Hot on the Trail of Chinese Cowboys

BB: What part does your agency play in the anti-counterfeiting movement? The name "Pinkerton" rarely shows up in the headlines of Chinese newspapers.

Thompson: We look, on behalf of clients, for counterfeits of their products at the manufacturing and distribution levels. We work with local informant networks that we have developed to find locations that engage in counterfeiting, then collect evidence, usually samples, receipts, quotations or catalogues of the products being made or sold. These result in reports to clients, which are converted into complaint documents that are given to local enforcement units which arrange raids [on premises] or seizures of products.

How are you able to obtain access to these locations? Are not counterfeiters very secretive about their activities and production?

We generally pose as potential buyers or merchandisers and ascertain their product range, what their products cost and, in particular, finding out if they are labeling products with our clients* brand names without authorization. We try to obtain these samples, but we do not place orders. Sampling is very common in sourcing and merchandising; it's general worldwide manufacturing trade practice.

As a company we do not "trap" orders. We don't go and order a bunch of a product, put down a small deposit and go back later and seize it. We seek to find people who are already counterfeiting under their own power, and we call that fair game. We will not cause them to make a product that they are not already making at that moment, or which they do not already have.

If we find somebody who's got samples from an order he undertook the previous summer, we make an effort to find out if he plans to do it again. Simply, we put the person under a regular monitoring schedule, and we might go back every few weeks to see what current production comprises, hoping to find him with enough stuff to warrant a raid.

We think China is an environment with enough active counterfeiters around for us to not get involved with entrapment. [In China] particularly, where there is such a large volume of counterfeit problems, why would we or anyone else? Personally, I think it's scrofulous to induce or entice somebody into illegal behavior, and then try to pin it on them. I'm happy to have a track record of not doing so.

It would seem that counterfeiters have become more careful, especially in wake of the central government's crackdown on fake goods. How difficult is it for your field operatives to obtain samples or other proof?

If you're talking about, say, a semiconductor, sometimes a number of visits are necessary before we get to a sampling stage. In the sports shoe business it's a little more direct. You might express interest in three or four types of their product, but only one of them may be the counterfeit of interest to us. We need evidence to show that these people have already made, or are already selling, the product that is hurting one of our clients. So we have to find them [in possession of] the item under production, in stock or a showroom, featured in a catalogue or described in a quotation.

Sample evidence is much more concrete than just a photograph, because a lot of counterfeits are improving in quality, and in most cases clients need to examine a sample and issue a certification or checklist of why it is a counterfeit product. If it's a pair of fake Ray-Ban sunglasses, they might, for example, say they are counterfeit because the nose pads are brass and the lenses of the wrong curvature.

What tends to be the quality of machinery used in producing counterfeit products? How does it differ from industry to industry?

Counterfeiters try to make a profit by skipping a lot of steps that brand owners have to go through, including research and development, advertising and promotional activities. These costs are all borne by the brand owner of the original trademarked, copyrighted or patented materials. Counterfeiters have none of these costs, and their "savings" often go into equipment, wages, premises, then right down the line. They are trying to wing these things out as cheaply as they can.

I have been in candy factories that would put you off candy for months if you saw the amount of hair, grime and dirt being stirred in big vats of chocolate with, in effect, canoe paddles. At the other end of the spectrum are legitimate factories of fair size that will accept an order for, perhaps, a counterfeit auto part. They may turn them out on the same machinery that they use to make genuine Japanese authorized auto parts.

In your experience, do these operations tend to be under one roof, or is it more a cooperative effort between different manufacturers?

It is much more common with fakes to have an organizer, an entrepreneur, who gets packaging done in one place, the product made in another and who then pulls it all together. That is usually what we are looking for. It is not very satisfying to seize just a whole bunch of rivets or a collection of leather labels.

Take a tennis racket, which has a dozen different components. There is the grip that wraps around the handle, and a trademark-bearing plastic cap that fits into the butt of the handle. Then there is a T-joint, a piece of metal holding the racket face to the shaft. A maker has to go through branding to put on decals, then bake them under a layer of lacquer. There's the stringing plant, too, and a packaging plant that boxes it all up. It is rare to find them all together under one roof.

Sometimes the factory knows nothing. We go in there, and these people don't even know what they are making. They have simply just taken an order from some guy. This is common, and it's also a common argument to raise even when you are guilty.

How do you determine which manufacturers or sellers to target for raids?

Any manufacturer possessing a significant quantity, say a couple of hundred cases of the finished product, is a good target and fair game. If we are going to round him up together with his distribution network, it would be a pretty extensive investigation geographically because a lot of the stuff is from down south and distributed through wholesalers all across China.

Thus they are invariably independent investigations. But usually you have somebody working on the wholesale aspect, and if you get leads from a manufacturer, or during a raid, you track down his customer book. Great! We pass it over to our wholesale people.

It is said that counterfeiting exists more in rural areas. How does local government encourage or discourage counterfeiting?

Thompson: Local protectionism still exists. You can still walk into some backwater where they will tell you to come back in the afternoon, by which time there is nothing left there. If you are asking the local AIC [Administration of Industry and Commerce] or TSB [Technical Supervision Bureau] to raid a factory where these same officials' mother, daughter and sister all work, the chances of the raid going wrong are much greater. Theirs is a short and false-sighted view. I know that at central government level this view was abandoned some years ago, and at the provincial level almost everywhere.

But when you get down to really rural areas, some places depend on guaranteed production. We have raided factories where nothing happens afterwards because the factories were significant contributors to the local economy. Punishments were very weak, and I was very disappointed. [Treating them leniently is] human nature. But I think it is now much less a problem than six or seven years ago.

How closely do you work with local enforcement agencies?

We work with them several times a day every day, all year round in different localities throughout China. For us it very much comes down to the commitment and dedication of individuals, and part of our job is maintaining contact with people who get the job done and see things as we do. If you have a bad experience with one guy or one unit, and you get another case in the area, you are not going to go back to that guy.

Usually, there are several ways to skin the cat. If the PSB didn't do it for you in this place, try the AIC. If the AIC screwed up, try the TSB. If the local guys won't do it, try going back to the provincial level to see if they will organize it from higher up.

How does the PSB determine whether it is to act as a central part of the raid, or just as a protection unit for the AIC or TSB units actually conducting the raid?

If you have a big case, they are happy to go along. But they don't want to do routine stuff. When you get them on a major crime, that is the best and most direct way to get a criminal prosecution. The AIC or TSB, if they get a major case, still have to pass it along to the PSB for further investigation, and then it goes to the court. So if you start with the PSB the whole thing simplifies quite a bit. They want major crime. That means a huge amount of products or a good set of documentary evidence that will lead to a prosecution. They don't want to open a file that does not go anywhere. Nor do they want to undertake things that fizzle, or don't do well.

Have you noticed any significant changes since the central government prioritized anti-counterfeiting last year?

I've seen it as a steady evolution of a few significant milestones. But I think the watershed event of legislation that will result in routine criminalization is still out there in the next few years. At that time you will see a really significant breakup of counterfeiting.