1. Get to know where things are

China supplies about 70% of the world's counterfeit product, mostly sourced through manufacturers surrounding the Pearl River Delta in the South East coastal regions. This makes a great deal of sense for a number of reasons. Firstly, just about anything can be sourced directly from existing manufacturing facilities – usually between Guangzhou and Shenzhen or via "virtual manufacturers" who set themselves up in apartment buildings and operate their businesses solely through internet tradeboards and websites. The supply chain is so vast, so well entrenched and so well connected, it would be difficult and expensive for suppliers to move outside the existing framework. Secondly, the proximity to major export sea ports, such as Gongbei and Shenzhen, means that the region provides thousands of reliable and inexpensive logistics services. Thirdly, many counterfeiters prefer to set up "Ghost" companies in nearby Hong Kong; registered and administered through service providers or "rapid" companies through which false addresses, names and contacts are used. My advice for anyone setting up an investigation management plan in mainland China is to research where things happen the most; if not in the Delta, then wherever the risk is greater. This will ultimately lead to fewer costs and greater control of investigative resources whilst at the same time, enabling you or your investigators to build local knowledge about counterfeiting activity as it applies to your industry.

2. Understand the law enforcement system

There's a great deal of information freely available on IP law and the basic legal processes available to owners who wish to enforce their IP rights in China. Although lawyers, politicians and some brand owners campaign relentlessly for more effective laws, my personal belief is that current IP laws are quite workable – in theory. However, on the ground there's a long way to go if those laws are to be applied efficiently, particularly in outer regions where law enforcement and courts are not as enthusiastic about IP law as their big city counterparts in the east. Brand Protection Managers should get a basic understanding of IP law and enforcement processes, but at the same time will need to factor in certain practical and operational considerations before committing to a particular course of investigative action based on law alone. These considerations can mean the difference between a successful action or a complete waste of time and money. There are a lot of pitfalls. Some of these could include such things as (1) who is the subject – in the case of a factory in a community that employs dozens or hundreds of locals, in which case local police or administrative authorities may be reluctant to act. (2) If it's a criminal action, does the expected value of seized goods exceed the threshold value? In theory this is currently RMB50,000 but in some areas police might not consider the case unless it is many times this amount. (3) How are you valuing these goods? It might be that the local valuing authority needs to value the goods rather than you. (4) In some cases, even if the threshold value meets criteria for a criminal action, you might have to make a complaint to the local administrative authorities first and if so, will they transfer a case to police? There are many more considerations. Get to know them and try to plan strategies before investing in lengthy investigations.

3. Choose resources wisely

Engaging the right IP investigators in any country can be hit and miss, and it's no easy task in China. When I started doing cases here in the late 1990's I employed sub-contractors, a practice I kept up until 2007 when I relocated operations from Australia. In the early days, there were very few investigators in China, even in Beijing and Shanghai, with any real experience in IP investigations and those that did were generally employed by law firms in Hong Kong. It was expensive and unrealistic – it still is if you're not careful. The unspoken thing, of course, is that it is illegal to run a private investigation agency in China. Plain and simple – you will not obtain a business registration without the appropriate "scope of business" and there isn't one for investigation agencies. There is, however, an allowable scope of business under the heading of Intellectual Property Consultant, which provides somewhat of a loophole that is somewhat overlooked so that "Investigators" can somewhat work within the framework of the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). In this, I mean the right of Brand owner's to protect their Intellectual Property Rights and make complaints against infringers. Such rights reasonably assume that complaints would be difficult to make without collecting evidence.

Aside from TRIPS, the last decade saw major trends in Globalization and the use of the Internet as an international trade platform. With it came "brand recognition", and when something is recognised in China, it's counterfeited. The upshot is that there are now hundreds of investigation companies in China employing thousands of investigators in what is essentially an unregulated industry, all competing with each other to make a living. Unfortunately some brand owners don't apply enough Due Diligence to the process of engaging investigators. What are the terms & conditions of engagement? Who are they? Is it a registered company, where are they physically located and does their scope of business allow them to act on your behalf? Are their "investigators" actually employed on a salary or on a commission basis, where they must find a target and raid them before being paid? Do you pay the investigation company on results or do you fund the investigations? Such a lack of due diligence can and does foster corruption.

4. Encourage transparency & accountability

Make it clear to everyone on the team that investigations are to be conducted within the law irrespective of whether it means getting a result or not. I have seen statements provided to police in trademark investigation cases that are just plain false because the evidence is obtained illegally. If an investigator needs to break the law to achieve a good result, then he or she should not be working for you. Everyone is accountable and this means keeping a factual and detailed record of all inquiries and surveillances including dates, times and events. Remember that investigators are potential witnesses and even though they may never see the inside of a court room, one day it's going to happen – and they had better have those case notes and any other evidence to hand. Treating case investigations in any other way demeans the investigation industry and can end in disaster for IP owners.

5. Think twice about sighting reports

This is a question often debated behind closed doors. Should a brand owner accept reports from investigators, called "sighting reports" in which details are given about a suspected counterfeiter and in which a total fee is negotiated in the event of a successful enforcement action? This is substantially different to being engaged by the brand owner to actually investigate a case and to provide investigation reports throughout its course. Whilst I understand that some brand owners may not elect to budget for field inquiries or other forms of intelligence gathering in their China IP program, my personal belief is that sighting reports, although a common practice in China, are likely to foster corruption.

Sighting reports are a catch 22 situation. The theory is that by submitting one, the details can be vague or misleading, since you may or may not accept the case. If you do accept a sighting report you should lay the ground rules to include a proper and detailed preliminary investigation report and then follow up regularly. At the end of the case, assuming a successful enforcement action, you should obtain a detailed investigation report, not just the raid report. This should include translations of police statements provided by your investigators. You should also follow up your enforcement actions. If in the case of an administrative action, what was the fine or punishment imposed? If it was a criminal case, make sure you know if and when it makes it to court. Too many brand owners do not have a post raid follow up plan.

About the Author:

Phill Arnold - Director of CISAA   22 years of Investigation Experience, 11 of those in IP case management. Phill is a passionate advocate for Ethical Investigation practices with a track record of Investigative excellence across the world.

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