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Fake news | Major brands take on China’s counterfeiters

  • New Balance has been awarded close to $2m in damages in China following action against 'parasite brands'
  • Liverpool has launched an unbranded shirt for $30 in China
  • Improvements in manufacturing mean that fake sportswear is now of a reasonable quality

The recent launch of a probe by the US against what it says is the theft of intellectual property (IP) by China – something that Washington claims has cost the US as much as $600m – has shone the spotlight once again on a perpetually thorny issue.

But this is no bilateral problem. 

Infringement – which covers everything from counterfeit goods and the use of copyrighted material or technology without permission to the so-called ‘parasite brands’ that closely resemble well-known lines – doesn’t distinguish based on geography. The problem has dogged European brands such as Adidas and Puma just as much as American sportswear giants like Nike and Under Armour. Piracy is not particular, it seems, but it is rampant. 

“Counterfeits are rife,” says Shaun Kastelijn, who has worked in teamwear manufacturing for the past decade, most recently in China. “The IP laws in China are just not up to the same standard as they are elsewhere, so manufacturers are pushing the boundaries to see what they can get away with. The laws are not there to protect brands or clubs. They’re just not a strong enough deterrent.”

Matthew Dresden, an attorney and China IP specialist at Harris Bricken, cautions that context is important. “China’s current IP system really only took effect with China’s accession to the WTO in 2001, and so everyone – judges, lawyers and the public – has had to get used to the rules,” he says. “By those standards, China is doing pretty well.”

But for westerners, Dresden says, China’s IP system appears highly unpredictable and often unprofessional, with a disconnect between law and practice. “China’s first-to-file regime requires companies to be extremely aggressive and proactive,” he says. “China does not require proof of use to register or maintain a trademark. In other jurisdictions, prompt decisive action against infringement provides results. But in China, it’s not so clear that it’s a disincentive, so the best defence is a good offence.”

Counterfeit issue

One company that has been taking the fight to their opponents – with some success – is US shoe and sportswear brand New Balance. Elsewhere, counterfeits remain the larger problem, says Dan McKinnon, the firm’s senior counsel for global brand protection, but, within China, parasite brands – in their case, domestic companies such as New Bunren, New Barlen or New Boom, whose shoes are largely indistinguishable from the ‘host brand’ New Balance – are the bigger problem, essentially because the two government agencies assigned to tackle the counterfeit issue will not make a call as to whether there has been an infringement. That forces the brands to enter China’s formal judicial system, which can be expensive and painstakingly slow.

Earlier this year, however, New Balance was awarded close to $500,000 in a case against New Bunren, which McKinnon describes as “a very substantial victory” for the firm.

“It began to set the tone, in many ways, for future decisions like the one we received in the New Boom case.”

That decision was handed down in August, awarding New Balance an unprecedented 10m RMB, or about $1.5m (€1.3m).

Perhaps the most famous example of a parasite brand in China is ‘Qiaodan’, pronounced as per the transliteration of Michael Jordan’s name. Qiaodan’s logo is closely modelled on Jordan’s famous ‘Jumpman’ silhouette and the company has become so well established that many Chinese consumers don’t realise the shoes on sale in Qiaodan stores are not actually real Nike Air Jordans.

The NBA legend has waged a lengthy battle in the courts, earning a ruling in December last year which granted him the rights to his Chinese name in China. But with Qiaodan so well established in China and now being legitimised outside the country through sponsorships deal, such as the one it signed with Fisu, that ruling remains something of a hollow victory.

The environment is enough to put off even the largest brands, but there is no point avoiding the market, according to Douglas Clark, an IP lawyer who has practised in China for 25 years.

“The upside is worth the risk,” Clark says. “It is a big market with big potential sales. In any event, counterfeits can still be exported, so even if you are not in the market, you need to fight counterfeiting in China anyway.”

Fake shirts

Fake football shirts take up a lot of the counterfeit headlines – and for good reason.

At a preseason game between Manchester United and Borussia Dortmund last year in Shanghai, Kastelijn says he saw fake Man Utd shirts being offered outside the ground for 60 RMB ($7.50). After the game, that had dropped to just 10 RMB.

One problem, Kastelijn says, is that improvements in manufacturing mean that the fakes are now of a reasonable quality. “Some fans will definitely still want the real version, but there are others who don’t see the point in paying full price, because they’re getting a similar product for much less,” he says.

In an intriguing move earlier this year, Liverpool FC sought to address this problem by releasing a cut-price – yet still official – club shirt specifically for the Chinese market. The shirt is not made by usual kit manufacturer New Balance, but the main difference is the price, with the unbranded shirt selling for $30, or roughly one third of the New Balance version. 

While music labels, food and beverage companies and cosmetic firms have all tried lower pricing in the Chinese market, this is a new experiment for the major football clubs, although Leicester City offers a cheaper version of their shirt – without the Puma brand – in Thailand. 

Part of the reason why official shirts are marked as they are – $87 in Liverpool’s case – is that the prices are designed to recoup the huge outlays that the likes of Adidas, Nike and others pay to the clubs in their kit deals. But outside the big cities in China, that price tag is simply out of reach to the majority of people, and with manufacturers able to shift counterfeits by the bucket load, these fake shirts become extremely cheap to produce – and to buy. Additionally, manufacturers are no longer scared to put the official kit brands on the fake shirts, something they would not have done in the past. 

“You need to price products to match the wealth of customers,” says Clark, “As well as selling in dedicated boutiques, which allows customers to know they are buying the real thing.” 

“It’s definitely worth Liverpool investing in that option,” adds Kastelijn. “If they’re successful, you might see the top five or six clubs across Europe following suit. Manchester City, Manchester United, Chelsea, Real Madrid, Barcelona and PSG are the shirts you see everywhere, but, outside of that group, there’s probably not enough demand in China to merit it.”

Something different

The jury is still out on whether Liverpool’s $30 shirt will start to make its way out of China. “I tip my hat to Liverpool FC for at least trying something different,” says Dresden. “But I think we can also expect to see these shirts turn up on the grey market in the US and Europe pretty soon.”

But Kastelijn disagrees, arguing that European clubs already offer a range of official gear, such as polo shirts and training kits, priced at a cheaper level to cater to a different demographic.

One of the keys to success when it comes to catering to China’s demographic, according to New Balance’s McKinnon, is that brands have to adapt their western mindset to an eastern one. “You must be willing to see the issues as they see them, not just legally, but culturally.” 

But with Chinese companies increasingly having to defend their own IP in China, the thought is that – eventually – the courts there will need to protect those rights. “Things are certainly improving,” says McKinnon,

“But to what degree remains uncertain. The increased damages awards of late still are not sufficient to act as a deterrent to future counterfeit action, but I am optimistic one day we will get there.”

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