Counterfeiting Changes in the Eyes of Rights Defenders

Issue 29 By Doris Li, China IP,[Comprehensive Reports]

After the “Silk Street Market Incident,” Wang Zili, General Manager of the Beijing Silk Street Market Co. Ltd. (SSM), spoke about the early knockoff business at the SSM and said, “There were no fake goods on the Street at first. During the late 1970s, the Market began by selling fruits, textiles and, later, goods for foreign trade. In the 1990s, foreigners brought pictorial brochures and voluntarily solicited knockoffs. Gradually, the Market has gained the ‘fame’ that we see today.”

Economic development called for in the investigation industry

The Chinese economy grew rapidly in the 1990s. Meanwhile, counterfeit goods also became rampant. Today, with advances in technology, counterfeit products are not limited to daily commodities, but have spread into a number of high-tech areas. With the introduction of many world renowned brands and the development of foreign trade, China’s counterfeiting “market” has also gained much global attention.

Zhang Weian, Chairman of the Quality Brands Protection Committee of China, Association of Enterprises with Foreign Investment (”QBPC”) said, “In the past, it was common for businessmen from the Middle East and South Asia to bring samples to China for manufacturing, some of which were obtained in Europe and the United States. In November 2004, the Ministry of Public Security launched a nationwide operation called Operation ‘Mountain Eagle,’ which resulted in 2,054 criminal prosecution cases, 1,804 wrapped up, and 3,667 arrests. Unlike the past, things have become more complex with regard to the export of counterfeit products to Africa, since Chinese businessmen have set up sales channels in Africa, a complete chain of manufacturing, supply and sales.”

Evolution of the counterfeiting “industry”

In our daily lives, counterfeiting is not limited to daily commodities such as clothes or shoes; but sometimes includes software, office consumables, and electric appliances, which may also be counterfeits. Moreover, counterfeit products exist in a variety of ways, including counterfeiting, bogus and inferior products, which has made it difficult for the public to differentiate between the real and counterfeit products. However, whether it is the counterfeit daily commodities of the past, or the counterfeit high-tech products seen today, it is all driven by the economic benefits, which has helped with the “cause” of the counterfeiters.

With 15 years of experience in IP investigation, Li Changxu, board chairman of the China United Intellectual Property Protection Center (CUIPPC), said, “I think there are three stages in the development of China’s counterfeiting industry: the initial stage in the 1980s, the rampant stage in the 1990’s and the stage after the effective date of the new Criminal Law on October 1, 1997.
During the rampant stage in the 1990s, I once went to Taiqian County in Henan Province, where I found labels, bottle caps, and bottles for Moutai liquor. At that time, there were training classes on counterfeiting skills in Guangzhou. We were able to find address lists of the trainees and then followed this lead to crack down upon counterfeit products. Therefore, it can be said that the most rampant counterfeiting occurred in the 1990s. That was due to comprehensive factors such as consumption sense and undeveloped logistics system.

After 2000, I think the counterfeit situation underwent several big changes. Before that, counterfeiting and bogus goods were ‘twins,’ but in the 21st century counterfeiting was “twined” with knockoffs. The second change is regionalization. In the 1990s, detergents, cosmetics, food and drinks and other counterfeits were mostly in Guangzhou, and coastal areas in the south and east of China. At that time, counterfeiters lived in the same village, manufacturing bottles for counterfeit hair shampoos, bottle caps and packaging cartons. However, it was rare in the north. Things are quite different now. Most counterfeits are everywhere. In the past it would be rather difficult to get genuine sauce in Beijing, and people shopped mostly in small commodity fairs where counterfeits were easily admitted. Now, an advanced logistics system is in place making it rather difficult for some counterfeits to slip into these normal logistics channels. Therefore, it can be said that there are changes from one region to another. Other changes in the regions is the transfer from big and medium-sized cities, to second-tier cities and third-tier cities, and then to areas between the city and the countryside. There are also exports of counterfeits from Chinese Customs to other countries. 

