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November 14, 2006November 14, 2006

KNOCK IT OFF!KNOCK IT OFF!American Apparel & Footwear AssociationAmerican Apparel & Footwear Association

Brands And The Counterfeiting QuandaryBrands And The Counterfeiting QuandaryFashion Institute of Technology, New YorkFashion Institute of Technology, New York

China: An OverviewChina: An Overview

Harley I. LewinHarley I. LewinGreenberg Traurig LLP.Greenberg Traurig LLP.

An International Law FirmAn International Law Firm

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Perspective: Perspective: More Profitable than NarcoticsMore Profitable than Narcotics

Less RiskLess Risk(Partners don’t kill you; little jail; low (Partners don’t kill you; little jail; low

fines)fines)

Example: Cartier fake watch imported into USA for Example: Cartier fake watch imported into USA for USD$1.82USD$1.82

Sells on Canal Street for $25-50Sells on Canal Street for $25-50Sells on Internet for $150Sells on Internet for $150

One Ring: $8,000,000 per monthOne Ring: $8,000,000 per month $50,000,000 in profits since 1997 $50,000,000 in profits since 1997

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How Does China Fit In?How Does China Fit In?

15-20% of China’s GNP15-20% of China’s GNP Government’s own estimate: $16-20 Government’s own estimate: $16-20

billion USDbillion USD Two years ago China “boasted” they Two years ago China “boasted” they

intercepted and destroyed 33 million intercepted and destroyed 33 million bogus disks and videosbogus disks and videos

Every consumable item; Prunes in Every consumable item; Prunes in ThailandThailand

Minor penalties; Average 750rmbMinor penalties; Average 750rmb

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Is It Working? – Is It Working? – Despite Government Despite Government resolve, challenges appear to have increasedresolve, challenges appear to have increased

Survey in 2004 of major companies – Survey in 2004 of major companies – 72% same or worse72% same or worse

66% - fakes at least 5% more of 66% - fakes at least 5% more of market; 34% say at least 10%market; 34% say at least 10%

Export problems have increasedExport problems have increased Percent of seizures in U.S. And EU Percent of seizures in U.S. And EU

has increasedhas increased Criminal enforcement – almost Criminal enforcement – almost

impossible; 14,000+ AIC cases; less impossible; 14,000+ AIC cases; less than 1% go criminal.than 1% go criminal.

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Is It Working? – Is It Working? – Despite Government Despite Government resolve, challenges appear to have increasedresolve, challenges appear to have increased

Corruption/local protectionism Corruption/local protectionism remains highremains high

Statistics show jump in prosecutions Statistics show jump in prosecutions but negligible results.but negligible results.

What does this mean: First Steps: What does this mean: First Steps: Self-HelpSelf-Help

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China: What to Do Before You Get China: What to Do Before You Get ThereThere

Register in English, all variationsRegister in English, all variations Register in Chinese, all variationsRegister in Chinese, all variations In Strange and Wonderous WaysIn Strange and Wonderous Ways Use Local Chinese Watch ServiceUse Local Chinese Watch Service Oppose Everything That is CloseOppose Everything That is Close Watch Hong Kong Corporate Registry for Watch Hong Kong Corporate Registry for

Shadow CompaniesShadow Companies Feedback System to Gather InformationFeedback System to Gather Information Early Retention of Outside CounselEarly Retention of Outside Counsel Systematic Strategic Approach; Reactive Systematic Strategic Approach; Reactive

Doesn’t WorkDoesn’t Work

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Make Very Sure Your Documents Make Very Sure Your Documents Are Good Ones, Tailored for ChinaAre Good Ones, Tailored for China

Purchase OrderPurchase Order Terms and Conditions of SaleTerms and Conditions of Sale IPR statements everywhereIPR statements everywhere Customer communicationCustomer communication Hot Lines; designated recipientHot Lines; designated recipient Overall manufacturing agreementOverall manufacturing agreement Control submanufacturing or subcontractingControl submanufacturing or subcontracting KNOW THE FACTORIES, SUBFACTORIES, EVERYONE KNOW THE FACTORIES, SUBFACTORIES, EVERYONE

