Intellectual Property

From Wumart to Uncle Martian, experts say China's copycat problem is big

Chinese counterfeit goods market is only getting bigger
Chinese counterfeit goods market is only getting bigger

From sportswear rip-offs to suspiciously familiar brand names such as "Wumart," China's counterfeit and intellectual property (IP) infringement problem is massive and raising questions around the world about how seriously the country is fighting fakes, according to experts.

"The Chinese counterfeiting problem is bigger and the players more sophisticated than anyone can possibly imagine," said Joseph Gioconda, attorney at U.S.-based Gioconda Law Group, which specializes in brand protection.

Globally, counterfeit and pirated good imports are estimated to be worth nearly $500 billion annually, making up 2.5 percent of global imports, according to an April report from the Organization for Economic Co-operation and Development and the European Union's Intellectual Property Office.

The same report showed that 63.2 percent of fake goods came from China, followed by Hong Kong with 21.3 percent, while U.S., Italian and French brands were the most affected by imitation goods.

Gioconda told CNBC in an e-mail interview that there were "entire Chinese villages...where product counterfeiters work to perfect the art and science of manufacturing fakes."

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One such area is Yiwu, in China's Zhejiang province, which has been dubbed "Counterfeit Central" in several media reports. According to a 2014 World Trademark Review report, there were more than 30,000 stores selling over 100,000 different counterfeit goods in the town alone.

Gioconda explained that there was a disconnect between what Beijing officials say about respecting IP, and the actual corruption and lack of enforcement seen on the ground,

While the Chinese government has repeatedly professed a willingness to work with foreign brands to stamp out counterfeiting syndicates, that sincerity breaks down at the local level, he said, because of concerns about what such a crackdown might mean for local jobs.

Even Alibaba, which has always been vocal about its anti-counterfeit efforts, is struggling to fight fakes on its shopping platforms. The Chinese e-commerce giant recently had its membership of the International Anti-counterfeiting Coalition (IACC) suspended after several members quit in protest over Alibaba's admission.

"It was extremely disturbing to us that Alibaba was invited to become a member of the coalition," said Gioconda, whose law firm is also a member of the IACC.

"It is my personal opinion that Alibaba only sought to join the IACC to provide itself with the facade of legitimacy, rather than to make a serious effort to combat the rampant distribution of counterfeit products occurring openly on its own sales platform," he said.

In response to Gioconda's comments, an Alibaba spokesperson said "Alibaba has had a zero-tolerance policy towards counterfeit goods" and that it would continue "leading a constructive and collaborative approach to anti-counterfeiting that involves working closely with all brands, regardless of our standing with the IACC."

Four different sizes of imitation Apple iPhones on display at a mobile phone market, popular for selling imitation and counterfeit phones, in Shenzhen, China.
Ryan Pyle | Corbis | Getty Images

Another problem in China's counterfeit struggle could also be the local consumer's attitude towards fake goods and brands.

In China's top-tier cities, people have developed a stronger brand sense and were more likely to show a strong dislike for rip-offs, said Hui Wan, a team lead at Euromonitor International.

But consumers in the lower-tier cities or rural areas lacked brand loyalty and were more price-conscious, she said.

Park Thaichon, assistant professor at the SP Jain School of Global Management, agreed, telling CNBC in an e-mail interview that "Chinese consumers pay little attention to copyright and intellectual fact, counterfeit is almost acceptable and has become a social norm."

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The April launch of a Chinese sportswear company by the name of Uncle Martian went viral on social media because its logo bore a very strong resemblance to Under Armour.

Thaichon said Uncle Martian started off with a lot of publicity and this might actually work in the Chinese brand's favor by increasing consumer awareness. He added that there was definitely a consumer market in China for the brand's products.

Uncle Martian would also likely get away with copying Under Armour's logo, just as attempts by Air Jordan and Apple to protect their IP rights had been dismissed by Chinese courts, he told CNBC.

While China's IP regulatory framework has seen "marginal improvements over the last few years, there's nothing to give brand owners much hope that the fundamental problem of Chinese counterfeiting is going away anytime soon," said Gioconda.

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