Anti-Counterfeiting Strategies of Multi-National Companies in China: How a Flawed Approach Is Making Counterfeiting Worse

Article excerpt

I. BACKGROUND OF THE COUNTERFEITING PROBLEM IN CHINA

A. Local Protectionism and Government Corruption
B. Current Strategies and Approaches by MNCs
   1. Brand Protection Units
   2. Private Investigation Companies and Law Firms

II. FLAWS WITH THE CURRENT APPROACH OF MNCs

A. Enforcement Without Deterrence: Everyone Benefits
B. What Can Be Done?
   1. Short-term Approach
   2. Corporate Incentives
   3. Capacity and Knowledge
   4. Fear of Offending the PRC Authorities

III. SOME SUGGESTED APPROACHES

A. Adopt a Long-Term Strategy
B. Hire and Allocate Responsibility to the Right People
C. Education and Training
D. Legal Challenges

IV. CONCLUSION

News media, governments, and non-governmental organizations commonly depict the People's Republic of China (PRC or China) as having the world's most serious commercial piracy problem, but the blame does not all lie with China. Multi-national companies (MNCs) have adopted a flawed approach to combating trademark counterfeiting (1) in China that is actually making the problem worse, inciting a frenzy of counterfeiting at all-time new world highs in China. This approach places primary emphasis on enforcement, that is, raids on factories and warehouses used by counterfeiters, destruction of equipment, and confiscation and seizures of counterfeit products. MNCs insist on month-by-month enforcement reports with seizure statistics, all done with a short-term time horizon that is measured in quarters, semi-annual, and annual periods. The basic flaw of this approach is that it does not address one of the most persistent, fundamental problems in China that allows counterfeiting to flourish: the role of local governments that are directly or indirectly involved in counterfeiting and heavily protect counterfeiting. Local governments control all the levers of enforcement power at the local level from the police, to administrative authorities, and to judges. Local governments can effectively frustrate any attempts by MNCs to permanently destroy counterfeiting and other forms of commercial piracy. To be clear, local protectionism does not mean lack of enforcement activity. To the contrary, enforcement activity is plentiful and has surged dramatically in the past decade in China. (2) As any brand owners in China knows, it is possible to obtain an enforcement action in the form of a surprise raid within minutes of an in-person application before the enforcement authorities. However, as brand owners in China also know, enforcement does not result in any serious consequences for the counterfeiter; to the contrary, the consequences of being caught as a counterfeiter are usually so insignificant that such consequences can be considered just a cost of doing business. As a result, a strategy that focuses primarily on enforcement in a legal system and that does not create effective deterrence actually has the unintended, even opposite effect, of angering counterfeiters and provoking them to engage in even more illegal activity. Indeed, what some MNCs have discovered is that the more enforcement they conduct, the more their products are being counterfeited.

Most MNCs are aware that the most serious hurdle to effective protection of their intellectual property is local protectionism, a form of government corruption, but they ignore or refuse to acknowledge the underlying problem. This may seem surprising at first glance, but there are many powerful institutional and political pressures on MNCs and their officials that provide incentives for them to ignore the issue. Why MNCs refuse to deal with the issue can be traced to a host of reasons that will be detailed in a later section of this article. (4) Moreover, an entire industry has emerged to provide support services to MNCs in their anti-counterfeiting efforts in China. The key players in this industry--private investigation companies and law firms--also have strong interests in resisting any changes to the current enforcement-based approach. …