2. Literature review
The subjects at stake here are counterfeit luxury goods and the political response to it wi-thin two specific regions: Taiwan and Hong Kong. Let us therefore examine the history of public policies towards luxury and counterfeit goods in Taiwan and Hong Kong.
Most research regarding luxury goods has been conducted in France by locals and publi-shed in French. It is a niche subject which has not yet been dealt with on a global scale. This is not surprising given we consider that most of the major luxury brands and the large luxury groups originated in France, or, as in the case of watchmaking brands, Switzerland. Unfortuna14 -tely, even these French-language studies are still relatively sparse, recent, and confidential. Our study is therefore all the more essential as it sheds light on these works and places them in context.
Even though the first publications date from the late 1970s, counterfeiting is still regarded as a rather young field of research. This is why counterfeiting research has not yet established itself as an autonomous research stream (Staake, Thiesse and Fleischean 2009). Instead, it is dis-tributed across different strands of management research, including strategic management, mar-keting, and logistics, and generally treated as pieces of economic and business research. There-fore, our literature review relies based on journals in the areas of management and economics.
Indeed, it is important to keep in mind that this topic of research has been poorly documented in political science, lending extra importance to this research. Because of our subject and our entry
The big names in watchmaking are most often stamped with Geneva and have their manufacturing workshops in Switzerland in the Joux Valley
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point to the field through our case study, we will concentrate first on defining the key concepts at stake, then we will go through the academic and legal frameworks already in place, and then ela-borate new strategies. Finally, we will connect to current issues of IPR enforcement in Asia and especially in China to explain our choices of Taiwan and Hong Kong for study.
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2.1. Luxury counterfeiting
Per published statistics, luxury goods are clearly commonly and frequently counterfeited.
In the following charts, the products under the headings "handbags/wallets", "Watches/15 Jewelry", "Wearing Apparel/Accessories", "Footwear" and "Labels/Tags", represent a major, if not the largest, share of affected products. If we go one level down, we find that leather goods, jewelry (including watches), fashionable apparel, and luxury are the types of luxury products that are most frequently found during seizures. In addition, they fall under the same type of legisla-tion: the trademark system because they belong to a mark which is, by itself, the origin of the will to copy. In the case of watches and jewelry, however, we should be cautious. Watches and fine jewelry are sometimes subject to patents in addition to their trademark protection. Even if the brand remains the main object of copy, some workshops also try to replicate manufacturing techniques. They therefore reproduce at lower cost with often lower-quality materials, mecha-nisms, tolerances, and stones – say, synthetic stones instead of their precious versions. However, in these cases, only a professional watchmaker by opening the watch, might see the difference.
Therefore, we have chosen examples of seizures that focus on fashion and leather goods which generally do not have these double trademark and patent protections.
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Figure 7: “Intellectual Property Rights & Wrongs: CBP Counterfeit Seizures,” Datamyne, April 21, 2014, accessed December
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Within the last century, much research explored the world of luxury, its perceptions, and consumers’ behaviors. However, fake luxury or the imitations of these luxury products is a new field, so the literature remains patchy and contributions are rather recent. Also, counterfeit luxury goods is usually taken separately when it comes to academic literature and the research fields.
Here again, it mostly concerns physical distribution channels, production, and supply-demand factors (Sharma and Chan 2017). A few studies also explore the effects on the brands themselves (Nia and Zaichkowsky 2000), but little work traces the counterstrategies. Here, we will not pro-vide a comprehensive and exhaustive review of what has been done, but shall define the main terms and concepts we will expand on later in Chapters 2 and 3.
First, luxury brands are defined as “those purchased by consumers more for their psycho-logical, hedonic and/or symbolic value, rather than because of their functional or economic va-lue" (Cesareo, Pastore and Williams 2017, 193). Jean-Noël Kapferer, one of the main scholars who worked on luxury, (Kapferer 2015, 228) points out that rather than being just about a pro-duct, people purchase luxury goods as a lifestyle. He explains that luxury brands have several characteristics: "an exceptional level of quality; rarity (both physical and virtual) and exclusivity;
scarcity (both real and artificial); symbolic power; ostentation and conspicuousness; history, heri-tage and tradition; high level of craftsmanship; and of course, high price.” The overall luxurious industry represents more than 1 trillion dollars and is significantly threatened by the trademark counterfeiting.
