Saturday, April 29, 2006

The Pirates of Asia

It is no news that the pirating business in Asia is strong and thriving. From Mariah Carey CDs to Northface jackets, Louis Vuitton bags to Sony memory chips, counterfeit products copying both brandnames and quality spread the Asian markets like wildfire.

Now foreign companies are seeing a new wave of fakes, with counterfeit enterprises competing in creativity of product line while still capitalizing on the brandname. Excerpt below.

Next step in pirating: Faking a company
By David Lague International Herald Tribune

FRIDAY, APRIL 28, 2006

At first it seemed to be nothing more than a routine, if damaging, case of counterfeiting in a country where faking it has become an industry.

Reports filtering back to the Tokyo headquarters of the Japanese electronics giant NEC in mid-2004 alerted managers that pirated keyboards and recordable CD and DVD discs bearing the company's brand were on sale in retail outlets in Beijing and Hong Kong.

The pirates were faking the entire company.

Evidence seized in raids on 18 factories and warehouses in China and Taiwan over the past year showed that the counterfeiters had set up what amounted to a parallel NEC brand with links to a network of more than 50 electronics factories in China, Hong Kong and Taiwan.

In the name of NEC, the pirates copied NEC products, and went as far as developing their own range of consumer electronic products - everything from home entertainment centers to MP3 players. They also coordinated manufacturing and distribution, collecting all the proceeds.

The Japanese company even received complaints about products - which were of generally good quality - that they did not make or provide with warranties.

NEC said it was unable to estimate the total value of the pirated goods from these factories, but the company believed the organizers had "profited substantially" from the operation.

"These entities are part of a sophisticated ring, coordinated by two key entities based in Taiwan and Japan, which has attempted to completely assume the NEC brand," said Fujio Okada, the NEC senior vice president and legal division general manager, in written answers to questions.

"Many of these entities are familiar with each other and cooperate with each other to develop, manufacture and sell products utilizing the NEC brand."

Some technology companies have been criticized for piecemeal and half-hearted attempts to protect their intellectual property, but Okada said NEC was prepared to take proactive measures to defend its brand.

NEC had not previously made public the piracy in order not to compromise its investigation.

Records showed that the counterfeiters carried NEC business cards, commissioned product research and development in the company's name and signed production and supply orders.

They also required factories to pay royalties for "licensed" products and issued official-looking warranty and service documents.

Some of the factories that were raided had erected bogus NEC signs and shipped their products packaged in authentic looking boxes and display cases.

NEC said about 50 products were counterfeited, including home entertainment systems, MP3 players, batteries, microphones and DVD players.

Many of these pirated items were not part of the genuine NEC product range.

The investigation also revealed that fake goods from these factories were on sale in Taiwan, mainland China, Hong Kong, Southeast Asia, North Africa, the Middle East and Europe.

In some cases, they were being sold alongside legitimate NEC products in retail outlets.

The counterfeiting attack on the NEC brand comes as the Chinese government is coming under intense international pressure to crack down on rampant intellectual property theft. The U.S. government and American businesses complain that the Chinese efforts to combat piracy have so far been ineffective.

Gregory Shea, president of the U.S. Information Technology Office in Beijing, which represents more than 6,000 technology companies, said it was clear that the top Chinese leaders understood that intellectual property rights contributed to economic growth.

In response to the losses suffered by Japanese companies, Tokyo has called on China to crack down on piracy.

But piracy experts say privately that strained Chinese-Japanese ties complicate Tokyo's efforts to support Japanese companies operating in China.

While intellectual property violations continue, there are clear signs that China is responding to international pressure.

Governments, laws and businesses will have to deal with increasing sophistication of the counterfeiting enterprises with increasingly sophisticated countermeasures. What drugs are known to be in Latin America, counterfeiting will be the equivalent in China.

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