IP fraud in China who is most affected?

Fast facts

·        Organization for Economic Cooperation and Development (OECD) report, which details a 154 percent increase in counterfeits traded internationally — from $200 billion in 2005 to $509 billion in 2016.

·        OECD reports that “E-commerce platforms represent ideal storefronts for counterfeits and provide powerful platform[s] for counterfeiters and pirates to engage large numbers of potential consumers.”

·        For an IP infringement lawsuit to be counted as criminal (rather than administrative), in most cases, the infringed sales must meet or exceed 50,000 RMB.

Background

Once upon a time, counterfeits were a small time business limited to sketchy flea markets and street corners. Now however, in the world of e-commerce and digitalized purchases, it has become easier than ever for a counterfeiter to gain a semblance of legitimacy by setting up an impressive looking store on Taobao, Alibaba, Amazon, or dozens of other platforms and their interest is to sell fraudulent products.

China is the largest e-commerce market in the world, valued at over 670 billion USD. It’s understandable then that everyone wants to enter, however intellectual property has long been a challenge facing foreign companies in China. What this means varies, it includes everything from IP squatters to OEM overstock sales, to Phishing and even outright counterfeits.

Who are the victims?

It may be surprising to hear that the companies who are hit the hardest by this are often not B2C, but B2B. I can conjecture it is because B2C branding makes a stronger connection with a consumer, so they are better able to spot fakes, but more data is needed to confirm that. What data from the American Chamber of Commerce’s Doing Business in China report does confirm is that lack of IP protection and enforcement is counted as a hindrance for 71.4% of pharmaceuticals, 68.4% of manufacturing, and 66.7% of education and training companies. With a staggering number of firms affected, many firms take measures to protect themselves.

You are not alone! Many organizations are working night and day to protect firms against IP infringement.

Groups that fight against IP Infringement in China

·        International Anti-Counterfeiting Coalition (IACC)

·        Quality Brands Protection Committee in China (QBPC)

·        World Intellectual Property Organization (WIPO)

·        Untold work from various Chambers of Commerce

·        Firms that specializes in IPR protection, like QCAC International Consulting Co., Ltd.

Working with e-commerce platforms

A quick search on Taobao for many manufactured goods will yield up dozens of entries leading to stores which claim to be authorized distributors, or even official company pages, despite the company website claiming the opposite. Unfortunately, despite the herculean efforts of regulatory bodies, the burden of fighting against infringement generally falls on IP holders. E-commerce platforms have mechanisms in place, but the sheer volume of counterfeiters and fraudsters makes it nearly impossible for a single e-commerce platform to manage on its own.

Legal action

The first thought for most companies is to call their lawyer and pursue legal action. While this is standard practice for many countries, in China working with lawyers may not be enough to prevent the fraudsters from simply closing down and reopening their store. In a recent survey by the German Chamber of Commerce in Shanghai, 22% of surveyed companies have challenges fighting IP infringement in court and from the same dataset we see that >40% of those asked stated protecting IP was a top 5 major business concern.

 In order to put a stop to the fraud for good you need to go above proving infringement and into proving damage. Once you prove that illicit sales have exceed 50,000 RMB the lawsuit changes from an administrative charge to a criminal charge. Criminal charges include jail time, search and seizure of assets, and permanent closures of fraudulent businesses and factories. Hiring an investigation firm to collect evidence increases the success rate substantially in some cases as high as 95% success.

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