Figure 7
US IPR Enforcement seizures per type of products in 2012 and 2013 Source: Descartes Datamyne
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The classification from Grossman and Shapiro on deceptive and non-deceptive counterfeit also appears crucial in the case of luxury goods. Indeed, in many cases, the customer purchases a fake article fully aware of its illicit state. The customer wants to be part of the luxurious lifestyle even though he or she doesn't have the corresponding financial means or interest in spending the mo-ney demanded. Phau and Teah (Phau and Teah 2009) go even further explaining that this predo-minant phenomenon in luxury brand makes the customer a willing participant and an accomplice of the counterfeiters. As previously explained by Nia and Zaichkowsky (Nia and Zaichkowsky 2000), the consumers can clearly distinguish the fake from the original thanks to the price, distri-bution channel, and the inferior quality of the counterfeit itself. Going further, we agree with Gentry and al. (Gentry et al. 2001) in questioning this dichotomy of deceptive and non-decep-tive. In fact, more and more, the frontier between fake and original becomes porous and we can encounter a spectrum from extremely deceptive to extremely non-deceptive. Cesareo, Pastore and Williams elaborated and provided a comprehensive graph on this new scale. It seems very accurate to point out that nowadays the perception of the authenticity of an item is not as clear as it used to be. Again, the price, distribution channel, and the quality are all clues that seem ob-vious when buying. However, the proliferation legitimates channels for primary and secondary sales of luxury goods shows that we should not oversimplify the problem. Our objective here is not the full and comprehensive study of consumer behavior regarding luxury counterfeit, but more using luxury counterfeit as the object of our case study.
2.2. Defining illicit trade
As Thorsten Staake, Frédéric Thiesse, and Elgar Fleisch (Staake, Thiesse and Fleisch 2009) relate, most publications group piracy and the counterfeit trade together along with other forms of illicit trade. However, it seems undeniable that we should define distinct terms for a bet-ter understanding of the key concepts at stake here. As shown in the previous figure, illicit trade and intellectual property cover three very specific domains which do not necessarily cover the same kind of products: trademarks, copyrights, and patents.
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Understanding counterfeiting as "the infringement of intellectual property rights (IPR)"
and "therefore (being) a form of illicit trade," we will first try to differentiate "counterfeit tra16 -demark goods", from "pirated copyright goods" and "infringed patent goods". According to the
"Agreement on Trade-related Aspects on Intellectual Property Rights (TRIPS), counterfeit tra-demark goods "include(s) any goods bearing, without authorization, a tratra-demark which cannot be distinguished in its essential aspects from the trademark registered for such goods," while, according to the World Trade Organization, “ ‘pirated copyright goods’ refers to infringements 17 of copyright and related intellectual property rights” (Staake, Thiesse and Fleisch 2009). These two areas, however, very often overlap since one product is typically registered under both laws.
Finally, according to the WIPO definition a patent is "an exclusive right granted for an invention,
which is a product or a process that provides, in general, a new way of doing something, or offers a new technical solution to a problem. To get a patent, technical information about the invention must be disclosed to the public in a patent application." As previously mentioned, in our field, 18 this would mostly concern certain types of watches and jewelry. Therefore, these products will voluntarily be left aside. Let us then use the classification from Staake, Thiesse, and Fleisch to better clarify our area of interest.
Figure 8
Classification scheme of counterfeiting and related terms Source: from Staake, Thiesse and Fleisch
Quarles & Brady, “Anti-Counterfeiting and Brand Protection Strategies for China,” accessed December 12, 2020, https://fr.slideshare.net/Quar
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-les/anticounterfeiting-and-brand-protection-strategies-for-china.
“World Trade Organization - Home Page - Global Trade,” accessed June 4, 2020, https://www.wto.org/.
