The Perils of Using Chinese Contract Investigators (+AUDIO)

One of the essential strategies used by brand holders to acquire information about the promoters behind the counterfeiting of their IP is to seek out the assistance of reliable local contract investigators.

The application of this approach, however, appears to be particularly challenging in certain parts of China.

Systemic Fraud

According to an Associated Press investigative segment produced this past December, titled: “Fraud Helps China’s Fake Car Parts Reach US,” the problem for brand holders in developing information about the counterfeiters and their mode of operation, is the “…systemic fraud in China’s anti-counterfeiting industry.”

The AP segment highlights the pitfalls sited by a General Motors representative in China who attempted to use Chinese contract investigators.

Here are a few sample pitfalls:

• The investigators manufacture or sell counterfeit goods themselves
• Collude with counterfeiters they are supposed to expose
• Try to extort protection money from the counterfeiters
• Reveal inside brand information to counterfeiters by, in some instances, using that information to teach, “…counterfeiters how to make fakes indistinguishable from genuine items.”
• Fabricate information about alleged raids.

The result is western brands, “…waste money on anti-counterfeiting raids…and in some instances…unwittingly paid investigators who themselves manufactured or sold counterfeit goods…” [1]

There are, of course, a number of theories on why it is so challenging to identify trustworthy investigators, but the consensus seems to be that historically many areas of China just do not see the problem with counterfeiting, and in some localities (it has been reported) their economies substantially depend on the counterfeit trade.

Double Agents

But it goes beyond individual local investigators. According to a December 2016, report in The Guardian titled, “China Anti-Counterfeiting Agents Make Many of the Fakes Themselves,” some western companies have found it necessary to sue the local IP investigative companies they’ve retained because of the direct sale of counterfeit products, or, being in collusion with the counterfeiters.[2]

These local IP investigative companies (and investigators) are in effect acting as double agents.

Police Reaction

And according to The Guardian report, “Shanghai’s Public Security Bureau took the unusual step of warning foreign brand owners to be watchful of the investigators they hire. “We very much hope that brand owners will pay attention and devote more manpower and material resources to ensure that the fight against counterfeiting is healthy and orderly,” the bureau said in written response to questions from the AP.

The Solution

So, what is a brand owner to do?

The answer is that local contract investigators, and companies that purport to provide IP investigative services in China, need to be painstakingly vetted before they are retained. A significant investment must be made to the vetting process, otherwise, a brand owner is, in effect, creating opportunity and rewarding the criminals for counterfeiting their IP.

[1] https://www.youtube.com/watch?v=S0KhDejOWkg

[2] Chinese Anti-Counterfeiting Agents Make Many of the Fakes Themselves

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