How to form effective anti-counterfeiting strategies in China
Once a brand has achieved a certain level of recognition, it is inevitable that it will attract the unwanted attention of counterfeiters. Initially, ‘second hand’ goods that are too cheap appear on consumer-to-consumer platforms online, but this can quickly escalate into full-scale independent websites which offer ‘replicas’ of a brand’s whole range of products. Soon enough, the need for a brand protection programme becomes apparent, but it can be difficult to know where to start.
According to the World Customs Organization, 75% of counterfeit goods seized worldwide originate from China. For luxury brands which rely upon high levels of sales in China, it is worth noting that this does not take into account the China domestic market for counterfeit goods, which is famously larger than in the West. As such, all anti-counterfeiting programmes should incorporate a combination of methods to prevent sales, and frustrate the distribution, of counterfeit goods at various stages in the supply chain.
The initial port of call, as with other jurisdictions, should be to register your trademarks with Chinese customs. Unlike many other countries, China will also inspect outgoing shipments, and if goods with your trademark are found, you will be notified and asked to verify whether they are unauthorised. Between China’s inspection of outgoing shipments, and other countries’ inspections of incoming shipments, a substantial although still minor number of counterfeits should be seized.
Any brand protection programme will pay particular attention to notice and takedown measures on popular online shopping platforms in their major consumer markets, directly interrupting the interaction between sellers and consumers. Similarly, in China, a number of companies specialise in monitoring and issuing notice and takedown for Chinese websites. Importantly they also cover wholesale websites and sales platforms which ultimately thwart much higher levels of sales aimed at foreign markets.
However, this will suffer from the same problems as any notice and takedown programme: serious counterfeiters will quickly open a new online store under a different alias and learn new methods to stay under the radar. This ‘whack-a-mole’ approach nevertheless interrupts counterfeiters’ existing sales channels and frustrates their storefront’s opportunity to develop a business reputation.
Targeting repeat offenders
It is important to supplement such a programme with targeted investigations on repeat infringers. The intelligence gathered from online storefronts discovered (and indeed other sources of information, such as customs seizures) can be put to use by experienced cyber investigators to track down more concrete registered companies, wholesale brick-and-mortar storefronts, or even source factories, where more permanent actions can be taken. However, with the sheer amount of intelligence available such as contact details, financial transactions and, on some platforms, store registration details, it is important to realise which counterfeiters to prioritise for investigation and which may be dead ends.
Once an on-the-ground address is found with goods in stock, such as a wholesale storefront, export warehouse, or factory, local specialists can assist with contacting the local authorities and organising enforcement action and seizure of the goods. This is especially effective when the counterfeiter does not appear to have significant assets or is too likely to disappear for the lengthy process of civil litigation.
“A woefully overlooked part of the problem is that many companies’ legitimate supply chains are also in China, and as such the knowledge of how to manufacture high quality imitations can be all too accessible.”
The most successful raids can lead to seizures of tens of thousands of products, which are then destroyed by the local authorities after the case is closed. Furthermore, if the value of goods on site, or as discovered in sales records, exceeds a certain threshold, then the matter is considered criminal by local authorities and should result in jail time for the counterfeiter. Realistically though, smaller raids are more of a seizure and slap on the wrist for counterfeiters, but do send the vital message not to counterfeit your brand, as you are watching closely.
As well as targeted investigations on counterfeiters you have discovered yourself, investigations companies will normally provide ‘sighting’ services where they will proactively seek out other wholesalers and factories for you. This involves visiting wholesale markets, industrial zones and other counterfeiting hotspots, while being on the lookout for your brand, through a network of investigators and informants. This can be particularly effective when there is not enough pre-existing intelligence to rely upon gathered from other parts of your programme, and will usually quickly escalate to further raids.
Proactive tactics
While all of the above are excellent measures to react to the threat of counterfeiters, brands should additionally consider what internal measures their company is taking to stop counterfeiters being able to successfully reproduce their goods. A woefully overlooked part of the problem is that many companies’ legitimate supply chains are also in China, and as such the knowledge of how to manufacture high quality imitations can be all too accessible. In a number of cases, a counterfeit product can be so good that it will take the brand several weeks to verify if it is genuine or not, requiring consultation with multiple departments.
For goods with distinct parts which are not too specialised, it is more secure to have separate suppliers produce each component and then send the finished components to a final assembly facility. In this way, each supplier only has ‘one piece of the puzzle’; if they decide to overproduce, they will not be able to make finished goods. Similarly, all official labels and tags should be strictly controlled and accounted for, so that counterfeits will not have official labels and tags.
When choosing suppliers in China, adequate supplier vetting processes need to be in place to ensure that you don’t encounter issues such as overproduction or counterfeiting. Not only should this include checks on litigation history, bad press, and other basic due diligence, but a good supplier should be checked for strict internal measures such as proper handling of IP, careful access control, and employee satisfaction. It can only take one disgruntled employee to take advantage of access to your production specifications and start a parallel counterfeiting operation.
A clear trend with counterfeit goods is that they regularly originate from the same regions and even specific towns as a brand’s legitimate supply chain. Accordingly, suppliers should be subject to careful monitoring and audits to ensure they are not producing your goods for other customers or using the knowledge they have to produce counterfeits in their other facilities. Most important, ex-suppliers should be monitored closely to ensure that they have actually stopped producing your goods.
Finally, any brand protection programme will be subject to budgetary approval and concerns. In order to prove it is effective, worthwhile and will continue in the long term, brands need to conduct market surveys to understand the extent of the counterfeiting problem. Looking at the frequency of counterfeit goods in both online and offline markets, especially when complemented by data from seizures, enforcement and takedowns can ensure that you are making a meaningful impact.
Lee Macfarland is IP and security director at investigations provider CBI Consulting. He can be contacted at: macfarland@managing-risks.com
