Made in China, invented in Europe. A study to the most effective strategies for European trademark holders to prevent and abolish trademark infringement and counterfeit activities by China.

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Made in China, invented in Europe

A study to the most effective strategies for European trademark

holders to prevent and abolish trademark infringement and

counterfeit activities by China

Student : Nathalie Francis Felix Student number : 5871441

Date : 24 June 2014

Content : Master thesis, concept version Word count : 15.834 words

Education : MA European policy, European Studies, University of Amsterdam Supervisor : drs. E. Dirksen

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Abstract

This study examines how European trademark holders can prevent and abolish trademark infringement and counterfeit activities by China in the most effective way. On the one side, the fight against Chinese counterfeiting has been going on for many years and has resulted in several strategies. On the other side, research shows that Chinese trademark infringement is a still growing problem nowadays. If so, how effective are currently executed strategies of anti-counterfeiting? Should trademark holders not change their anti-counterfeiting strategies? Comments of academicians from different disciplines will be studied and subsequently compared with the experiences of European trademark holders and protectors, assessed through personal interviews. It appears that early and international registration of trademarks, good relationships with all involved parties and warnings for penalties are most prominently effective measures in the combat against Chinese counterfeiting.

Key words: intellectual property rights, trademark violation, trademark infringement, counterfeiting, China, Europe.

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Table of Contents Abstract ... 2 Table of Contents ... 3 List of abbreviations ... 5 Introduction ... 6

1. How can the situation of IPR protection and IPR violation in China be described? ... 9

1.1 Basic concepts of IPR ... 9

1.1.1 Definition of term ... 9

1.1.2 From Vienna Congress to ACTA-agreement ... 10

1.1.3 Forms of IPR ... 11

1.1.4 Trademarks ... 12

1.2 Basic concepts of trademark infringement and counterfeiting ... 13

1.2.1 Definition of term ... 13

1.2.2 Market structure ... 13

1.2.3 Demand side ... 14

1.2.4 Supply side ... 14

1.2.5 Institutional side ... 15

1.2.6 Quantities, products and provenance ... 16

1.3 The IPR environment in China ... 18

1.3.1 Historical context ... 18

1.3.2 Economic context ... 19

1.3.3 Legal system versus enforcement ... 19

1.3.4 Impacts of WTO-membership: the situation after 2001 ... 20

1.3.5 Causes of weak enforcement ... 21

1.3.6 Efforts of the Chinese central government ... 22

1.4 Economic consequences of trademark infringement and counterfeiting ... 23

1.4.1 Effects on European trademark holders ... 23

1.4.2 Effects on European consumers ... 24

1.4.3 Effects on European governments ... 24

1.4.4 Effects on the European general economy ... 25

1.5 The combat against IPR violation ... 26

1.5.1 Europe must not push for better IPR enforcement in China ... 27

1.5.2 Europe must push for better IPR enforcement in China ... 28

2. How to combat counterfeit activities and trademark infringement: the possibilities ... 30

2.0 Action or no action? ... 30

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2.1.1 Preventive actions ... 31

2.1.2 Repressive actions ... 32

2.2 Actions aimed at manufacturers ... 32

2.3 Actions aimed at distribution channels ... 34

2.4 Actions aimed at retailers ... 35

2.5 Actions aimed at Chinese local authorities ... 36

2.5.1. Preventive actions ... 36

2.6 General actions ... 37

3. Managerial and industry efforts to combat counterfeit activities and trademark infringement: in practice ... 41

3.0 Action or no action ... 41

3.1 Actions aimed at consumers ... 42

3.2 Actions aimed at manufacturers ... 44

3.3 Actions aimed at distribution channels ... 46

3.4 Actions aimed at retailers ... 47

3.5 Actions aimed at Chinese local authorities ... 48

3.6 General actions ... 49

Conclusion ... 50

Bibliography ... 53

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List of abbreviations

ACTA Anti-Counterfeiting Trade Agreement APEC Asia-Pacific Economic Cooperation

ABAC APEC Business Advisory Council

BBIE Benelux Bureau voor de Intellectuele Eigendom

CCPIT China Council for the Promotion of International Trade CIA Central Intelligence Agency

EC European Commission

EIU Economic Intelligence Unit

EU European Union

FDI Foreign Direct Investment

GATT General Agreement on Tariffs and Trade

GDP Gross Domestic Product

IACC International Anti-Counterfeiting Coalition

IEF Index of Economic Freedom

IP Intellectual Property

IPR Intellectual Property Rights

NGO Non-Governmental Organization

NIPS National Intellectual Property Strategy

OECD Organization for Economic Co-operation and Development OHIM Office of Harmonization for the Internal Market

RFID Radio Frequency Identification

SIPO State Intellectual Property Organization

TRIPS Trade-Related Aspects of Intellectual Property Rights

UN United Nations

US(A) United States (of America)

USTR United States Trade Representative

WCO World Customs Organization

WIPO World Intellectual Property Organization

WTO World Trade Organization

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Introduction

A Central topic and research question

The World Customs Organization (WCO) has called it “a 21st century crime” (World Customs Organization, 2006). And the US Federal Bureau of Investigation has titled it as “the crime of the 21st century” (Global Business Leaders Alliance Against Counterfeiting, 2003). It goes without saying that product counterfeiting is a major problem nowadays.

Within international law, counterfeiting is regarded as trademark infringement, a form of intellectual property rights (IPR) violation. Products of world famous brands and smaller brands are pirated, copied, secretly manufactured and (re)sold as if they are genuine products. Contemporary developments like globalization, progression of Internet usage, growth of web sales, and technological advances, make that trademark infringement is an ever-rising problem.

The phenomenon is a large issue of concern to business firms, policymakers and consumers, especially in the developed western countries like Europe, that have well-known trademarks and brands. This study will confine itself to the perspective of European trademark holders. Concerns are particularly expressed in the direction of China: the country is the largest producer of counterfeit products worldwide, and it is estimated that the problem is still growing in size and scope. Damaged trademark holders screech for solutions. This study will try to find an answer to the question: how can European trademark holders best prevent and abolish trademark infringement and counterfeit activities by China? B Socio-economic relevance

The socio-economic relevance for answering the above posed question is high, because counterfeit products bring damage to business’ brands in all sorts of ways. Among other things, revenues go down, the image is damaged and customers run away. Trademark holders of larger as well as smaller brands try to fight against trademark infringement by China. But bearing in mind the growing numbers of counterfeit activities in China, the question is: how effective are their strategies of anti-counterfeiting? If research shows that Chinese counterfeit production and Chinese-European trade in counterfeit products are still growing, should the European companies not change their strategy? It is time to review and rephrase the strategies of the European business sector to fight against the ‘fake goods’ that are made in China, but invented in Europe.

