Small firms feel pinch of knock-off culture

PUBLISHED : Saturday, 15 January, 2011, 12:00am
UPDATED : Saturday, 15 January, 2011, 12:00am

Brothers Pan Lei and Pan Yong never realised the difficulties they would face as grass-roots innovators in China, a country with a strong shanzhai, or knock-off, culture.

The honeymoon period for a gadget they designed that can turn an iPod Touch into a mobile phone was short and their fight with copycats will last a long time, with much of their market already gobbled up in less than two months. 'The media always reports about the harm that knock-offs or copying can do to people, but until we went through it we had no idea how profound the impact is for innovative enterprises with original ideas,' Pan Lei said.

The brothers' invention attracted attention from technology fans and business people around the world last year, but the mainland's quirky but dynamic shanzhai culture, regarded by some as the soil from which future innovation will spring, is gradually squeezing them into a small corner of the market.

Their device encases an iPod Touch - Apple's popular media player - and gives it voice calling and text messaging functions by using a built-in SIM card slot and battery. To get the device to function as a phone, users must break into the iPod Touch software - a process known as jailbreaking - and install software written by Pan Yong.

Initially it was named the Apple Peel 520, but by the time it officially hit the market in October that had been changed to just 520 to avoid infringement on Apple's intellectual property rights (IPR).

Without giving specific sales figures, Pan Lei said they had received good market feedback until mid-November, when several copycats were launched at much lower prices. The counterfeits, all looking like the 520 and with similar logos, used copies of Pan Yong's software.

'In November our market halved and there are even fewer orders now,' Pan Lei said.

The Beijing Evening News reported that some of the copies were better made than the original 520 and featured extra functions, such as internet access.

An electronic device vendor in Zhongguancun, Beijing, told the newspaper that the Pan brothers' gadget was very popular at first and he sold more than 1,700 in 15 days. But after customers found better and cheaper copycat versions, sales fell.

Foreign countries and companies have complained for years that China has failed to rein in knock-off products, even though it launched repeated crackdowns on IPR pirates.

The Ministry of Public Security said on Tuesday that 4,000 people had been detained for suspected IPR violations in its latest campaign, launched in November, with 2,000 cases worth 2.3 billion yuan (HK$2.7 billion) uncovered.

A senior ministry official said IPR crimes were still rampant, a situation that some IPR lawyers and other experts say is not only hurting the rights of foreigners, but also the mainland's goal of being an innovative country in the near future.

Yang Xiaolian , a Guangzhou-based lawyer, said that many foreign companies and big local businesses were hiring private investigators to help track the source of counterfeits because government departments lacked the manpower to follow all leads.

She said investigators were sometimes threatened by gangsters recruited by the makers of fake goods to guard their profitable businesses.

Another obstacle was a lack of professional talent. There were only about 6,000 patent agents on the mainland who could help clients apply for patents or evaluate whether others were violating their rights, Yang said. She also said that few lawyers were familiar with patent rights, which required technical knowledge that most mainland law schools did not offer. 'We are facing a problem of a serious shortage of professionals [specialising in IPR laws].'

Yang and other IPR experts and lawyers say that in the past few years, an increasing number of mainland companies - both the big ones with established brands and new start-ups - have become aware of the value of their intellectual property rights.

The State Intellectual Property Office said on Wednesday that domestic patent applications exceeded one million for the first time last year, growing to 1.1 million from around 383,000 in 2005.

A Guangzhou lawyer at a firm specialising in IPR cases said copycats could severely affect the operations of innovative firms, especially smaller ones, because only big companies had the manpower and ability to handle the cases. 'That's why the government tried to improve the laws related to IPR last year and launched campaigns to crack down on infringements to encourage enterprises to innovate,' she said.

But the Pan brothers say it is impossible for them to report the makers of copycat devices because they have no idea who or where they are.

'We don't have the time or resources to deal with them even if we could find them, it would cost our business too much,' Pan Lei said.

It is a critical, but awkward, time for the brothers: on the one hand, they are applying for trademark rights, patent rights and other official credentials for their device to allow it to be sold in big department stores, but on the other hand, they doubt whether it's worth doing.

'Sometimes I think it might be useless to mention IPR in Shenzhen because whether you have the licences or not, others will copy you anyway,' Pan Lei said. 'It feels like the whole society has no problem with the shanzhai copying culture.'