Lessons From WikiLeaks About Apple's Intellectual Property Enforcement in China

Mark Milan of CNN has read the Wikileaks cable from the U.S. Beijing embassy on Apple, read here, see original text here.

WikiLeaks cored Apple in China

The Wikileaks suggest that Apple, in regard to the enforcement of intellectual property in China dealt with the following challenges:

• It seems that Apple realised there was a serious problem quite late and only in 2008 it formed a security team, experienced in the protection of Pfizer, that took action; Lesson: assess the markets, have a budget and a team to enforce ready before you do business.
• Like many companies it does not want to start high profile raids; Lesson: It can be an effective deterrent to potential counterfeiters if you are known as an aggressive enforcer. 
• Like many companies enforcing their intellectual property rights in China, Apple experienced that its product categories are no priority for Beijing (unlike medicines); Lesson: it takes time, effort and money to lobby via U.S. government or EU politicians with Beijing for your particular industry to be noticed. 
• Apple like many other companies tried to scare consumers away from buying counterfeit products (don't know whether batteries really blew up. Then again I personally have come across phony phones with high level of radiation that gives you a headache after a mere two minutes if your skull is less than 1 inch thick); Lesson: transparency about health and safety issues can work. 
• That it can be hard to close down factories which manufacture infringing goods, because this could lead to unemployment, which on its turn could have a negative influence on the local economy, which increases the possibility of social instability. Typical example of local protectionism; Lesson: become part of local communities and economies to really have some influence. Choose your battles wisely: do forum shopping to sue infringers in those courts that you trust.  
• That to close down shops in malls can be difficult because the authorities do not want to disturb the shopping in the mall. Another example of local protectionism (sometimes called localism). Lesson: be innovative. Use for example contractual solutions, such as the landlord liability schemes.

UPDATE August 31, 2011:

Philip Elmer-DeWitt published for Forbes the full text of the U.S. Beijing embassy cable here.

UPDATE September 1, 2011:
Chenfei Zhang of Newsy, pointed me to their "multisource video news analysis" about the subject. Thanks Chenfei.

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Just Sue Them! Nike Went After One End User For Ordering Chinese Counterfeit Trainers Via The Internet

Nike International Limited (Bermuda), Nike European Operations Netherlands BV and Nike UK Limited sued Mr E. Bateman for buying counterfeit trainers via the internet, in the England and Wales Patent County Court (served August 26, 2010 and heard October 11, 2010).

"The goods had been shipped from unknown exporters in China and were to be imported into the United Kingdom." But, the UK Border Agency seized the counterfeit Nike shoes. Nike has registered several relevant trademarks valid in the UK (UK trade mark 135204 for the Nike with "swoosh" device, Community Trade Mark 278028 for the word Nike, and Community Trade Mark 4288486 for the "swoosh" device and Community Trade Mark 277889 for the word Nike with the "swoosh" device).

Nike's IP enforcement strategy is remarkable:

• Many companies try to stop counterfeiters from their illegimate activities, to get to the root of the problem. Although the problem can be persistent, since counterfeiters often start at some other place (therefore criminal enforcement is preferred), or other counterfeiters take over their activities.
• To claim that some players have secondary liability (vicarious or contributory) is also a popular strategy. These players (such as landlords or internet service providers) are easily located, and very important: they have the financial means to compensate for damages.
• To go after the end users is a very risky strategy. Many end users are not easily identifiable, traceable, and even if you manage to do that, they might have no money. Of course sueing people who are a fan of your brand, might not be the way to gain new customers.

So Nike choose for the third option and brought an action to those who ordered via the internet counterfeit Nike trainers. All cases were settled out of court or went undefended, except for Mr Bateman.

Mr Bateman's defence: "I ordered training shoes over the internet believing them to be authentic. I had no idea they were counterfeit. I have never received any goods and will not be ordering any more."

Judge Birss QC's response: "Whether or not the defendant believed the goods were authentic is irrelevant to the question of trade mark infringement. Whether the goods are infringing goods or counterfeit goods is an objective question. The Defendant's state of mind does not matter. Equally the Defendant's state of mind is irrelevant to the question of importation."

Secton 10 (1) Trade Marks Act 1994:

A person infringes a registered trade mark if he uses in the course of trade a sign which is identical with the trade mark in relation to goods or services which are identical with those for which it is registered.

Section 10 (4) Trade Marks Act 1994

For the purposes of this section a person uses a sign if, in particular he (c) imports or exports goods under the sign.

"It may be questioned whether the sledge hammer of these proceedings is necessary in order to crack this nut of this magnitude", said Judge Birss QC. But Nike's representative explained that brand owners in this situation have no realistic alternative to enforcing their rights this way. This was accepted by Judge Birss QC.

I guess the investigations into the channels of commerce were not successful in this case. What were the websites that were used to order the counterfeit trainer shoes, who were the distributors from the manufacturer to the transporter, and of course who manufactured the goods in the first place?

For those of you who have read Brett East Ellis' book American Psycho or seen the movie, you might be able to substitute Mr E. Bateman with the brand obsessed Patrick Bateman as defendant. If you then combine this association with Judge Birss' metaphor you might see a manufacturer swinging an ax to a customer because he ordered an infringed product. That it is hard to sell genuine trainer shoes in the future to a deceased, might be a practical problem. On a more serious note, Mr E. Bates could also have settled. I do not know how reasonable Nike's offer was.

Dubble edged sword

It is good when companies show their teeth in regard to enforceing their IPRs and Nike's strategy might have some deterrent effect, that prevents future infringements by end users. The deterrent effect, however, is very hard to measure if there is no parallel universe where the end user was not sued. One has to take into account the possibility that it could backfire, and also deters potential customers to buy Nikes. Only destroying the counterfeit goods could have been an alternative punishment that would not have made Mr E. Bates' case into an example and would not push away some potential customers.

See the Summary Judgement, see here.
Hat tip to Matt Lonsdale who gave an overview of the case on IP Osgood, see here.

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Of IP's Most Important Figures of 2007 Who is Most Relevant to IP in China?

The magazine Managing Intellectual Property announced IP's Most Important Figures of 2007.

Of this group, who deserved this title because of its role regarding IP in China?

Obviously this includes Ms Wu Yi (China's vice-premier and IP-negotiator) and Mr Tian Lipu (commissioner of China's State Intellectual Property Organisation), but also Mr Jack Chang (senior IP counsel Asia GE and chairman of Quality Brand Protection Committee), Mr Dan Glickman (president Motion Picture Association of America and member of the China Copyright Alliance), Ms Nathalie Moullé-Berteaux, director of global IP at LVMH Moët Hennessy Louis Vuitton).

Congratulations to all. However, IP Dragon misses at a few names, especially Mr Joseph Simone of Baker & McKenzie for his role in the innovative landlords case, read more here.

Read Managing IP's article here.

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