Counterfeit luxury goods are big business in China. Together, China and Hong Kong are estimated to be the source of 86% of the world’s counterfeit goods—an amount that the U.S. Chamber of Commerce estimates is worth about $397 billion. Fake merchandise accounted for 12.5% of China’s exports in 2016, according to the same report. But China also has a huge domestic market for fake goods: many consumers who buy counterfeits do so deliberately, because they want to pay a lower price for goods that look expensive.
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Cracking down on counterfeits can be difficult for luxury brands. Copying techniques have improved so much that some counterfeits now look just like the originals, while online sales make fakes even harder to spot. Large counterfeit manufacturers and distributors keep a low profile. Culprits out in the open are small vendors far down the food chain. They sell counterfeits on e-commerce and social media platforms that do not check whether vendors and merchandise are kosher or (if they do) can be fooled by falsified documents. Chinese law enforcement is not much help either. Vendors who get caught are not punished severely and may soon try again.
But although counterfeits are impossible to suppress altogether, there are pragmatic steps luxury or designer brands can take to guard their interest effectively. Here are eight ways to start:
- Register your trademark in China at once. Chinese law does protect intellectual property, but only if a trademark is officially registered. Once your trademark is officially registered in China, you can take legal action against counterfeits—but not before. Do not wait until you actually enter the Chinese market. There are Chinese firms that monitor upcoming international products and surreptitiously register their trademarks so a new Western brand in China may find its trademark already registered and have to give it up or hire lawyers to buy it back. Therefore, register your trademark as soon as possible.
- Get a good local lawyer. To guard your IP, a competent, experienced, trustworthy Chinese lawyer is indispensable. Court proceedings and documents are almost all in Chinese, and hearings about IP are especially difficult because arguments about design are tricky and counterfeiters can be fluent sophists. A good lawyer will not only help you in court but also investigate counterfeiters and propose strategic moves against them before you get there.
- Open your own official web store supported by Chinese online payment tools. Having your own online store with a good user interface and Alipay and WeChat pay support means you will not risk losing high-end customers who want authentic products. Not all Chinese consumers want knockoffs. Many want genuine articles but buy fakes by mistake—mostly high-class counterfeits sold as original items. A store that guarantees the authenticity of all products it sells is a big relief for them. High-end consumers do not buy most counterfeits, of course, but they are a large market and growing fast as China’s upper-middle class expands.
- Join forces with the government and e-commerce firms. The Chinese government has in recent years improved IP protection, establishing special courts in major cities to handle the growing number of infringement cases. Though the policy has not done much to deter counterfeits thus far, its direction is clear. Likewise Alibaba formed a special task force in 2016 to identify counterfeits and their manufacturers and distributors through data analysis, which it relays to law enforcement. Luxury brands can work proactively here by tipping off the police and e-commerce firms to counterfeiters.
- Invest in anti-counterfeit technology. QR and RFID schemes can use blockchain technology to prevent fraud and counterfeiting. In order to improve product safety, China’s pharmaceutical, alcohol, and food industries already use QR codes and RFID tags to track products as they move from factory to consumer. The code or tag is a digital product ID that is scanned every time the product changes hands so the consumer can trace its origin and history. Luxury brands can code or tag their products the same way not only to feed their own database but also to share with (and get updates from) all actors in the supply chain. Getting so many parties aboard may be a challenge, but it is a challenge worth taking up with the government and other stakeholders like large e-commerce platforms on your side.
- Update your model fast—every month if you can. It takes counterfeiters a month to reverse engineer a genuine product and bring it to market. A model that changes every month is hard to copy. If your manufacturing and supply chain allow fast model updates and if this is in line with your overall strategy, by all means use this tactic.
- Repay counterfeiters in kind. Place product images in your ads that are subtly different from the real items to appear in your flagship stores. When counterfeits copied from your ads appear, they will be exposed as fake. Some international brands have done this successfully. There is a thin line between deceiving counterfeiters and cheating customers, however—be careful not to cross it.
- Remember that counterfeiting is a luxury problem for successful brands. When exasperated by the war on counterfeits, remember you are not a loser. Chinese manufacturers and distributors want large volume and are impatient to get it. If your brand were obscure, none of them would try to copy your product and sell fakes.
Counterfeiting may never be defeated completely, but it can be discouraged through law, technology, and culturally sensitive tactics.