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C Academic relevance

This study will confine itself to the approach of the European business sector. Governments and NGOs are excluded. When it comes to comparable studies, this is no exceptional approach. Many studies discuss the desired business strategies to fight effectively against counterfeiting. But in most cases, the possible strategies only entail the recommended strategies according to the writer. Few studies contain an overview of all possible anti-counterfeiting actions that the European business sector could take. Moreover, much has been written about the available measures that European trademark holders can undertake. Little has been written about what strategies European firms actually or should implement.

This study distinguishes itself from other studies by its combined point of view. It examines what is possible for the business sector to combat Chinese counterfeiting, what is really done and what should be done. The combined analysis will give us an impression of the gap between the possibilities and the reality regarding anti-counterfeit strategies.

D Structure

In order to be able to see the discussion in its total and contemporary context, chapter one draws up an objective map of the current situation. How can the situation of IPR protection and IPR violation, in the world in general and in China in particular, be described? Definitions of terms, basics of concepts, overviews of historical developments, and facts and statistics will be given.

To place the discussion in a theoretical framework, chapter two will provide an overview of the ideas offered by the academic world. From what range of possibilities can European trademark holders choose to prevent and abolish counterfeiting by China? Academicians from various disciplines and different continents will give their suggestions.

Chapters three offers a practical framework, in which the views of the European trademark holders themselves will be examined. What strategies and actions are actually used by managers from brand houses to fight against counterfeit activities by China, and which of these do they experience as being effective?

The combined analysis of best strategies according to academicians on the one side and trademark holders on the other side, should lead to concluding thoughts on a better working strategy for the future. This study aims be the first of several steps in forming a more

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effective block of European trademark holders against the growing number of Chinese counterfeiters.

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1. How can the situation of IPR protection and IPR violation in China

be described?

Part I gives an elaborated and in-depth introduction to the core of this study. Definitions of terms, basics of concepts, overviews of historical developments, and facts and statistics will be given. Hence, part I serves as a ‘prelude’; as the preparatory part to the main question. Part I is divided into five sections. Section one describes the basic concepts of intellectual property rights (IPR), while section two outlines the basic concepts of trademark infringement and counterfeiting. Section three focuses on the protection and violation of trademarks in a Chinese context. Next, section four analyses the economic and financial consequences for Europe of IP infringement by Chinese companies. To finish this chapter, section five shortly explains the core of the study: the reason why this study will focus on ways to fight against Chinese infringement of European trademark rights.

1.1 Basic concepts of IPR 1.1.1 Definition of term

The term Intellectual Property Rights (IPR) refers to the legal concept that describes the rights of a person or company that owns intellectual property. The World Trade Organization (WTO) defines it as “the rights given to persons over the creations of their minds” (WTO 2013). The World Intellectual Property Organization (WIPO), a United Nations agency dedicated to the use of intellectual property, outlines it as “the legal rights which result from intellectual activity in the industrial, scientific, literary and artistic fields” (WIPO 2004, 3). When, where and for what reason did the concept of intellectual property rights emerge?

The earliest usage of the term ‘intellectual property’ was, so far known, in 1845 in the United States at a judgment of the Massachusetts Circuit Court. During the legal case on patents, Davoll et al. versus Brown, Judge Charles L. Woodbury wrote: "only in this way can we protect intellectual property, the labors of the mind, productions and interests as much a man's own … as the wheat he cultivates, or the flocks he rears" (Woodury & Minot, CCD Mass. 7 F. Cas. 197, 1845, from Lemley 2004, 4). The first mention of the term in Europe was by the French author A. Nion, who used the term “propriéte intellectuelle” in his book Droits civils des auteurs, artistes et inventeurs in 1846 (Lemley 2004, 4).

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However, the idea of ‘intellectual property rights’, as it is used in its present meaning, can be traced back earlier and goes back to the late eighteenth century. Between 1790 and 1850, some now-developed countries introduced their first IPR laws. First forms of IPR laws were the establishments of patent law. In the early nineteenth century, copyright laws and trademark laws followed (Chang 2001, 290-91).

1.1.2 From Vienna Congress to ACTA-agreement

Although the above-mentioned IPR laws were the first signs of establishments of IPR regimes, they were extremely inadequate and incomplete by the standards of our time (Chang 2001, 290). First of all, the IPR laws were only nationally valid. Foreign intellectual property was not granted any IPR protection. The lack of international IPR protection provoked patenting of imported inventions, a phenomenon that occurred on a large scale at the time. Some other shortages of the first IPR laws included the high costs of patent application and the lack of disclosure requirements (Chang 2001, 290-91). If the firstly invented IPR systems seem so underdeveloped by the standards of our time, how did we come to the extensively developed IPR systems of nowadays?

Since a rising number of countries introduced IPR laws and since the national character of the IPR regimes showed increasing inefficiency, the call for an international system of IPR protection became louder. The first effort to generate an international IPR system was made in 1873 at the Vienna Congress. Due to dissension between the participating states, the Congress did not produce any thorough international agreements around IPR protection. A second attempt was made in 1878 at the Paris Congress. The outcome of this congress was much more favorable towards patents than the first one and led to a draft convention around IPR protection. The draft convention resulted in the Paris Convention, signed in Paris in 1883 by eleven countries, and covering patents and trademarks (Chang 2001, 290-91). In 1886, the signature of the Berne Convention followed, which covered copyright (Chang 2001, 292).

The administrative secretariats of the two conventions merged in 1893 and formed from then on the new organization United International Bureaus for the Protection of Intellectual Property, located in Berne and relocated to Geneva in 1960. In 1967, the organization underwent an important treaty amendment, when it changed its name into the World Intellectual Property Organization (WIPO) and became an agency of the United

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Nations (UN) (Braderman 1968, 673). The Paris Convention and the Berne Convention together formed the basis for the contemporary international IPR system (Chang 2001, 292).

