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Counterfeit Product Issues

Asia and the Issue of Counterfeit Products October 4, 2006

Discussion
I. Countries & Products
II. Reasons behind the issue
1) Profitability
2) Demand is strong
3) Penalties are low
4) Good way to launder money
III. Consequences of counterfeit products
1) Lost revenues
2) Tarnished company image
3) Societal Costs
(1) Child Labor
(2) Sweatshops
4) Consumer effects
(1) Fire
(2) Harm, death
5) Lost wages and jobs
6) Criminal Activity
(1) Terrorist funding
(2) Organized Crime
IV. Why is it so difficult to stop?
1) Little cooperation from Government
a. Chinese legal environment
(1) IP laws are very strong in China
(a) Condition to World Trade Organization admittance in 2001
(2) Legal Environment
(a) 200,000 judges to 140,000 lawyers
(b) Judges don't have law background
(c) Judges are selected locally, paid locally, promoted locally, and fired locally
(3) Corruption – Paying for a decision is very common in Chinese courts.
b. Government
(1) Extensive use of counterfeit products and pirated software
(2) Economic dependency issues
2) Difficulty in identification
a. Legal question – Is it counterfeit if it is produced in the same factory using the same materials according to the same specifications?
b. Progress of technology in the printing, scanning, and copying fields.
3) New Balance in China

Current Events
1) Time Warner DVD sales in China
2) Microsoft Windows Genuine Advantage
3) Enforcement in China: too weak to stop pirates
4) Indian Pharmaceutical, Aurobindo Pharma, grows via pirating strategy


Appendix A - Current Events

Time Warner DVD sales in China

Business Week Online, "Take That You Pirates", 9 October 2006, http://www.businessweek.com/magazine/content/06_41/b4004063.htm?chan=top news_top news index_global business

Hollywood studios claim that up to $2B is lost annually to pirated DVDs across Asia. In a new strategy, Time Warner has dropped DVD prices from $3 to $1.88, close to what pirated copies...