INVOLVEDINVOLVED Example: Use Arbitration, Apply United Nations RulesExample: Use Arbitration, Apply United Nations Rules Do Not Provide for US litigation; waste of timeDo Not Provide for US litigation; waste of time Provide for Injunctions locallyProvide for Injunctions locally Get back molds, etc. when factory relationship is overGet back molds, etc. when factory relationship is over Control of LabelsControl of Labels

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When You Get ThereWhen You Get There

Fact Gathering: Overt and CovertFact Gathering: Overt and Covert Sighting Companies: Good and BadSighting Companies: Good and Bad Your Own People/DistributorsYour Own People/Distributors CounselCounsel NewsNews Covert Investigations: Difficult, Covert Investigations: Difficult,

Dangerous but NecessaryDangerous but Necessary AnalyzeAnalyze Be prepared to move quicklyBe prepared to move quickly

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Steps To Effective Enforcement:Steps To Effective Enforcement:

Relevant Relevant Organizations:Organizations: Administration for Administration for

Industry and Commerce Industry and Commerce (AIC)(AIC)

Quality and Technical Quality and Technical Supervision Bureau Supervision Bureau (TSB)(TSB)

Police:Police: Civilian Police: Ministry Civilian Police: Ministry

of Public Security (PSB)of Public Security (PSB) Armed PoliceArmed Police

People’s CourtPeople’s Court Basic LevelBasic Level Intermediate LevelIntermediate Level IP Section of IP Section of

Intermediate LevelIntermediate Level High People’s CourtHigh People’s Court Supreme People’s CourtSupreme People’s Court

There is also People’s There is also People’s Procuratorate Bureau Procuratorate Bureau which is charged with which is charged with criminal conduct, criminal conduct, ineffectiveineffective

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Effective enforcement cont’d:Effective enforcement cont’d:

Economic and Cultural FactorsEconomic and Cultural Factors Legal system: limited manpower, much Legal system: limited manpower, much

law in short time post- WWII; thus law in short time post- WWII; thus Chinese law is of lower quality in Chinese law is of lower quality in comparison with developed countries; comparison with developed countries; must understand thismust understand this

Even with frustration, an “ostrich Even with frustration, an “ostrich approach” won’t work; an expensive approach” won’t work; an expensive mistake since China is the world’s mistake since China is the world’s largest consumer marketlargest consumer market

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Effective enforcement cont’d:Effective enforcement cont’d:

Economic and Cultural Factors cont’d.Economic and Cultural Factors cont’d. Dealing with Chinese Officials: Understand the Dealing with Chinese Officials: Understand the

concept of “li” meaning according to Confucius’ concept of “li” meaning according to Confucius’ teaching: courtesy. The law is secondary to li. teaching: courtesy. The law is secondary to li. Connections matter. Respect matters.Connections matter. Respect matters.

Corruption and local protectionism.Corruption and local protectionism. Cultural attitude towards counterfeiting.Cultural attitude towards counterfeiting.

Not much of a moral wrong historicallyNot much of a moral wrong historically Hong Kong Corporate Registry promotes issues and Hong Kong Corporate Registry promotes issues and

reflects the cultural problemsreflects the cultural problems Limited purchasing power; brands are Limited purchasing power; brands are

enjoyed=problemsenjoyed=problems

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Effective enforcement cont’d:Effective enforcement cont’d:

Selection of qualified agents, investigators, Selection of qualified agents, investigators, attorneys is critical to clear and competent advice attorneys is critical to clear and competent advice on wider strategies and solution of problems with on wider strategies and solution of problems with confidence and consistenceconfidence and consistence

