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Counterfeiting: Faked in China

The world's biggest factory is also a fake goods hotbed. Here are 13 ways to protect your company. The second in a CSO series on counterfeiting.

By Todd Datz

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"We lost three things," says Evans, pondering the ordeal. "We lost profits, we lost [future] jobs and we lost some innocence."

Counterfeiting has been dubbed the crime of the 21st century, and nowhere is the problem more out-of-hand than in China. New Balance sneakers, Callaway golf clubs, Foo Fighters CDs, Viagra tablets, Cisco routers, you name it: China is the world's Wal-Mart for fake goods. The evidence goes beyond the well-known 90 percent software piracy rate in China cited by the Business Software Alliance. For example:

In the United States, in fiscal year 2004 the Department of Homeland Security seized almost $140 million in goods that violated intellectual property rights; goods from China (and Hong Kong) made up almost 70 percent of the haul.

In 2003, Brooklyn prosecutors charged six men with importing up to 35 million counterfeit brand cigarettes from China. The smugglers allegedly hid the goods in shipping containers behind kitchen pots.

China's Shenzhen Evening News, a government-owned newspaper, wrote that some 192,000 people died in China in 2001 because they consumed counterfeit medicine.

"China is by far the leading problem for the vast majority of our members in terms of IP-infringing activities," says Steven D'Onofrio, executive director of the International AntiCounterfeiting Coalition.

What's a company trying to protect its IP, its brand, its good name, to do? Unfortunately, there's no easy answer. (And, given the nature of the problem and the difficulty of finding solutions, many companies prefer to keep their counterfeiting problems under wraps; thus, a number of CSOs contacted for this story did not respond to requests for interviews.) China's central government is making efforts to crack down on counterfeiting, but it faces obstructionists and powerful local officials who, for a variety of reasons, prefer the counterfeiting status quo. Companies that do business in China need to prepare for a long, drawn-out battle, knowing that every time they stamp out one counterfeiter, another may pop up in its place. But that's no reason not to muster the energy for the fight. Counterfeiting is a cancer upon global business, with consequences that include loss of jobs, tax revenue and brand integrity. And even death.

Byproduct of the Economic Juggernaut

Counterfeiting has proliferated in China for a wide variety of reasons. One has been China's ascendance as an economic superpower. Multinationals have made huge investments in the country, transferring technology and capital through outsourced manufacturing arrangements and partnerships, helping to fuel the country's growth. To the chagrin of those foreign companies, some of that money and technology has gone into copying their products.