Legitimate businesses in China have long suffered from custom lost to copycats. Chinese laws regarding such intellectual property rights (IPR) infringement are clear, though enforcement is spotty. Unfortunately for the victims of counterfeiting, a cultural phenomenon known as shanzhai is threatening to blur the boundaries of what constitutes illegal counterfeit goods.
The term shanzhai, first applied to the do-it-yourself copycat products of enterprising inventors, has been broadened to encompass consumer products that copy from name brands or popular culture, such as “Adidos” sneakers and “Nckia” phones. Shanzhai products usually make alterations like misspelled trade names or slightly modified product designs. The result can be either a legitimate new product or an IPR-infringing product.
Unlike the problem of counterfeits, government officials have not established a unified front on shanzhai, further complicating enforcement.
Liu Binjie, director of the National Copyright Administration, recently defended shanzhai, arguing it is not the same thing as piracy. He said it embodies the “creativity of folk culture… and is loved by the public.”
While popular among citizens, Liu’s position is not universally supported within the government. Some officials, such as Ni Ping, a CCTV host and member of National Committee of the Chinese People’s Political Consultative Conference, have said that by declaring shanzhai separate from piracy, Liu’s statement could cause real harm. “Shanzhai culture hurts the cultural industry’s interests,” Ni wrote on the internet forum Tianya.cn. She has called for legislation to ban shanzhai activities.
Cashing in on confusion
Counterfeiters are capitalizing on the combination of government confusion and a permissive public attitude.
“Shanzhai is becoming such a popular trend because the government does not have effective policies to control and stop these products,” said a representative for Spalding, a US sports brand whose basketballs and clothing are frequently counterfeited. “The lack of enthusiasm and action from the government has given name brand companies more pressure in the market.”
According to He Jing, an associate at law firm Baker & McKenzie, the shanzhai label is an effective camouflage for counterfeiters. “Fakes are illegal, but buying shanzhai is seen by the public as counter-cultural or simply naughty,” he said.
That is good news for China’s counterfeit industry. While the lack of legal distinction between shanzhai and traditional counterfeits means no shanzhai-specific figures exist, China’s State Administration for Industry and Commerce seized US$221.4 million worth of counterfeit goods in 2008, considered a fraction of the market’s full value. Mark Cohen, counsel at law firm Jones Day, believes that 90% of shanzhai products are illegal counterfeit goods, not parodies or new products.
China’s national IPR strategy, promulgated in July 2008, speaks of developing Chinese brands and educating the public about IPR. But Paul Ranjard, counsel at Chinese law firm Wan Hui Da, believes the government’s confusion over shanzhai amounts to a contradiction of the principles embodied in this strategy.
Part of the difficulty is the thin line between infringement and borrowing for creative parody, said Ranjard. Even where consumers know a product is shanzhai, it can still infringe on IPR.
Adding to the confusion, the economic crisis has seen enforcement scaled back. Central authorities have instructed local officials to delay or avoid cracking down on counterfeiters for fear of creating unemployment and instability, according to the International Anticounterfeiting Coalition’s 2009 report. Moreover, in cases of enforcement, fines remain low and criminal prosecution is limited, said Baker & McKenzie’s He.
Light enforcement may be short-sighted, according to many observers, who put the onus on the government to better define legal and illegal behavior and to enforce China’s stated IPR strategy to the letter.
Jones Day’s Cohen says IPR enforcement needs to occur on a more local level, and notes that the patent office and other IP agencies are trying to get more involved in local enforcement. Learning how best to address shanzhai’s consequences will “continue to be an educational process by the Chinese government,” Cohen added.