IP law transferred from WIPO to the WTO with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 1994. The international shift of IP law from WIPO to WTO was predominantly pushed by countries with maximalist IP agendas (Kaminski 2011, 3). The TRIPS agreement establishes “minimum levels of protection that each government has to give to the intellectual property of fellow WTO members” (WTO 2013). It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994 (WTO 2013). Most recently, an attempt has been made to develop a plurilateral IP agreement outside of the World Intellectual Property Organization and the World Trade Organization: the Anti-Counterfeiting Trade Agreement (ACTA) (Kaminski 2011, 2). ACTA arose as a concept in 2005 for the first time, initiated by Japan. In the following years, many countries joined the informal discussion and several official negotiations have taken place since 2008 (Kaminski 2011, 4). The process is impeded by the commotion around the content of ACTA; opponents criticize the Act for its lack of transparency during the negotiation process and for its negative side effects on fundamental civil and digital rights, including freedom of expression and communication privacy (Europa Nu 2013). On 4 July 2012, the European parliament rejected the ACTA (Europa Nu 2013). As by May 2014, ACTA is signed (but not all ratified) by 31 countries and the European Union (Swiss Federal Institute of Intellectual Property 2014). Japan was the first country that ratified the act on 4 October 2012 (Ministry of Foreign Affairs of Japan 2012).

1.1.3 Forms of IPR

Generally speaking, intellectual property can be divided into two main branches: copyright and industrial property. More specifically, intellectual property rights can relate to the following areas:

- “literary, artistic and scientific works,

- performances of performing artists, phonograms and broadcasts, - inventions in all fields of human endeavor,

- scientific discoveries, - industrial designs,

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- protection against unfair competition, and all other rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.”1

The first two areas fall into the category of copyright, of which the second area is often referred to as ‘related rights to copyright’. The other areas except scientific discoveries fall into the category of industrial property. According to the definitions used by WIPO, industrial property encloses inventions and industrial designs. According to these definitions, inventions are “new solutions to technical problems”, while industrial designs are “aesthetic creations determining the appearance of industrial products ...[and] trademarks, service marks, commercial names and designations, including indications of source and appellations of origin, and protection against unfair competition” (WIPO 2004, 3). Scientific discoveries, the remaining area in the WIPO convention, does not fall into one of the two main categories. As defined in the Geneva Treaty on the International Recording of Scientific Discoveries these are “the recognition of phenomena, properties or laws of the material universe not hitherto recognized and capable of verification”.2 Although there is a great overlap between the several areas of intellectual property, this paper focuses on one particular form of intellectual property: trademarks.

1.1.4 Trademarks

A trademark is a sign that can distinguish a product of a company from products of other companies. Some examples of trademarks are words, logo’s, designs and colors (BBIE 2013). A trademark can be acquired by registration in the registers of a trademark bureau. Benelux-trademarks can be requested at the Benelux Bureau voor de Intellectuele Eigendom (BBIE). European trademarks must be registered at the Office of Harmonization for the Internal Market (OHIM). International registrations are carried out under the auspices of the World Intellectual Property Organization (WIPO) (Dirkzwager IE&IT 2013). In principle, trademarks are valid for ten years, but can be extended after each term. The possibility of extension makes trademarks valid for an unlimited period of time. Once a trademark registration has been obtained, the trademark holder can bring proceedings against unauthorized usage of his trademark (Dirkzwager IE&IT 2013). Unauthorized usage of a

1_{Article
2(viii))
Convention
Establishing
the
World
Intellectual
Property
Organization
(WIPO),
concluded}

in Stockholm on July 14, 1967

2_{(Article
1(1)(i)
Geneva
Treaty
on
the
International
Recording
of
Scientific
Discoveries
(1978)}

in Stockholm on July 14, 1967

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trademark is an absolutely illegal activity and is certainly alien to internationally accepted Intellectual Property Rights. The next section will elaborate on the basic concepts of this illegal activity.

1.2 Basic concepts of trademark infringement and counterfeiting 1.2.1 Definition of term

Trademark infringement or trademark violation refers to the use of a trademark that is identical or confusingly similar to the trademark of another company (Legal Dictionary 2013). Counterfeiting is the term used “to describe a range of illicit activities linked to intellectual property rights infringement” (OECD 2007, 8). According to the definition in the TRIPS agreement of the World Trade Organization, counterfeit goods are “any goods, including packaging, bearing without authorization a trademark which is identical to the trademark validly registered in respect of such goods, or which cannot be distinguished in its essential aspects from such a trademark, and which thereby infringes the rights of the owner of the trademark in question under the law of the country of importation” (WTO TRIPS agreement 1994, Article 51 note 14a). The terms trademark infringement, trademark violation and counterfeiting will be used in this study.

1.2.2 Market structure

The market of trademark-violated products is complex and multifaceted. What does the market structure look like? The Organization for Economic Co-operation and Development (OECD) distinguishes two principal markets for trademark-infringing products (OECD 2007). On the one hand, there is what the OECD calls the ‘primary market’: consumers unintentionally buy counterfeit products, thinking that the products are genuine. On the other hand, counterfeiters appear on the ‘secondary market’: consumers consciously and willingly buy counterfeit products (OECD 2007, 10). Berman (2008) makes another grouping of trademark-infringing products into four categories. The first category consists of the ‘knock-off’ products: consumers unwittingly buy a pirated product. In the second category, consumers unknowingly buy a copied product, thinking the product they purchase is genuine. In the third category, a subcontracted supplier produces the counterfeit product with the same machinery as the genuine product, while the original manufacturer is unaware of it. Fourthly, counterfeit products are the genuine products that should be destroyed or sold as seconds, but

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that are illegally labelled as first-quality products. The subcontracted supplier sells the substandard genuine products as first-quality products, while the original manufacturer is unaware of it (Berman 2008, 191-92). Another type of classification is made by Hung (2003). According to Hung, three forms of counterfeit products can be distinguished: ‘fakes’, ‘pirated products’ and ‘imitation products’. The fakes are replicates of brand products. This category forms 10 % of the counterfeit product market. The pirated products are replicates of brand products as well, but are produced by using stolen technologies and designs from the original product manufacturer. 30 % of the counterfeit products are pirated. Consumers of fakes and pirated product believe however that they purchase a genuine brand product. The last category – good for 60 % of the counterfeit market – are imitation products. The products are copies of genuine brand products, but consumers are aware of the non-authenticity (Hung 2003, 59-60).

1.2.3 Demand side

Consumers who knowingly purchase counterfeit products – i.e. the consumers who buy the products on the ‘secondary market’, as the OECD defines it (OECD 2007, 10) – have a variety of reasons to do so. What are the driving factors on the demand side for purchasing counterfeit products? First of all, some product-price features play a role. Two main characteristics are the low price of the counterfeit good compared to the genuine good and the – considered – acceptable level of quality (OECD 2007, 11). Secondly, some consumer characteristics are of influence. The involved consumers apparently attach great value to the possession of brand-named articles (Chaudhry et al. 2009, 59). On the contrary, these consumers attach low value to health risks and safety risks, nor to respect for IPR protection (OECD 2007, 11 and Chaudhry 2006, 466). Some of the involved consumers carry anti-big business sentiments, which drive them to deliberately damage the IPR holder (Chaudhry 2006, 466).

