Jason Yao July 11 2022 Uprooting entire counterfeiting network by chasing online sellers: case study on recent success of golf manufacturers Wanhuida Intellectual Property | Intellectual Property - China Jason Yao Intellectual Property IntroductionFactsDecisionCommentIntroductionBetween November 2021 and December 2021, the Pudong District Court of Shanghai announced a series of criminal decisions, sentencing six counterfeiters – including three online sellers and three manufacturers of counterfeit golf products – to between two and three-and-a-half years' imprisonment, along with criminal fines of 1.675 million yuan. Since all the defendants pled guilty and no appeal was filed, the decisions are final and have become effective. The decisions conclude the most comprehensive investigation and enforcement action that has ever been conducted against online counterfeit sellers in the golf industry in China.FactsThe US Golf Manufacturers Anticounterfeiting Working Group (the Golf Group) is a group of leading golf manufacturers consisting of Acushnet (Titleist and FJ), Callaway, Cleveland/SRI, PING, PXG and TaylorMade. The Golf Group has been working together to combat counterfeit golf products all around the world for nearly 20 years. It has been quite successful in raiding underground factories, assembling workshops and warehouses, and putting counterfeiters in jail.However, the traditional approach has been proven to be increasingly ineffective with the boom of e-commerce and the flourishing of the business-to-consumer (B2C) sale of small quantities of counterfeit goods to end consumers. In the B2C context, a brand owner would be highly unlikely to catch a seller red-handed with sufficient counterfeit products in stock to satisfy the threshold to pursue criminal liability. Without a generous budget to invest in field investigations and raid actions, brand owners can only file complaints with online marketplaces to take down obvious counterfeit listings.Like many other brand owners, the Golf Group has been implementing a routine online monitoring and takedown programme. Rather than using an algorithm to run the programme, the Golf Group has a designated team, which manually polices popular online platforms to identify valuable targets among thousands of counterfeit listings for offline investigations.In early 2021, the online monitoring team identified a store named Xiuer Golf on Taobao as a potential valuable target for offline investigation. This target was associated with an individual manufacturer who had been raided and jailed in 2019. The fact that the store had remained active after its supplier was jailed suggested that it could be an upstream player in the counterfeiting network.The Golf Group conducted an in-depth field investigation on the store. Test purchases and investigations confirmed that the store was a supplier to multiple online sellers on various platforms. Surveillance on the local courier outlet led to a striking finding: the store had a shipping centre in Dongguan, Guangdong province. Close monitoring of the shipping centre led the Golf Group to an assembling workshop in another town in Dongguan and an underground factory in Longhui, Hunan province (over 500 miles away from Dongguan).Given that the intelligence gathered from the investigation delineated a full-blown supply chain of counterfeit golf products, the Golf Group filed a complaint with the Public Security Bureau (PSB) of Pudong District, Shanghai, since several buyers were offline golf shops in the city. The PSB monitored the online activities of the targets and soon identified another eight online shops (Figure 1) that had been purchasing counterfeit goods from the underground factory, with a cumulative sales revenue far exceeding the criminal threshold.Figure 1: supply chain of the underground factoryOn 2 June 2021, the Pudong PSB dispatched six quads of police officers to four different cities and raided 10 locations simultaneously. The manufacturer, the workshop owner and six online sellers were arrested. Thousands of counterfeit golf clubs and components were seized and confiscated (Figure 2). The verified sales revenue of the online sellers reached 4 million yuan (approximately $630,000).Figure 2: counterfeit productsDecisionAll the arrested suspects were indicted before the Pudong District Court, Shanghai. The Court held a series of public hearings and found all suspects guilty of the crime of counterfeiting registered trademarks or the crime of selling counterfeit products with registered trademarks. Weiping Liu, the owner of the online shops Xiuer Golf and Dingxing Golf, was sentenced to three-and-a-half years in jail and ordered to pay a criminal fine of 400,000 yuan.CommentSami Havens, Legal Counsel for Trademark and Brand Protection at TaylorMade Golf, stated as follows:We are happy to see that Chinese police and court took serious actions against online counterfeits during the pandemic. Counterfeiters have been taking advantage of this pandemic and become more rampant on the internet. We have never stopped watching them even during the difficult time, and we have been working with police in different countries to go after those online sellers aggressively. The criminal convictions definitely send a very strong message to the market that Golf Group has zero tolerance to counterfeit products and we will keep cleaning the marketplace, both online and offline, to maintain the integrity of the game.Here are a few takeaways from the Golf Group's success:Brand owners should not underestimate the significance of online monitoring programmes. Most online sellers are small individual sellers. They often use product pictures on the official websites of the brand owners and sell at a low transaction volume. Parameters that could be used to identify valuable sellers include:a high transaction volume;resurgence of listings after they are taken down;the use of product pictures that are taken professionally rather than those from the official website; andthat multiple stores are operated on different online platforms.Surveillance of local courier outlets may pinpoint the physical location of an online seller. The traditional approach of determining the physical address by placing a trial order and then returning the merchandise no longer works well as most online sellers are too cautious to divulge their real address. They would either use a fake address or the address of a local courier outlet as the shipping/return address. The only way to find out the real physical location of an online seller is to monitor the local courier outlet and tail the shipper back to the premises of the online seller.Brand owners should work collaboratively with the law enforcement authorities. Once a suspect is identified, brand owners are advised to immediately file a complaint with the competent law enforcement authority, ideally the police, to monitor the activities of the suspect. Since police resources are often stretched thin and they lack sufficient manpower to conduct field investigations, brand owners may wish to pitch in by hiring private investigators to conduct investigations based on the intelligence obtained from police surveillance. After scrutinising the leads generated from the private investigation, the police can formulate and execute elaborate plans for the raid action.Brands in the same industry may wish to form an anti-counterfeiting alliance to fight the common enemy that erodes a significant market share and jeopardises the integrity of the entire industry. If major brands in the same industry pool their limited resources together, they would be able to achieve objectives that would otherwise be impossible for a single brand. The golf industry is a relatively small industry and the annual revenue of the biggest brand in the industry is no more than $1.5 billion. Since 2004, the Golf Group has been sharing resources and splitting costs pertinent to online monitoring, investigations, enforcement actions, criminal prosecutions and civil lawsuits. It has been very successful in limiting counterfeits to within an acceptable level in a very effective and cost-efficient way. This recent success is just the icing on the cake of its long-term anti-counterfeiting programme.For further information on this topic please contact Jason Yao at Wanhuida Intellectual Property by telephone (+86 755 8279 1635) or email ([email protected]). The Wanhuida website can be accessed at www.wanhuida.com.This article was first published by WTR.