From the Edge: The Sweet Smell of Success (China Version)

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From the Edge is the collected memories and experiences of an old China hand and will run in an irregular series of articles on this site over the next couple of months.

By I.B. Bogard

Dec. 11 – If I may continue with my business chronicles of misdemeanors, mistakes, misadventures and general misbehaving from a variety of commercial experiences in this fair land of the Middle Kingdom.

I have spoken before about the hazards of IPR issues in China and the following story will, I hope, give the reader some idea of the machinations, intrigue, internationalization and downright innovativeness of some of the more imaginative escapades involving IPR issues. It has always struck me that if such imagination and innovativeness could be turned to genuine and legitimate business plans, then these individuals would be feared and respected within this commercial world of ours. It would keep the likes of Bill Gates continually looking over his shoulder.

Some time ago, it was brought to my attention that a European perfumery and luxury product company had discovered that in one of Europe’s busiest and up market airports, the duty free shops that were full of this exclusive company’s exorbitantly priced perfume products, had shelves and display cabinets stocked with rather good fake versions.

Said company was of course horrified and mortified that their exclusive perfume packages were not only well faked – including a reasonable attempt to imitate the actual contents – but that they had found their way through all the barriers and examinations supposedly in place to thwart such attempts.

A private eye was brought in to investigate and shipments were backtracked to Turkey before the trail turned cold. A chance coincidental discovery in China however, managed to shed some light on this investigation. It was brought to the attention of the perfumery company’s legal representative in China that the same imitation empty bottles were on sale in the many street markets of Beijing. The familiar design was regarded as a prestigious ornament for flowers and the like, and at RMB10 a pop, was a cheap ornament to decorate a dressing table or an office desk to impress colleagues.

The perfumery company’s senior executives hurried over on the first Airbus to see for themselves some captured empty bottles and then decided to throw their considerable weight behind identifying those responsible.

As my then offices were associated with this investigation, and the fees were of course generous, heads went down and investigations began.

It should be mentioned now that the bottle in question was not just a one piece article but was in fact made up of three pieces, the body, a separate glass collar and a glass stopper. What puzzled the company was that the bottles on sale in the street markets were flying solo so to speak, and did not include the collar and stopper.

Investigations through the stallholders and local trucking companies eventually identified a factory way out in the distant provinces as the makers of the bottle body. Then to the surprise of all, it was discovered that two other factories, located in other provinces were producing the other two components. Further investigation found that these three parts of the perfume bottle were being shipped separately to a fourth factory, where they were assembled before being packed into presentation boxes, complete with a rather obnoxious liquid that bore no resemblance to the finished product found at the European Airport. Life was getting rather complicated for all concerned, especially the legal advisers looking for an IPR prosecution.

Especially puzzling was the fact that the boxes, although good replications of the original product, carried labels printed only in Chinese and were destined for export according to paperwork discovered.

And now we come to the international involvement that at the time predated many current manufacturing processes in China that shipped a locally manufactured product overseas to complete an international part of the process.

To their surprise, the investigators discovered that the destination for the duff perfume shipments was Russia. What was, they asked themselves, a shipment of Chinese labeled perfume bottles – complete with a foul smelling contents – being shopped to Russia for?

Further expenses ensued for the exclusive perfumery company when they then brought in separate investigations to examine the Russian destination. Subsequently it was discovered that on arrival at an anonymous factory, set somewhere in the Urals, the packages were opened, the bottles unstopped and the contents poured down the sink. Russia it must be understood, has always had a good reputation in the trade for producing good quality perfume products, and this was no exception as the bottles were rinsed and refilled with a reasonable facsimile of the original perfume.

The bottles were then repackaged and once again sent on their way – this time the destination was across the Russian border to Turkey – where in yet another small factory, the Chinese labels were removed from the packages to be replaced by copies of the real thing.

And voila! The product was complete. The shipments were loaded onto an international-owned freight company and transported by road to main European destinations, including of course, the major European airport where this IPR violation was originally discovered. Job done.

You may think, as indeed I did at the time, that it all amounted to a lot of effort and investment to put a fake perfume into the European market. Where was the profit I asked myself? Of course, on examination, the very fact that the original perfume was priced so exorbitantly set the path for this enterprise to be considered in the first place. And of course it made a profit for all concerned.

In conclusion, it should also be pointed out that this whole process, once uncovered, left the legal advisers appointed by the perfume company to bring IPR charges in a wee bit of a dilemma. Who to prosecute, and in which country?

I understand that although the entire process was shut down, prosecutions were not forthcoming. In fact, there was even a grudging admiration by said legal advisers for the innovation and imagination used to set up this intriguing and inventive manufacturing process.

Now if only the masterminds behind this project, who incidentally were never properly identified, could turn their hand to a legitimate business…