1.2.4 Supply side

On the supply side, a variety of factors drive suppliers to produce counterfeit products. The main driving factor is the high profit margins on counterfeit products (Hung 2003, 60 and OECD 2007, 11). Other factors are the declining costs of manufacture technologies and the fast transmission of production technologies. These advantages provide counterfeiters with

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the opportunity to produce their fake products in an easy, rapid and low-cost way (Chaudhry et al. 2008, 58 and Hung 2003, 60-61). Also the lax attitude of IP holders contributes to the attractiveness of counterfeit production. Foreign companies act uncarefully when it comes to their production in low-wage countries, which indirectly helps counterfeiters in their business (Hung 2003, 61). Lastly, the large potential market size and the easiness of misleading the consumers make counterfeit production an attractive business (OECD 2007, 11).

1.2.5 Institutional side

The institutional and juridical situation in low-wage countries creates an attractive environment for counterfeiters to start or continue their business. Contributing factors are the low risk of discovery, weak or no enforcement of IPR laws, weak or no penalties, weak border controls, inadequate regulatory infrastructure, a high level of corruption, and a lack of coordination between the responsible agencies (OECD 2007, 11 and Bruce 2009, 704-705).

Figure 1 schematically summarizes the driving factors behind IPR infringement from the demand side, supply side and institutional side.

Figure 1: Driving factors behind IPR infringement

Demand side Supply side Institutional side

• Low price • High profit margins • Low risk of discovery • Acceptable considered

level of quality

• Declining costs of production technologies

• Weak /no enforcement of IPR laws

• Brand importance • Fast transmission of production technologies

• Weak border controls • Low value to health

risks

• Lax attitude of foreign IPR holders

• Inadequate regulatory infrastructure

• Low value to safety risks

• Large potential market size • High level of corruption • Low respect for IPR • Easiness of misleading

consumers

• Lack of coordination between agencies • Anti-big business

sentiments

Sources: Bruce 2009, Chaudhry 2006, Chaudhry et al. 2009, Hung 2003, OECD 2007.

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1.2.6 Quantities, products and provenance

In order to estimate the severity of the counterfeit problem, it is important to quantify the problem. What is the scale size of the worldwide IP infringement? Calculations of the size of the counterfeit market show incredibly high statistics.3 The International Anti-Counterfeiting Coalition (IACC) estimated in 2012 that counterfeiting is “a US$600 billion a year problem” and that “approximately 5 % - 7 % of world trade is in counterfeit goods” (IACC 2012). According to the Coalition, the problem has grown over 10,000 % in the last two decades (IACC 2012). In the same year, the European Commission (EC) revealed that detentions totals reached a domestic retail value of €1.272.354.795, a number of 114.772.812 counterfeit articles and 91.245 cases in the year 2011 (EC 2012, 3). Trademark infringement is the most frequent form of IPR infringement in the EU, in terms of quantities as well as in terms of value of seized goods (see figure 2) (EC 2012,18).

.

3_{To measure the size and effects of counterfeiting is extremely difficult (Chaudhry, P. and Zimmerman, A.}

2009, 10). Difficulties arise from the illegal nature of the business, the lack of an internationally established methodology, and the discussion on to what extent certain losses are a consequence of counterfeiting (Chaudhry et al 2009, 59). However, the likely excessive size and numerous negative effects of the trademark infringement cannot be ignored. Therefore, this study will make use of the existing estimates made by various organizations and governments in order to present an idea of the scope and extent of the problem, and to understand the

relevance of the thesis topic.

Figure 2: Involved IP rights in the European Union, by articles and value

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If counterfeiting occurs at such large scale, in which goods does this form of illegal trade take place? The sorts of products that are counterfeited are wide-ranging. Almost all kinds of products are, to a greater or lesser extent, being copied or pirated and (re)sold on the black market (OECD 2007, 11). Some important product sectors that are subject to IPR infringement include pharmaceuticals, cigarettes, clothing, shoes, bags, accessories, foodstuffs, alcoholic beverages, the automotive sector, consumer electronics, CDs and DVDs (OECD 2007, 12). The U.S. Customs Service and the European Custom Service have made lists of counterfeit goods that were seized most. The U.S. list of 2006 is topped by footwear (41 %) and wearing apparel (16 %), followed by handbags/wallets/backpacks (9 %) and computers/hardware (9 %) (Chaudhry et al. 2009, 60). The EU list of 2012 is more or less led by the same articles: shoes (28 %), clothing (20 %) and bags/wallets/purses (7.5 %) form the top three (EC 2012, 13).

Where do all these illegal products that violate IP rights come from? According to the OECD, IPR infringement occurs in practically all countries around the world. Customs have detected counterfeited goods from 150 different source economies (OECD 2007, 13). Despite the global character of IPR violation, Asia appears to be the principal source continent. Within Asia, China is the principal source country for counterfeit products. The EC concludes in its report that China is the primary source for the IPR infringed goods; 72.95 % of the articles and 70.93 % of the value come from China (see figure 3) (EC 2012, 15). The statistics show how IPR infringement in general and trademark infringement in particular by Chinese companies form a major concern to IPR holders in the European Union.

Figure 3: Countries of provenance of counterfeit goods in the European Union, by articles and by value.

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1.3 The IPR environment in China

Understanding the intellectual property rights environment in China requires a look at China in a broader context. One has to consider China’s economic and historical background, before comprehending its IPR situation.4

1.3.1 Historical context

Looking at China’s history, one can state that the nation’s cultural and political traditions do not stimulate the concept of protection for intellectual property (Zimmerman 2013, 141). The origins of the adversative attitude towards ownership of IP go back to the old Chinese tradition of Confucianism. In the Confucian belief, inventions are not a product of individual achievement, but rely on past knowledge that belongs to the whole society. Therefore, an invention cannot be owned by an individual, but belongs to all citizens (Zimmerman and Chaudhry 2009, 309). Another pillar in the Confucian belief is the control of information. The state regulates the publication of works. The regulation is not intended to protect the ownership of intellectual property, but is intended to avoid any (re)publication of “nonconforming” thoughts (Zimmerman and Chaudhry 2009, 309). The state is to the Chinese people like a father is to its children, and it is the task of the Chinese monarch to keep “heterodox” ideas from the people (Alford 1995, 12-19).

