CHINA’S PIRATES
Officials There Plan Crackdown on Pirated Goods; Some are Skeptical, Others Say It’s a
Matter of Time
By CHRIS CZIBORR
China’s shopping malls and outdoor markets teem with counterfeit American clothing, software, DVDs and CDs. The easy availability of pirated goods has become a sore point for U.S. companies that rely on protection of their intellectual property rights.
But during talks with U.S. trade representatives last month, Chinese officials vowed to do a better job of cracking down on pirated goods, particularly U.S.-made ones.
Some of the measures the Chinese planned to take: raiding bootleggers and hitting offenders with stiffer penalties.
Still, with China’s track record of broken promises on trade issues, not everyone is convinced that China is serious about its crackdown plans.
“It’s more of a game and more for show for them to say they’re going to try and crack down and pass laws,” said Vance Lommen, Foothill Ranch-based Oakley Inc.’s director of legal affairs and security. “Even once they do pass the laws they still will have a tough time getting down to local law enforcement officials who actually have to make the seizures. They’re just trying to tell us up front they’re going to take action, but they’re not going to be able to reach down to the street level where our products are sold.”
Apparel Hit Hard
Piracy varies for Orange County companies. Clothing made by OC’s surfwear and other apparel makers is the most coveted,and ripped off,of all products that are made here.
Companies such as sunglasses and apparel maker Oakley also are among the most aggressive in going after counterfeiters.
Oakley’s Lommen said that Chinese counterfeiters are responsible for churning out almost all Oakley knockoffs sold worldwide. And he said that 90% of all products with the Oakley logo on them sold in China are counterfeit.
“Counterfeiting in China costs us easily around $500,000 a year, not including lost sales, which is something we don’t estimate,” he said. “We’re not a big seller in China, although most of the enforcement work we do is over there.”
Oakley relies on a Hong Kong distributor for sales in China. The company sells products in more than 100 countries, and has direct offices in a dozen-plus nations. Oakley recorded $521.5 million in sales last year. Half of its sales came from global markets, mainly in Europe and Japan.
Companies in other sectors such as medical devices don’t have as much trouble with duplicated goods because of the nature of their businesses,selling highly specialized products that are difficult to reproduce.
For healthcare-related companies, it’s often trademark infringement that is more problematic.
Santa Ana eye products maker Advanced Medical Optics Inc., for one, has been aggressive on tackling the issue of mislabeled goods, especially in China. The company finds illegal products with similar labels to its own, or similar formulations in its bottles.
Advanced Medical officials offered an optimistic assessment of China’s plans to crack down on piracy.
“There has been pressure put on their government for some time now so it’s nice that they are responding,” said Peter Gluck, Advanced Medical vice president and chief intellectual property counsel. “There will be more protection for our very strong global brands, particularly our multipurpose contact lens solutions in China, where protection’s always been a little problematic.”
Gluck said that if China’s crackdown pans out, the company would be able to get some of its more research-intensive product lines into the country.
“We’re going to be able to get refractive surgical devices into China faster because their government is doing something to help protect those products,” Gluck said.
Although Gluck was upbeat about China’s plans, he doesn’t expect to see improvement right away.
“It might take six months to a year to see the positive impacts when these changes are actually being enforced,” he said.
Gluck expects that in time China will move closer to the U.S. and the rest of the industrialized world in terms of its intellectual property laws.
Advanced Medical has relied on its own policing efforts to spot trademark infringement.
In China, Advanced Medical sends people to shopping malls and outdoor markets to collect bottles of contact lens solutions that look like the company’s products. They send suspected knockoffs to Gluck, who gets a lab to test the product to see if it’s chemically similar to Advanced Medical’s offering.
“We always double-check everything and try to use the same sort of rigorous quality assurance and other technical standards that we use when testing our own products,” Gluck said.
If the product isn’t Advanced Medical’s, then Gluck goes back to its sales staff on the ground to find out how well the fake product is selling. If it’s a big seller, then the company will take action.
Larger Trade Issues
Chinese and U.S. officials have been embroiled in tough talks on a number of trade issues, including intellectual property. Business groups want to see a reduction in the huge trade surplus China has. And U.S. manufacturers claim China is keeping the value of its currency, the yuan, artificially low.
The yuan, which is relatively cheap compared to the dollar, renders China’s exports more competitive on price than U.S.-produced goods sold here.
Some observers believe China’s promise to crack down on piracy is a ploy to shift the discussion.
“The Chinese wanted to slow down this heated conversation and pressure that was being placed on them to revalue the yuan,” said Esmael Adibi, director of Chapman University’s A. Gary Anderson Center for Economic Research in Orange. “Their announcement to crack down on IP infringement is a positive development. But China has made these kinds of promises a number of times in the past, promising crackdowns and nothing really got done.”
If China wanted to shift U.S. attention away from the yuan and other trade issues, it looks already to have scored a win.
The Bush administration announced last week that it won’t launch unfair trade investigations into China’s currency practices and alleged labor rights violations.
The administration believes that further talks with Chinese officials will be more fruitful than investigations, which could have led to a threat of tariffs against China.
Sharon Klein, a partner and technology lawyer with Newport Beach-based Stradling, Yocca, Carlson & Rauth, said she thinks growing interest by Chinese companies to get outsourcing work will help spur improvements in intellectual property protection there.
“China is going to compete more and more with India on getting outsourcing contracts,” Klein said. “That economic driver will push the government to crack down on piracy, and individual merchants also will realize there are a lot of economic benefits to looking good in terms of honoring other companies’ IP.”
But the changes will be very gradual.
“We’ll start seeing real improvement maybe in a couple of years,” she said. “In places like Beijing, where the government exerts more control, improvements will happen first. You can get some comfort in the big cities, but there will be pockets in the rural areas that will continue to be trouble spots from a piracy standpoint.”
China is a small but expanding market for OC exporters, with shipments expected to hit $339 million this year and $400 million in 2005, according to California State Universi-ty, Fullerton.
