First published by WTR

Authored by Jason Yao

In November and December 2021 the Pudong District Court of Shanghai announced a series of criminal decisions, sentencing six counterfeiters - three online sellers and three manufacturers of counterfeit golf products - to two to three-and-a-half years’ imprisonment, and issuing criminal fines of Rmb1.675 million. Since all defendants pleaded guilty and no appeal was filed, the decisions are final and have become effective. This concludes the most comprehensive investigation and enforcement action ever conducted against online counterfeit sellers in the golf industry in China.

Background

The US Golf Manufacturers Anti-counterfeiting Working Group (the ‘Golf Group’) is a group of leading golf manufacturers consisting of Acushnet (Titleist and FJ), Callaway, Cleveland/SRI, PING, PXG and TaylorMade Golf. The Golf Group has been working to combat the sale of counterfeit golf products around the world for nearly 20 years. It has been successful in raiding underground factories, assembling workshops and warehouses, as well as putting counterfeiters in jail. However, the traditional approach has proved to be increasingly ineffective with the boom of e-commerce and the flourishing of the business-to-consumer (B2C) sale of small quantities of counterfeiters to end consumers. In the B2C context, it is highly unlikely to catch a seller red-handed with sufficient counterfeit products in stock to satisfy the requisite threshold to pursue criminal liability. Without generous budgets to invest in field investigations and raid actions, brand owners could only file complaints with online marketplace asking them to take down obvious counterfeit listings, which was essentially palliative.

Like many other brand owners, the Golf Group has been implementing a routine online monitoring and takedown programme. Rather than using an algorithm to run the programme, the Golf Group has a designated team that manually polices popular online platforms to identify valuable targets among thousands of counterfeit listings for offline investigations.

In early 2021 the online monitoring team identified a store named Xiuer Golf on Taobao as a potential valuable target for offline investigation, as the store was associated with an individual who was raided and jailed in 2019. The fact that this store remained active after its supplier was jailed suggested that it could be an upstream player in the counterfeiting network. The Golf Group conducted an in-depth field investigation and test purchases, which confirmed that the store supplied multiple online sellers on various platforms. Surveillance of the local courier outlet led to a striking finding: the store had a shipping centre in Dongguan, Guangdong Province. Close monitoring of the shipping centre led the Golf Group to an assembling workshop in another town in Dongguan and an underground factory in Longhui, Hunan Province (over 500 miles away from Dongguan).

The action

Given that the intelligence gathered from the investigation delineated a full-blown supply chain of counterfeit golf products, the Golf Group filed a complaint with the Public Security Bureau (PSB) of Pudong District, Shanghai, as several buyers were offline golf shops in the city. The PSB monitored the online activities of the targets and soon identified another eight online shops (as shown below) that had been purchasing counterfeits from the underground factory, with a cumulative sales revenue far exceeding the criminal threshold.

Supply chain of the underground factory

On 2 June 2021 the Pudong PSB dispatched six squads of police officers to four different cities and raided 10 locations simultaneously. The manufacturer, the workshop owner and six online sellers were arrested. Thousands of counterfeit golf clubs and components were seized and confiscated.

Court decision

The verified sales revenue of the online sellers reached Rmb4 million ($630,000). All the arrested suspects were indicted before the Pudong District Court. The court held a series of public hearings and found all suspects guilty of the crime of counterfeiting a registered trademark or selling counterfeit products bearing a registered trademark. Principal Weiping Liu, owner of the online shops Xiuer Golf and Dingxing Golf, was sentenced to three-and-a-half years in jail and given a criminal fine of Rmb400,000.

Comment from brand owner

“We are happy to see that the Chinese police and the court took serious actions against online counterfeits during the pandemic”, said Sami Havens, legal counsel for trademark and brand protection at TaylorMade Golf, who added:

Counterfeiters have been taking advantage of this pandemic and become more rampant on the Internet. We have never stopped watching them, even during these difficult times, and we have been working with police in different countries to go after those online sellers aggressively. The criminal convictions definitely send a very strong message to the market that Golf Group has zero tolerance to counterfeit products and that we will keep cleaning the marketplace, both online and offline, to maintain the integrity of the game.

Takeaways

Below are the key takeaways from the success of the Golf Group:

1. Do not underestimate the significance of online monitoring programmes. Most online sellers are small individual sellers, who often use product pictures from the official websites of brand owners, with a low transaction volume. Parameters that may be used to identify valuable sellers include:

• a high transaction volume;
• the resurgence of its listings after takedown;
• the use of product pictures that are taken professionally, rather than from the brand owner’s official website; and
• the fact that a seller operates multiple stores on different online platforms.

2. The surveillance of local courier outlets could pinpoint the physical location of an online seller. The traditional approach of coaxing their physical address out through a test order or return of the merchandise no longer works well, as most online sellers are too cautious to divulge their real address. They either use a fake address or the address of a local courier outlet as a shipping/return address. The only way to find out the real physical location of an online seller is to monitor the local courier outlet and tail the shipper back to the premises of the online seller.

3. Brand owners should collaborate with the law enforcement authorities. Once a suspect has been identified, brand owners are advised to immediately file a complaint with the competent law enforcement authority (ideally the police) to monitor the activities of the suspect. Since the police lacks sufficient manpower to conduct field investigations and its resources are often stretched, brand owners could pitch in by hiring private investigators to conduct investigations based on the intelligence obtained from police surveillance. After scrutinising the leads generated from the private investigation, the police could formulate and execute elaborate raid actions.

4. Brands in the same industry could form an anti-counterfeiting alliance to fight the common enemy that erodes a significant market share and jeopardises the integrity of the entire industry. If major brands in the same industry could pool their resources together, they would make a concerted effort and punch well above their weight to reach objectives that would otherwise be impossible to achieve for a single brand. The golf industry is relatively small: the annual revenue of the biggest brand in the industry is no more than $1.5 billion. Since 2004, the Golf Group have been sharing resources and splitting the costs relating to online monitoring, investigations, enforcement actions, criminal prosecutions and civil lawsuits. It has been very successful in keeping counterfeits within an acceptable level in an effective and cost-efficient manner. This recent case is another example of the success of its long-term anti-counterfeiting programme.