Copyright thieves thrive on weak enforcement, legal loopholes

PUBLISHED : Monday, 07 July, 2008, 12:00am
UPDATED : Monday, 07 July, 2008, 12:00am

In an opinion piece published in The Wall Street Journal on June 17, Chinese Vice-Premier Wang Qishan mentioned that Beijing's Silk Market, a shopping mall long known for its counterfeit goods, has gone 'through rectification and has since become a distribution centre of famous brands'.

But in reality, despite wave after wave of crackdowns on piracy and fake goods on the mainland, a stroll in the market or along any commercial street of a city there is enough to raise doubts about the effectiveness of these campaigns.

True, there is not much shouting or pulling at customers walking down the aisles full of handbag and shoe stalls in the basement of the Silk Market. But if you are caught looking at a bag for more than two seconds, a saleslady quickly hisses at you: 'Want Gucci?'

And while Gucci, Louis Vuitton and Prada copies are noticeably absent from the shelves, Loewe, Tod's and D&G fakes are sold less discreetly.

And Gucci is still available if you ask for it. The latest shoulder, tote and clutch bags with bright pink or bronze leather trimming that are featured in the thick catalogue can be brought to you from another room in five minutes.

And not far up the street from Silk Market, two DVD stores diagonally facing each other are selling the latest Hollywood blockbusters for 15 yuan (HK$17) per disc. They are twice as expensive as most western titles sold in most DVD shops around Beijing but that is because they are state-of-the-art DVD-9 versions.

'The government has put a lot of money and manpower into fighting piracy and fake goods but the result is still unsatisfactory,' said Li shunde, a China Academy of Social Sciences researcher on intellectual property rights law. 'A big problem is weak enforcement of the law.'

But people charged with enforcing the law face unique problems when tackling intellectual piracy: a cumbersome enforcement system, outdated standards for criminal punishment and local protectionism in a still largely low-skilled manufacturing economy.

The job of closing down shops selling fake goods or burning pirated discs falls mainly in the hands of administrative bodies. Customs keeps its eye on suspicious cargo at checkpoints while police take action only in very limited cases because of difficulties in laying criminal charges.

From the State Intellectual Property Office to the State Administration for Industry and Commerce and the ministries of culture, health and agriculture, there are more than 10 government departments responsible for cracking down on infringements. But none of them is equipped with the enforcement power or investigative experience of the police, Mr Li said. This also means mainland enforcers are left behind by the growing complexity and diversity of infringement methods.

Other observers have called for greater reliance on criminal sanctions and police power. Police step in only when administrative enforcers pass on cases in which large quantities of illegal goods are involved - such as at least 500 pirated discs, a threshold lowered from 1,000 last year.

Even then, prosecutors still have to get the copyright holder of each pirated song and movie to testify against the infringer before any criminal charge can be laid. And if the charges do not hold up, any confiscations relating to the case could put the police in trouble.

'In reality the cost of proving a criminal charge is very high,' said National Copyright Administration deputy director-general Xu Chao. 'It's very difficult, hence the limited number of criminal arrests.'

Last year, customs logged 7,467 piracy cases and the Ministry of Culture investigated 20,000, but police handled only 2,283 cases. In all, 2,684 criminal cases were heard in court and 4,322 people faced criminal charges.

In the manufacturing hub of Zhejiang province, only 490 criminal cases were heard in court last year, one-twelfth of all copyright infringement cases heard.

Of these, 70 involved selling fake brand-name goods; 190 related to production or sale of illegally made brand-name goods; four involved copyright infringement and one for selling pirated copies.

Authorities are trying to get around the problem by bringing other charges such as disruption of economic order, illegal business operations or the sale of substandard goods. About 1,500 were charged under these categories in Zhejiang last year.

But the general difficulty of laying criminal charges means very few police officers raise an eyebrow at a dubious DVD shop. Even administrative bodies carry out raids only from time to time, although mostly in response to complaints from intellectual property rights holders or the public.

'There are too many infringements. We need help from the IPR holders to make reports,' copyright official Mr Xu said. This selective approach creates a loophole in which vendors continue to sell the pirated goods of foreign IPR holders who do not bother to sue. But authorities argue this is the only realistic approach in view of the sheer size of China's infringement problems.

'China is a developing country, our economy is growing, and the production size of all sorts of goods is also growing,' said Yin Xintian, spokesman of the State Intellectual Property Office, said last week.

'[It] has only had an IPR system for a short time, only about 20-odd years, and the Chinese public's awareness of intellectual property rights is still weak compared with western countries.'

Mr Yin appealed for patience and time but the business is not inclined towards either. Profit margins suffer in China and IPR infringements are driving a big wedge between China and its trading partners the United States, the European Union and Japan.

The EU estimates pirated goods cost EU businesses Euro21 billion (HK$258 billion) in lost trade annually - about 33 per cent of the value of EU exports to China. And the US has raised questions about whether China's IPR investigation system is up to its World Trade Organisation pledges.

Mr Li said western countries have to look at reality.

'There are still people starving, homeless and illiterate in this country,' he said. 'If even these problems cannot be completely resolved, isn't it unrealistic to demand IPR protection to be of an impeccable standard?'