Small firms feel pinch of knock-off culture

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.