Counterfeits crush small businesses – litigation and lost revenues pile up

[Spencer, 6/10/2019, CNBC, “US small businesses are fighting an uphill battle against counterfeiters in China: ‘It’s like whack-a-mole’”, https://www.cnbc.com/2019/10/06/how-us-small-businesses-are-fighting-counterfeiting-in-china.html, accessed 7/8/2024, LR]

When Ruth Brons has a break between teaching her students in New Jersey how to play the violin, she’s trying to find new ways to defend her small business against counterfeiters thousands of miles away in China.

Brons, 60, became an entrepreneur a decade ago when she invented an accessory that helps students hold the violin bow correctly. It can take years of painstaking lessons to learn the right technique. Brons said that with her invention, students can hold the bow correctly from their first lesson.

Trademarked as Bow Hold Buddies, she patented her invention in the U.S., Canada, Mexico, Europe and Australia. But as her business grew, Brons realized she needed to crack the Chinese market, where interest in Western classical music is exploding.

“China is where it’s happening,” Brons said. “There’s a rising middle class and every parent wants their child to learn a Western classical musical instrument to elevate them in society.”

When Brons hired an agent in 2013 to distribute her product from Beijing, they discovered there was indeed a demand in China – the problem is that they weren’t the ones supplying it.

‘It’s like whack-a-mole’

Brons and her agent Jerrie Zhao found counterfeit versions of her product already for sale on the e-commerce site Taobao. They discovered that two factories – one in the major port city of Ningbo and the other in Hengshui – were manufacturing the knockoffs, Zhao said. The counterfeits were being sold at a fraction of Brons’ price.

Even worse, the patent Brons paid about $100,000 for in the U.S. had been copied. Counterfeiters had translated all 32 claims of her patent into Mandarin and registered it in China, she said.

Intellectual property theft is a pervasive issue in China and a central bone of contention in the U.S.-China trade war. In 2018, 87% of all counterfeit products seized at U.S. ports came from mainland China or Hong Kong, according to U.S. Customs and Border Protection’s Office of Trade. It’s not just a problem for the U.S. Eighty percent of all counterfeit products seized worldwide originated in China, according to the Organization for Economic Cooperation and Development.

While the discussion about protecting intellectual property has largely focused on big tech companies, small-business owners like Brons are fighting an uphill battle with limited resources to protect their patents and trademarks – the core of their business – in China’s legal system.

Brons, through her legal representation, went to court twice in China to have the copied patents invalidated, a process that she said took years. It has cost her business tens of thousands of dollars to invalidate the patents and get listings of fake products taken down from Taobao, Brons said, but new counterfeit products keep surfacing.

“You take down one and another pops up,” Brons said. “It’s like whack-a-mole.”

She says the annual revenue of her business, Things 4 Strings, has plateaued at around $320,000 because the fakes are hampering growth in China, which should be her most important market. And as the legal bills pile up, she has less money to invest in her business on important expenditures like advertising.

“I’m to the point where I need to write my senator,” Brons said. “The legal avenues to get the knockoffs seems to be a coffer raider without a whole lot of results.”

The counterfeit products also surface on U.S. e-commerce sites like Amazon and eBay, Brons said.

In April, the Trump administration warned Alibaba, Amazon, eBay and other e-commerce sites that the U.S. government would pursue a regulatory crackdown if the sites did not do more to fight the sale of counterfeit products. All three sites said they were committed to working with the U.S. government to combat fake products.