TIPG Weekly (LinkedIn Edition, 24 November 2017) #Alibaba, #Civil-Action, #Silicon-Valley, #CFIUS, #Chinese-Investment, #Online-Novels, #Tencent
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This week's stories
- Alibaba steps up civil action against counterfeiters
- China supporters in Silicon Valley push back against proposed CFIUS changes
- Online novels among China's most valuable IP
News briefs
- Shanghai authorities seize 14,000 bottles of fake wine
- Jiangsu-based shoe counterfeiter fined RMB 100,000
- Hunan police seize counterfeit diet pills, arrest suspects
- Large Chinese counterfeit cigarette ring busted
- UK-based businessman claims he didn't know he was selling fake Disney toys from China
- Jared Kushner visits famed Beijing counterfeit market
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Alibaba steps up civil action against counterfeiters
Original article: Sina
Alibaba is pursuing counterfeit shoe sellers with unusual zeal, initiating civil litigation against the offenders even after a Zhejiang court sentenced them to prison time. There is reportedly a contract dispute between Alibaba and the defendants, who previously used Taobao stores to sell fake Vans shoes.
The Hangzhou-based internet giant is suing the defendants for RMB 530,000 in damages and has asked them to make a public apology.
For the defendants, the civil litigation adds insult to injury: They already have to serve 3-5 years in prison and pay an RMB 300,000 fine.
Analysis:
It's been a banner year for Alibaba's anti-counterfeiting efforts, but this move may just out-trump the rest. Why initiate civil action against small-time shoe counterfeiters who already have to serve prison time?
Indeed, it was a pretty mundane operation. When investigators raided the counterfeiters' storage facilities, they found 203 pairs of Vans shoes valued at RMB 50,000. Police later said that the infringement value of the operation was RMB 530,000. That adds up to quite a few pairs of shoes, but by the standards of counterfeiting in China, it's not a big business.
During the civil trial, Taobao's attorney Shen Yongqiang argued that there is no conflict between civil and criminal penalties in this case. In other words, if Taobao wants to sue shoe counterfeiters for damages, Chinese law does not prohibit it - regardless if the defendants already have been found guilty of a crime.
Shen further argued that the defendants' trademark infringement not only seriously damaged the interests of consumers, but also harmed Taobao's reputation.
"Currently, criminal penalties are not severe enough to deter the [China's] lucrative counterfeit business," Zheng Junfang, Alibaba's chief platform governance officer, told Sina in an interview, adding that Alibaba "has zero tolerance for fake goods."
It's clear Alibaba wants to signal its seriousness about fighting counterfeiters. There is no doubt some sincerity to the company's efforts, which are in line with President Xi Jinping's recent call for stronger protection of intellectual property in China. Of course, as TIPG has noted in many a previous newsletter, Alibaba is also eyeing Taobao's potential removal from the U.S. Trade Representative's Notorious Markets blacklist. The U.S. Trade Representative will make that decision next month.
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China supporters in Silicon Valley push back against proposed CFIUS changes
Original article: Bloomberg
Silicon Valley is nervously eyeing proposed legislation that would tighten scrutiny of Chinese investment in America. Since Chinese investors have become integral to the Valley's funding ecosystem in recent years, reducing their presence could hurt startups, businesspeople say.
Last week, American lawmakers introduced legislation that would toughen oversight of deals by the Committee on Foreign Investment in the United States (CFIUS) in which foreign investors take minority stakes. The new bill would affect deals like Tencent's 12% stake in Snap Inc. and could slow the flow of foreign investment into artificial intelligence, virtual reality, and robotics.
“The minority investments rule may cause some heartburn for Silicon Valley,” PricewaterhouseCoopers executive Steven Klemencic told Bloomberg in an interview. "It’s a review they’ve never had to deal with before," he says, adding that the rule could slow the speed of deals.
