1 October 2012Trademarks

Joining forces: outwitting counterfeiters in north-east Asia

In an inverted S-shape, running from Beijing to Seoul and ending in Tokyo, lies the so-called Beseto corridor. It is one of the largest urbanised ‘city-regions’ in the world, encompassing the capital cities of China, South Korea and Japan plus two other major cities, and comprising around 100 million inhabitants along a 1500-kilometre strip.

With increasingly wily counterfeiters, every day vast quantities of genuine and counterfeit goods wind their way down the Beseto corridor. It takes only two hours to fly from Beijing to Seoul, and another two hours from Seoul to Tokyo. Counterfeit goods manufactured in China, seen as the world’s primary supplier of fake products, can reach major cities and millions of consumers at a very fast pace.

"In a world where size matters, counterfeiters refuse to deal with potential customers unless they make a substantial purchase, and they never provide samples."

The goods often begin their journey in southern China, a manufacturing heartland. Front men or front companies typically register the businesses that manufacture the goods, according to Douglas Clark, a barrister in Hong Kong who wrote a report entitled Fighting Counterfeiting in Asia. “This makes it difficult to identify the true players behind a counterfeit operation and make them liable for their infringing acts,” his paper says.

Like many legitimate businesses, the counterfeiters use a ‘just in time’ system. They do not usually keep track of stock. “They only produce according to orders, making it difficult to have large volumes of counterfeit products seized. If stock is kept, it is generally kept separate from manufacturing facilities in a secret location that is leased in the name of a front company and is difficult to link to the counterfeiter,” Clark says.

“More sophisticated counterfeiters will not produce goods themselves. Instead, they use separate sub-contractors to make different parts of the counterfeit products, which are then assembled by a further sub-contractor.”

In a world where size matters, counterfeiters refuse to deal with potential customers unless they make a substantial purchase, and they never provide samples. Clark says this is to avoid detection and it makes it difficult and expensive to confirm whether goods are actually being produced.

“Generally, to mount any type of civil or criminal case, it is necessary to have a sample of the product to prove that it is a counterfeit.” He says that even if an order is accepted, the main players are rarely involved with delivering the goods.

This is left to sub-contractors and other middle men who oversee the vast distribution channels that stretch across the world. In an attempt to outwit law enforcement officers, the more sophisticated operators mix counterfeit and genuine products—purchased on the ‘grey’ market—and mix them together.

“Any person found in possession of mixed products can simply claim that they have been duped.” The counterfeiters distribute these goods across China, supplying notorious hotspots such as Yiwu and the markets in Beijing. Goods produced by Japanese companies are commonly mimicked, but in recent years Japan has been fighting back. Working with China, it has sought to stop fake goods being sold in China and transported to Japan.

The countries are liaising through the Japan External Trade Organization (Jetro) office in Beijing, says Kenji Sugimura, chief executive of Sugimura International Patent & Trademark Attorneys based in Tokyo. Established in 1958, Jetro seeks to promote trade and investment between Japan and the rest of the world. It set up its first office in Beijing in 1982 and its IP division was born in 2000.

Officials work with Chinese government institutions and consult Japanese businesses in an attempt to thwart the counterfeiters in China. The IP division provides training to local law enforcement officials and holds meetings with them, so they can more easily distinguish fake from genuine goods made by Japanese businesses.

Sugimura says Jetro has provided him with “effective” information about counterfeit goods. “I feel that its information and reports are practical for Japanese companies that are reviewing their business with Chinese companies. Jetro is very popular among Japanese companies because of its reliability.”

But this is not stopping manufacturers trying to push counterfeits through Japan’s borders. Since 2009, the number of seizures made by Japanese customs that originate in China has slowly risen, showing the increasing attempts to unearth financial opportunities on the Japanese markets.

The vast majority of goods seized in 2011 by officials came from China, with the data showing that 91 percent of the ‘cases’ originated there, while 558,522 items—equating to 76 percent of the overall quantity—were produced there.

Almost 95 percent of the overall cases were posted packages, with the remainder being cargo. Bags were the most common counterfeit items trapped by Japanese customs—more than 50 percent—with apparel (11 percent) and footwear (8.5 percent) coming second and third, respectively.

When customs officials smell a rat, they notify both the rights holder and importer that they are beginning ‘identification procedures’. In this process, officials first send the names and addresses of each party—if the information is available—to the other. They then give the parties 10 days to submit evidence about the goods to support their case.

