The below article appeared on the front page of the online edition of the NYTimes on Sunday regarding a conflict between stall owners in a Beijing shopping center famous for selling counterfeit goods, and the law firm hired by the brand owners to shut down the operations. It appears this is becoming something of a social conflict, and that there is backlash against the brand owners. For brands sourcing in China currently, this article is interesting because it illustrates trends related to counterfeiting and to grey market goods or unauthorized production by approved suppliers. Below are some highlights from the article:
- It took four years from start of the lawsuits till now for the stalls to be shut down.
- There is reference to “super A” knock-offs, almost surely “grey market” goods. If they are good enough to be almost indistinguishable from real products, it means they probably have authentic labels and other branded trim. They could be made either by an authorized vendor overproducing, or they point to the possibility of an authorized vendor who is selling trims and tech packs/patterns to other factories. In either case, it most likely points to an "inside" job.
- It appears that IPR issues are becoming something of a populist issue in China, with vendors accusing brands of being the aggressors in this case.. If suppliers feel the same way, there is a likelihood that they would more willingly infringe on their clients' intellectual property rights.
The full article is copied here, as well as a link to the NYTimes article.
http://www.nytimes.com/2009/03/02/world/asia/02piracy.html?hp=&pagewanted=print
March 2, 2009
Facing Counterfeiting Crackdown, Beijing Vendors Fight Back
By SHARON LaFRANIERE
BEIJING — Any tourist who has stepped foot in this city’s famous Silk Street Market can testify that it is home to some of the wiliest, most tenacious vendors who ever tried to palm off a fake handbag on a naïve foreigner.
So when the market managers temporarily shut down 29 stalls over the past month for selling counterfeit goods, no one expected the merchants to acquiesce quietly to the loss of business.
“We expected trouble,” said Zhao Tianying, a legal consultant with IntellecPro, a Beijing firm specializing in intellectual property rights, who represents five foreign luxury-brand manufacturers that have sued the market for trademark violations. “But we never imagined this.”
The vendors have responded with the same ferocity with which they nail down a sale. Dozens of them have staged weekly protests against IntellecPro lawyers who are pursuing the trademark case, mocking them as bourgeois puppets of foreigners. The vendors confronted witnesses who provided evidence of trademark violations and filed a countersuit asserting that only the government can shutter a business.
A few characters scrawled in pencil on the wall outside IntellecPro’s office sums up the vendors’ message: “We want to eat!”
The skirmish between the crafty but mostly uneducated hawkers and five of the world’s best known producers of designer goods is part of a much bigger fight over China’s vast counterfeit industry. American movie, music and software companies alone estimate that Chinese pirated goods cost them more than $2 billion a year in sales.
Any successful product is likely to be illegally copied in China, warns the Web site of the American Embassy here. China’s government has pledged to crack down, and it faces increasing pressure to show progress. But some doubt much will change until China graduates from manufacturing goods to designing them, and has more to lose than gain.
The Silk Street Market case suggests that change is slow and painful.
It has been four years since Burberry, Gucci, Chanel, Louis Vuitton and Prada first sued the market’s operator, the Beijing Silk Street Company, and individual vendors for trademark violations. Only now has the legal pressure produced tangible results.
As part of a court-mediated agreement, the market’s managers agreed to punish offending vendors, shutting down six to eight at a time for up to a week. George Wang, the market’s general manager, said the manufacturers threatened to renew their suit if sales of counterfeits were not curtailed in six months.
In response, dozens of vendors descended on IntellecPro’s office on Feb. 4, occupying the reception area for hours while the police tried to mediate, said Ms. Zhao, the legal consultant. The next day, she said, they stormed past the receptionist, banged on the walls and swore at the staff. The firm’s senior partner, Hu Qi, was afraid to go home and slept in a hotel for three nights.
Last Monday, more than 50 vendors showed up for the sixth protest. They waved signs and chanted slogans outside the firm’s building while IntellecPro lawyers, with 12 hired guards on hand, had their lunch delivered.
“We are trying to run businesses here,” said one 37-year-old vendor in a red coat, a fake Dolce & Gabbana handbag on her arm. “They don’t have any proof.” She refused to give her name, saying she already faced enough scrutiny.
Asked about her handbag, she insisted: “We don’t read English. We don’t know what the letters mean. We just think it is pretty.”
Another vendor, 24, who gave her last name as He, said: “We want to be compensated for our losses. And we want a public apology.”
Mr. Wang, the market’s amiable, 43-year-old manager, said he was “stuck in a terrible position.”
“The five brands are saying, ‘You are not doing a good enough job in protecting our intellectual property rights,’ ” he said. “And the vendors are saying, ‘You are going overboard in protecting intellectual property rights.’ But hey, what can we do? We would rather be known in the world as going overboard than for not.”
There is little risk of that now. Tourist guidebooks call the Silk Street Market, a seven-story glass box near Beijing’s diplomatic quarter, one of China’s most popular spots to buy cheap, good-quality imitations. With some 1,200 stalls, it attracts 15 million shoppers a year, two-thirds of them foreigners, Mr. Wang said.
In the noisy basement, hawkers of leather goods buttonhole passing foreigners, cajoling until all hope of a sale is lost. They chat easily in broken English and can assess a copy’s quality in seconds; the best, rated “super-A,” are almost indistinguishable from genuine products.
Their shelves bulge with fake handbags bearing the designs and tags of Coach, Dolce & Gabbana, Chloé and other famous companies, which, Mr. Wang said, “have not come to us with a complaint.”
Fake Gucci and Louis Vuitton bags are still offered, but are hidden inside cupboards; buyers are invited to seal the transactions outside the building. “There is too much pressure on right now,” whispered one vendor, a few yards from a stall shrouded in a gray curtain.
Xu Shengzhong, the vendors’ lawyer, tries to portray his clients as too ignorant to distinguish fake goods from real or to recognize brand names. “They have no idea this says Louis Vuitton,” he said, tapping a brown wallet with the brand’s distinctive logo.
More potent than such equivocations, though, may be the threat of social unrest. The police, saying their first priority is to maintain order, organized a meeting between some vendors and Mr. Hu, IntellecPro’s senior partner, according to the firm’s spokeswoman. It went poorly.
The merchants lectured Mr. Hu on the need for intellectuals like him to respect workers, while Mr. Hu tried to defend his patriotism, according to an audio CD made from one vendor’s clandestine cellphone recording.
“These ordinary people work for decades, to their deaths!” one vendor said. “How can you say you are patriotic?”
Mr. Wang said that while he sympathized with the vendors, “the Silk Market must fundamentally change” and shift its focus from counterfeit goods to genuine pearls, silks, homegrown brands and tailoring services.
Last year, the market began its own line of products, warning counterfeiters to stay clear.
Mr. Wang said he hoped that shoppers changed their habits, too. At present, “they want the knockoffs,” he said ruefully. “You can see it in their eyes. That is the brutal reality.”
