Statistics

Fake goods are said to account for an estimated $600 billion, or 5-7% of all global trade.

China (including Hong Kong) was the origin country for almost 80% of all infringing goods that entered the EU in 2014, and 88% of all seizures in the US.

In 2015, China’s State Administration of Industry and Commerce (SAIC) released a survey showing that only 37.25% of all goods examined on Taobao.com (China’s largest e-commerce platform) were genuine.

China’s state-run media conglomerate, Xinhua, estimates that over $45 billion worth of counterfeit or “shoddy” goods were sold on Taobao and other platforms owned by Alibaba, during the third quarter of 2015 alone.

There are over 130 high GMV e-commerce platforms in China alone, and 659 million active social media users.

Case Management

To illustrate some ideas for best practice case management and accountability; here is a brief overview of how O2O has set up an online case management system

O2O's case management and client portal system is a secure, online application that requires only an Internet connection and a web browser. Our team and clients use the system to record all updates and progress for all cases.

When we assign team members or clients to a case, they gain full access to real-time updates, which integrate with their regular email. They see every event, instruction, and file.

This system has slashed our communication overheads by more than 50% because it avoids double up on reporting. It has also improved the quality of all internal/ external interaction and made it possible to achieve faster turnaround times for our cases.

Cease & Desist Letters

A cease and desist letter (also known as a C&D) is a document sent to an individual or company to report the knowledge of some unlawful activity.

The purpose of the letter is to threaten the recipient with some form of legal action if they do not halt the said activity by a given deadline.

When addressed to recipients on the Chinese mainland, C&Ds should be written in simplified Chinese.

Brands and their vendors usually send C&Ds via registered post, but for a greater deterrent against reoffense, as well as a first-hand confirmation that the letter has reached its destination, C&Ds usually achieve more when delivered in person.

Having the offending party (preferably their owner, manager or legal representative) to sign the C&D and thereby acknowledge receipt, may also prove useful if further action is required.

Nevertheless, one should always consider their safety in confrontational situations such as these, as factory owners and managers may become agitated or even violent.

Court Actions

Each year, local Chinese courts accept thousands of IP-related civil cases, which typically take about three months to reach final settlement or ruling.

Criminal court cases may take a lot longer and are facilitated by the state, usually following a criminal raid action and seizures valued at ¥50,000 or more.

In practice, civil court actions are often seen as an alternative to conducting raids when the likelihood of seizing counterfeit product is low. They may also be launched in conjunction with, or following an administrative or criminal raid action, regardless of whether or not there was a seizure.

In cooperation with our legal partners, O2O BRAND PROTECTION offers a “zero-cost” court action service to our clients. Cases are tried at a civil hearing, a criminal hearing, or both—and just as with raid actions, they can be monitored via live updates from O2O’s client portal.

If the case is won, the awarded damages or settlement will be shared between O2O, O2O's partner law firm and the Client.

Win or lose, the Client's fees for conducting the court action will always be zero.

Customs Registrations

Registering your trademarks with Chinese customs is a separate process to registering the trademarks themselves.

Customs registrations are an essential part of brand protection in China; keeping your brand protected at the border and establishing a line of contact with customs officials.

If you do not register your trademarks with China's Customs, the Customs Officials may not inspect or seize counterfeits or gray market product on behalf of your brand.

Before registering with Customs, you will need to have copies of your trademark certificates and business certificate on hand.

If a vendor is doing the Customs registration for you, you will need to give them POA.

Once you've completed the application, China's customs will take between 1-3 months to finalize the registration.

Your customs registrations will expire at the same time as your trademark.

Failing-Fast

Even when your team is at the top of its game, non-successful case outcomes are a natural part of honest Brand protection in China. Failure needs to be accepted or not called failure at all.

Most brand owners do not need to spend valuable time and resources pursuing targets that are exceedingly difficult or problematic to take action against. There are always more counterfeiters to investigate, and that is why “Failing-Fast” is an important methodology—It saves you time and resources while avoiding opportunity cost.

