Saturday, February 18, 2006

AT Kearney on counterfeiting: 'All Eyes are on China'

AT Kearney has published The Counterfeiting Paradox, a 4-page analysis on IP in China.
It says that although counterfeiting is illegal in China, in 2004 it added an estimated 8 percent its GDP. In a figure the learning curve of the counterfeiting industry is nicely illustrated

According to AT Kearney the problems are that:

  • the Administration of Industry and Commerce (AIC) has a conflict of interest. It has to fight IP infringement, but it is investing its "funds in establishing wholesale markets and collects rent drom wholesale distributors (IP Dragon: including the counterfeiters). The AIC issues business licenses to proprietors and once a business is up and running, the agency collects management fees."
For example "the AIC of Yiwu has invested millions of dollars in constructing the wholesale markets that sell counterfeit goods."

  • counterfeiting is hard to prove;
  • enforcement is lengthy and costly;
  • there are too few trained IP prosecutors;
  • Sanctions are too lenient, thresholds to quantify and qualify IP piracy as a criminal offense are unclear and the maximum sentences are rarely given';
  • Local leaders are evaluated by an economic performance measurement system, which does not take counterfeiting into account.
Because counterfeiting is following economic laws, eliminating economic obstacles will increase IP infringement:

"In recent years, China eliminated state trading companies' monopoly on export rights. So now counterfeiters don't have to find a state trading company to export their goods."

AT Kearney is seeing the elimination of restrictions on export privileges with the power of the internet as a katalyst of more counterfeiting goods. When trading barriers will be reduces more counterfeiting more counterfeiting can be expected.

AT Kearney, however, is seeing more more intense clamping down on IPR violations in the future:
  • because of the WTO members' pressure. China will accelerate the build-up of its legal infrastructure;
  • The state council set up a shared communications system among regulatory bodies;
  • The People's Congress also amended the Laws of Patents, Trademarks and Copyrights;
  • China's Supreme Court has issued detailed interpretations of the laws;
  • SIPO has updated regulations;
  • Customs agency signed an anti-counterfeiting memorandum with the China Association of Enterprises with Foreign Investment for Imports and Exports;
  • AT Kearney expects more involvement by public security bureaus.
Last but not least, AT Kearney made the point that a central leadership that cannot enforce IP infringement by controlling their local governements to do so is a big danger for China's economy and thus to the world's economy.

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