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This clarification clearly shows the path from illicit trade to IPR infringement to counterfeiting to finally, the physical goods at stake. Even though it is not our main point of focus, it seems rele-vant to add that deceptive counterfeiting stands for buyers purchasing fake articles without being fully aware of the intellectual property infringement; whereas non-deceptive counterfeiting de-picts customers who buy copies knowingly and and well-aware of the "illicit nature of the pro-duct" (Staake, Thiesse and Fleisch 2009). Most publications offer deep insight on patents and numerous significant inputs have been made in the area of copyright. However, and even though trademarks are mostly copied, the trademark protection domain seems still rather new and poorly documented. 19
Taking the founding texts dealing with counterfeits, it is clear that most of the informa-tion collected is descriptive rather than comprehensive. Analyses provide overview rather than examining the issue in greater detail. Moreover, and as previously mentioned, most studies focus on the production chains and supply-demand dynamics, ignoring entirely institutional response and counterstrategies.
Let us nonetheless use these sources to better define the concepts of imitations, wholesale
Figure 9
Breakdown by type of infringed right per seized articles Source: European commission, 2007
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piracy, and outright piracy (Kaikati and LaGarce 1980). The first publications emerge in the late 1970s with the works of Hansen (Hansen 1978, 69) which mostly describe the intentions of pur-chasing counterfeit articles. Later Kaikaiti and LaGarce (Kaikati and LaGarce 1980) defined the different forms of brand piracy, strategies to prevent counterfeiting and an outline of internatio-nal laws to protect trademarks. However, the article seems a bit outdated since it does not take into sufficient consideration the current capabilities of the counterfeit pirates. Grossman and Shapiro (Grossman and Shapiro 1988b) then discussed the price-demand curves of deceptive counterfeit products and genuine articles. They also characterized non-deceptive counterfeits as a slow gangrene on both the brand and the product. Later on, Nill and Shultz (Nill and Shultz 1996) explained the ethical decision-making and the moral reasoning behind the purchase inten-tions. Hilton (Hilton, Choi and Chen 2004), in 2004, came out with a very useful typology of counterfeiting that occurs in the clothing industry in addition to discussing the ethical bases of the Intellectual Property. Finally, a few years ago in 2006, Bosworth (Bosworth 2006) gave and studied statistical evidence on the counterfeit industry, its scope, causes and consequences.
From this general overview, we distinguish a few authors such as Kaikaiti and LaGarce, Hilton, and Borthworth who will be very useful for a general outline on counterfeit as they directly concern our subject. Again, these terms and ideas will be reviewed in our second chapter to give a deeper insight of the luxury counterfeits in the subject region.
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2.3. Legal issues and legislative concerns
IPR is undoubtedly the key field for any issue touching counterfeit goods and trademark protection. For the purposes of this analysis, we chose to only focus on the authors summing up the concepts that are relevant for us.
Globerman (Globerman 1988) briefly discusses the cost of trade protection. He recommends a policy approach that emphasizes the “private” efforts of brand owners to protect their products rather than strengthening retaliatory trade legislation. Taking a global perspective, Jain (Jain 1996) investigates the conflict between the industrialized and developing countries, which favor
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a high and a low level of protection, respectively. This highlights a preponderant element for our study: the relatively low levels of protection instituted in Hong Kong and Taiwan, especially as compared to industrialized peers. Because most globally-recognized luxury brands are from Western countries, they might expect the strong IPR protections of their home countries to have spread to other wealthy regions. However, because of the relocation of the production to lower-cost countries, among other reasons, they must now contend with the poor IPR protection these countries have and the attendant flood of counterfeits. Nevertheless, let's keep in mind that we cannot conflate Taiwan, Hong Kong, and China. The latter produces the goods whereas Taiwan and Hong Kong seem to be victims rather than the origin of the problem. Shultz and Nill (Shultz and Nill 2002) further elaborate on this issue by introducing a theoretical perspective to examine violations of IPR within the context of social dilemmas. Following the same logic, Javorcik (Ja-vorcik 2004) explores the relationship of the degree of enforcement of IPR on the composition of foreign direct investment. The data from these studies indicate that investors relying heavily on the protection of IP are deterred by weak IPR regimes are deterred from undertaking local pro-duction but encouraged instead to focus on distribution of imported products. This dynamic is present also in sectors that do not heavily rely on IPR protection. It is all the more curious that luxury brands invest so much in Asian regions, such as mainland China, which have apparently weak IPR protections.
