|
|
Get Four
|  | JANUARY 10, 2006
By Dexter Roberts A Bigger Stick Against Chinese FakesA Beijing court ruling holds that a market owner is responsible for letting its vendors sell fakes, raising hope among companies stung by counterfeitersBeijing's bustling Silk Market hardly looks like it has anything to hide. The seven-story building, on a chunk of prime real estate just a stone's throw from the U.S. embassy in the busy Jianguomenwai district, is a chaotic, crowded place. Tourists and Chinese alike prowl the narrow hallways looking for bargain-priced sports apparel, suitcases, suits, socks, handbags, and even silk. Vendors shout out brand names -- such as Polo (RL ), Samsonite (SAMC ), Louis Vuitton (LVMUY ), and North Face (VFC ) -- and grab the arms of customers when they think they've made a sale. Problem is, there's a reason for those bargain prices: Much of the merchandise is counterfeit. Though corporate sleuths and U.S. and European trade officials have long called on Beijing to rein in sales of fake goods at the Silk Market and elsewhere in China, business has boomed. Last year, when the market's original structure, a series of stalls running along a narrow ally, was torn down and replaced with the current building -- more comfortable, with escalators and cafés for tired shoppers to rest their feet -- many had hoped that the owners might bar vendors from selling fake Gucci (GUCG ) bags, Ralph Lauren shirts, and other knockoff goods. Instead, the market's private security guards have roughed up Chinese journalists, anticounterfeit investigators, and other snoops who ask too many questions. TWO-STRIKE RULE. There's finally a sign that things might change. On Dec. 19, a Beijing court ruled in favor of Gucci, Louis Vuitton, Prada, Chanel, and Burberry in a suit to stop sales of knockoff handbags. The court ordered the owner of the market, Beijing Xiushui Haosen, to pay $24,800 in damages to the brands and to stop its vendors from selling the fakes. "Xiushui Haosen not only failed to halt such infringement, but, on the contrary, provided a place of business therefore, thus conniving with the continuing infringement," ruled presiding judge Shao Mingyan of the Beijing Second Intermediate Court, according to a translation of the verdict provided by Baker & McKenzie, the law firm representing the plaintiffs. The ruling is important because Chinese courts have rarely held landlords responsible for the illegal activities of their tenants. "This gives the [Chinese] government and the brand owners a new tool to go after counterfeiting -- through the landlords," says Joseph Simone, a partner at Baker & McKenzie's Hong Kong office. Such measures are common in other countries, Simone says. Now, Baker & McKenzie is trying to convince Chinese authorities to use the ruling to make it harder for counterfeiters to sell their wares. The firm is working with the Beijing mayor's office and the State Administration for Industry & Commerce (SAIC) -- the national anticounterfeiting watchdog -- to make all future lease agreements in malls subject to what Simone calls a two-strike rule. "If the vendors are caught counterfeiting, they would first suspend the outlet for 30 days," he says. "The second time, [the vendors] would lose their leases." Other international bag and apparel makers may follow the lead of the five luxury brands. Calvin Klein (PVH ), Kate Spade, Hard Rock Cafe, and others may band together to combat counterfeiters, too, Simone says. "It's a lot cheaper and more effective to fight collectively than take action as just one company," says Simone. OLYMPIC IMAGE. The ruling comes amid a broader crackdown on counterfeiting in China. On Jan. 5, the Shanghai government announced its plans to shut down Xianyang Market, that city's biggest seller of fake goods. According to local news reports, Mayor Zhou Taitong said the market had damaged Shanghai's reputation, because some 80% of counterfeiting and piracy in the city originates there, Zhou said, despite repeated crackdowns by city officials. And in another victory just two days earlier, Starbucks (SBUX ) won $62,000 in damages from a local chain, also in Shanghai, that was using Starbucks' Chinese name and a logo that strongly resembled the U.S. company's trademark in its shops. The effort comes as China's top officials are getting increasingly concerned about their international reputation in the run-up to the 2008 Beijing Olympics. Last fall, the SAIC said between July, 2004, and September, 2005, 6.77 million businesses and 283,000 markets across the mainland had been investigated for counterfeiting, with 158 people prosecuted and a total of $46.5 million in fines levied. "The Chinese side is willing to step up its protection of intellectual-property rights, enhance its efforts in fighting crimes involving violations of intellectual-property rights, and stands ready to increase cooperation with the United States in this regard," Chinese President Hu Jintao said after meeting U.S. President George Bush in Beijing in November. Nonetheless, the battle is far from over. The Silk Market landlord is appealing the verdict, and fake bags from all of the vendors are still being sold there. "The leather in this bag is just as good as in the real thing," one pushy saleswoman said on Jan. 9, waving a Burberry knockoff in the air. The strongest brand in the Silk Market, it seems, is the Silk Market itself. After all, anyone who wants a knockoff handbag in Beijing knows it's the best place to find one.  Roberts is BusinessWeek's Beijing bureau chief
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2006, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Notice |
Printer-Friendly Version