In systems design, a “Fail-Fast” system is one that immediately reports any condition that is likely to result in a failure. To apply this concept to Brand protection, we first need to identify the prerequisites of a successful action.

As an example, online takedowns have two prerequisites: 1) Evidence of an infringement and 2) A cooperative ISP or e-commerce platform.

Raid actions also have two: 1) A known address storing counterfeits and 2) A cooperative SAIC or PSB official.

If these prerequisites are not achievable, or if the path to achieving them is vague, it may be wise to switch to another form of action as soon as possible, such as delivering a C&D letter.

Obviously one should not discount the rewards of hard work and persistence, as good results can often come from a "give-it-a-shot" attitude. But to use your resources effectively, you must know how to choose your battles. Look at your data if you have it and be decisive about dropping or shelving cases when a failure is more likely than success.

Field Investigation

Field investigation is any form of investigation or inquiry that happens offline and outside of your office. Field investigation may include, but is not limited to:

• Pretext meetings and communication with targets
• Site attendances and address verifications
• Surveillance
• Undercover work (usually in a factory or warehouse)
• Inquiries with witnesses or local business owners &
• Surveys of physical marketplaces and trade shows

Some Brands and corporations are known to do their investigation in-house, but most tend to engage multiple investigators or law firms to act as their intermediaries.

Investigators get paid per either either contingency basis (usually following a successful raid action), by the hour, or by a combination of both. The contingency model (i.e. only paying for results) offers the most security in terms of ROI, speed, and efficiency. But only if it is done under proper supervision.

In China, there is no official accreditation available to individual investigators, which may help to explain why it is hard to hire for the position.

Ex-police or military personnel may have the relevant training and experience they need to be effective, but there is a lot to be said for natural talent and resourcefulness.

From KPIs to ROI

The following brand protection KPIs can be accurately measured:

• ）Volume and percentage of successful online takedowns (versus those requested)
• Number of field investigations conducted
• Average cost per field investigation
• Number of successful raids, civil actions, C&Ds and other actions in a given period

In keeping with the concept of “Failing-Fast”, you may also want to measure the amount of time and money spent on investigations that have not resulted in a positive outcome—this should be considered an important KPI.

Gathering KPI data is the first step toward working out your ROI, as KPIs will need to be used in your ROI formula.

Demonstrating a good ROI may be crucial for brand protection departments to sustain their budgets and goodwill from management, especially within large corporations.

But ROI cannot be thought of in dollar terms alone—A brand's value comes from its reputation for quality and safety— Protecting the confidence that consumers have in buying your products and paying a premium for them, is invaluable.

Two useful factors for calculating a dollar ROI include:
a) The additional sales volume of genuine product that would come as a result of putting counterfeiters and infringers out of the market &
b) Avoiding the future cost of having to deal with greater numbers of counterfeits that will arise from not doing enough to protect your brand now—because research suggests that counterfeit problems become exponentially larger for non-proactive Brands.

Intelligence Gathering

Quality online intelligence gathering means better leads, and less time waste for your field investigators, who must act quickly to verify addresses, initiate relationships and understand the size, scope and business affiliations of the target.

The Internet is a great resource for identifying suppliers who copy or infringe your trademarks. But if the information you collect is outdated, inaccurate or wholly fabricated, it can also lead to dead ends. So a good analyst knows how to filter and cross-check information he or she finds on the internet.

In our experience, there are three intelligence assets that really make a difference; Supplier Reports, Syndicates and QILMS (Quality Investigation Leads Metric Score); a computer algorithm we have built for prioritizing quality targets in our database.

Internet Monitoring

Chinese Internet Service Providers (ISPs) including E-commerce platforms, social media, and owner-operated domains pose a significant threat to your Brand.

