Quality Goods Brands Protection Committee and Its Anti-Counterfeiting Mission
Our Correspondent
In March 2000, 28 multi-national companies having their presence in China, including Procter & Gamble, Johnson & Johnson, Unilever and Coca Cola, jointly formed an anti-counterfeiting and piracy alliance. With the support from the China Association of Enterprises with Foreign Investment (CAEFI) and the members being also the members of the CAEFI, the orgnisation has got a relatively long name: the Quality Goods Brands Protection Committee of the China Association of Enterprises with Foreign Investment (QBPC for short). Recalling this period of time, Zhang Weian, Legal Council of the Johnson & Johnson and Chairman of the QBPC, said that since counterfeiting of their products was getting more and more serious, companies, such as Henkel, Procter & Gamble and Johnson & Johnson hoped to join their efforts and meet on a regular basis to consult with the Governmental departments of China on anti-counterfeiting approaches and measures. Quite out of their expectation, as soon as it was put forward, the idea was backed by the Ministry of Foreign Trade and Economic Cooperation (now part of the Ministry of Commerce), which was then in charge of the enterprises with foreign investment. Probably, the QBPC is the first officially recognised non-official interest group organised by rightholders themselves in China. Thanks to the effect of the member enterprises on the local economy and the policy support of the Government of China, they are able to remain independent in interacting with the governmental departments, and its recommendations and requests have been attached more and more importance by them.
As the statistics from the Ministry of Commerce show, by the end of October 2004, the number of enterprises with foreign investment in China had reached 500,000, and 450 of the world 500 top enterprises had made investment and set up factories in China. The increased industrial value of the foreign investment enterprises constituting only 3% of all the enterprises in the mainland, accounted for 28% of the increased national value. The amount of tax paid by them amounted to 21% of the national tax revenue, and their exports amounted to 35% of the total amounts of the national export. Enterprises with foreign investment have become a vital contingent in the market economy in China.
As for most enterprises with foreign investment, the greater business risks are from the impact of pirate and counterfeit products on the market. According to the investigation by the relevant domestic organisations of 146 counterfeited enterprises, the sales turnover of counterfeit products of 23 counterfeited enterprises accounted for 50% or more of that of the authentic products of these enterprises, or more than 100% of 11 counterfeit enterprises, or even as much as 500 times that of an enterprises suffering the most from serious counterfeiting.
Preventing and fighting brand counterfeiting and piracy are the priority for enterprises with foreign investment in the market in China.
With merely 28 members from the outset, the QBPC have had 110 enterprise members by the end of 2004. Besides, it has set up 12 industry groups. In the groups, the member enterprises share information, communicate counterfeiting clues, make joint complaints and consult with the relevant governmental departments on issues of common concern. More importantly, when a counterfeiting activity involves a supplier or distributor of the same industry, they may jointly warn or remind them, cut their connection with the counterfeiters. Once an enterprise is put on the black list for supplying a counterfeiter raw materials, all other member enterprises will not have dealings with it. It is in this manner that the member enterprises make quality brand goods suppliers loyal thereto.
Counterfeiting: a Universal Problem
It has been calculated by the departments concerned that in recent years the average annual production of counterfeit products has reached RMB 130 billion yuan in China, and the country's loss of tax revenue amounted to RMB 25 billion yuan.
According to the data from the Mission of the EU Commission in China, 60% of the pirate and counterfeit goods seized by the EU Customs came from China in 2003. As the US Customs' statistics show, 66% of the pirate and counterfeit goods came from China in 2003, and 9% from HK, with the total value of 70 million US dollars. Of all the pirate and counterfeit products seized by the US Customs from January to June 2004, 58% came from China and 3% from Hong Kong, with the total value amounting to 40 million US dollars. It is accordingly estimated that it will have reached 80 million US dollars by the end of this year. Large proportions of all these pirate and counterfeit goods seized are goods of famous brands produced by member companies of the QBPC.
"On most counterfeit goods seized in the market are indicated 'Made in Italy' or 'Made in France'. When the goods were shown to local dealers, the dealers themselves had not seen the latest goods put on the market overseas. What is surprising is where the counterfeiters have got hold of the sample of the new products, where the trademark representations come from and who are the middlemen". With these questions, Zhang Weian and his colleagues began their investigation in the Johnson & Johnson.