Communism, the dominating ideology in China from 1949 onwards, does not lend itself to IPR protection either (Zimmerman 2013, 141). The communist ideas about protection of IPR fit in with the Confucian view on it. Also in communism, the control of information and the communal ownership of inventions are high on the agenda (Alford 2005, 57-58 and Mertha 2005, 79-80). The little protection of copyright, patents and trademarks that were introduced during the decennia before the communists took over (1920s and 1930s), were removed during the communist period (Zimmerman 2013, 144). During the Cultural Revolution (1960s), the protection of intellectual property ownership was at its minimum level. From the 1970s on, trademark and patent laws were slowly re-introduced, and it was not until the 1990s that the first copyright law was re-installed (Zimmerman and Chaudhry 2009, 314). According to Mertha (2005), the USA has played a large role in pushing China to legislate protection of intellectual property rights. From 1979 until today, numerous negotiations on IPR protection between China and the USA have taken place, in bilateral as

4_{See for this necessary condition inter alia: Alford 1995, Mertha 2005, Zimmerman and Chaudhry 2009,}

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well as multilateral context (Zimmerman 2013, 315). In 2001, China accessed the World Trade Organization. China’s accession obliged the Republic to fulfil the requirements that the WTO imposes on its members, including those regarding IPR protection (Hung 2003, 58). As by 2014, China is a member of WIPO, the Paris Convention and the Berne Convention (Zimmerman 2013, 147).

1.3.2 Economic context

To comprehend the contemporary IPR environment in China, a basic knowledge of the nation’s economic background is of importance. Zimmerman and Chaudhry (2009) give a short overview of the Chinese economy from 1500 up to now. From 1500 until 1950, the Chinese economy was stagnant and GDP enjoined very little growth. Chinese GDP went from USD 62 billion in 1500 to USD 240 billion in 1950, a small progress compared to Western European GDP that developed from USD 44 billion in 1500 to about USD 1.4 trillion in 1950. The Chinese GDP per capita even decreased during the same period from USD 600 in 1300 to USD 439 in 1950 (Zimmerman 2009, 142). This trend changed drastically from 1978 onwards, when Deng Xiaoping became leader of the Communist Party. Since 1978, Chinese GDP has grown considerably and enjoined growth rates of around 10 %. In 2013, China is the world’s second largest economy after the USA. That year, China’s GDP (official exchange rate) reached the number of USD 9.33 trillion. This was a growth of 7.7 %, the same percentage as in the year 2012, but a reduced GDP growth compared to 2011 (9.3 %) and 2010 (10.4 %) (CIA World Fact book 2014). The People’s Republic of China owes a great part of its economic growth to exports, especially to the Western world. In 2012, exports totaled just under USD 2.1 trillion. China's trade surplus (in balance-of-payments terms) increased from USD 243.5 billion in 2011 to USD 321.6 billion in 2012 (Economic Intelligence Unit 2013)5_{. A major side effect is that along with these high growth rates, the}

production and exports of counterfeit products have grown drastically as well (Zimmerman 2013, 142).

1.3.3 Legal system versus enforcement

China is nowadays the world’s largest source of IP infringed goods; from 2008-2010, 67 % of all counterfeit goods directly come from China (UN 2013, 123). Of all the IP infringed

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products in the United States of America and in the European Union, the largest part is produced in China. (EC 2012, 15 and UN 2013, 124). The great amounts and enormous values of IPR infringement by Chinese companies trigger the question: how well protected is intellectual property in China? Before answering this question, it is important to make a distinction between the legal situation (in theory) and the situation of enforcement (in practice). It is generally considered that laws on IPR protection are adequate, but that enforcement remains weak (see for example Hung 2003, 67-68, Suttmeier and Yao 2011, 5, Zimmerman and Chaudhry 2009, 309, Zimmerman 2013, 144-46). In his speech at a conference on counterfeiting in China, Professor Daniel C.K. Chow (Ohio State University) confirmed this general assumption by stating: “While China’s intellectual property laws are now considered by most observers to be in compliance with the standards set by TRIPS, enforcement of these laws remains inadequate and fails to create sufficient deterrence of counterfeiting” (Chow 2005).

1.3.4 Impacts of WTO-membership: the situation after 2001

China became a member of the World Trade Organization in 2001. What impact did the access of China to the WTO have on the IPR situation in China? It was widely expected that IPR protection in China would improve after China’s accession to the World Trade Organization in 2001. However, it must be stated that WTO-membership did not or very little improve the situation in this area (Hung 2003, 68). Hung (2003) states that China has sufficient laws on IPR protection, but that these laws were already in place before China’s WTO-accession. Additionally, he defines that the enforcement system of IPR is “riddled with loopholes” and that enforcement is “selective, sporadic and disorganized” (Hung 2003, 68-69). The weak to no improvement of IPR protection after 2001 is confirmed by analyses of the Index of Economic Freedom (IEF). The Index of Economic Freedom, a guide published by The Wall Street Journal and The Heritage Foundation, annually measures the economic freedom around the world. Since 1995, the Index presents the economic freedom of 185 countries based on ten benchmarks. One of the benchmarks covers “property rights” (IEF 2014). Figure 4 shows the index of property rights protection in China, compared to those of the Netherlands and the world average. As portrayed by figure 4, protection of property rights in China is ranked at 20.0 points. This is quite some lower than the world average of 45.0 points and extremely lower than the protection rate in the Netherlands, which is ranked at 90.0 points. More importantly, the figure shows that protection of property in China has not

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improved since WTO-membership in 2001, but on the contrary has worsened over the last years compared to pre-2001 years. In the comments on the graph data of China, it is stated: “Intellectual property rights are not protected effectively, and infringement of copyrights, patents, and trademarks is common” (IEF 2014).

1.3.5 Causes of weak enforcement

If the legal framework for proper IPR protection satisfies the WTO standards, what are the reasons for the weak enforcement in China? Chow (2005) indicates two main reasons for weak enforcement. The first reason is local protectionism: local authorities benefit directly and indirectly from counterfeiting. While the central level authorities try to combat IPR violation, counterfeiting is defended or even supported by local level authorities. The second reason is inadequate punishment: fines and criminal prosecutions are extremely low to IPR infringers, while financial compensations to IPR holders are very small (Chow 2005). In its 2012 USTR Report to Congress on China’s WTO Compliance, the U.S. Trade Representative mentions the following causes for the ineffective IPR enforcement in China: “lack of coordination among Chinese government ministries and agencies, lack of training, resource constraints, lack of transparency in the enforcement process and its outcomes, and local protectionism and corruption” (USTR 2012, 104). Mertha (2005) highlights in his book one particular cause for China’s poor IPR enforcement: “fragmented authoritarianism” (Mertha

Figure 4: Property rights by year of the world average, China and the Netherlands from 1995-2014.

