American footwear and accesories association


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American footwear and accesories association

  1. 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. 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. 3. How Does China Fit In? <ul><li>15-20% of China’s GNP </li></ul><ul><li>Government’s own estimate: $16-20 billion USD </li></ul><ul><li>Two years ago China “boasted” they intercepted and destroyed 33 million bogus disks and videos </li></ul><ul><li>Every consumable item; Prunes in Thailand </li></ul><ul><li>Minor penalties; Average 750rmb </li></ul>
  4. 4. Is It Working? – Despite Government resolve, challenges appear to have increased <ul><li>Survey in 2004 of major companies – 72% same or worse </li></ul><ul><li>66% - fakes at least 5% more of market; 34% say at least 10% </li></ul><ul><li>Export problems have increased </li></ul><ul><li>Percent of seizures in U.S. And EU has increased </li></ul><ul><li>Criminal enforcement – almost impossible; 14,000+ AIC cases; less than 1% go criminal. </li></ul>
  5. 5. Is It Working? – Despite Government resolve, challenges appear to have increased <ul><li>Corruption/local protectionism remains high </li></ul><ul><li>Statistics show jump in prosecutions but negligible results. </li></ul><ul><li>What does this mean: First Steps: Self-Help </li></ul>
  6. 6. China: What to Do Before You Get There <ul><ul><li>Register in English, all variations </li></ul></ul><ul><ul><li>Register in Chinese, all variations </li></ul></ul><ul><ul><li>In Strange and Wonderous Ways </li></ul></ul><ul><ul><li>Use Local Chinese Watch Service </li></ul></ul><ul><ul><li>Oppose Everything That is Close </li></ul></ul><ul><ul><li>Watch Hong Kong Corporate Registry for Shadow Companies </li></ul></ul><ul><ul><li>Feedback System to Gather Information </li></ul></ul><ul><ul><li>Early Retention of Outside Counsel </li></ul></ul><ul><ul><li>Systematic Strategic Approach; Reactive Doesn’t Work </li></ul></ul>
  7. 7. Make Very Sure Your Documents Are Good Ones, Tailored for China <ul><li>Purchase Order </li></ul><ul><li>Terms and Conditions of Sale </li></ul><ul><li>IPR statements everywhere </li></ul><ul><li>Customer communication </li></ul><ul><li>Hot Lines; designated recipient </li></ul><ul><li>Overall manufacturing agreement </li></ul><ul><li>Control submanufacturing or subcontracting </li></ul><ul><li>KNOW THE FACTORIES, SUBFACTORIES, EVERYONE INVOLVED </li></ul><ul><li>Example: Use Arbitration, Apply United Nations Rules </li></ul><ul><li>Do Not Provide for US litigation; waste of time </li></ul><ul><li>Provide for Injunctions locally </li></ul><ul><li>Get back molds, etc. when factory relationship is over </li></ul><ul><li>Control of Labels </li></ul>
  8. 8. When You Get There <ul><li>Fact Gathering: Overt and Covert </li></ul><ul><ul><li>Sighting Companies: Good and Bad </li></ul></ul><ul><ul><li>Your Own People/Distributors </li></ul></ul><ul><ul><li>Counsel </li></ul></ul><ul><ul><li>News </li></ul></ul><ul><ul><li>Covert Investigations: Difficult, Dangerous but Necessary </li></ul></ul><ul><ul><li>Analyze </li></ul></ul><ul><ul><li>Be prepared to move quickly </li></ul></ul>
  9. 9. Steps To Effective Enforcement: <ul><li>Relevant Organizations: </li></ul><ul><ul><li>Administration for Industry and Commerce (AIC) </li></ul></ul><ul><ul><li>Quality and Technical Supervision Bureau (TSB) </li></ul></ul><ul><ul><li>Police: </li></ul></ul><ul><ul><ul><li>Civilian Police: Ministry of Public Security (PSB) </li></ul></ul></ul><ul><ul><ul><li>Armed Police </li></ul></ul></ul><ul><li>People’s Court </li></ul><ul><ul><li>Basic Level </li></ul></ul><ul><ul><li>Intermediate Level </li></ul></ul><ul><ul><li>IP Section of Intermediate Level </li></ul></ul><ul><ul><li>High People’s Court </li></ul></ul><ul><ul><li>Supreme People’s Court </li></ul></ul><ul><ul><li>There is also People’s Procuratorate Bureau which is charged with criminal conduct, ineffective </li></ul></ul>
  10. 10. Effective enforcement cont’d: <ul><li>Economic and Cultural Factors </li></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Even with frustration, an “ostrich approach” won’t work; an expensive mistake since China is the world’s largest consumer market </li></ul></ul>
  11. 11. Effective enforcement cont’d: <ul><li>Economic and Cultural Factors cont’d. </li></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>Corruption and local protectionism. </li></ul></ul><ul><ul><li>Cultural attitude towards counterfeiting. </li></ul></ul><ul><ul><ul><li>Not much of a moral wrong historically </li></ul></ul></ul><ul><ul><ul><li>Hong Kong Corporate Registry promotes issues and reflects the cultural problems </li></ul></ul></ul><ul><ul><ul><li>Limited purchasing power; brands are enjoyed=problems </li></ul></ul></ul>
  12. 12. Effective enforcement cont’d: <ul><li>Selection of qualified agents, investigators, attorneys is critical to clear and competent advice on wider strategies and solution of problems with confidence and consistence </li></ul><ul><li>Use a “Guide” </li></ul><ul><li>Do Not Apply Western logic or expectations to time, cost, the system or what to expect </li></ul><ul><li>Do Not Demand: Breast Beating Just hurts your ribs </li></ul><ul><li>Negotiate, Make Friends, Face Time </li></ul><ul><li>Know What Works, What is Possible, not necessarily what the law says </li></ul><ul><li>Group Activities: A Mixed Bag </li></ul>
  13. 13. Remedies <ul><li>Chose an approach: stop present infringement; sufficient deterrence; operate within predetermined budget </li></ul><ul><li>Be careful: while it may not be urgent today, it will become urgent tomorrow </li></ul><ul><li>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 </li></ul><ul><li>Example: “Li” </li></ul>
  14. 14. Remedies cont’d <ul><li>Cease and desist letter: most economical, personal delivery (coerce compliance), often ignored </li></ul><ul><li>Negotiations: especially with service businesses: stores, schools, agencies; threaten action, follow through if necessary. </li></ul><ul><li>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. </li></ul>
  15. 15. Remedies cont’d <ul><li>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. </li></ul><ul><li>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 </li></ul><ul><li>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. </li></ul><ul><li>Customs: Import and Export. Worth doing. Changes underway. Registration Required. </li></ul><ul><li>U.S. Government Assistance </li></ul>
  16. 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