In 2002, the Johnson & Johnson found that a hundred-year-old factory in a southern province was making an Johnson & Johnson ointment. To produce the ointment, the old factory sent a report to a higher-level competent department, obtained a loan and built new plants and introduced new production line. "We wondered why they so flagrantly pursuit the counterfeiting," Zhang said, "and they probably do not know what is all behind the product. Our investigation shows that they have introduced it as a new project and obtained from a foreign trade company based in central China the prototype product provided by a Dubai-based company, and the company based in central China did not know that it was a counterfeit product at all". In their raid on counterfeit, they found that some counterfeit Johnson & Johnson products, on which were indicated made in Malaysia, Indonesia or India, were actually made in East China, and the prototype products were provided by some Indians. The Johnson & Johnson cosmetics with indication of "Made in Italy" discovered in the market had never been marketed by the Johnson & Johnson in mainland China. The counterfeit prototype products were provided by a person from Yemen.
Yiwu in Zhejiang Province, China, used to be called a "kingdom of counterfeit" and regarded as an ideal place by foreign counterfeiters for its adequate logistic system. There, many foreigners do their business, and some of them deal only in counterfeit goods.
More examples show that foreign counterfeiters take with them prototype products of the world famous brands and seek processing/manufacture using customer-designed brand name. Utilising their vast global distribution network, they market counterfeit goods in various foreign countries.
Such processing/manufacture using customer-designed brand name makes it easier for these foreign counterfeiters to escape legal penalty. When their counterfeiting activity is discovered, they can stay away from liability. On the other hand, some domestic counterfeiters have begun to seek markets in foreign countries, such as Ukraine, Brazil, Russia, and South Africa. In Dubai counterfeit goods from China are often found in the Chinese goods markets.
Some of the anti-counterfeiting cases with QBPC's participation have started from discovery overseas of counterfeit goods from China, and such goods being made and to be exported are found inside China.
Counterfeit goods gobbling up the market tests the resolve of the foreign businesses to continue their investment in China. There is a saying in the industry that "you cannot afford not to be there", which reflects their contradictory mentality.
Work Cooperatively with the Government
Ever since its establishment, it has been the QBPC's mission to work cooperatively with the Chinese Central and local governments, local industry and other organisations to make positive contributions to anti-counterfeiting efforts in China.
"When the QBPC was launched, the corporate members only complained that counterfeiting was serious and the governmental measures were not strong enough. Of course, the government was very much on alert. However, when we took our initiative to communicate and build mutual trust, the Chinese Governmental departments got increasingly active, often coming to consult with us and the member companies become active too to recommend measures enhancing protection of the IP rights", said Zhang. To date, dialogue between the QBPC and the government has changed from the former non-official symposium into meetings of coordination held regularly on a quarterly basis. The party representing the government is the Office for Nationwide Rectifying and Regulating Market and Economic Order. Over the years, some QBPC recommendations have been incorporated in the amendments of the laws, such as the Product Quality Law, the Trademark Law and the Regulations for Customs Protection of Intellectual Property Rights.
Meanwhile, to help grassroots enforcement officials better enforce the laws and regulations, the QBPC also works with the Economy Bureau of the Ministry of Public Security, the Supreme People's Procuratorate, the State Administration for Industry and Commerce, the State Quality Inspection Bureau and the Customs to hold near a hundred large-scale training courses nationwide, including those for officials from the customs, the quality supervision departments and administrative departments for industry and commerce to identify counterfeit products. In doing so, the members of QBPC have built mutual trust with the governments and departments at the various levels, and the multi-national companies see the resolve and efforts of the Chinese government to fight counterfeiting.
With enhanced mutual trust, the government become more responsive toward foreign businesses' complaints and treats more cases. In handling cases of the kind, matters of local protectionalism and bribe by counterfeiters are emerging. Some companies with foreign investment recommended that the QBPC publish a "black list", as a warning to some of the enforcement departments in China. The QBPC advised the corporate members to see the recent progress made by the government. It is certain that some cases are better dealt with than others. Publishing cases not so well dealt with would cause friction. Therefore, the QBPC decided to hold an event to choose among all the cases dealt with "the best cases", on which leaders of the governmental departments were invited to reward the enforcement officials who handled the cases best. The QBPC made CDs of these rewarding events filmed on site to be shown by local trade departments for promotion of foreign investment.