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2005, 26-27). Fragmentation exists in function (separations between bureaucracies) and in government levels (separations between the national and local governments) (Mertha 2005, 27). The fragmented authoritarianism can undermine the implementation process of IPR laws (Mertha 2005, 27). Hung (2003) mentions similar factors that contribute to poor enforcement of the Chinese IPR laws. He also sees the weak punishments and decentralized enforcement authority as barriers to a strong implementation of IPR laws (Hung 2003, 61). The lists of barriers show that weak IPR enforcement in China is probably caused by many thinkable reasons. However, it is clear that potential problems are at local level governments rather than at the central level government.

1.3.6 Efforts of the Chinese central government

One of the causes mentioned above is formed by differences in interests between the central government and the local governments in China. While the local level authorities experience economic gain from counterfeiting in their region, the central level authorities see it as a threat to the Chinese overall economy. In what ways has the Chinese central government attempted to combat IPR infringement in its republic up till now? To begin with, the national government has launched numerous campaigns to raise awareness of anti-counterfeiting among the Chinese people (Zimmerman and Chaudhry 2009, 317). The Asia-Pacific Economic Cooperation Business Advisory Council (ABAC) of the US thinks that “(t)he government plays an integral role in raising awareness on intellectual property rights” (APEC Business Advisory Council 2007, 5). An example of a prominent anti-IPR infringement campaign is operation Blue Sky. This campaign, launched in 2006, was organized by the Chinese Ministry of Commerce in cooperation with a number of companies and organizations, inter alia the China Council for the Promotion of International Trade (CCPIT). The aim of Operation Blue Sky was to restrain IPR infringements at trade fairs. The campaign consisted, among other things, of: conducting law agency officials to the trade fairs to offer enforcement services on the ground, setting up complaint centers, and transferring complaints at trade fairs to administrative agencies within 24 hours (APEC Business Advisory Council 2007, 10-11). Secondly, the Chinese government has opened a national IP complaint phone number in 2006 (Zimmerman and Chaudhry 2009, 317). Thirdly, the national authorities have organized an annual ‘Week of April’ since 2004, with the aim of making the Chinese people aware of the importance of IPR enforcement. This is executed

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every year by ways of advertisements in the media, seminars and contests (U.S. Chamber of Commerce 2007, 11).

But most prominently, the Chinese central government announced the National Intellectual Property Strategy (NIPS) in 2008 under leadership of the Chinese State Intellectual Property Organization (SIPO) (Suttmeier and Yao 2011, 3). The Chinese NIPS is a wide-ranging list of ambitions and measures to improve the Chinese IPR environment. The purpose, according to SIPO, is “improving China's capacity to create, utilize, protect and administer intellectual property, making China an innovative country and attaining the goal of building a moderately prosperous society in all respects” (SIPO 2008). With respect to trademarks, the NIPS specifies four concrete measures. Measures number two, three and four mainly deal with encouraging registration and enhancing administration of Chinese trademarks. Measure number one is more focused on protection of trademarks and combating counterfeiting, and says: “Strengthen our capacity to enforce the law and take strict measures for curbing counterfeiting and other infringements to maintain fair competition and good order in the market” (SIPO 2008).

1.4 Economic consequences of trademark infringement and counterfeiting

The large-scaled trademark infringement by Chinese companies has far-reaching impacts in several ways and on various parties. Not only the economy in the country of the infringers is damaged, also the economy in the country of the trademark holders is harmed. This study focuses on the economic consequences for the European trademark holders, whose intellectual property rights are violated by Chinese companies. The economic effects can be subdivided into four main categories: effects on European trademark holders, on European consumers, on European governments, and on the European general economy.

1.4.1 Effects on European trademark holders

Chinese counterfeiters harm the European trademark holder in two ways: directly financially and indirectly financially. Firstly, trademark holders experience losses in sales, since there is a grouping of consumers who purchase a counterfeiting product while they believe they pay for a genuine good (Berman 2008, 192). Secondly, trademark holders miss out on royalties in case of trademark infringement (OECD 2007, 18). Royalties are the payments that one party

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makes to the trademark holder for permission to exercise his intellectual property (Legal Dictionary 2013). Counterfeit activities divest royalty incomes from the trademark holder. Thirdly, trademark holders sometimes include costs on counteracting IPR violation. The counteract expenses are no investments in order to create better products and can therefore be considered as purely financial losses (OECD 2007, 18). These are all direct financial losses for the trademark holder, but also indirect financial losses appear. First and most evidently, the reputation of the brand is damaged when a consumer unknowingly purchases a fake brand product. As result of the inferior quality, the consumer is deceived and might be unwilling to buy the product in the future. Secondly, the deceived consumer could relay his poor experience to potential purchasers of the product, who might be disinclined to buy the product anymore either. The injured brand image causes a loss of traditional and potential clients, and creates a decline in sales volume (OECD 2007, 18). Thirdly, the counterfeiters are inequitable competitors, since they illicitly take advantage of expenses made by the trademark holders over numerous years, e.g. expenses on promotion, research & development, design costs and advertisement costs (Berman 2008, 192).

1.4.2 Effects on European consumers

European consumers who unknowingly buy counterfeit products, often pay prices that are comparable with genuine product prices. The prices are in large imbalance in relation to the commonly substandard quality of the fake good. Above and beyond, the consumer faces the danger of health and safety risks as result of the substandard and unchecked products (Bruce 2009, 705 and Chaudhry 2006, 464). Notable counterfeit products that cause health risks include products in the food and drink sector, pharmaceuticals and tobacco products. Outstanding sectors that may pose safety risks comprise the automotive sector and the electrical components sector (OECD 2007, 19-20).

1.4.3 Effects on European governments

Governments experience direct financial losses from counterfeiting through tax revenue losses and costs spent on anti-counterfeiting activities. Forms of lower tax collection comprise lower takings of corporate income taxes, value added taxes, excise taxes and import tariffs (OECD 2007, 20). Forms of costs spent on anti-counterfeiting activities contain costs on customs and law enforcement, treatment of the seized products, judicial procedures,

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anti-counterfeiting campaigns and awareness raising among the people (OECD 2007, 21). Indirectly, governments suffer from counterfeiting since they bear the costs associated with augmented trade deficits (Berman 2008, 192). Furthermore, they often bear a proportion of the costs related with health and safety damage caused by counterfeiting (OECD 2007, 21).