This evidence can be swapped by the parties to allow them to submit further material, known as ‘additional opinions’. Once officials have made their decision, they can destroy or confiscate goods deemed to be counterfeits. They notify both parties of their decision.

Despite customs’ best efforts, many of the counterfeit goods that slip their way through Japan’s border come from China, says Sugimura. “In many of the cases where our clients seek a consultation about counterfeit goods, those goods were purchased from Chinese stores.”

"The idea is for customs officials to share information on trends and on numbers of goods seized, notify each other about changes in legislation and liaise with rights holders."

South Korea is another hot spot for counterfeit goods produced in China, says Joo-Young Moon, an attorney at Kim & Chang in Seoul. “From our experience, China is one country that exports a substantial number of counterfeits to South Korea. Also, factories are sometimes established in Korea to manufacture counterfeits.”

To restrict these imports, the Korea Customs Service operates a similar system screening system to Japan’s. “We think that the authorities are doing a good job overall,” says Moon. “That said, realistically, it is simply not feasible for customs officials to thoroughly examine every single container and shipment which comes through their borders. As such, several other bodies including the police department and Prosecutor’s Office deal with counterfeits through criminal raids and prosecution of infringers.

“The Korean Intellectual Property Office (KIPO) also established the Special Judicial Police department, whose main purpose is to monitor and address infringing activities in Korea. The police have authority to apprehend infringers for the manufacture, distribution, and sale of counterfeit goods, and can send them directly to the Prosecutor’s Office and punish them with criminal penalties.”

In April 2012, KIPO reported the result of a crackdown on counterfeiting in the first half of 2012. According to the report, 159 people were charged and 77,726 items worth a combined $7.3 million were seized. “The infringers are diversifying into shoes and hats that are popular with teenagers and even drugs such as Viagra, as well as luxury bags,” says Moon.

Tripartite meetings

In an effort to coordinate their fight against counterfeiting in north-east Asia, the commissioners and directors of the Japanese, Chinese and Korean authorities have been working together—with the help of brand owners—to try to stop counterfeits circulating.

Since April 2007, when customs officials from the three countries held their first tripartite meeting, protecting and enforcing IP has become a priority. Following the meeting officials set up a Tripartite Working Group, which met for the first time in Tokyo in October 2007.

At its fourth meeting in November 2011, the group masterminded the ‘Fake Zero Project’, a coordinated attempt to restrict counterfeiting. The idea is for customs officials to share information on trends and on numbers of goods seized, notify each other about changes in legislation and liaise with rights holders.

According to a white paper (China-Japan-ROK Cooperation 1999-2012) released by China’s Ministry of Foreign Affairs in May 2012, the meetings have led to positive developments.“The Tripartite Customs Heads’ Meeting has provided an important platform for the customs authorities of the three countries to strengthen coordination and cooperation in regional affairs.”

“It is supported by four working groups, ie, working groups for IP rights protection, customs enforcement and intelligence, authorised economic operator and customs procedures. The customs authorities of the three countries have carried out close and effective cooperation in the above areas as well as in human resources development.”

But Sugimura disagrees, saying not all is well with the project. “My personal impression of the Fake Zero Project is that it does not appear to have functioned adequately and solved increasing infringement issues in Japan. But I hope that it establishes effective international systems for IP protection.”

The same white paper explains the coordinated efforts between the national IP offices in each country. Since 2001, the State Intellectual Property Office of China, Japan Patent Office and KIPO have met 11 times. In 2011, they signed a joint statement on enhancing IP cooperation, marking the beginning of a “new stage for trilateral IP rights cooperation”, according to the white paper.

This trilateral agreement has triggered “effective and practical cooperation”, comparative patent review studies, and professional training and institutional building, according to the white paper. “These have greatly boosted their respective IP rights endeavours,” it says.

“In the meantime, the three agencies have also explored ways for furthering cooperation with ASEAN, exchanged views on other international IP rights hotspots, and made positive contribution to IP rights cooperation in Asia and beyond.”

The national IP offices and customs officials in the three countries along the Beseto corridor are working together to outsmart the counterfeiters, but they clearly face a difficult task. Their challenge intensifies as counterfeiters increasingly seek to use the Internet to their advantage and find new ways of out-foxing the authorities.

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