Communication has resulted in active response on the part of the legislative and enforcement authorities to the issues raised by the QBPC. For example, in respect of the issue of transfer of cases handled by administrative departments, the Investigation and Supervision Division of the Supreme People's Procuratorate has adopted the measure to supervise special cases. They have discovered that the administrative departments did not transfer many cases to the judicial authorities for lack of clear law provision in enforcement. Accordingly, the Division has formulated specific rules of handling such cases, and sped up the procedure for transferring criminal cases from the administrative to judicial authorities.
Plug up Source of Counterfeit
Over the years, the QBPC has accumulated anti-counterfeiting experience from its communication with the various levels of governments, judicial and administrative authorities, scholars and experts and in the practice of its corporate members.
Catching the Arsonist Is More Important Than Fighting the Fire
A member company of QBPC whose products were counterfeited suffered from a drain of 60% of its employees and a drop of 70% of its sales in one and a half years. As a result, its work shifts decreased from 21 to 5 a week until its production came to a haut. Although the QBPC worked with the enforcement department to launch raids on the hideouts of counterfeiting on several occasions said ocmpany's production kept dropping. In time, they found a special phenomenon: the somewhat same production equipment in all the hideouts was made by one manufacturer. The QBPC realised that it had taken the wrong strategy as it paid too much attention to the counterfeiting hideouts, without tracing the counterfeiting organiser. Although the counterfeiting hideouts were found, the counterfeiters were not caught, who would change a place and commit counterfeiting again. Later, they found in Shanghai a gang who instigated people to counterfeit by selling the machines, supplying the counterfeiting technology, telling people how to find suppliers and raw and subsidiary materials. When the gang were caught, they confessed that they had taught over a hundred people. From this case, the QBPC has realised that if the wirepullers are at large, all the efforts of fire fighting would be in vain. While fighting the fire is important, catching the arsonist is more important.
Preventing Fire: Preventing Crimes
A successfully-marketed goods certainly has a good channel of distribution. A counterfeiter desiring maximum profit would try his best to put in his counterfeit goods in the distribution channel of the legitimate goods because selling counterfeit goods together with the authentic ones is less risky, and much more profitable. If caught, the counterfeiter would say he did not know, nor did he have evidence of "intentional" sale of the counterfeit goods. The phenomenon in which counterfeiters utilise legitimate distribution channel to seek exorbitant profits should be prevented as early as possible. The public service sector should not leave any room for counterfeiters to maneuver. Fighting counterfeiting in a small village, the QBPC members found that 380 voltage of power in the residences in the counterfeiting hideouts (The power is supplied at 220 voltage for daily household use in China). They wondered why the industrial power supply could be made available in the residential houses of the small village. Later, it was found out that the local power supplier supplied power at any voltage paid for. It did not care what the power was to be used to make. They later suggested the power supplier to do something about it. Without the supply of the 380 voltage of power, the counterfeiters could not start their production.
The eastern region of GuangdongProvince was once notorious for production of counterfeit pharmaceuticals. However, failure to find out where the machines came from for making the counterfeit products made it difficult to completely prohibit the counterfeit pharmaceuticals from being manufactured. The QBPC reported the matter to the department concerned. When the Product Quality Law was being revised, a provision was added to Article 61 that acts of supplying technology to made counterfeit goods are punishable.
Public Education
In 2002, the QBPC invited 2,500 consumers to answer a questionnaire, most of whom said that if the quality of the counterfeit goods was OK, they would not mind buying them. It would at most prejudice the interests of a multi-national group.But actually this is not the case.
A town in the south of China counterfeited disposable transfusion apparatus of a famous brand. To make the counterfeit goods, an abnormal underground economic entity came into being in the town, which took away the resources from the legitimate channel. In a raid on the counterfeiting hideouts, the QBPC and the administrative authorities found that local children were put on guard in the streets for these underground counterfeiting factories. The serious effect of such a large scale of counterfeiting, specially with the participation of children on the local economic and personnel development can hardly be overestimated.
