China Law Blog

My hometown newspaper, the Seattle Times, recently ran a story, entitled, Inside China's Teeming World of Fake Goods, focusing mostly on knock-offs sold at Shanghai's Xiangyang market.  This article is definitely a cut above the usual, "China is rife with nothing but fakes" article.  First off, the reporter clearly has spent considerable time in China and this story actually reflects her own experiences there.  Second, the article does more than just talk about counterfeiting in China; it also talks about how the situation is improving, and it even talks about how "China has its own business giants, such as Huawei (telecom), Lenovo (personal computers) and Li Ning (tennis shoes), that have a growing interest in protecting their valuable brand names and technology" and how both "well-to-do consumers and ambitious corporations may propel a shift in attitudes in the broader Chinese society." 

It also talks about counterfeiting of computer software and that is indeed a huge problem in China.  Huge.  Estimates are that up to 90% of software being used in China is counterfeit.  I went to lunch the other day with Adobe's lead Seattle counsel and it was fascinating to hear him talk about how Adobe has quite successfully adjusted its business practices and pricing to the Chinese market.  Counterfeiting of movies on DVDs and music on CDs is also rampant.

And yet, I still take some issue with the Seattle Times article, more for what it does not say, than for what it does say.  I went to the Xiangyang market my last time in Shanghai armed with a list of brand name clothes and purses given to me by my terminally hip fifteen year old daughter (No. 30 in the picture).  I mostly just wanted to see the market for myself and, based on the fakes I had seen elsewhere in China (and in Korea many years prior), I wanted to be able to tell her I was coming back empty handed was because the market had nothing good.

With the exception of DVDs and software, the market did not have anything good.  The North Face jackets my daughter had requested were junk.  Not a one of them would ever pass muster at any Seattle high school and there would be no way my daughter (or any of her friends) would be caught dead in one of these. The same is true of all the fake watches and fake purses in the market.  None of them looked even close to being real, and that was to me who buys the same shirt in 10 different colors just to keep life simple.  I find it impossible to believe Prada is losing out on the sale of its $400 purses to the people paying $20 for obviously fake Prada at this market.  This Australian editorial makes this same point.  I have to believe everyone at that market knew they were looking at fakes.  Indeed, that is why they were there.   

The Times article also does not account for the fact that the market for mid-to high end foreign brand goods in China is flat out booming.  Nike, Nokia, Dell, Motorola, Coca-Cola, Gucci ... have all been reporting double digit sales growth in China.   

I am not aware of rampant counterfeiting in China outside of software, DVDs, and CDs.  These digital products are constantly counterfeited because it is easy to do so and because the Chinese consumer can be relatively confident of getting either the real thing or something close enough to it.  There is an acute awareness in China that brand equals quality and once a foreign brand becomes well known, the popularity of its fakes declines precipitously.   

This article implicitly makes it seem the onus is on the Chinese government to monitor markets like Xiangyang.  Though the Chinese government does have a role in stopping the sale of faked goods (particularly goods like medicines and baby food), the foreign companies themselves also have an obligation to protect their own brands. 

Nike has been very aggressive in registering its trademarks in China and in going after those who violate their trademarks.  So much so that we previously cited Nike as an example of effective IP protection in China.  I have yet to see fake Nike products for sale in China.  Though I certainly do not know this to be the case, there is even the possibility that those companies whose faked clothes are on display in the Xiangyang market have made little to no effort to stop the fakes because they are not yet selling their own product in the Chinese market.    

Our experiences are that if a foreign company properly registers its trademark in China and vigorously seeks to enforce it, it can and will eventually prevail in the courts there.  Isn't that essentially all one expects in the United States or the EU?  The following posts all discuss foreign company trademark successes in the Chinese courts:

1.  Starbucks Ruling no Big Deal

2.  Faked in China -- Protection is Possible

3.  Another Foreign IP Victory -- Ferrero

4.  IP Protection in China on the Increase -- Confirmation by Leading Economists.

Global management consulting firm, ATKearney recently did a brilliant study on Chinese counterfeiting in which they graphed Chinese counterfeiting with one axis labeled "global" and the other axis labeled "local" and a trend line indicating the sophistication of the counterfeiting.  At the bottom (most local, least sophisticated) were the clothing items one finds at the Xiangyang market.  At the top:  "mutant brands in global markets," with the Chery QQ copy of the Chevy Spark as the example.  It is the top of this graph that is the most dangerous, the most pernicious and, I believe, the most economically damaging as well. 

The big problem with counterfeiting is not the badly done North Face jackets one can find at select markets in China's larger cities.  The problem is the international counterfeiting of high end goods like drugs or car parts for sale throughout the world.  Some of this counterfeiting no doubt does go on in China, but much of it goes on in places like North Korea, Russia, and many other countries as well. China is trying to get its counterfeiting under control and it has been, and almost certainly will continue to be, slow going. 

I am not in any way trying to minimize the importance of cracking down on the counterfeiting that goes on in the Xiangyang market.  But, I believe the Xiangyang type counterfeiting will decrease as China's GDP rises. Those buying fakes are doing so because they cannot afford the real thing.  I am not convinced that time will have much impact on the counterfeiting of goods at the top of the ATKearney graph and I believe it will take an increased and better coordinated worldwide law enforcement effort to stop it.