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Fakes Flourish in China Despite Government Promises to Halt Piracy

China has vowed to punish officials who ignore copyright, trademark, and patent violations. Beijing has also agreed to allow foreign investigators to investigate large markets in some Chinese cities for brand name knockoffs. However, China's poor law enforcement and low fines means copyright violations in China still go largely unpunished.

Beijing's Silk Street Market is popular with tourists and well known for selling pirated purses and wallets at cheap prices. In early April, a Chinese court upheld a ruling against the market for allowing vendors to sell illegally copied name brand apparel despite a court order to stop. The court ordered the market to pay five foreign companies $2,500 each, although the companies had asked for $62,000.

Wang Yadong was one of the group's lawyers. He says his clients were satisfied with the ruling but not with the compensation, which he says is too low to deter copyright pirates.

"I think the penalties for IPR infringement should be heavier and the law enforcement should be stricter. I've always thought that criminal penalties for IPR infringement should be heavier, because civil penalties and criminal penalties have different effects," said Wang. "If they can make improvements on this, I think it will make a big difference."

Wang says some officials protect businesses that make and sell pirated products such as DVDs, software and clothes because of the jobs they provide.

Chinese authorities say they have shut down markets for severe trademark violations despite concerns about employment.

In China, thousands of products ranging from designer clothes to computer software to movies and sophisticated medicines are illegally copied and sold. The original creators of those goods - mostly Western and Japanese companies - lose billions of dollars a year to piracy in China. For consumers, cheap knock-offs sometimes can be dangerous - particularly when it comes to car parts and drugs.

U.S. customs officials report that by far the majority of pirated goods entering the United States come from China. And the U.S. Trade Representative's office estimates that last year, 85 to 93 percent of all sales of copyrighted products in China were pirated.

At the Silk Street Market legal notices posted on stalls say fakes of international brand name goods are illegal and should not be sold here. However, just a few weeks after the court ruling, vendors are still selling knock-offs.

A saleswoman asks a customer if he wants to buy some purses and wallets - copies of ones made by the French design house Louis Vuitton.

The saleswoman quickly produces two catalogues filled with hundreds of styles and colors of Louis Vuitton fakes.

While occasionally glancing over her shoulder, she shows the customer a few purses in a cabinet in her stall and then makes a quick phone call for other styles to be delivered. A few minutes later a young man delivers the illicit merchandise in a black plastic bag. She says the bags sell for at least $20 each, depending on the size.

Experts say Beijing has been reluctant to use criminal penalties against business owners who violate intellectual property rights despite increasing complaints from foreign companies and governments.

Joseph Simone is a lawyer specializing in I.P.R. with Baker and McKinzie, the firm that filed the suit against the Silk Market. He says China wants to try to stop pirating through administrative rather than criminal action.

"If China can't prove that its existing system works, the foreign governments, not just the U.S. but Japan, Europe and other countries, they're expecting the police to dramatically increase police resources," said Simone. "And, if China doesn't, we might be looking at a WTO [World Trade Organization] dispute in a year or two."

The United States last week said it has moved closer to filing a complaint with the World Trade Organization over China's I.P.R. violations.

Simone says foreign pressure has been key in motivating Beijing to crack down on product piracy.

While it is easy to find fakes of international brands in Chinese markets, products with the 2008 Beijing Olympic symbols are hard to find except at designated stores.

The head of the U.S. Chamber of Commerce recently noted that counterfeit items with the Chinese Olympic mascots and logo are rare - making it clear that China can curtail piracy when it imposes stiff penalties.

China issued very specific regulations to prevent piracy of its logo and mascot symbols for the 2008 Summer Games. The penalties include a maximum fine of $6,200. Chinese media reports that since 2002, nearly 2,300 violations have been taken to court and resulting in $100,000 in fines. The government also has destroyed nearly 2.5 million pieces of fake Olympic goods.