E-commerce platforms are usually accessible through a web browser and do not require a user to sign in. In addition to built-in search engines and categories, e-commerce platforms come with consistent page structures and data about products and suppliers. Therefore, a mostly automated, high-speed web crawling technique that recognizes keyword combinations and images is sufficient for identifying suspicious advertisements and putting information into a spreadsheet or database. So for the purpose of high-volume takedowns, human analysis of e-commerce platforms may only be necessary as a means of quality control.

On the other hand, social media platforms and owner-operated-domains are not always accessible via web browsers, and they do not provide consistent data. Therefore they require a more manual approach.

With an estimated 659 million active users, China’s social media should be considered extremely high-risk. Popular services such as WeChat, QQ, and Weibo are used by counterfeiters to advertise anonymously, reach customers directly and even take payments.

Power of Attorney (POA)

A Power of Attorney (POA) is a written authorization giving one person or entity the legal authority to represent or act on behalf of another. The POA also describes the scope within which your Service Provider may act on your behalf. In addition to copies of trademark certificates, your China Service Providers will require a POA to liaise with Chinese Government officials and conduct any form of online or offline enforcement.

POAs can be provided on a case-by-case basis or with the typical 1-3 year validity. Chinese investigation companies that provide unsolicited sighting reports should not be provided with anything other than a single-use POA.

If you would like to appoint O2O BRAND PROTECTION as your POA in China, we will provide some easy-to-follow guidelines and a draft of the necessary document. All you need to do is have the document signed by an authorized representative of your company and notarized by the Chinese embassy in your country.

QILMS Algorithm

QILMS (“Quality Investigation Leads Metric Score”) is a proprietary computer algorithm developed by O2O BRAND PROTECTION to crawl our databases and prioritize targets for follow-up field investigation and enforcement.

QILMS works by assessing up to 150 data points per target and assigning a cumulative score to each one. Targets that are more likely to result in a positive investigation or enforcement receive higher scores and prioritization.

To assign the scores, QILMS makes the same deductions as a human analyst would—answering questions such as:

• Is the potential target a registered company?
• What is their registered capital?
• Does it claim to have a factory?
• What type(s) of products does it offer (i.e. counterfeit, trademark infringement or gray market)?
• Have we conducted field investigations against them before?
• What was the outcome of the previous investigation?
• How many addresses do they list online?
• How complete are those addresses?

For groups of hundreds or even thousands of targets, this type of analysis would normally take a human, weeks to complete—Whereas QILMS can do it in just a few minutes.

Raids

Raid actions are still the benchmark for brand protection in China.

Raids consist of an on-site attendance and product seizure conducted under the authority of either the State Administration of Industry and Commerce (SAIC) or the Public Security Bureau/ Police (PSB). Chinese customs also have authority to seize counterfeit goods during inspection for export.

The main difference between a SAIC and a PSB raid is scale: A PSB raid occurs when the expected seizure of counterfeit products exceeds RMB ¥50,000. Though in practice, the PSB often require a much higher expected seizure value.

If during a raid action with the SAIC, the value of the product to be seized reaches RMB ¥50,000 (approx. US $7,700) or above, the case should be immediately transferred to the PSB, at which point it becomes a criminal level action.

Local protectionism in China may be less of an issue now than it was several years ago, but it is still something that experienced investigators should know how to mitigate. One technique for preventing a potential “tip-off” is to avoid disclosing the target's full business name and address until shortly before the raid takes place.

Your Brand's representatives, including your Investigators/ Vendors, will usually be allowed to attend your raids. However, the SAIC and PSB do have the right to keep you away, and foreigners will rarely be allowed to join.

Safety is a valid concern during raids, as business owners, managers and even mobs of local workers will sometimes turn violent at the sight of SAIC Officials. This situation will almost never happen when accompanied by the PSB.

As a general rule of thumb, most Chinese counterfeiters will only produce to order, making it difficult to conduct a raid action. Ergo, raids are not always the be-all and end-all of doing brand protection in China. Alternative actions such as online enforcement, C&Ds or civil litigation often make more sense.