Analysis:
Silicon Valley's globalist technocratic vision is increasingly at odds with the Trump administration's "America-first" stance. As Beijing and Washington square off on trade disputes, the Valley's deep ties to China's tech community will come under closer scrutiny.
To be sure, it makes perfect business sense for the U.S. and China to cooperate in key areas of emerging technology. Technology like AI has global applications and revolutionary potential. Given China's ambitions to become a technology powerhouse, it wants to establish a foothold in Silicon Valley, arguably the world's foremost innovation hub. A good way to do that is by funding Valley-based startups focused on AI, virtual reality and robotics. The startups welcome funding - whether from China or elsewhere.
There's just one problem: what's good for the Valley may not be good for America. After years of touting "engagement" with China, U.S. policymakers have soured on the Middle Kingdom. China's alleged abuse of American intellectual property is a major sticking point - especially the exchange of precious IP for market access. From Washington's perspective, Beijing hasn't been receptive to U.S. concerns.
Curbing Chinese investment in American technology firms would signal Washington's commitment to safeguarding its most valuable IP. And it would serve a geopolitical goal - maintaining military supremacy. U.S. officials across government departments have long warned of the national security implications of China's investments in U.S. technology.
"Left unchecked, I believe that China’s investments have the potential to degrade our nation’s military superiority and to undermine our U.S. defense industrial base," Republican Senator John Corbyn, one of the sponsors of the bill, told the Council of Foreign Relations in June.
Opponents of the legislation say that it could hurt California-based startups whose technology does not have direct military applications. Over time, that could damage the Silicon Valley startup ecosystem.
Chris Nicholson, who heads the San Francisco-based AI startup Skymind, told Bloomberg that funding from Tencent and Hong Kong-based Mandra Capital has benefited his company. Those investors did not require technology transfer, he says.
"If I thought there was a chance that an investor who put money into Skymind could have their deal unrolled by CFIUS, I would not spend a lot of time to solicit their money. That’s the chilling effect," he says.
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Online novels among China's most valuable IP
Original article: Straits Times
Online novels have become some of the most valuable intellectual property in China, attracting big-ticket investment from the tech community. Last week, China Literature, Tencent's online-book arm, raised HK$8.3 billion in the biggest tech IPO Hong Kong has seen in a decade. With shares trading at HK$100 each, China Literature has a market value of HK$90 billion.
About 330 million Chinese - 1/4 of the population - read online novels, which focus on fantasy genres like sword fighting, tomb-raiding, and time travel. Since 2012, China's online novel market has grown annually at a 20% clip, reaching US$1.3 billion last year.
Analysis:
It seems like just yesterday that TIPG observed Chinese colleagues delving online into sloppily formatted fake books or watching pirated films of such poor resolution that they made us nostalgic for VHS. Many consumers just did not want to pay for content, even though the bootleg material often came loaded with malware.
But China moves fast - and younger generations are more willing to pay for content than their forebears. Investors have taken note: IP can be a good business in China after all. "The value of online literature IP franchises is rising in China because of many content adaptation opportunities, such as TV dramas, movies, and games," Jeffries analyst Karen Chan told The Financial Times. “Tencent has already established a track record in IP operation across these genres."
Online books are an easy sell in China because the population spends so much time on their handsets, the FT notes. China's top 10 writers who focus exclusively on the online market earn ten times as much as their counterparts who only do print, according to the consultancy Frost & Sullivan.
Online novels are the top source of IP in the Chinese market today, said Jing Ruyi, an analyst at research firm iResearch Consulting, in an interview with Singapore's The Straits Times. "They sit on the very top of the upstream of the entire pan-entertainment industry chain," she added.
China's top 10 online authors have created franchises worth RMB 1 billion each, according to a study conducted by China-based Hurun Research Institute and the IP management agency Mopia.
