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Counterfeit goods; recent updates from China for both buyers and sellers

New Chinese Legislation on Ecommerce

China, the world’s leading ecommerce country. Importantly, it says that it is getting serious about clamping down on intellectual property abuse and counterfeit products. The new law will extend legal protection for consumers and brand owners extending the fight against the country’s reputation as a source of fake goods. This new law was enacted on 31st August and will be in law from 1st Jan 2019.

The new legislation will apply to ecommerce platform operators such as Taobao, as well as online traders with their own ecommerce websites. This will include social media channels, such as WeChat and Duoyin.

Ecommerce platforms will be forced to establish rules that protect the Intellectual Property rights of brand owners. When notified of an IP violation they will need to respond in a timely fashion or face penalties of up to $293,130 USD. Sites will also need to register with the Chinese Government to obtain a trading license.

Fake Brands in China

If we assume that this new legislation is exactly what it says on the tin then it’s great news for Scottish businesses including our whisky distilleries much-faked products.

China works differently

Before we get too excited about the change it’s worth considering a few related points.

First, until we see exactly how the new law is working in practice it’s unclear exactly how China will interpret and implement the new set of rules. Jack Ma, the founder of Alibaba, famously said that many Chinese fake goods are better than originals. This view is surprisingly common is China where there remain positive deep cultural traditions around taking ideas from others and then improving on them. His view stems from the fact that many ‘western’ brands manufacture their products in China. Those involved in the making of goods may well see ways to improve the products that those that only conceive or label the goods may well have missed.

A second point stems from the exact mechanisms for intellectual property protection. Consider somebody, somewhere in the world who invents something new and secures protection for the ideas in Europe or the US. There is no guarantee that this protection carries any meaning in China. Securing the .com for your brand may be seen as top dog for the brand throughout most of the world. For many consumers around the world, buying from a website with the name ‘yourbrand.com’ is usually seen as the surefire way to avoid buying counterfeit goods.

Within China, Baidu search engine rankings are important. Brands with either a .cn extension or having an ICP license provide positive ranking signals for mainland Chinese visitors. The ICP (Internet Content Provider) license is a state-issued registration number that allows you to host your website on a mainland Chinese server. Both provide positive SEO signals wherever you choose to host your web server. If a western brand owner finds out that a third party has acquired the .cn version of their brand and has also applied for an ICP license, there is a reasonable probability that they are planning to offer counterfeit products of yours in mainland China. The actionable point here is that if you place a high value on your business then securing the .cn domain name is a good idea.

A 100 year old US sports-footwear manufacturer, New Balance, found that a Chinese brand-squatter, Mr Zhou, registered Xin Bailun as a brand in China. Xin Bailun means New Balance in Chinese. Mr Zhou subsequently sued and won against the large US company and was paid over €13.5 million along with an apology and promise from the American company not to ‘pass off’ their products as fakes in China. It does seem daft that a private Chinese individual is able to take on and win against a $4 billion a year turnover American manufacturing company. Clearly, knowing the rules and following them is important. The takeaway message here is that any western manufacturer or brand owner with serious intentions about internationalising their business should move to protect their trademarks and products within China.

Another twist involves health and beauty products. There are over 100 million wealthy, savvy middle class people in China with high disposable incomes. They are all aware that China has been responsible for a swathe of cheap low-quality products that, are not tested and in some cases, have even resulted in the poisoning and death of consumers. The result has been that these low-quality counterfeit products have been shunned and many buyers now prefer to make online purchases directly from brand-owner websites in places like the US, Europe and the UK. Local Scottish suppliers such as Unineed or shoes121 have taken advantage of this perceived trust in UK-based suppliers and have grown strongly as a consequence. Providing you have Intellectual Property covered in China, running your website and operations from outside China can offer distinct advantages.

Chinese regulations outside China

The final point in this story about counterfeit items involves the sharp recent rise in traders making use of Chinese platforms. As mentioned at the start of this article, from January 2019, these will be subject to new counterfeit regulations. While all the articles I have read on the subject focus on Chinese consumers in China, we should not forget that these platforms are now mainstream in many places outside China where they sell to non-Chinese customers. The European Union’s statistical unit recently published stats around marketplace use. They point out that Alibaba’s Aliexpress is now the most popular marketplace in Holland where it outperforms both Amazon and eBay. Aliexpress also dominates in countries such as Poland, the Ukraine, Bulgaria and Russia where it’s share of marketplace turnover is estimated at 69%.

From what I’ve been able to find out about the new Chinese regulations, fakes sold on Chinese platforms outside mainland China are not covered by their new laws. The irony in all this is that unless other parts of the world quickly move to enforce ever-better regulations against Counterfeit goods we might find that to avoid fakes we need to go to China to do our shopping.