To raise the public awareness of refusing counterfeiting, the QBPC has made public awareness raising ads boards, which are erected outdoors in the busy markets and business districts in some cities, such as the small goods retail market in Yiwu, the Wuai Market in Shenyang, the Railway Station in Guangzhou to advise people to stay away from counterfeit.
Issues to Be Urgently Addressed in Anti-Counterfeiting
In the early anti-counterfeiting efforts, counterfeiters were normally imposed a light penalty. Even cases of serious trademark counterfeiting were resolved with small amount of fine imposed. It was easy for counterfeiters to counterfeit again in another location. In recent years, China has adopted the legislative measures of criminal penalty on counterfeiting. However, now, the cost of counterfeiting is so low that it will not prevent counterfeiters from committing counterfeiting. Therefore, the QBPC believes that there are still rooms for improvement in legislation and enforcement; hence it has made recommendations for the government to adopt corresponding measure to effect the improvement.
The inability of the public security authorities to make effective investigation has made it possible for counterfeiters to evade criminal penalty.
According to the conventional anti-counterfeiting procedure, an enterprise first files a complaint with an administrative authority, such as the departments for product quality inspection, for industry and commerce or for drug supervision, which then go to find out the hideout at the request of the complainant. The public security officers only accompany the administrative enforcement officials to enter the hideout. Only when they find that the counterfeit goods are of sufficient quantities do they consider putting the case on file to begin serious investigation. As a result, piles of counterfeit goods were found but the owner thereof; there was no way to figure out whether the counterfeiter was an entity or an individual person, so it was impossible to put the case on file for criminal investigation and action. As a result, the counterfeiters were often at large.
According to the current practice, the public security authorities normally start their criminal investigation after a raid on a counterfeiting hideout, but not before it. The law has expressly provided for the standards for criminally filing of a case for criminal investigation and action. However, since the public security authorities cannot make effective investigation when evidence of suspected crime is made available to get hold of the criminal evidence of the counterfeiters to bring an action against the counterfeiter, consequently, it is difficult for the counterfeiter to be punished for his criminal liability. Without their own means of investigation, what the other administrative enforcement departments can do are to find the counterfeit goods and impose a fine. They cannot impose criminal penalty.
The QBPC hopes that when the evidence of suspected crime is found, the administrative authority should immediately transfer a case to the judicial authorities, rather than not transfer the case until evidence proves an act to be a criminal offence.
A Counterfeiter's Property Cannot Be Frozen
Now, anti-counterfeiting efforts in China are substantially limited to raid on hideouts by administrative and enforcement authorities, in which a few working at counterfeit goods are caught. The whereabouts of the true counterfeiters are unknown, let alone freezing their property and bank accounts in time. The counterfeiters are in a position to go on counterfeiting with their financial resources in another locality.
For the QBPC, the Chinese investigation departments may draw on foreign practice, by applying Article 117 of the Criminal Law, freezing beforehand a counterfeiter's bank deposits to render his manipulation ineffective, and confiscating and destroying equipment used for counterfeiting to take away the firewood from under the cauldron: to give a final blow on counterfeiters.
Export Agency Should Not Stand in the Way for the Customs to Transfer a Case
To dates, opinions are divided on the matter of whether cases of exporting, by an agency, counterfeit goods that the Customs seized for suspected criminal offence should be transferred to the enforcement authorities. For some, if the Customs can prove that an agency exports goods which it knows are counterfeit, it will certainly transfer the case. When the agency does not know the goods to be exported are counterfeit, however, it is not provided in the law that such case should be transferred to the enforcement authorities. For that matter, a considerable number of counterfeiters who export through agency their counterfeit goods in such large quantities that the counterfeiting constitutes criminal offenses are not imposed the penalty they deserve.
The QBPC has recommended that the Customs and the social security authorities hold discussions on a regular basis to work out rules to deal with particular cases.
The Threshold of Criminal Penalty Should Be Lowered
Recently, the international mass media have drawn their attention to issue that China lowers the standards of criminal penalty for IP criminal offences, and the multinational companies have consistently call for lowering the threshold of criminal penalty.
The call for "lowering the threshold of criminal penalty" was first heard from the QBPC, which, since its establishment, has deemed it one of its missions to call for and to promote criminal protection of the IP rights.
