AAFA Takes Aim at Knockoffs
This year, Nike Inc., the world’s No. 1 shoemaker, won several battles in its pitched war against Chinese counterfeiters.
Thanks to an ever-vigilant team, the $16.3 billion company so far this year has seized 1.23 million pairs of fake Nike shoes, 675,880 pieces of knockoff Nike clothing, 620,070 phony Nike socks and 86,770 bogus sports bags or backpacks in China. During the same period in 2006, Nike nabbed 1.4 million pairs of fake shoes, 396,074 pieces of clothing, 126,368 counterfeit sports bags and 656,999 counterfeit socks.
“People believe you can’t take anything down in China. You can, but you have to approach it the Chinese way,” said Kevin Brown, director of global brand protection for Nike. “Learn the system; be the system; out-system the system.”
Brown shared the podium with other manufacturers speaking at the “Knock it Off!” anti-counterfeiting conference in Long Beach, Calif., organized by the American Apparel & Footwear Association and held on Nov. 6–7.
Brown works with five law firms and eight investigative firms as well as 10 fulltime employees in China to ensnare counterfeiters.
Nike does raids on factories, wholesalers and retailers. And it prosecutes when it is feasible.
Brown recalled discovering a Nike knockoff factory operating on a Chinese naval base. The base commander was running the factory, staffed with relatives of navy personnel, he said. With the Chinese government’s help, Nike shuttered the factory and had the commander ousted from his job.
But you nab one counterfeiter and another one pops up.
“Counterfeiters aren’t stupid. They are sharp about smelling blood. You always have to be vigilant,” said Brown, an attorney who has worked with the Beaverton, Ore.–based footwear and apparel maker since 1978.
China’s influence on the counterfeit market extends worldwide. The Chinese, Brown said, control the street markets in South Africa.
Counterfeit goods coming from China are being intercepted in places such as Paraguay and Ecuador for distribution in South America. “We are intercepting a lot of things in Malta that are redistributed to Morocco and on to Spain,” Brown said.
And Brown and his team have not been daunted by the Chinese government’s seemingly complex bureaucratic structure. In many ways, it is similar to the United States’. There is a central government, a provincial (or state) government, a county government and a municipal government.
There are several law enforcement agencies, too, all going by an alphabet soup of names, but getting to know these groups helps develop allies to apprehend counterfeiters. “Then there is the rule of green tea,” Brown said, noting that counterfeit fighters have to spend hours drinking green tea with Chinese officials to build confidence and “guanxi,” or connections with the right people.
Other apparel manufacturers had similar war stories and tidbits of wisdom about combating counterfeit goods around the world.
Ray Tai, responsible for intellectualproperty protection for the Adidas and Reebok brands in Asia, said the counterfeiters have gotten so good that he has a pile of products sitting in his office of undetermined origin. He hasn’t figured out yet which ones are fake and which ones are real.
“Nine years ago, they had these cottage industries, and everyone was making cheesy counterfeit apparel,” said the assistant general counsel for Adidas, the German footwear and apparel maker. “The difference now is that they are not doing it on the cheap. It is not just T-shirts and logos. There are a lot of professional factories set up to take advantage of this.”
One particular problem is the gray market, which concerns goods of questionable origin. Some are unauthorized factory overruns. Others are made with leftover material at the factory during a third shift late at night.
Adidas has spent a lot of time attacking this market, setting up a well-managed, centralized sourcing structure to fight fakes and prevent grays from finding their way to the market.
“In the past, we did not have a good relationship with the material supplier. The factory would take care of this,” Tai said. “We realized this was a mistake, and we needed to know what is being supplied to our contractor.”
Adidas also did not have a secured label system. Factories found their own contractor to make the labels, and they weren’t all the same.
“That caused a lot of confusion,” Tai said. “Now we have control over the entire process.”
Adidas makes sure each factory has just enough material to fill its orders. It also eliminated the third shift at its factories to prevent products wandering out the back door and into the black market.
With Adidas now selling to 3,800 stores in China, the footwear and apparel company has stepped up its attack on wholesalers and distributors selling fakes in China. The company often doesn’t have the same inside connections as factory owners who cultivate influence with government and law enforcement officials to get them out of a jam.
Attacking wholesalers also makes monetary sense. While a wholesaler may spend $200,000 for a fake-product shipment, that same shipment costs the factory far less to produce.
Working with customs officials in the United States and across the globe is another tactic manufacturers recommended. Educate officials about your product.
Barbara Kolsun, senior vice president and general counsel for Los Angeles–based denim label 7 For All Mankind, provides a two-page list of product descriptions and useful information for U.S. customs inspectors to identify knockoffs.
She also informs them that almost all 7 For All Mankind jeans are made in the United States, not China. Children’s jeans are manufactured in Mexico. “Training is key at various ports,” the attorney said. “Provide them short-and-sweet training materials. Two pages will do. And we update our product-identification sheets.”
Brown said Nike has been successfully working with Chinese customs officials inspecting exports at various major ports.
He noticed that after training customs people in the major ports of Shenzhen, Ningbo and Shanghai, counterfeiters moved 300 miles inland to get their customs seals.
Now Nike is training customs officials in out-of-the-way places, even near the Russian border.
“We are catching a lot,” Brown said. “But there are a lot of people making it through our nets.”