This literature review highlights a crucial point in our project. Certain works examine the development of counterfeiting through the lens of differences in protective systems between the countries that create these brands and the countries that manufacture their products. Others point out the weaknesses of existing frameworks in producing countries and the distribution chains that follow. However, no one highlights problems that may arise from the interactions between protection regimes and the distribution chains that span across them. In other words, many au-thors examine specific elements, yet it seems that no one tried a more holistic approach. In this work, we will consider a combination of factors and weaknesses as stimulating to the counterfeit trade. Finally, and especially in light of the creation of multinational institutions like WIPO, al-though there is a trend towards more uniform applications of existing frameworks, these rules are
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only as strong as the mutual enforcement and coordination between the member states. In other words, what if the real problem was not only the existing framework or the countries producing counterfeits, but rather the lack of cooperation or complementarity between these frameworks?
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2.4. Possible alternative to avert counterfeit trade
Most researchers have focused on managerial countermeasures as possible improvements to thwart this illicit trade. Yet this places the onus on the firms and the companies rather than the governments. It may reflect industry demand for effective anti-counterfeiting strategies. Howe-ver, we believe this is but one part of the overall whole. We think that not only must companies make efforts, but so, too, should governmental organizations at various levels implement effi-cient strategies. Some of the existing reports have been ordered by big companies or brands by contracted IPR services or consulting agencies. It is therefore not surprising that these reports focus on company operations: they want to change and improve what can control. Nevertheless, their strategies have already made great strides and we believe that the current efforts should now target another level.
For instance, Michael Harvey (Harvey 1988) identified strategies that companies could or should use to combat counterfeit trade – hand-off, prosecution, withdrawal, and warning – but he does not elaborate at all on any public governance strategy. Chaudhry (Cesareo, Pastore and Williams 2017, 193) went further and addressed the questions of how managers can conceptualize the in-tellectual property environment, how such environments affect market entry decisions, what anti-counterfeiting strategies are frequently used, and how efficient each tactic is in the host country market. Following, Hung (Hung 2003) observes that not many companies are able to oppose counterfeit trade on a managerial and legal basis. He supports this with the example of the Chi-nese environment where the response strategies recommended in business literature only show limited effect. He concludes that foreign companies may have to wait until China becomes en-ough of a victim instead of a beneficiary of product counterfeiting before they can rely on better protection of their intellectual property. The idea is echoed in recent work by young scholars
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such as Aisha Farraj (Farraj 2015) in her article "The Third-Shift Problem in China: The First Step is Admitting You Have a Problem". This also shows how, slowly, beliefs are shifting: grea-ter attention is being paid to government works.
Other perspectives yield interesting insights. In particular, Olsen and Granzin (Olsen and Gran-zin 1992) investigate licit supply chain participants instead of brand owners with respect to ac-tions towards illicit trade. Their study is undoubtedly important when assessing the acceptance of anti-counterfeiting strategies, though it neglects the role of public institutions. As previously ex-plained, while the existing literature provides practical guidance for activities prior to and during production, recommendations are mainly based on observations of established practice and are only rarely directly derived from the characteristics of the counterfeit market or on state-level public decision making.
2.5. A lack in the sociological approach
Most scholars, such as Bloch, Bush, and Tom, divided counterfeiting research into the investigation of supply chains on the one side and the demand dynamics on the other. In both cases, the main analytic focus is on how production arises to meet expected consumer demand.
Clearly, the role of government policy and practice is omitted. The fact that most publications on the subject are mainly economic or business-related neglect a whole field to study: the strategies enacted by governmental organizations to tackle the issue. Indeed, there is an opportunity to ap-proach the problem from a different angle: what public policies are implemented by the govern-ments to eliminate fake goods? What about the evolution of law and jurisprudence in response to reality? What strategies have been deemed effective through available evidence, and where and
Clearly, the role of government policy and practice is omitted. The fact that most publications on the subject are mainly economic or business-related neglect a whole field to study: the strategies enacted by governmental organizations to tackle the issue. Indeed, there is an opportunity to ap-proach the problem from a different angle: what public policies are implemented by the govern-ments to eliminate fake goods? What about the evolution of law and jurisprudence in response to reality? What strategies have been deemed effective through available evidence, and where and