Notoriously known for its counterfeit industry, China has received wide criticism for its markets of dangerously fake products including food, auto parts and pharmaceuticals.[i] The country’s struggle with this issue was further plagued by recent discoveries that investigators responsible for conducting anti-counterfeit inquiries turned out to be fakes themselves.
Over the past decades, counterfeiting has flourished into a multi-billion dollar business in China but equally important, a parallel industry of anti-counterfeiting rose to fight it and inevitably, to benefit from it.[ii]
Often, companies and brands would reach a law firm to hire investigators, sometimes indirectly. Thereafter, work is “further subcontracted to shifting bands of poorly paid freelance informants on the ground.”[iii] Since contracts are commissioned, the incentive to cheat rises as the amount of seizures increases.[iv] Therefore, those involved in investigating, without reliable and substantive oversight, take advantage of this opportunity to personally participate in as well as to financially reap benefits from the misconduct they are precisely supposed to prevent.
A striking case concerns the Swiss-based multinational technology company ABB (Asea Brown Bpveri) whose wide-ranging products include switches and complex industrial robotics.[v] The company filed suit alleging that an investigator, an employee of the China United Intellectual Property Protection Centre, whom the firm has hired to hunt down counterfeiters, had in fact committed double-dealing by selling fake ABB circuit breakers.[vi]
In its court filings in Beijing, ABB said it was astonished to find that the Centre, which is the company’s exclusive Chinese brand protection agent “had itself ‘directly participated in infringing acts against the ABB trademark’”.[vii]
ABB lost its case.[viii] The Chinese judges, in their ruling, acknowledged the employee’s double-dealing but otherwise “exonerated upper management and dismissed the rest of the accusations. They ordered ABB to pay China United over $500,000 in back investigation fees.”[ix]
The fight against counterfeiting in China was further hampered by the difficulty with political and legal reforms in the country. Investigators were not the only culprits, for local officials were sometimes responsible for fostering fake investigations by protecting these individuals, said a survey of investigators, lawyers and company employees.[x] The system was laden with underreported fraud and internal corruption, as well as unsuccessful efforts and methods by western companies to combat counterfeiting, according to the report.[xi]
For foreign companies hiring their investigators and agents in China, enhanced consciousness and more stringent selective methods seem to be needed at the minimum to fight this uphill battle against counterfeiting.