, stationery, and other field. Until June 2006, it has carried out four China visits.  
  

  As for the present situation concerning the Chinese government's "crackdown", Mr. Hiroshi Kamo said, "The Chinese government has instituted a hard-core crackdown. Toyota Corporation expects to cooperate with the Chinese government to crack down on the counterfeiting of the most basic car fittings". But there is still a problem. Counterfeit goods are not only marketed in China, but exported to other countries. Therefore, the crackdown policies toward the countries that import counterfeit goods have been the focus of the head office. With respect to customs seizures, Mr. Hiroshi Kamo admitted that China has made great strides. In the future, possibly a crackdown shall also be reinforced toward the countries that import counterfeit goods.     

  To protect intellectual property in multiple ways

  Besides the suppression of counterfeiting activities, Toyota Corporation conducts universal education of basic knowledge for consumers. Toyota's 4S shops have close relations with consumers (4S shop is a professional service center integrating sales, spare parts, services and survey), as well as with sellers, and favorably supplements the suppression activities. According to Mr. Hiroshi Kamo, Toyota Corporation, on one hand, tells consumers how to discern counterfeit goods and encourages them to go to Toyota's 4S shop or other large shops to buy Toyota products. This is to ensure that they buy genuine products. On the other hand, Toyota Corporation has started offering education for its 4S shops and sellers. An important point for the seller's education   is that if they realize the products purchased by consumers are much cheaper than that of Toyota Corporation's genuine products, and are obviously counterfeit, they are obliged to remind consumers of this fact, or ask the 4S shops salespersons to do so.

  In respect to patent applications, Mr. Hiroshi Kamo said that patent applications are essential for all of Toyota Corporation's core technologies. For the moment, the average amount of patent applications in one year is 800-1,000. The figure of last year was around 1,000. And before that, it was about 600. Toyota Corporation also stresses trademark protection. Besides "TOYOTA", the elliptical logo " ", Chinese characters "丰田", " " and its logo " ", as well as "COROLLA" and "CROWN" are all the registered marks. Totally, there are about 230 marks registered by Toyota Corporation in China, including such a situation that goods of different classifications may share one mark. 

Criminal prosecution is an effective means of cracking down

  Facing various counterfeit products, will Toyota Corporation protect its own rights through legal action? Referring to this issue, Mr. Hiroshi Kamo made a point that "legal action falls into two categories: criminal prosecution and civil prosecution. Criminal action involves the cracking down of counterfeiters by the public security bureau through the power of the state after it discovers any serious case and registers it as a criminal case. This is a very effective means for Toyota Corporation. For civil actions, Toyota Corporation asks the court to judge the counterfeiter's infringing act and the amount of compensation the counterfeiter is ordered to pay. Considering the long time consumed by civil actions and the small compensation awarded, it costs Toyota Corporation too much time and energy to sue every counterfeiter by civil actions, and the result is not usually very satisfactory. Therefore, civil action is not a major concern for Toyota Corporation in China. It is just compelled to bring civil actions sometimes. In addition, another reason why civil actions are not chosen is that the recovery of compensation is not the main purpose of Toyota Corporation, but protecting consumers is. Compensation is not very important to Toyota Corporation. What it cares about most is how to stop the infringing act."   

With the intensification of the Chinese government's efforts in "cracking down on counterfeiting goods", the amount of counterfeit goods in the full sense of the term is decreasing. However, another phenomenon presents itself: the amount of unauthorized passing off of goods is increasing. Mr. Hiroshi Kamo commented on this point, "Toyota Corporation will try to request the Chinese government to make a determination of trademark proximity. Proximate trademarks will also cause infringement. Another means is to try to obtain "well-known trademark" recognition as soon as possible." Now, "丰田" (Chinese characters) has been recognized as a "well-known trademark". "TOYOTA" is still in the application process. For Toyota Corporation, all basic brands shall be specially protected, such as "丰田" and "LEXUS". Toyota Corporation will never allow counterfeiters to produce goods taking advantage of Toyota's reputation by passing them off as Toyota's, as similar goods could possibly endanger consumers' lives and property. Mr. Hiroshi Kamo believes that the destruction of these goods by the government is a waste of resources. He hopes that all Chinese manufacturers will realize this, and develop their own technology. Besides, China currently is experiencing a rapid technological development, and will eventually catch up with and surpass Japan. Maybe, the amount of copied goods will decrease in the future.

  New enterprises shall focus their attention on the creation of their own brands

  We are now inevitably facing a major problem: compared to the numerous counterfeiters, the ability of enterprises to combat infringement is very limited. Therefore, our efforts naturally turn to the "creation of an enterprise's own brand". In Mr. Hiroshi Kamo's opinion, a company must have its own originality. Otherwise, it can never tell its potential customers "it's our own car!" For car companies, a most essential quality is that they possess their own originality. For this purpose, Toyota Corporation, Honda Corporation, and Nissan Corporation have spent much time and money on the research and development of layout designs. The aim is to show consumers the originality of their brands, and the image of their companies. 

  At present, it is a common phenomenon in the car industry that many cars have a similar layout design. People may see that different car brands share a similar layout. Considering such a market condition, Mr. Hiroshi Kamo said that for a new enterprise, imitation might gain it benefits in the short term because when it uses the shape for a car similar to the fashionable ones on the market without incurring any design costs, it both saves money and creates short term benefits. But with a short-term vision, an enterprise can never win the customer's trust; nor will it have a promising prospect, if it avoids independent development, and does not thoroughly study the competitor's cars and the improvements in the layout designs. If the new company does not take pains to develop independently and intensify its own strength, it will fail to provide consumers with cars having originality, and will lose competitive power.

  Finally, Mr. Hiroshi Kamo pointed out another indispensable reason why Chinese consumers are becoming more rational in buying cars. What they are concerned with is not only the layout design, but also the internal structure and the car's performance. This is quite adverse to those car manufacturers using imitated layout designs. Therefore, if a car company wants to possess the strong competitive power, it's necessary to place high emphasis on its own research and development.

Hiroshi Kamo is the general manager of the Intellectual Property Division of Toyota Motor Technical Center (China) Co., Ltd. and the project general manager of the Operation Management Division and the Intellectual Property Division of Toyota Motor (China) Investment Co., Ltd. Since 1974 when he was employed by Toyota Corporation, he has been in charge of the management of overseas trademarks and technical contracts. He went to the United States in 1989, being responsible for personnel and general affairs in Toyota Motor Technical Center (U.S.) Co., Ltd. Four and a half years later, he returned to Japan and was successively in charge of the preparation of technical contracts, production of trail-manufacturing parts, control of trademarks and designs, as well as cracking down on fake products. Since February 2005, Hiroshi Kamo has been stationed in the Beijing Office of Toyota Motor Technical Center (China) Co., Ltd., presiding over Toyota Corporation's IP work in China.
                                                                                (Translated by Hu Xiaoying)

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