1.4.4 Effects on the European general economy

The strongest argument in favor of an adequate IPR system is the assumed link with innovation: a strong protection of intellectual property rights is considered to encourage innovation.6 Although there are plenty of arguments that contradict this statement, the mainstream belief in the contemporary Western world is that a well-developed IPR system is a fundamental element of a healthy and innovative market economy (Chang 2001, 294). This assumption taken for granted, the IPR violation by Chinese companies reduces the incentive for innovative activities, which negatively affects research and development activities and, in the long run, slows down economic growth (OECD 2007, 17). Secondly, counterfeiting disrupts trade and disturbs trade relations. European governments might experience increased trade deficits due to a lack of trade registrations (Berman 2008, 193). Thirdly, counterfeiting leads to job transferals from trademark holders to infringers and likewise creates losses in employment in the country of the trademark holder (OECD 2007, 17 and Berman 2007, 192). Fourthly, the presence of trade in counterfeit products might make a country less attractive for foreign direct investments (FDIs). According to an economic analysis carried out by the OECD (2007), the circumstances with regard to IPR protection is a factor that contributes to the considerations of potential foreign investors, when choosing their investment country. A country with high imports of trademark-infringed goods invokes negative economic associations and damages the reputation of a European country as a confidential place to invest in. This is detrimental for the country’s general economy (OECD 2007, 17-18).

Additionally, two indirect negative affects to the European overall economy occur when trademark rights are violated. Firstly, counterfeiters and pirates are mostly linked to criminal networks and other criminal activities. It is plausible to assume that a large amount of money earned in the counterfeit market, is later on used to sustain further criminality. Secondly, counterfeit activities can have negative effects on the environment. On the hand,

6_{More about the discussion on the link between IPR protection, innovation and economic development, see}

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inferior counterfeit products can have environmentally harmful consequences. On the other hand, destruction of seized counterfeit goods forms a negative surplus (OECD 2007, 17).

Figure 5 schematically shows the direct and indirect economic and financial consequences of Chinese trademark infringement and counterfeiting for European trademark holders, consumers, governments and the overall economy.

Figure 5: Consequences for Europe of trademark infringement and counterfeit activities by China..

European trademark holders European consumers European governments European general economy

Directly _{• Loss of sales}

volumes • Too high a price payments on inferior products

• Loss of tax

revenues • Reduced innovation

• Loss of royalty

incomes • Costs of anti-counterfeiting actions • Disrupted trade • Costs of anti-counterfeiting actions • Loss of employment • Loss of FDI Indirectly • Damaged brand reputation

• Health risks • Costs associated with higher trade deficits • Costs of increased criminality • Inequitable

competition • Safety risks • Costs associated with health and safety damage

• Costs of decreased environment

Sources: Berman 2008, Bruce 2009, Chaudhry 2006, Chang 2001, OECD 2007.

1.5 The combat against IPR violation

The previous section has shown that large-scaled counterfeiting by Chinese companies brings economic and financial consequences for Europe. Trademark infringement negatively affects European trademark holders, consumers, governments and the general economy at the same time. From a European point of view, the battle for stronger IPR protection would therefore be a logical endeavor.

Indeed, many economists, legal experts, politicians, NGOs and IP holders in Europe state that the Western world must push for better IPR enforcement in China. However,

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another line of thought is present in Europe as well: the idea that firm IPR protection will have negative effects on both Europe and China, and must therefore not be pushed by the Western world. In order to see the discussion in its full context, section 1.5.1 briefly deliberates the second-mentioned line of thought. Subsequently, section 1.5.2 explains why this study will approach the Chinese counterfeiting problem from the first-mentioned line of thought.

1.5.1 Europe must not push for better IPR enforcement in China

Donald Richards, professor in economics at the Indiana State University, states in his publication that arguments in favor of intellectual property rights are indefensible (Richards 2002). He shows how most of these arguments are based on ‘classical’ philosophic writings that defend exclusive property rights, like Locke, Hegel and Bentham (Richards 2002, 523-539). But according to Richards, classical defenses for property rights do not apply in the same way to intellectual property rights. Richards concludes that “traditional justificatory theories do not hold up well when applied to intellectual property” (Richards 2002, 523). In his view, establishments in favor of strong IPR protection – like recently the TRIPS agreement of the WTO – are mainly the result of lobby efforts made by influential and patent-holding multinational companies (Richards 2002, 540).

Ha-Joon Chang, connected to the faculty of Economics and Politics at the University of Cambridge, shows in his paper how several economists undermine the alleged link between IPR and innovation. Chang cites a study by Levin at al. (1987), in which it is proved that “…patents are considered less important than ‘natural advantages’…in preserving an innovator’s advantage” (Chang 2001, 295). In another study cited by Chang, Mansfield (1986) proved that only 14 % – a rather low proportion – of inventions done by the examined R&D executives and in the examined period, would not have been developed if patent protection was not obtainable (Chang 2001, 295). Thirdly, Chang refers to studies by Schiff (1971) and Evenson (1990). Both writers make use of the historical experiences of Switzerland and the Netherlands during their patentless periods at the end of the nineteenth century. They determine that “there is no evidence that the absence of a patent system held these two countries back in terms of technological development” (Chang 2001, 295). Chang’s conclusion on the idea of a stronger IPR regime is that “the international benefits of such a regime are (…) close to zero, if any” (Chang 2001, 303).

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Even if taken for granted the alleged link between IPR protection and innovation, some economists criticize the push of the Western world for firm IPR protection in China. An example is given by Suttmeier and Yao, both connected the University of Oregon. They state that the international reaction to Chinese IPR violation is wrong for two reasons. Firstly, there is widespread violation of IPR around the world, which makes the focus on China unfair and out of proportion. Secondly, China’s IPR regime and its efforts to develop a culture of IPR protection are of rather short duration (Suttmeier and Yao 2001, 5). For these reasons, Western countries do not have the right to compare the Chinese IPR regime to their own situation (Suttmeier an Yao 2011, 1-5).

1.5.2 Europe must push for better IPR enforcement in China

The other line of thought – the idea that the Western world must push for better IPR enforcement in China – is present as well and will be the approach of this study. Three reasons exist to explain why this approach is chosen.

Firstly, one should be aware of the international character of IPR and IPR violation. Counterfeiting is a cross-bordering problem. Commonsensically, the problem requires a transnational solution. The fact that production of counterfeit goods occurs in China, does not make the phenomenon a solely Chinese problem. Consequences are felt in other countries as well, including Europe and the rest of the Western world (Gao 2011, 64). Therefore, Europe – and especially the European trademark holders – has all the right to participate in the combat against Chinese counterfeiting.

Secondly, China’s membership of the World Trade Organization (WTO) justifies European interference in the Chinese counterfeiting problem. When China entered the WTO in 2001, the country agreed with all requirements that the WTO imposes on its members, including those regarding IPR protection (Hung 2003, 58). China’s acceptance of the international standards of IPR is not only the will of the Western world: China has imposed on itself the international IP-rules of the WTO. It is now the right of the other WTO-members to remember China to comply with these rules.

