FOSHAN, China—Product piracy, as everyone knows, is rampant in China. But not only foreign companies get burned. Legitimate Chinese enterprises also suffer.
Now those businesses are turning to China's civil courts for relief in growing numbers, sparking a new way of doing business. One after another, Chinese companies are hiring lawyers, setting up legal departments and marching to court.
"China is the most litigious country in the world in terms of intellectual property lawsuits. This shocks most people in the U.S. It's Chinese against Chinese," said J. Benjamin Bai, who works both in Shanghai and Houston for Jones Day, a major global law firm.
The piracy got so bad for one company, Foshan Rifeng Enterprise Co., a major manufacturer of flexible tubing systems in this Pearl River Delta city of southern China, that its top lawyer likened his efforts to "a cat that is running after mice all the time."
It was precisely Foshan Rifeng's commercial success that drew the infestation of vermin. Early in the decade, Foshan Rifeng seized a good share of China's market for specialized piping used for heating, cooling, gas distribution and medical uses. The company now claims to be among the world's three top piping manufacturers.
But as the company's reputation grew, its executives found that competitors were stealing designs and even the trademark name "Rifeng," which means "Sun Harvest."
"With blatant fakery, they tried to take the market away from us," said Xie Mingdong, director of legal affairs for the company.
So the company fought back with lawsuits. Earlier this year, it won appeals against two competitors in Shanghai. Another lawsuit is in the offing.
That's more and more the choice for Chinese businessmen who see the courts as striving to be fair in civil lawsuits.
"They would not go to court if they thought it was an empty exercise," said Steven M. Dickinson, a lawyer for a boutique Seattle law firm, Harris & Moure.
The number of civil lawsuits involving intellectual property—comprising trademarks, patents and copyrights—soared 32 percent in 2004 and another 20.6 percent in 2005, hitting 16,583 cases last year, the most recent year for which data is available.
The new wave of litigation doesn't yet include foreign companies, which Bai said account for only about 5 percent of the cases. U.S. officials remain focused on China's relatively light criminal penalties for piracy, giving U.S. businesses the impression that China simply won't move on intellectual property cases—a belief Bai said is mistaken.
Piracy remains rampant in China in numerous sectors, from auto parts and cigarette lighters to software and Hollywood movies. If a product sells well, invariably Chinese companies will try to copy it.
A report last May by the American Chamber of Commerce in China found that 41 percent of U.S. companies surveyed, all with operations in China, believe counterfeiting of their products increased in 2005.
The lawsuits may be one bright spot, however.
As China climbs the economic ladder, following in the path of Japan and South Korea, its enterprises are creating more innovative products. Last year, the number of patent applications in China soared 34.6 percent to 476,264. Chinese companies that produce better products are fighting to protect them. And courts are backing them up.
"The legislation has become better and implementation has become stricter," said Xie, the Foshan Rifeng legal director. "Generally speaking, our situation has improved."
It's little wonder that competitors tried to steal from Foshan Rifeng. An early industrial boom brought massive overcapacity and fierce competition in the piping sector. By the turn of the century, some 300 to 400 factories tussled for survival.
Foshan Rifeng was a leader. Its flexible piping, using an aluminum core and multiple layers of polyethylene, contained proprietary technology. Since the piping is airtight, it found multiple uses in chemical factories, medical labs and foodstuff plants.
The company's after-sales agents were the first to discover that competitors were poaching customers with fake products bearing the company's name and seal.
"We sent engineers out to service our pipes. Once the engineers would go he'd find the pipes were fake," Xie said.
The piracy cut into soaring sales and hurt the brand image. At one point, Foshan Rifeng identified 80 competing companies that had attempted to put "Rifeng," or Sun Harvest, on the labels of their own products, Xie said. Some counterfeiters operated out of factories with no signs. Other factories were larger but tried to ride on Foshan Rifeng's coattails by copying the logo or name.
Justin Min, director of Foshan Rifeng's overseas sales department, said the company found fake products bearing its name not only in China but also in Poland and South Africa, two growing markets where it wants to ensure clients are happy.
"If they use a fake one, and it's bad quality, they'll think (Foshan Rifeng piping) is no good at all," Min said.
In April, and again in June, companies in the Shanghai area that had appropriated the "Rifeng" name withdrew appeals before the Shanghai Supreme Court and agreed to pay compensation of about $60,000 each.
"We have learned a good lesson from this lawsuit, and we are applying to change the company's name," said a man who gave only a surname of Zhu after answering the phone at Shanghai Rifeng High-tech Pipeline Co., one of the companies that lost the suit.
The battle by Foshan Rifeng is far from over. In April, its representatives attended the 99th Canton Fair, a huge annual industrial exposition in nearby Guangzhou, and found no less than five competitors exhibiting copycat versions of its fittings, Xie said.
Faced with such situations, the company's legal department has grown to six employees.
Bai, the lawyer, said the soaring number of lawsuits, and more numerous verdicts in favor of affected companies, are positive developments.
"The trend is going in the right direction," Bai said.
(McClatchy special correspondent Fan Linjun contributed to this report.)
(c) 2006, McClatchy-Tribune Information Services.
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