Use a “Guide”Use a “Guide” Do Not Apply Western logic or expectations to Do Not Apply Western logic or expectations to

time, cost, the system or what to expecttime, cost, the system or what to expect Do Not Demand: Breast Beating Just hurts your ribsDo Not Demand: Breast Beating Just hurts your ribs Negotiate, Make Friends, Face TimeNegotiate, Make Friends, Face Time Know What Works, What is Possible, not necessarily Know What Works, What is Possible, not necessarily

what the law sayswhat the law says Group Activities: A Mixed BagGroup Activities: A Mixed Bag

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RemediesRemedies Chose an approach: stop present Chose an approach: stop present

infringement; sufficient deterrence; infringement; sufficient deterrence; operate within predetermined budgetoperate within predetermined budget

Be careful: while it may not be urgent Be careful: while it may not be urgent today, it will become urgent tomorrowtoday, it will become urgent tomorrow

To determine which alternatives to use: To determine which alternatives to use: must have solid understanding of the legal must have solid understanding of the legal system; the powers and their conflicts, the system; the powers and their conflicts, the Chinese culture and mentality and the way Chinese culture and mentality and the way business is conducted in the PRCbusiness is conducted in the PRC

Example: “Li”Example: “Li”

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Remedies cont’dRemedies cont’d Cease and desist letter: most economical, Cease and desist letter: most economical,

personal delivery (coerce compliance), often personal delivery (coerce compliance), often ignoredignored

Negotiations: especially with service businesses: Negotiations: especially with service businesses: stores, schools, agencies; threaten action, follow stores, schools, agencies; threaten action, follow through if necessary.through if necessary.

Administrative actions: AIC or QTSB; most Administrative actions: AIC or QTSB; most commonly used, speedy, inexpensive; sometimes commonly used, speedy, inexpensive; sometimes obeyed; can seize, order dissolution, confiscate obeyed; can seize, order dissolution, confiscate dyes, machinery etc. Unfortunately, most time dyes, machinery etc. Unfortunately, most time punishment is not harsh enough. Subject to local punishment is not harsh enough. Subject to local pressures. Potential civil damages if wrongly pressures. Potential civil damages if wrongly seize.seize.

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Remedies cont’dRemedies cont’d

Court Action: civil lawsuit to seek injunction and damages; Court Action: civil lawsuit to seek injunction and damages; potentially stronger than administrative action; drawback is limited potentially stronger than administrative action; drawback is limited injunction, low legal learning, expense and time. No discovery. injunction, low legal learning, expense and time. No discovery. Procedures lacking. Few Rules of evidence. Private meetings.Procedures lacking. Few Rules of evidence. Private meetings.

Criminal Action: Peoples Procutorate Bureau is supposed to file but Criminal Action: Peoples Procutorate Bureau is supposed to file but you can yourself if refused by PPB. Very low number of cases are you can yourself if refused by PPB. Very low number of cases are prosecuted; work load is an issue, need to catch red handed with prosecuted; work load is an issue, need to catch red handed with police, no real undercover workpolice, no real undercover work

Use of Media: Television and newspapers. Radio doesn’t count. Be Use of Media: Television and newspapers. Radio doesn’t count. Be careful as truth is not always what is printed. Media must be used careful as truth is not always what is printed. Media must be used with great care as view is different in PRC.with great care as view is different in PRC.

Customs: Import and Export. Worth doing. Changes underway. Customs: Import and Export. Worth doing. Changes underway. Registration Required.Registration Required.

U.S. Government AssistanceU.S. Government Assistance

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Conclusion:Conclusion:

Biggest problem is to wait. China represents the Biggest problem is to wait. China represents the largest consumer market in the World and the largest consumer market in the World and the

largest exporter in the World. The earlier you deal largest exporter in the World. The earlier you deal with a problem, the less expensive and more with a problem, the less expensive and more

manageable it is. You will not eradicate counterfeit manageable it is. You will not eradicate counterfeit goods but you can manage the problem.goods but you can manage the problem.

Thank You.Thank You.Harley LewinHarley Lewin