In Depth

Counterfeiting: Faked in China

Page 6

What to Do:

Not all is hopeless. You can take steps to reduce the chance, or at least the impact, of the heisting of your brand:

Do your due diligence. If you're considering a joint venture, make sure your partner has a clean bill of health. "If you don't have the right partner, you can lose your shirt," says Yang. "Find out whether the partner is a reputable company, not in financial trouble and not involved in any IP-related violations." Simone says to do the same research on service providersâ¬for example, lawyers and investigatorsâ¬as well. An investigator "may be a great guy, but he doesn't know northern China," he says.

Travel to China. Learn about Chinese culture and people. "If you have serious problems, don't just rely on e-mail and a prayer," says Simone. This advice is good not only for CSOs but also for lawyers, investigators and anyone involved in fighting counterfeiting.

Budget smartly. Don't assume working in China will be simple and easy. Simone says basic investigations cost between $500 and $1,500. This is higher than elsewhere for a variety of reasons: The country is huge, making transportation more costly; experienced counterfeiters are good at evading detection, making investigations more time-consuming than they used to be.

Protect your IP. If you do business in China, register your trademarks with the Trademark Office there. But even if you don't sell there today, it's a good idea to register trademarks there now if you might do business there in the future, says Yang. Also, you can apply for patent protection by submitting patent applications through an officially designated patent agent, according to Baker & McKenzie's report "Intellectual Property Guide 2005: China."

Consult with U.S. government officials. That includes people in Washington, the U.S. embassy in Beijing and consulates in China. They have IP experts on staff that can help answer questions about legal processes or other protection strategies.

Pursue criminal enforcement when necessary. "What you're going to hear from a lot of advisers is, oh, go ahead with administrative enforcement, it's cheap and easy. Better advice is to investigate deeply and do a criminal case," says Simone. (Administrative enforcement usually leads only to seizure of fake products and paying modest fines; criminal charges can bring jail time to infringers.) He adds that pursuing criminal cases requires more work from lawyers and investigators to make sure the courts properly handle the case.

Look at alternative enforcement strategies. Simone says civil strategiesâ¬in which the main objective is compensationâ¬are worth pursuing sometimes, such as sending a trademark infringer warning letters and taking the case to court for damages and injunctions. "If an infringer has assets in a bank account, you can seize their assets before the case gets started," he says, adding that civil enforcement can be cost-effective. He cites a case in which a client wanted to take down a women's apparel counterfeiter. Simone advised the company that the raids, which would target the counterfeiter's operations in seven cities, wouldn't be cheapâ¬the total cost might reach $30,000 to $40,000. "I said maybe we should do a civil action, take a few more weeks to get the documentation together. We'll go to court and freeze their assets at the same time we do the raids."

Have a notarized, legalized power of attorney available. Simone advises having someone on the ground in China with power of attorney to file court actions or authorize your licensee to file actions on its own behalf. When cases go to court, you'll need this local presence.

Show your presence. If you have manufacturing operations, make sure you have good supervision in place. That may mean assigning some of your people working in China to supervise the action. "If you assign only one expat to a [big] factory to save money, you're going to be in trouble," says Yang. Supervision also could entail putting counters on machines to know how many pieces are being produced. It's also important to make sure controls are in place to keep track of how much raw material you've sourced.

Have key people sign a noncompete agreement. "Let's say you start a mill and have a plant manager from the States, but the deputy is a local guy. Two years later the local guy leaves. You have to find ways to protect the information" about your operations that that ex-employee now has, says Yang. Noncompetes are one way to do that. He says noncompetes may not be easy to enforce (recall the Will-Burt case at the start of our story). But at least such agreements get employees who sign them to think twice before they jump ship.

CSOs can lead in retaining private investigators. There are security service providers, in China and Hong Kong, for example, that employ ex-police officers. "That's an opportunity for CSOs, who in many cases are former law enforcement officials, to talk in a meaningful way with other law enforcement officials who are just wearing a different hat now. That helps you get information, such as where the illegal manufacture is taking place or what the distribution network looks like or whether the product is being sold over the Internet or in a brick-and-mortar store. Once you've got the information, then you can take action," says Holleran, of Philip Morris USA.

Consider anticounterfeiting technologies for your products. Nick Tidd, VP of channel sales for computer network vendor 3Com, says his company is working with DuPont to develop a holographic label that will be affixed to products built in its Taiwan facility and then shipped from China. "It can't be removed, burned or scraped from the product," Tidd says, and will allow buyers to do a visual inspection to verify that it's a genuine 3Com product. RFID tags are also being deployed to prevent counterfeits. Purdue Pharma last year began shipping the painkiller OxyContin in bottles with RFID tags in the United States, and Pfizer planned on doing the same with Viagra by the end of 2005.

Look to industry associations, such as the Quality Brands Protection Committee, for help. These groups are great resources for information. Beijing-based Quality Brands, for example, has formed relationships with the authorities and lobbies Chinese officials directly. Paying middlemen to act in your interests can be less effective. "Very often we find good trademark agents who will want to work only with one particular trademark authority because they're beholden to them, when there could be three others to work with," says Simone.