Legitimization on the Eastern Front

IPR Protection and the Silk Alley Case

By WU YAN

Beijing's Silk Alley is well-known among foreigners. Luo Yuanjun	Foreign customers browse for silk in the Silk Alley.	Over 1,300 Silk Alley vendors sign a pledge to respect intellectual property rights.

Clothes vendor Wang usually does good business in the Silk Alley, a well-known street market in Beijing. However, last April was not one of Wang’s most profitable months - the alley’s authorities closed down scores of his stands. The crackdown resulted from a case brought against the Silk Alley Company by five foreign brands peeved at its blatant selling of counterfeit versions of their products. Wang was temporarily out of a job, and he lost more than RMB 3 million.

It was on September 15, 2005 that the five foreign brands - Chanel, Prada, Burberry, LV and Gucci - jointly sued the Silk Alley for turning a blind eye towards vendors selling counterfeit goods. The five claimed compensation of RMB 2.5 million. Prior to their action, the companies sent their staff - and a number of witnesses - to the market to pick up their “products.” With these counterfeit commodities in hand, their lawyers sent letters to the Silk Alley Company demanding that it take effective measures to prevent vendors from selling them.

On April 18 this year, the Silk Alley case was settled in the Beijing Municipal Higher People's Court, and the five foreign brands were smiling at the end. The Silk Alley Company and five of its vendors each had to pay compensation of RMB 20,000. Though the amount of compensation was not high, the verdict had a great impact on the Silk Alley, as it increased awareness of intellectual property rights among its thousands of vendors. Wang Tianyou was allowed to reopen his stands on April 26, but not before he had obtained authorized vendor status from a number of high-end foreign brands. His certificates now hang high on the walls where customers can see them clearly. Meanwhile, Wang and more than 1,000 vendors have signed a pledge to respect intellectual property rights. Once again, Wang’s business has picked up, but this time, the losers are the bargain-hunting customers, not the foreign brands.

The Silk Alley used to be a shoppers’ paradise. A foreign tourist named Paul once recounted a trip to the Silk Alley. “I spotted a ‘Gucci’ wallet in a stand, and asked the vendor its price,” he said. “The vendor replied ‘RMB 480,’ so I kept on walking. He then tried to drop the price to RMB 360, but I paid no attention. He asked me how much I’d be willing to pay for the wallet, so I replied ‘RMB 80.’ At first he refused, saying that he’d never make a profit with that price. But I stuck to my guns, and soon I was walking down the road with my new wallet. It cost me RMB 80.” Before the Silk Alley case, this was standard shopping procedure in the market. About 80 percent of its customers were foreign tourists or ex-pats looking for a good deal, and they had few qualms about the products’ authenticity. But many Chinese consumers felt the place was less alluring. Says Beijing local Sun Mei, , “The clothes styles and sizes were more suited to foreign tastes. What’s more, foreigners might have thought they were getting a bargain, but the prices were still out of range for someone on an average salary like me.”

Wang Ping, chief of the Trademark Section in Chaoyang District Administration for Industry and Commerce, believes that the onus is on brand owners, be they Chinese or foreign, to monitor and report trademark infringements. He also reckons that many brands didn’t bother to report infringements as even counterfeit products can strengthen a brand’s fame and thus boost sales of its authentic products elsewhere. Brands, therefore, have no small role to play in assisting the government crackdown on the production and trade of counterfeit goods.

When famous foreign brands first entered the Chinese market, they set up factories in the country to take advantage of China’s low cost of labor. But there was no corresponding fall in their prices - in some cases the prices in China were even higher than those in developed countries. This opened up opportunities for all kinds of counterfeiters, who copied the brands with ease and sold them at a fraction of the price. If foreign brands had chosen to sell their products at a more reasonable price - at least on the Chinese market - there’s a good chance that these particular IPR issues would have been nipped in the bud.

Intellectual property rights protection has surfaced as a major issue in Sino-US trade relations, and the Chinese government has recently been paying greater attention to the issue in order to keep the country’s economic development on the right track. For instance, on the very same day that the Silk Alley Company lost its case, Chinese computer giant Lenovo signed an agreement with Microsoft to pre-install Windows operating system on all of its computers. The agreement is worth some US $1.2 billion to the Seattle-based software giant. In the same month, Chinese vice premier Wu Yi led a Chinese business delegation to the US, where they signed a purchasing deal worth US $16.21 billion - the largest single procurement order that China has ever placed.

Back in the Silk Alley, meanwhile, the crackdown on counterfeit foreign brands has brought some good news for cheaper, but still high quality, domestic ones. Tailor Ji Mingren works on the third floor of the New Silk Alley building and owns the brand “No. 1 Chinese Silk.” He has plenty of confidence in Chinese brand names big and small. When US President George W. Bush arrived in Beijing, the industrious Ji received an order for 100 suits, which he managed to make in just 24 hours. Such tailoring heroics boosted his brand’s reputation, and orders have since been pouring in, including one for over 800 suits for Microsoft (China) staff.

Beijing’s Silk Alley

Located on Beijing’s bustling Jianguomenwai Street in Chaoyang District, the Silk Alley is considered a symbol of China’s reform and opening up policy. It is a must-visit place for foreign tourists, ranking up there with more traditional sights like the Great Wall and the Forbidden City. It was 1982 when vendors began to congregate in the area, selling products like clothes and small commodities. In 1985, silk garments, ornaments and other handicrafts appeared on the market. The number of vendors rose exponentially after 1995, while the range of products expanded to include jewelry, antiques, and cheap souvenirs. It was revamped in 2005, and The New Silk Alley now covers a floor space of 28,000 square meters and accommodates 1,500 stalls.