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American footwear and accesories association


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  • 1. 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
  • 2. 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
  • 3. 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
  • 4. 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.
  • 5. 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
  • 6. 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
  • 7. 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
    • 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
  • 8. 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
  • 9. 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
  • 10. 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
  • 11. 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
  • 12. 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
  • 13. 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”
  • 14. 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.
  • 15. 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
  • 16. 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