Sighting Reports

Raids may be initiated via what the brand protection industry refers to as “Sighting Reports.”

Sighting reports are often unsolicited communications from investigation companies to Brands—to propose a raid or other enforcement against an alleged target. They typically include some limited information about a prospective target, the nature of the target’s infringement, the expected volume of counterfeit product to be seized, as well as a tentative service fee.

Due to a high amount of fraud in China's anti-counterfeiting industry, some Brand Protection Managers do not accept sighting reports. But given the proper supervision and due diligence, sighting reports can lead to legitimate information and raid actions.

Before entering into an agreement with a new investigation company, O2O recommends following these rules:

1. Talk to the Investigators face-to-face;
2. Make sure they have a registered Chinese business (with a relevant business scope for investigation)&
3. Make sure they have a physical office location, with ten or more full-time staff and a Director with at least three years of experience.

Where possible, you may also want to obtain a testimonial from one of their clients.

SOPs

“If you know the enemy and know yourself, you need not fear the result of a hundred battles.” Sun Tzu, The Art of War.

Consider this scenario—you’ve identified a small retail shop trading in counterfeits, with no apparent links to a manufacturer. Should you hand-deliver a C&D letter to them, or should you raid them in cooperation with the SAIC? Brand owners have a range of opinions on how to handle this type of offender.

How about if the shop is not so small—Say it is larger than 100sqm, and it does have links to a manufacturer. What should you do then—raid the shop, or put it under surveillance?

While you cannot foresee all possibilities, understanding different offender types will help you set SOPs that best fit your resources and strategy. Moreover, when opportunity strikes, it will enable your team to act quickly.

To align your expectations and minimize time waste with your Vendors, SOPs may also extend to proposing fixed fees for specific outcomes and enforcement actions. Developing standard codes and vocabulary (just like the police or ambulance services use) will also reduce communication overheads.

Supplier Reports

Supplier reports (like the ones provided by our online brand protection team) offer detailed open-source intelligence about any given supplier, company or entity.

They include such information as business registration records, directors, shareholders, online sales channels, websites, listed addresses, shipping records, syndicate affiliations and product OEM numbers.

Supplier reports are an essential part of O2O's workflow—helping us to maintain momentum between our online and offline operations.

When O2O receives authority for the next phase of a case, such as a test purchase or address verification; our investigators already have access to a full point-by-point brief on their target. They can hit the ground running.

Syndicates

Also known as “clusters” or “networks,” syndicates are groups of businesses linked together by one or more common element such as directors, shareholders, addresses, phone numbers, and emails. Technical information such as the programming language used to build a website or the website's IP addresses is also used to form the links.

O2O has records of more than 1000 syndicates, which vary considerably in their composition. Some are made up of just two or three business owners. Others link together more than eighty registered companies.

Syndicates really can make or break a case—In our experience, several high profile cases including multiple raids, court actions, and C&Ds, were directly attributable to the syndicates identified by our online brand protection team.

Takedowns

You may already be familiar with Alibaba’s AliProtect platform, which makes the process of sending takedown notices to Alibaba.com, relatively easy. But these kinds of platforms are the exception, not the norm.

In China, takedown policies and procedures vary considerably from one ISP to another. While the bigger and better-known ISPs in China will usually provide some form of basic assistance to Brands who wish to enforce their IPR, this assistance is the full extent of their legal obligation. By law, they must remove offending URLs once they become aware of them, but are not obligated to do their own scanning, nor do they have to provide IP owners with timely service. Therefore the onus is on the Brands and their Vendors to do most of the work.

If a dispute arises between a Brand and a Chinese ISP, or if the ISP just ignores the Brand owner's takedown requests, there is no official third party for arbitration. Your only recourse may be to conduct a civil action against the supplier or the ISP, which in terms of risk and return on investment may not be justifiable. It is common for smaller and lesser-known ISPs to ignore takedown requests, take months to comply or simply make the whole process intentionally difficult. However, thanks to some recent initiatives by China’s Public Security Bureau (PSB), if direct mediation with an ISP fails, Brands in industries such as pharmaceutical and cosmetics may have other options for escalating the matter.

