Good Brand, Bad Brand
by Maya Alexandri

China’s venerable tradition of playing the barbarians against each other looks alive and thriving in the latest round of legal wrangling between Beijing’s Silk Street and the various international brands that object to the shopping mall's profiteering from sales of counterfeit goods. In its dealings with two separate sets of plaintiffs, Silk Street reveals a divide-and-conquer strategy designed to protect business as usual, while garnering accolades for its purported anti-counterfeiting efforts.

Bad brands
In the "bad brand" corner is a coalition of 23 foreign brands including Prada, Chanel, Gucci, Burberry, Louis Vuitton, who in November 2005 jointly sued Silk Street's operator, Beijing Xiushui Haosen Clothing Market Company, and five stalls, for selling fake products.

Silk Street counter-sued after the luxury brand coalition's trademark agent sent several cease-and-desist letters containing minor errors. According to Joseph Simone of Baker & McKenzie, who represents the coalition of twenty-three brands involved, one of the letters complained of counterfeit items being sold by an outlet that didn’t exist; two others misidentified the goods bearing the counterfeit trademarks. The coalition had won their case against Silk Street in Beijing’s Higher Court, which held that landlords have responsibility to stop infringing activity by tenants. But don’t call Silk Street’s counter-suit sour grapes. It’s obviously standing on principle: in compensation for the harm it sustained from the error-laden letters, Silk Street sought — and won — nominal damages of three yuan.

Good brands
In the "good brand" corner are Lacoste and Samsonite, who also sued Silk Street for IPR infringements. But the results were a little different. According to Paul Ranjard of Adamas, who represents the plaintiffs, the judge in Beijing’s Intermediate Court wanted to close the case before the end of 2006, and Silk Street appeared genuinely willing to reform on a step by step basis. As a start, Silk Street guaranteed that no vendors would sell counterfeit Lacoste and Samsonite goods.

IPR protection awards for Silk Street vendors
Several weeks — and a purge of counterfeit Lacoste and Samsonite products — later, Silk Street invited Ranjard to speak at a ceremony it organized on January 18. The purpose of the event was to self-congratulate Silk Street vendors on their anti-counterfeiting efforts. In his remarks, Ranjard, who also heads the European Union Chamber of Commerce IPR Working Group, conveyed the commendations of the EU, which reportedly emphasized to Ranjard the importance of supporting Silk Street’s anti-counterfeiting campaign.

Ranjard then presented flags to various vendors. Press coverage of the event included the following headline: “EUCCC Awards Dealers In Silk Street Beijing.” Ranjard doesn’t speak Chinese and admits that he doesn’t know if the vendors to whom he presented flags were, in fact, worthy of any honors.

Silk Street’s efforts to tarnish the coalition of twenty-three plaintiffs as “bad brands,” while giving Lacoste and Samonite the “good brand” treatment, no doubt relates to how the different groups want Silk Street to respond to counterfeiting. The coalition of brands proposed a “two strike” standard that would require Silk Street to terminate the lease of any vendor caught peddling counterfeits a second time.

Lacoste and Samsonite, by contrast, agreed that vendors caught selling counterfeits would be temporarily suspended from sales at Silk Street for a number of weeks corresponding to the number of times they’d been caught (i.e. one week for the first offense, two weeks for the second, etc.). Not only is this a less aggressive way of policing Silk Street's tenants, it's also a lot less work patrolling vendors for two brands rather than twenty-three.

But Silk Street’s game-playing is about more than laziness — indeed, at this point, the proliferation of lawsuits, counter-suits, and attendant appeals is so complicated that if laziness were a consideration, Silk Street would just comply with the law. Rather, Silk Street’s response reflects the continuing irrelevancy of legal enforcement measures in China and the susceptibility to manipulation of the foreign companies that run to the Chinese court system with Western expectations of redress.

Naturally, recent surveys conducted by the coalition of twenty-three brand owners show that sales of counterfeit goods at Silk Street have continued unabated, legal action notwithstanding.