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American footwear and accesories association
 

American footwear and accesories association

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    American footwear and accesories association American footwear and accesories association Presentation Transcript

    • November 14, 2006 KNOCK IT OFF! American Apparel & Footwear Association Brands And The Counterfeiting Quandary Fashion Institute of Technology, New York China: An Overview Harley I. Lewin Greenberg Traurig LLP. An International Law Firm
    • Perspective: More Profitable than Narcotics Less Risk (Partners don’t kill you; little jail; low fines) Example: Cartier fake watch imported into USA for USD$1.82 Sells on Canal Street for $25-50 Sells on Internet for $150 One Ring: $8,000,000 per month $50,000,000 in profits since 1997
    • How Does China Fit In?
      • 15-20% of China’s GNP
      • Government’s own estimate: $16-20 billion USD
      • Two years ago China “boasted” they intercepted and destroyed 33 million bogus disks and videos
      • Every consumable item; Prunes in Thailand
      • Minor penalties; Average 750rmb
    • Is It Working? – Despite Government resolve, challenges appear to have increased
      • Survey in 2004 of major companies – 72% same or worse
      • 66% - fakes at least 5% more of market; 34% say at least 10%
      • Export problems have increased
      • Percent of seizures in U.S. And EU has increased
      • Criminal enforcement – almost impossible; 14,000+ AIC cases; less than 1% go criminal.
    • Is It Working? – Despite Government resolve, challenges appear to have increased
      • Corruption/local protectionism remains high
      • Statistics show jump in prosecutions but negligible results.
      • What does this mean: First Steps: Self-Help
    • China: What to Do Before You Get There
        • Register in English, all variations
        • Register in Chinese, all variations
        • In Strange and Wonderous Ways
        • Use Local Chinese Watch Service
        • Oppose Everything That is Close
        • Watch Hong Kong Corporate Registry for Shadow Companies
        • Feedback System to Gather Information
        • Early Retention of Outside Counsel
        • Systematic Strategic Approach; Reactive Doesn’t Work
    • Make Very Sure Your Documents Are Good Ones, Tailored for China
      • Purchase Order
      • Terms and Conditions of Sale
      • IPR statements everywhere
      • Customer communication
      • Hot Lines; designated recipient
      • Overall manufacturing agreement
      • Control submanufacturing or subcontracting
      • KNOW THE FACTORIES, SUBFACTORIES, EVERYONE INVOLVED
      • Example: Use Arbitration, Apply United Nations Rules
      • Do Not Provide for US litigation; waste of time
      • Provide for Injunctions locally
      • Get back molds, etc. when factory relationship is over
      • Control of Labels
    • When You Get There
      • Fact Gathering: Overt and Covert
        • Sighting Companies: Good and Bad
        • Your Own People/Distributors
        • Counsel
        • News
        • Covert Investigations: Difficult, Dangerous but Necessary
        • Analyze
        • Be prepared to move quickly
    • Steps To Effective Enforcement:
      • Relevant Organizations:
        • Administration for Industry and Commerce (AIC)
        • Quality and Technical Supervision Bureau (TSB)
        • Police:
          • Civilian Police: Ministry of Public Security (PSB)
          • Armed Police
      • People’s Court
        • Basic Level
        • Intermediate Level
        • IP Section of Intermediate Level
        • High People’s Court
        • Supreme People’s Court
        • There is also People’s Procuratorate Bureau which is charged with criminal conduct, ineffective
    • Effective enforcement cont’d:
      • Economic and Cultural Factors
        • Legal system: limited manpower, much law in short time post- WWII; thus Chinese law is of lower quality in comparison with developed countries; must understand this
        • Even with frustration, an “ostrich approach” won’t work; an expensive mistake since China is the world’s largest consumer market
    • Effective enforcement cont’d:
      • Economic and Cultural Factors cont’d.
        • Dealing with Chinese Officials: Understand the concept of “li” meaning according to Confucius’ teaching: courtesy. The law is secondary to li. Connections matter. Respect matters.
        • Corruption and local protectionism.
        • Cultural attitude towards counterfeiting.
          • Not much of a moral wrong historically
          • Hong Kong Corporate Registry promotes issues and reflects the cultural problems
          • Limited purchasing power; brands are enjoyed=problems
    • Effective enforcement cont’d:
      • Selection of qualified agents, investigators, attorneys is critical to clear and competent advice on wider strategies and solution of problems with confidence and consistence
      • Use a “Guide”
      • Do Not Apply Western logic or expectations to time, cost, the system or what to expect
      • Do Not Demand: Breast Beating Just hurts your ribs
      • Negotiate, Make Friends, Face Time
      • Know What Works, What is Possible, not necessarily what the law says
      • Group Activities: A Mixed Bag
    • Remedies
      • Chose an approach: stop present infringement; sufficient deterrence; operate within predetermined budget
      • Be careful: while it may not be urgent today, it will become urgent tomorrow
      • To determine which alternatives to use: must have solid understanding of the legal system; the powers and their conflicts, the Chinese culture and mentality and the way business is conducted in the PRC
      • Example: “Li”
    • Remedies cont’d
      • Cease and desist letter: most economical, personal delivery (coerce compliance), often ignored
      • Negotiations: especially with service businesses: stores, schools, agencies; threaten action, follow through if necessary.
      • Administrative actions: AIC or QTSB; most commonly used, speedy, inexpensive; sometimes obeyed; can seize, order dissolution, confiscate dyes, machinery etc. Unfortunately, most time punishment is not harsh enough. Subject to local pressures. Potential civil damages if wrongly seize.
    • Remedies cont’d
      • Court Action: civil lawsuit to seek injunction and damages; potentially stronger than administrative action; drawback is limited injunction, low legal learning, expense and time. No discovery. Procedures lacking. Few Rules of evidence. Private meetings.
      • Criminal Action: Peoples Procutorate Bureau is supposed to file but 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 police, no real undercover work
      • Use of Media: Television and newspapers. Radio doesn’t count. Be careful as truth is not always what is printed. Media must be used with great care as view is different in PRC.
      • Customs: Import and Export. Worth doing. Changes underway. Registration Required.
      • U.S. Government Assistance
    • Conclusion: Biggest problem is to wait. China represents the largest consumer market in the World and the largest exporter in the World. The earlier you deal with a problem, the less expensive and more manageable it is. You will not eradicate counterfeit goods but you can manage the problem. Thank You. Harley Lewin