Be aware that the language barrier can also be an obstacle for doing takedowns in China, as low-paid paralegals, customer service or outsourced staff, who do not speak good English, are often the ones employed by ISPs to handle their IP-related inquiries.

All things considered, most Brands choose to outsource their takedowns to a 3rd party Vendor. Some Vendors offer a “pay-per-takedown” service charge, but this model alone, when not in conjunction with a monitoring program, may benefit the Vendor more than the Brand. Quality is more important than quantity, and we should be careful not to incentivize the opposite. Furthermore, the man-hours required for doing takedowns against one ISP, no matter it’s for ten web pages or 100, is often about the same.

O2O’s online brand protection team detects and removes hundreds of thousands of online infringements from Chinese ISPs each year. In 2015, we cooperated with over 100 Chinese e-commerce platforms as well as various social media, web hosts, and registrars. In some industries, our takedown success rate is as high as 98%.

Test Purchases

Test purchases are a staple of anti-counterfeit investigations in China. Test purchases are best facilitated by experienced purchasing managers who know how to properly deal with suspicious targets—and also have an understanding of the technical and supply chain standards relevant to the products they are attempting to buy. Test purchases have several purposes:

• To confirm the class of product (e.g. counterfeit, gray market or generic)
• To build a relationship with the target
• To verify or obtain the target’s location
• ）To providing evidence (as is the case with notarized test purchases)

Notarized test purchases, (which are legally admissible in China's civil and criminal courts) involve having an authorized Chinese Government Notary witness your communication and transaction with a target, then later provide you with an official document to confirm the specifics of the buy.

Chinese Counterfeiters tend to be friendlier and less suspicious of foreigners, so using the foreign buyer approach can yield better results.

Investigators posing as African, Latin American or Indian, may also inspire more trust from their targets.

The matter of “trap purchases” (i.e. Buying products with the objective of later having them seized during a raid action) is a gray area in China. SAIC and PSB officials may dismiss your case if they suspect that a trap purchase has taken place.

Thinking Long-Term

The only way to prevent a future counterfeit problem or reverse an existing one is zero-tolerance—a system for categorically identifying and taking action against manufacturers and distributors in every province, village, and town—a strategy that uses the power of word-of-mouth to let the fakers know that your Brand is watching.

In practical terms, this may equate to removing high volumes of online infringements while at the same time collecting extensive amounts of information about suppliers, leading to qualified field investigations, raids, and civil actions. It may also mean delivering as many C&Ds to infringers as possible, within a short period of 6-12 months.

If you choose to protect your Brand with a zero-tolerance policy, the time will come when you begin to see clear indications that the counterfeiters have gone underground, both online and offline. They will move on to easier and less risky Brands.

When that happens, you may choose to continue with the aggressive, zero-tolerance approach (recommended for industries such as fashion and apparel, pharmaceutical and alcohol) or you may shift to a maintenance phase. What’s important, is data-driven decision-making and keeping your guard up with online monitoring and takedowns.

Trademark Registrations

Malicious trademark registrations are commonplace in China.

Registering or renewing your company’s trademarks in China keeps you safe from opportunistic copycats who make it their business to exploit local laws and turn a profit at the expense of your Brand.

Scanned paper copies of your trademark certificates are mandatory for your China Service Providers when conducting any form of online or offline enforcement on your behalf, including online takedowns, raids, and court actions.

According to China’s Trademark Registration Bureau, approvals can take up to 18 months. So before making the application, it is wise to conduct proper research and due diligence.

Once registered, trademarks are valid for ten years. Certain international registrations (those with beginning in G, registered via the Madrid System) are also legally acceptable in China.