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Shanghai authorities seize 14,000 bottles of fake wine
Original article: Singtao Australia (Chinese)
Shanghai police have seized 14,000 bottles of counterfeit Penfolds wine and arrested 13 suspects. The suspects employed the tried-and-true tactic of selling the fake wine on Taobao at bargain prices: RMB 200 per bottle instead of the actual RMB 600-3000 retail price. That attracted the attention of Penfolds, who complained to Alibaba. Alibaba then alerted local authorities.
Fortunately, the wine was not adulterated with any harmful toxins, one of the counterfeiters, Mr. Dai, told Chinese media. The wines are definitely not Penfolds, but "other red wines from overseas. They bring no harm to the human body," he said.
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Jiangsu-based shoe counterfeiter fined RMB 100,000
Original article: Taizhou.com (Chinese)
The price of counterfeiting appears to be rising in China. In the latest instance of a stiff fine, a shoe counterfeiter in Jiangsu Province was ordered to pay RMB 100,000 after he was caught selling fake footwear online. Taizhou authorities seized 1080 pairs of phony high-end shoes during a November raid on the suspect's factory.
The suspect did not run a particularly profitable business. According to local media, his wholesale price was RMB 13, while he sold the shoes for RMB 15. He sold 2,800 pairs in total, earning just RMB 5600. Footwear made by the luxury brand whose mark he infringed usually retails for RMB 3800 a pair, the report said.
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Hunan police seize counterfeit diet pills, arrest suspects
Original article: Red Star News (Chinese)
Hunan authorities have shut down a counterfeit diet pill ring and arrested several suspects. The report does not specify the number of pills seized or infringement value. The case is notable for Alibaba taking the initiative to contact local authorities when it detected suspicious activity in the suspects' Taobao store.
Many China-made fake diet pills contain sibutramine, a banned appetite suppressant associated with an elevated risk of heart attack or stroke. Counterfeiters in China often label fake diet pills as imports from developed countries such as the U.S. or Germany.
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Large Chinese counterfeit cigarette ring busted
Original article: Xinhua (Chinese)
Cigarettes have long been a favorite of Chinese counterfeiters. After all, China has 300 million smokers. With the rise of e-commerce, Chinese cigarette counterfeiters now do a big business online, selling fake smokes on the messaging apps QQ and WeChat. In this case, the suspects relied primarily on those two platforms, authorities say. It is illegal to sell tobacco online in China, so any related activity can easily attract police attention.
Overall, police seized fake cigarettes in six different provinces valued at RMB 2.3 million over a six-month period. The counterfeiters infringed on 270 tobacco trademarks.
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UK-based businessman claims he didn't know he was selling fake toys from China
Original article: Manchester Evening News
Abdul Rasheed Khan, a UK-based businessman, told British authorities that he was unaware that many of the toys in his warehouse are counterfeits. Investigators recently uncovered thousands of phony Disney toys, Nintendo products and other branded items in Khan's storage facility near the city of Manchester.
Khan displayed humility when confronted with evidence of his wrongdoing, telling authorities that he "is not a good businessman."
A Manchester Crown Court judge gave Khan a nine-month suspended prison sentence and ordered him to do 200 hours of unpaid work. He is also required to pay back ￡40,000 through the Proceeds of Crime Act.
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Jared Kushner visits famed Beijing counterfeit market
Original article: That's Magazines
Jared Kushner, the son-in-law of U.S. President Donald Trump, was seen browsing Beijing's infamous Silk Market during his recent visit to China. The Silk Market is known for offering a wide selection of counterfeit goods. It is unclear why Kushner visited the Silk Market.
Photos published by That's Beijing reveal Kushner perusing a stall of superhero toys. Chinese counterfeiters can get creative when they name such products. For instance, TIPG has seen a fake Superman rebranded as "Special Man," a phony Batman called "Super Bat," and a bogus Batgirl named "Batichica."
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TIPG Weekly is edited by Matthew Fulco (AmCham Taipei, China Daily, Columbia University) with support from TIPG's analyst team in Shenzhen.*
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