BEIJING — It’s the first thing that greets customers as they stream into the new Silk Street market here: a selection of brightly colored North Face jackets, their signature logos prominently displayed, hanging in neat rows in one of the building’s most high-traffic stalls.
They’re alongside an assortment of brightly colored Columbia ski jackets. The stall next door is stocked with Tommy Hilfiger corduroys and Lee jeans. Down the hall, customers look over Ralph Lauren polo shirts and Sean John T-shirts. And elsewhere in the shiny five-floor shopping center, there are plenty of Quiksilver Hawaiian-print bathing suits, Nike running shoes and even the Gucci floral handbag line from the brand’s recent cruise collection.
And they’re all counterfeit.
When Beijing officials closed down the former Silk Alley in January and prepared to open a megamall right next door, they vowed the new shopping spot would be better monitored against China’s counterfeiting problem. But less than two weeks after its grand opening, the massive Silk Street mall is proving to have a bigger counterfeiting problem than its former incarnation ever did.
Even the shoppers are amazed. “I can’t believe how much larger and nicer this place is now,” said one recent American customer. “I didn’t know it was possible, but they seem to have even more fakes than before.”
The new Silk Street has 1,500 stalls spread over about 300,000 square feet of space — more than triple the amount of stalls in the old location. In addition to more clothing and accessories, the mall has expanded its offerings to include jewelry, electronics and tailor-made clothes.
It was only a few months ago that Beijing officials practically patted themselves on the backs in the government-owned China Daily newspaper for their increasing crackdown on counterfeit goods, particularly in the notorious spot of Silk Alley. In the past six months, there had been a significant decrease of fakes from some brands in the market, as well as in nearby markets like Hong Qiao and Ya Xiu, both spots in Beijing that also sold an abundance of counterfeit products. That crackdown was the result of efforts by lawyers for the Industry Working Group, a coalition of LVMH Moët Hennessy Louis Vuitton, Chanel, Prada and Burberry, who had joined forces to combat the open selling of copies of their namesake brands as well as their subsidiary labels.
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Lawyers for the coalition had introduced the issue of landlord liability to hold the property owners — companies owned by district governments in Beijing — accountable for the counterfeit items being sold. After the IWG received backing from local and national governments and the leases of over 40 problem vendors were suspended or terminated, more than 25 IWG-affiliated brands began quickly disappearing from the shelves.
In the past, companies had been less worried about counterfeit sales within China and more concerned with combating the export of such fakes overseas. But Joseph Simone, a lawyer who represents the coalition, said the brands are happy with the positive movements in Beijing’s markets. “People had given up on Silk Alley,” said Simone, a partner with Baker & McKenzie in China. “We’ve found a new way to reduce the visibility of fakes in some of the key retail and wholesale markets in Beijing. For companies who are now developing a legitimate retail presence in China, this is very important.”
In the new Silk Alley, the IWG’s work seems to be sticking, at least on the surface. There are almost no Louis Vuitton products on display — though if you directly request it from most vendors, they’re happy to pull out a full Louis Vuitton catalogue and promise they can have any style delivered to the stall within minutes.
In the old Silk Alley, the Beijing Administration of Industry and Commerce had hung prominent signs around the market clearly listing the brands that had been banned. Now, those signs are nowhere to be found. The AIC announced late last month that it has increased that forbidden brand list to 48 well-known labels, including Gucci and North Face — though both brands are still widely on display in the market. It’s hard to believe such measures are making much of a difference, especially as most of the investigation and enforcement thus far has had to be directly funded by the brands.
“The only reason that we saw results is that the brands themselves did surveys and reported the violations,” Simone said. “The notice [from the AIC] let the sellers know the government was behind us, but we did not see the authorities themselves conduct serious surveys or sweeps. Some of the landlords claim to have conducted some surveys and terminated some leases of problem outlets, but this was not done on a regular basis in most markets.
“A lot of companies were interested in being on the new AIC list because they’ve seen the work that was done in Silk Alley. But the benefits of inclusion have depended on the willingness of the brand owners to fund investigative surveys. This new list is not going to be particularly useful to the companies until they jointly work together to hire investigators who can identify the outlets still dealing in fakes and report them to the AIC and the landlords. A company can try to do that on its own, but there are too many markets to monitor.”
The poor state of Silk Street’s intellectual property issues comes as a real blow to anticounterfeiting advocates, who have spent significant time over the past year helping China meet its World Trade Organization commitments to curb the counterfeiting problem. Last fall, as expected, the Chinese released new judicial interpretations for counterfeiting and copyright piracy offenses, an important step in improving intellectual property issues but one that also left many unresolved gaps.
The primary positive in the judicial changes was a mandatory three-year minimum jail sentence for individuals caught with more than $18,000 in counterfeit goods, Simone said. However, the new provisions are ambiguous about how to calculate that monetary threshold for criminal prosecution and, in particular, whether values should be determined by the actual price of the legitimate product or the infringer’s own price, which is generally much lower.
“They definitely split the baby on some of the critical legal issues we have been facing,” said Simone. “The industry was very happy to have the chance to provide input and recommendations on the new judicial interpretation, but in the end, the final draft contained some gaping loopholes. It was a real disappointment for many of the companies involved in lobbying the issue.”
This ongoing crisis with China’s counterfeiting may soon be brought to an international level. By the beginning of May, the United States Trade Representative will decide whether to elevate China’s counterfeiting and copyright piracy problems to a WTO dispute. Doing so would force the Chinese to go to the WTO headquarters in Geneva to conduct consultations and negotiations with the U.S. In January, the USTR invited companies to offer more evidence of China’s increasing problem with fakes. They are currently reviewing this information before announcing their decision later this month.
While it remains to be seen whether the USTR will take the issue to the WTO or give the Chinese more time to tackle the problem themselves, it is clear that China’s counterfeiting plague is a growing issue. The annual report issued earlier this year by the Quality Brands Protection Committee, an industry group of more than 100 multinational companies concerned with intellectual property issues in China, said that members are worried about both the increasing sophistication in the technology used by counterfeiters and the alarming increase of fake goods exported from China. In the U.S. alone in 2004, Customs officials made 7,255 seizures of counterfeit goods worth $138 million, nearly 70 percent of which came from Hong Kong and mainland China. It is a significant monetary increase from 2003, when about 6,500 seizures were made worth $94 million.
“Companies [we work with] are saying that sales of fakes on the streets in other countries are getting much worse, and the products are mainly coming from China,” said Simone, who also serves as vice chairman for the QBPC. “Chinese people are now getting visas more easily and moving everywhere in the world. So, you’ve got more Chinese getting involved, as well as more foreigners coming to China who are looking to buy.”
There’s only one group who doesn’t seem to be bothered with the issue at all: Silk Street’s busy sellers, who could be found aggressively reeling in both foreign and Chinese customers flooding the market on a recent weekday night.
The merchants, many of whom were displaced for more than two months between the demolition of the old market and the opening of the new one, have long been protesting the high rents and open layout of their brand-new home. But as the crowds continued to pour in, they didn’t seem to be complaining at all.
“It’s been a good week,” said one shopkeeper, whose first-floor stall sold Ralph Lauren- and Yves Saint Laurent-labeled shirts. “I thought it wouldn’t be busy, but I was wrong.”