Thirdly, the proven link between counterfeiting and criminal activities advocates compliance of intellectual property rights by China. Research has shown that a positive correlation exists between violation of IPR and organized crime: the more IPR are violated in a region, the larger is the scale of organized crime in that certain region (Chaudhry 2006, 464). Moreover, it has been proven that counterfeit products pose a danger to public health

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and safety (Chaudhry 2006, 463-464). Regardless of someone’s political-economic perspective, these are objectionable side effects. Admittedly, the link between IPR and innovation may be depending on one’s political and/or economic vision. From this viewpoint, the desirability of IPR enforcement is debatable. Conversely, the link between IPR violation on the one hand and organized crime and health and safety risks on the other hand is a given fact. From this viewpoint, the desirability of IPR enforcement is non-debatable, and allows Europe to push China for better IPR application.

Borne in mind the above-mentioned reasons, the rest of this study will give the floor to academicians and experts who defend the Western combat against Chinese counterfeiting. The next part (part II) will provide an overview of the possible ways to combat counterfeit activities and trademark infringement by China.

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2. How to combat counterfeit activities and trademark infringement:

the possibilities

Part I of this study showed that it is important to examine how European trademark holders can combat trademark infringement by Chinese companies. It also explained that for the sake of this study, the assumption is taken for granted that stronger IPR enforcement in China must be pushed. Part II discusses what possibilities exist for European trademark holders to combat trademark infringement by Chinese companies. What actions are available for brand house managers to prevent and abolish counterfeit goods? The floor will primarily be given to persons coming from the academic world.

2.0 Action or no action?

Prior to considering what anti-counterfeiting measure to take, there is an even earlier decision to make for trademark holders. Victimized companies must make the well-considered choice between taking action and taking no action against counterfeiting. Managers have to strike a balance between the costs of the anti-counterfeiting measure and the benefits that will derive from it. When profits are lower than the direct and indirect expenditures of the action, the trademark holder might choose to take no action. Yet, Hung explicitly advices to not turn away from the matter and to actively fight against counterfeiting and trademark infringement (Hung 2003, 72). This study will elaborate on the possibilities within the option of taking actions.

In order to actively combat counterfeiting and trademark infringement by Chinese companies, many anti-counterfeiting strategies have been invented. The strategies can be discerned in two ways. First of all, one has to distinguish the preventive measures (ex ante) from the repressive measures (ex post). Secondly, a distinction must be made in the target groups that are directed per measure. Each anti-counterfeiting measure is focused on a certain objective, e.g. the European consumer, the Chinese factory workers, the distribution channel or the Chinese local government. The next sections discuss the possible actions of anti-counterfeiting per target group. Within the discussion of each target group, a distinction will be made between preventive and repressive activities.

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2.1 Actions aimed at consumers

Addressing the consumer is generally seen as an effective way in the combat against counterfeiting. When the demand for fake products reduces, the temptation to trade in fake products will reduce as well. Hence, the tendency and the desire of consumers to buy fake products must be removed. This is the ex ante way of combating counterfeiting. Additionally, consumers are addressed ex post to combat the illegal activity: they are deployed to help tracking down the fake products, once these products are already in the market. Both preventive and repressive undertakings comprise several possible measures, which will be deliberated next.

2.1.1 Preventive actions

The economic theory of demand and supply tells us: demand determines supply (and not the other way around) (Krugman and Wells 2009). Hence, to tackle the counterfeit problem at source, all demand for fake products must be eliminated. After all, if there is no demand, there will be no more supply. The demand and supply-theory thus implies that the very best way to combat trademark infringement is by preventing consumers to demand for trademark infringed products.

This way of thought is explicitly expressed by Duncan Freeman. Freeman is researcher, lecturer and consultant on China business and economy at the Brussels Institute of Contemporary China Studies and has written several academic books and articles on the topic (BICC, 2014). In his article in the Asia Times Online of January 2006, Freeman states that “consumer demand is the main driver of growth in counterfeit trade, and any enforcement measures of directed at China will be ineffective until the demand for fake goods is suppressed” (Freeman 2006, citation from Chaudhry 2006, 465). Several measures exist in order to restrain consumers from purchasing fake goods.

A very first, anticipating step is securing that consumers are well informed about the criminal nature of counterfeiting activities. On the one hand, consumers must be conscious of the negative sides of counterfeiting. On the other hand, consumers should clearly see the positive sides of genuine products. Public campaigns could make consumers aware of the financial downsides, the social costs, the health risks and the safety risks of fake goods (Berman 2008, 195). A company could also warn for fake goods on its website (Berman 2008, 195). To make (potential) consumers conscious of the positive sides of genuine products, companies could emphasize the benefits of them compared with counterfeit products: genuine products

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are safer, the product lasts longer in high quality, and the genuine producer provides warranties and after-service (Chaudhry et al. 2009, 63). Secondly, brand houses might emphasize the high-status appearance represented by owning a genuine product: possession of a real brand good is associated with a prestigious image (Chaudhry et al. 2009, 63). Thirdly, brand houses can offer lists of the legitimate retail places of the brand products, so the consumer knows where the genuine articles are sold (Chaudhry et al. 2009, 63).

2.1.2 Repressive actions

The anti-counterfeiting actions that are elaborated in the previous section, are targeted at decreasing the risk that consumers purchase fake products. The measures mainly work in a preventive way. However, also repressive measures to combat trademark infringement exist: to increase the opportunity that consumers track down possible counterfeit products. The most notable example of a repressive action is the possibility for consumers to quickly report fake goods online or by phone (Berman 2008, 195).

2.2 Actions aimed at manufacturers

Fighters against trademark infringement try to tackle the business as early in the system as possible. That means that the business must be tackled already at the production phase. Two sorts of counterfeit producers can be distinguished. The first sort is manufactures who copy brand products while they are not involved in the genuine production of that brand. The second sort is outsourced suppliers who produce brand products by order of the brand house, but also produce brand products outside the orders of the brand house. In both cases, there is mention of trademark infringement. And in both cases, preventive as well as repressive measures are thinkable in order to combat trademark infringement.

2.2.1 Preventive actions

A first instruction to brand houses that outsource their production in China, is to carefully select their outsourced suppliers. Firms must be choosy when selecting their factories in China. A point of reference is for example the experience of earlier dealings with other firms. Bad experience of other firms with a supplier could be a sign that it is an untrustworthy partner, whilst honest relationships in the past increase the likelihood of a trustworthy partner (Berman 2008, 196).