Many foreign companies share the idea that once the judicial criminal interpretation is issued, the criminal enforcement penalty would be enhanced over night. The QBPC advises its members not to have such unrealistic expectation. As is prescribed, enhanced criminal protection involves gradual promotion at one level after another: effective investigation by the social security authorities, prosecution by the Proscutorate and trial by the court. Lowering the threshold of criminal penalty by virtue of a judicial interpretation is just the law basis in the stage of criminal trial. Without effective investigation by the social security authorities beforehand, the judgement in the end would be of a reduced force. With threshold of criminal penalty lowered, what is the significance to punish a few more employees of a counterfeiter?
Zhang Weian believes that emphasising the deferent force of the criminal penalty is only part of the issue. If you talk too much about it, people would think that these foreigners just want put Chinese in prison, which would cause undesirable conflicting sentiments. It is the foreign countries' experience to attach importance to effective efforts of anti-counterfeiting directed at minor and serious offences until the chief counterfeiters are caught.
All effective criminal protection of the IP rights is not merely to lower the threshold of the criminal penalty and to sentence a large number of people to imprisonment. Instead, we should depend on effective investigation by the social security authorities and trace the sources of counterfeiting. The current statutory investigation and prosecution standards sometimes restrict the social security authorities from filing a case for criminal investigation. According to the standards, only a case involving RMB 100,000 to 500,000 yuan should be put on filed for the investigation. Without effective investigation, it is impossible to put a case on file. By effective investigation is meant that as long as there is considerable evidence to prove the suspect criminal offence, the investigation can be initiated. A case found not to be a criminal offence is transferred to the administrative enforcement department, which is not different from the traditional institution of the administrative enforcement first and criminal means second. To enhance criminal protection, the effective investigation by the social security authorities appears to be very important. "This requires putting in more resources," said Zhang Weian, "it is not merely to cope with complaints filed by foreigners."
Photographs:
The QBPC's successes have been internationally recognised. In 2002 and 2004, it was rewarded the Global Anti-Counterfeiting Association Award.
In march 2000, a meeting was in session to launch the QBPC.
The Chinese Customs is destroying seized counterfeit export goods.
Enforcement officials who have made outstanding contribution are been issued the award certificate
Best Case of IPR Protection Selected by QBPC
Cases of Criminal Action
On March 27, 2003, QBPC members including Colgate-Palmolive (Guangzhou) Co., Ltd.; Unilever (China) Ltd.; and P&G (China) Ltd. jointly complained to the Gaoyao Public Security Bureau. The Gaoyao Public Security Bureau arranged enforcement action against an underground toothpaste filling plant located in the city. A batch of counterfeit toothpaste, toothpaste packaging material and a set of processing line were seized.
On December 17, 2003, the Gaoyao Court criminally charged and sentenced two principal criminals to 9 years of imprisonment and fined each person RMB 500,000 yuan for manufacturing and selling fake products. (The court has found out that the criminal offence had lasted from 18 December 2002 to 27 March 2003, and the amount involved is RMB 850.000 yuan.)
Cases of Customs Protection of IP Rights
On 7 November 2003, the Unilever (China) Company Ltd. informed the Ningbo Customs that the counterfeit goods exported to the Middle East by a Ningbo-based import & export company were seized in Dubai. The Ningbo Customs took immediate action and checked and inspected again the three containers of goods for which the Ningbo company was through with the Customs clearance for export, and discovered 7,384 cartons of counterfeit DOVE bar and shampoo. The total value was calculated nearly US$300,000.
On 5 January, 2004, the Ningbo Customs officially issued the administrative penalty to the subject to confiscate all counterfeit goods with a penalty of RMB 18,850.
Cases of Administrative Investigation and Handling
Upon receiving the complaint, the Beijing Copyright Administration Bureau organised an investigation, without notice, of an architectural decoration company in Beijing, discovering that 119 pieces of computer software used in 37 computers of the 9 operation units of the company were reproductions made without authorisation.
On 28 March 2003, the Beijing Copyright Administration Bureau made the penalty decision, ordering the company to cease the infringement, and imposed on it a punitive fine of RMB 270,000 yuan.
The QBPC has rewarded 21 Awards for Best Cases of IPR Protection in the 2003-2004 period in compliment of the enforcement officials having participated in these cases. |