The third major change is that counterfeit products have entered the bidding arena, namely, the government’s procurement area. In cases I have handled over the past few years I have found such a change from time to time; some of the products purchased by the government have been counterfeits. Of course, this also relates to corruption. What is more frightening is that counterfeits also show up in some bids for engineering projects. It would not be easy for investigators to discover these counterfeits. The government, media, and rights holders, as well as common customers, have difficulty finding the truth. The logistics channel has developed into a more advanced channel. We find less counterfeit products in the markets, as a matter of fact.  However, the absolute number of counterfeits is not decreasing, while its nature has advanced. It would be hardly felt by common consumers. “

More difficult to fight counterfeiting

There are three cross-border cases among the “2008-2009 10 China Best IP Protection Cases” selected by the QBPC. Counterfeit-fighters and counterfeiters have always played a hide-and-seek game from counterfeits manufacturing to exports. With the growth and development of counterfeiting markets over the past dozen years, the “rats” have accumulated much experience embarrassing the “cats”.

Talking about the development of China’s counterfeiting industry, Bai Gang, chief partner of the Wan Hui Da Intellectual Property Agency, said “initially, counterfeit products were relatively simple and low-end products. At present, counterfeit products have entered every industry, including goods for us to eat, wear and use, and even some high-tech products. This is a significant change.

The second difference is that in the past the bulk of counterfeit products was manufactured in a rough way and could be detected at first sight. However, now it is not easy to detect counterfeit products. Many measures have to be taken to detect counterfeits. In the past counterfeit products were mostly sold on the streets, but now they are exported by the ton. In one recent case, Customs seized 50,000 shirts. The counterfeiter could make 50,000 shirts, and is able to sell them in the United States. In addition, the counterfeiter has taken more sophisticated and secretive measures in counterfeiting. I remember when I first joined in the investigation; investigators always rented a Mercedes Benz to pose as a big buyer, so that they would be able to clamp down on counterfeits on site.

Things are quite different now. Neither foreigners nor Chinese have easy access to counterfeiting sites. Moreover, counterfeiters’ product lines are scattered throughout careful distribution methods. Many counterfeiting plants also offer OEM services; it would be difficult to determine which unit they belong to, and sometimes, a counterfeiting plant has various roles. In addition, the commercial benefits of counterfeiting may be greater than other industries; counterfeiters will not operate without orders. Therefore, it would be almost impossible to discover more targets. Counterfeiters usually get everything ready with a high degree of efficiency, and are capable of assembling and sending out counterfeits in a short period of time. Generally speaking, counterfeiting measures and efforts related thereto have become more and more difficult to detect. The Government has always attached great importance to clamp-downs on counterfeiting. In recent years, the Government has launched many activities, such as the newly revised Implementing Regulations of Customs and the practice of consolidation of the three trials. However, due to the difficulties in investigations, and limitations in measures, and the overlapping of anti-counterfeiting authorities, there is no uniform strength in clamping down on counterfeiting.”

Counterfeiting industry enters the high-tech era

The advent of digital information and the development of global high technology have facilitated development of every industry, and have simultaneously increased people’s anxieties as well. Counterfeiters have not only used high-tech measures to manufacture “advanced” counterfeit products, but have also used high-tech measures to create new challenges and troubles in the clamp-down on counterfeiting. 

Zhang Weian, Chairman of the QBPC, is of the view that the Internet has become a prominent channel to sell counterfeit products. The seller does not have any real shops, or any stock, and will only begin to operate after receiving an order from the buyer. One former member company of the QBPC found in one case that a counterfeiter had shared its achievements and ways of exporting counterfeits on the Internet. In their talks, they shared their experience in how to start with low-end counterfeit products. In addition, counterfeiters thought that it was more dangerous to deliver goods by themselves, and it was much safer to deliver goods by EMS due to the lack of examination. Recently, we learned that some post offices had offered discounts in postage to big customers. Accordingly, some counterfeiting companies might take advantage of the discount and deliver counterfeit products in the name of the big customers. 

The circulation of counterfeit products in the high-tech area has become a headache in developed countries. Mark A. Cohen said: “I think the US is partly synchronized with China in the fight against counterfeiting, namely, against the sale of counterfeits on the Internet. Some departments may not know how to do this. In addition, is a download from the Internet an export? The US has expressly answered this question, but China and many other countries are still unclear. And no express provisions address which department will have such power, the Public Security Bureau or Customs? Many measures and regulations in China fail to expressly address this problem. However, cross-border, high-tech sales of counterfeit products and piracy has become more and more serious.”

(Translated by Wang Hongjun)

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