Multinational corporations doing business in China face a losing battle when it comes to keeping copies of their products off the market, with anti-counterfeiting investigators either collaborating with producers of the fake goods, or copying the goods themselves, according to a report.
The Associated Press said it had found that anti-counterfeiting investigators were widely involved in copying products of their own western customers so they could claim bounties for “seizing” them.
The western companies subcontract anti-counterfeiting work to private investigators paid on commission. More seizures mean higher fees, creating powerful incentives to cheat in an industry with little oversight.
As counterfeiting has flourished in China over decades, a lucrative, parallel industry has blossomed to fight it. Counterfeiting today is a multibillion-dollar business in China, which produces nearly nine of every 10 fake items seized at US borders.
One of the world’s largest consumer goods companies hired an investigator to track down counterfeit anti-dandruff shampoo in China, the AP said. But instead of finding real counterfeiters, the investigator, Wang Yunming, set up a factory to produce counterfeit shampoo himself, which he then “seized” and billed to the firm as a successful raid, according to two employees involved in the investigation who spoke on condition of anonymity for fear of losing their jobs.
Wang was convicted of fraud and is due to be released from prison in 2023, according to a copy of a judgment from Hefei intermediate people’s court in China’s Anhui province.
The AP said it found instances where western firms paid investigators who were themselves manufacturing or selling counterfeit versions of their clients’ own goods; investigators who colluded with factories to make counterfeit goods they could “seize” and present to their western bosses for payment; and investigators doctoring documents, fabricating raids that never took place.
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The Swiss power technology company ABB (Asea Brown Boveri) launched legal action alleging an investigator from one of the intellectual property companies it engaged was herself selling fake ABB circuit breakers. The woman, Li Yue – who called herself Flaming Lee – was convicted of selling ABB counterfeits by a court in Dubai, where she lived.
ABB, a $40bn company whose products range from simple switches to sophisticated industrial robotics, said in court filings that it was astounded to learn China United Intellection Property Protection Centre – its exclusive brand protection agent in China and Lee’s employer – had itself “directly participated in infringing acts against the ABB trademark”.
ABB accused Lee’s employer of protecting a factory that produced ABB fakes and of engineering its work to maximise billing, rather than truly solving ABB’s multimillion-dollar counterfeiting problem. In one case ABB said it ended up paying China United $5,000 for a raid that uncovered $1 worth of fakes.
China United denied wrongdoing. Chinese judges acknowledged Flaming Lee’s double-dealing but exonerated upper management and dismissed the rest of the accusations. They ordered ABB to pay China United over $500,000 in back investigation fees.
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China United ultimately folded from damage to its reputation but three top executives – Li Changxu, Li Guorong and Fan Liming — staged a comeback, buying stakes in and taking executive positions at the Shanghai intellectual property protection company Sinofaith IP Group, according to corporate filings. None responded to detailed requests for comment, the Associated Press said.
Sinofaith advertised an impressive client list, including GE, Toyota, 3M, Nike, and Schneider Electric.
That was a surprise to GE, said spokesman Geoff Li.
“Normally if they want to put a company’s logo, they should let us know,” he said. GE and 3M said they had no current plans to continue working with the company. Nike said it has not been a client since 2013. Toyota said it was no longer working with Sinofaith and had not authorised the firm to use its name. Schneider Electric said it stopped working with China United because of the ABB litigation.
Sinofaith removed the client names from its website after a request for comment, the Associated Press said.
Chinese authorities have been getting better at fining counterfeiters and sending them to jail. But the momentum of reform has yet to reach the front lines of the fight against fakes, according to previously undisclosed material from legal cases and internal corporate investigations in China reviewed by the AP, lawsuits, and interviews with 16 private investigators, lawyers and law enforcement officials.
All described a broken system, beset by endemic and underreported fraud, made worse by western companies that have a poor command over how to successfully fight fraud.
Shanghai’s Public Security Bureau took the unusual step of warning foreign brand owners to be watchful of the investigators they hire. “We very much hope that brand owners will pay attention and devote more manpower and material resources to ensure that the fight against counterfeiting is healthy and orderly,” the bureau said in written response to questions from the AP.
(The Guardian UK)
